Export Rule Sets a Booby Trap for Banks

By Moore, Jonathan R. | American Banker, October 5, 1992 | Go to article overview
Save to active project

Export Rule Sets a Booby Trap for Banks

Moore, Jonathan R., American Banker

When the Bush administration unveiled the details of regulations meant to discourage missile proliferation, the exporting community gave a collective groan.

Numerous categories of previously unregulated commodities were brought under "foreign policy" export controls. The only good news was that exporters would at least know which countries to avoid.

But if they do not avoid them, their bankers could be in for some bad news.

A bank that knowingly finances an export - perhaps even of seemingly innocuous goods - to a buyer involved in building missiles can now be held to have violated U.S. export control law if neither the bank nor the exporter obtained a Commerce Department export license.

New Categories of Control

Although dissolution of the former Soviet Union and the end of the cold war prompted a considerable liberalization of U.S. export controls imposed for national security reasons, the Saddam Husseins and Moammar Gadhafis of the world inspired the United States and its allies to regulate broad new categories of exports.

The new controls target nuclear weapons and missile proliferation, as well as chemical and biological warfare, under the rubric of the Enhanced Proliferation Control Initiative.

In certain product areas, the regulatory framework has been in place for some time. For example, President Bush announced in February 1991 that 39 chemical-weapon precursors would be subjected to new foreign policy export controls.

Although the framework for controls on missile proliferation was published shortly thereafter, interagency disputes delayed announcement of the specific countries that could be regulated until June, when the Commerce Department announced that missile projects in Brazil, China, India, Iran, North Korea, Pakistan, South Africa, and 14 Middle East countries would be controlled.

Buried in the rules, however, is a potential bombshell for banks.

In its zeal to insure that the missile proliferation controls are effective, the Commerce Department reaches the activities of U.S. persons who "knowingly support an export, reexport, and transfer" that lacks the required "validated license or other authorization."

"Support" is then defined to mean any action, including financing, by which an export is facilitated. Until June, these provisions were merely the subject of academic curiosity, With the announcement of newly controlled missile projects and countries, however, it has become clear that the rules could have far-reaching consequences for banks that finance exports.

Depending on how the rules are interpreted, banks might very easily wind up violating laws that carry severe criminal and civil penalties.

Letter-of-Credit Impact

A fundamental principle underlying letters of credit is that their terms and conditions are regarded as independent of the underlying transaction. Where, beneficiaries present the documents called for by a letter of credit, banks generally must honor it without further inquiry.

This fundamental premise is threatened by the export regulatory scheme.

Although the drafters of the rules sought comprehensive ancillary powers to aid in enforcement, the full ramifications of these regulations as applied to financial institutions have not been thought through. Taken literally, the new rules can operate much like presidential authority under the International Economic Emergency Powers Act, which has been used many times to freeze letters of credit and to block assets.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Export Rule Sets a Booby Trap for Banks


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?