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F ederal Re s e r v e Ba n k DALLAS, TEXAS of Dallas 75222 C i r c u l a r No. 75-185 December 15, 1975 A m e ric a n R e v o lu tio n B ic e n te n n ia l TO ALL MEMBER BANKS IN THE ELEVENTH FEDERAL RESERVE DISTRICT: T h e r e is quote d below th e te x t of a le tter d a te d December 12, 1975, from the Board of G o v e rn o rs of the Federal R e s e r v e System to the P r e s i d e n t s of all Federal R e s e r v e Banks: On November 20, 1975, th e P r e s i d e n t a n n o u n c e d a n u m b e r of actions in te n de d to p r o v i d e a c o m p r e h e n s iv e r e s p o n s e on the p a r t of the federal g o v e r n m e n t to a n y d is c r im in a tio n a g a i n s t A meric an c itizen s o r firms that might a r i s e from fo reig n boycott p r a c t i c e s . Two elements of the P r e s i d e n t 's a n n o u n c e m e n t re la te to the p o s s ib le invo lvement of commercial b a n k s in such p r a c tic e s : F i r s t , the P r e s i d e n t has d i r e c t e d the S e c r e t a r y of Commerce to amend r e g u la tio n s u n d e r the E x po rt A dm in istration Act to p r o h ib i t U .S . e x p o r t e r s a n d " re la te d s e r v i c e o r g a n iz a tio n s " from a n s w e r i n g or com p lyin g in a n y way with boycott r e q u e s t s th a t would c a u s e d is crim in a tio n a g a i n s t U . S . c itiz e n s or firms on the b a sis of r a c e , color, re lig io n , s ex , or national o r ig i n . T h e te rm " re la te d s e r v i c e o rg a n iz a t io n s " is de fined to inclu de b a n k s . A c c o r d i n g ly , b a n k s that become involved in a boycott r e q u e s t related to an e x p o r t tr a n s a c tio n from the U . S . will be r e q u i r e d to r e p o r t a n y s u c h involvement d ir e c t l y to the D epartm ent of Commerce. S econd, th e P r e s i d e n t has e n c o u r a g e d the Board of G o v e rn o rs a n d the o th e r federa l financial r e g u l a t o r y a g e n c ie s to is su e sta tem ents to financial in stitu tio n s w ithin t h e i r r e s p e c t i v e j u r i s d i c t i o n s e m p hasizin g th at d i s c r i m i n a t o r y b a n k in g p r a c t i c e s o r policies b a s e d upon race o r r e ligious belief of a n y c u s to m e r , s to c k h o l d e r , e m ployee, officer, o r d i r e c tor a r e incompatible with th e p u b lic s e r v i c e function of b a n k in g in stitutions in th is c o u n t r y . T h e Board of G o v e rn o rs s tr o n g ly s u p p o r t s the P r e s i d e n t 's statement in this r e g a r d . Banking is c le a r l y a b u s i n e s s affected with a p u b lic in t e r e s t . B anking institu tions o p e ra te u n d e r p u b lic f r a n c h i s e s , they enjoy a m e a s u re of g o v e rn m e nta l pro te c tion from competition, a n d th e y a r e the This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 r e c ip ie n ts of im portant g o v e r n m e n t b e n e f i t s . T he p a rtic ip a tio n of a U .S . b a n k , even p a s s i v e l y , in efforts by foreig n nationals to effect boycotts a g a i n s t o t h e r fo reig n c o u n tr ie s frie n d ly to the United S ta te s —p a r t i c u l a r l y w h e r e s u c h boycott efforts may c a u s e d is c r im in a tio n a g a i n s t United States c itizen s o r b u s i n e s s e s - - i s , in the B o a r d 's vie w , a m isu se of the p r iv i le g e s and benefits c o n f e r r e d upon b a n k in g in s titu tio n s. One specific a b u s e that has been called to the attention of the Board of G o v e rn o rs is the p r a c tic e of c e r ta i n U .S. b a n k s of p a rtic ip a tin g in the is s u a n c e of letters of c r e d i t contain in g p r o v is io n s in te nded to f u r t h e r a b o y cott a g a i n s t a fo reign c o u n t r y fr ie n d l y to the U . S . T he p ra c tic e a p p e a r s to have a r i s e n in commercial tra n s a c tio n s between U . S . e x p o r t e r s and fo r e ig n i m p o r te r s , in w hic h the im p o rter h a s a r r a n g e d for the is su a n c e of a b a n k letter of c r e d it as a means of making p aym ent to the e x p o rte r for the goods he has s h i p p e d . In some c as e s the importer has r e q u i r e d , as one of the conditions th at must be satisfied be fo re payment can be made by the U . S . ban k to the e x p o r t e r , th a t th e e x p o r t e r p ro v id e a c e r tificate atte stin g th at it is not c o n n ec te d in any way with a c o u n tr y or firm bein g boycotted by the im p o r te r 's home c o u n t r y , o r is o th e rw is e in compliance with the term s of s u c h a boycott. Su c h p ro v is io n s go well b e y on d the normal commercial conditions of letters of c r e d i t , a n d cannot be ju stifie d as a means of pro te c tin g the e x p o r te d goods from s e i z u r e by a b e llig e r e n t c o u n t r y . M oreo v er, by c re a tin g a d i s c r im in a to r y impact up on U . S . citiz ens o r firms who a r e not th e m s e lv e s the ob ject of the b o y cott s u c h p r o v is io n s may be h ig h ly ob jectio n ab le as a " s e c o n d a r y " boycott. While s u c h d i s c r im in a to r y c o n d ition s o rig i n a te with and a r e imposed at the d ire c tio n of the fo reig n im p o rter who a r r a n g e s for the letter of c r e d i t , U . S . b a n k s th a t a g r e e to h on o r su ch conditions may be vie w ed as g iv in g effect to, a n d t h e r e b y becoming p a r tic ip a n ts in, the boycott. T h e Board b e lie v es th a t even th is limited p a rtic ip a tio n by U . S . b a n k s in a boycott c o n tr a v e n e s the policy of th e United S ta te s , as a n n o u n c e d by the P r e s i d e n t a n d as set forth by C o n g re s s in the following d e c la ra tio n in the E x po rt A d m in istra tio n Act of 1969 (50 U . S . C . A p p . Section 2402 (5 )): It is the policy of th e United States (A) to oppose r e s t r i c tive tr a d e p r a c tic e s o r boycotts fo s te re d or imposed by foreig n c o u n tr ie s a g a i n s t o t h e r c o u n trie s fr ie n d l y to the United States, a n d (B) to e n c o u r a g e a n d r e q u e s t domestic c o n c e r n s e n g ag e d in the e x p o r t of a r t i c l e s , m a te ria ls , s u p p l i e s , or information to re fu s e to ta k e a n y action, in c lu d in g the f u r n i s h i n g of in fo r mation or the s ig n in g of a g r e e m e n t s , w hic h h a s the effect of - 3 - f u r t h e r i n g o r s u p p o r tin g the r e s tr ic tiv e t r a d e p r a c t i c e s or boycotts fo s te re d or imposed by any foreig n c o u n tr y a g a i n s t a n o th e r c o u n tr y fr ie n d l y to the United S ta te s . T h e Board also notes th a t the a g re e m e n t by a U . S . b ank to o b s e r v e su c h d i s c r im in a to r y conditions in a letter of c r e d i t may c o n stitu te a d ir e c t violation of the federal a n t i t r u s t laws o r of a p p lic a b le state a n t i boycott l a w s . You a r e r e q u e s te d to inform m em ber b a n k s in y o u r d i s t r i c t of the B o a r d 's vie ws on this m a tte r, a n d in p a r t i c u l a r , to e n c o u r a g e them to re fuse p a rtic ip a tio n in letters of c r e d i t th at embody conditions the e nforcem ent of w hic h may g iv e effect to a boycott a g a in s t a fr ie n d l y fo reign nation or may c a u s e d is c r im in a tio n a g a i n s t U . S . c itizens or firm s. If you have a ny q u e stio n s r e g a r d i n g this m a tte r, p le a s e conta ct th is B an k's Examination D epartment a t (214) 651-6274. S in c e re ly y o u r s , E r n e s t T . Baughman President