Freight Forwarder Settles Charge of Antiboycott Violation for Furnishing Negative Certification of Origin on Shipper’s Invoice

Most trade intermediaries are familiar with the antiboycott provisions contained in Part 760 of the Export Administration Regulations (EAR).  These regulations prohibit U.S. persons’ participation in or cooperation with the Arab League’s ongoing boycott of Israel.  Subpart (d) of Part 760.2 prohibits the furnishing of certain information about a U.S. person’s business relationships with boycotted countries such as Israel, or blacklisted persons or entities.  Specifically, the regulation states that no U.S. person may furnish information concerning his or any other person’s past, present or proposed business relationships (i) with or in a boycotted country; (ii) with any business organized under the law of a boycotted country; (iii) with any national or resident of a boycotted country; or (iv) with any other person who is known or believed to be restricted from having any business relationship with or in a boycotting country.

Manufacturers or shippers that provide a “negative certification” of origin run afoul of this regulation.  In certifying the origin of a good, it is permissible to state in positive terms that “this widget was made in Canada.”  It is impermissible to certify that “this widget contains no Israeli parts.”  Negative certifications are to be avoided, although there are certain narrow exceptions to this general rule applicable to shipping information.

What many freight forwarders do not realize is that, if a shipper itself violates this regulation and states on its invoice that its goods “contain no Israeli parts,” and the forwarder then tenders the invoice a consignee or foreign agent, the forwarder itself violates the regulations.  A recent example of this can be found in the June 21, 2010, settlement of administrative charges between Houston freight forwarder Plane Cargo, Inc. and the Bureau of Industry and Security’s Office of Antiboycott Compliance.  The transaction at issue was a shipment from the United States to Syria, and Plane Cargo furnished a shipper’s invoice that stated:

We hereby certify that the good described in this invoice are not of Israelian origin and there has no Israelian material been used to produce it.

Plane Cargo’s furnishing of the shipper’s negative certification on its invoice resulted in BIS charging it with one violation of the EAR.  The company entered into a settlement agreement with BIS whereby it agreed to pay a $5,200 civil penalty.  When one considers that a single violation can result in a penalty of $250,000 or twice the value of the transaction that is the basis of the violation, one could view the settlement as being favorable for the forwarder.

This is not the first instance where a forwarder has been charged with furnishing invoices that contain a prohibited negative certification.  For example, another Texas forwarder, Rohde & Liesenfeld, paid a $108,000 civil penalty to settle charges that, on thirty-six occasions from 2002 to 2003, it furnished invoices from a shipper that certified that “the goods enumerated in this Invoice are not of Israeli origin and do not contain any Israeli materials.”
The lesson to be learned is that, although forwarders do not create the invoices furnished in export transactions, they can pay a hefty price in penalties if their content runs afoul of the EAR’s antiboycott regulations.