Federal Reserve Board to Tell Banks Not to Issue Letters of Credit to Conform to Arab Boycott Requir

The Federal Reserve Board is scheduled to issue a statement today requesting American banks not to issue letters of credit containing discriminatory clauses that conform to Arab boycott requirements, the American Jewish Committee has learned. The statement is an outcome of a meeting held here yesterday between Federal Reserve Board chairman Arthur F. Burns and three AJ Committee represen tatives–Seymour Samet, director of its domestic affairs department; Lester S. Hyman, a member of the domestic affairs commission; and Hyman Bookbinder, the AJ Committee’s Washington representative.

The statement, addressed to the presidents of all Federal Reserve Banks, notes that “the President has directed the Secretary of Commerce to amend regulations under the Export Administration Act to prohibit U.S. exporters and ‘related service organizations’ from answering or complying in any way with boycott requests that would cause discrimination against U.S. citizens or firms on the basis of race, color, religion, sex or national origin.”

It points out that “the term ‘related service organizations’ is defined to include banks, Accordingly, banks that become involved in a boycott request related to an export transaction from the U.S. will be required to report any such involvement directly to the Department of Commerce.”

The FRB’s statement further, notifies the bank presidents that the President has encouraged the Federal Reserve Bank and other federal regulatory agencies to inform financial institutions within their jurisdictions “that discriminatory banking practices or policies based upon race or religious belief of any customer, stockholder, employe, officer or director are incompatible with the public service function of banking institutions in this country.”

RULES OUT EVEN PASSIVE PARTICIPATION

The statement says that “The participation of a U.S. bank, even passively, in efforts by foreign nationals to effect boycotts against other foreign countries friendly to the United States–particularly where such boycott efforts may cause discrimination against United States citizens or businesses–is, in the Board’s view, a misuse of the privileges and benefits conferred upon banking institutions.

“One specific abuse that has been called to the attention of the Board of Governors is the practice of certain U.S. banks of participating in the issuance of letters of credit containing provisions intended to further a boycott against a foreign country friendly to the U.S.”

Such provisions “go well beyond the normal commercial conditions of letters of credit, and cannot be justified as a means of protecting the exported goods from seizure by a belligerent country,” the statement says. It adds that “While such discriminatory conditions originate with and are imposed at the direction of the foreign importer who arranges for the letter of credit, U.S. banks that agree to honor such conditions may be viewed as giving effect to, and thereby becoming participants in the boycott.

“The Board believes that even this limited participation by U.S. banks in a boycott contravenes the policy of the United States, as announced by the President and as set forth by Congress in the…Export Administration Act of 1969.”