antiboycott regulations export compliance

Antiboycott Reporting Requirement Often Overlooked By Exporters

antiboycott regulations export compliance

I got a call this morning from a good friend asking if a company can sign a statement that says that our company is not related to a company on any boycott blacklist. The answer is “no” and kudos to the company for paying attention and catching this at the risk of delaying or losing a sale.

Antiboycott compliance and reporting is often seen as a relic from the past, but I am raising it because it is alive and well and actually more complicated these days because those making such requests have gotten more sophisticated.

Your compliance obligations include a proactive requirement to report boycott requests to the U.S. government. The problem is that it is difficult to decipher “what” actually requires reporting.

Are your employees trained to spot a disguised boycott request such as a shipping line’s request for information regarding the name, flag, and nationality of the vessel and confirming that the vessel is permitted to enter Arab ports? The Department of Commerce (DOC) has determined this language to be a reportable condition in a letter of credit. Would your accounting department have caught this reportable boycott request?

The antiboycott laws were created in the mid-1970s as a deterrent against U.S. companies participating in boycotts that the U.S. government did not sanction, and in particular, in response to the Arab League boycott of Israel.

The laws were adopted as an amendment to the Export Administration Act (EAA) (implemented though the Export Administration Regulations (EAR)), 15 C.F.R. § 760 (2012), and the Ribicoff Amendment to the 1976 Tax Reform Act (TRA), I.R.C. §999. Unlike the EAR measures, the TRA amendments do not include prohibitions but instead penalize or deny tax benefits for certain types of boycott-related agreements. Below is an overview of the DOC’s EAR antiboycott prohibitions and reporting requirements.

The EAR amendments, enforced by the Office of Antiboycott Compliance (OAC) at the DOC’s Bureau of Industry and Security (BIS), apply to U.S. persons “in the interstate or foreign commerce of the United States.” U.S. persons include U.S. residents and nationals, businesses, foreign subsidiaries located in the U.S., and “controlled in fact” foreign subsidiaries of U.S. companies. The EAR creates a two-part system of regulating and overseeing antiboycott requests divided into prohibitions and reporting requirements.

Part 1, antiboycott prohibitions, forbids U.S persons from participating in five categories of prohibited activities:

  1. Refusing to or agreeing to refuse to do business with or in Israel or with a blacklisted company
  2. Discriminating or agreeing to discriminate against another because of race, religion, sex, national origin, or nationality
  3. Furnishing or agreeing to furnish information concerning another’s race, religion, sex, national origin, or nationality
  4. Furnishing or agreeing to furnish information concerning business relationships with blacklisted companies or with or in Israel
  5. Implementing letters of credit that include prohibited boycott terms or conditions

The U.S. does recognize that primary boycotts, where one country refuses to directly trade with another, are a sovereign right and legitimate tool of international trade and politics. However, the U.S. does not support one country’s attempt to dictate how a foreign company or individual may do business.

Secondary boycotts restrict business with “blacklisted” companies based on their business with the boycotted country while tertiary boycotts prohibit business with anyone who does business with the boycotted country. Therefore, the EAR antiboycott regulations are very complex and do include specific exceptions from the boycott prohibitions in cases of primary boycotts. These exemptions only allow U.S. persons to act within narrow constraints and authorize the supply of only limited and particular information in relation to foreign boycotts. A U.S. person can never refuse to do business with a boycotted country, resident, or national on an across-the board-basis. A refusal to do business does not have to be explicit; a pattern of conduct establishing a refusal is similarly prohibited.

export-control-red-flagsWhile an agreement to comply with the laws of a boycotting country is not generally prohibited, an agreement to comply with boycotting laws is. The difference lies in the agreement to comply with the boycotting laws specifically rather than simply all the laws of the boycotting country.

For instance, a contract term stating that a company will “comply with the laws of country A” is not prohibited; however, a contract stating that a company will “comply with the laws of boycotting country A including the boycott laws” is prohibited. This example illustrates how extremely narrow exceptions are and how slight changes in wording can be the difference between a prohibited action and a permissible one.

Similarly, a contract stating that a company will not conduct business with a blacklisted company is also prohibited. When furnishing information, similar nuances separate the fine line between which actions are authorized and which are not allowed. Acceptable requests must be framed in certain ways and limited in scope.

For example, U.S. persons can give certain affirmative nonexclusionary information such as country of origin, names of suppliers and manufacturers, destinations of exports, and affirm requests to ship on a specific route. However, providing negative information is generally not allowed (although exceptions apply).

This means that while you can say goods are U.S. origin, you cannot state that the goods will not be Israeli. Also, a company can be asked to use shipper X but cannot be asked not to use shipper Y and Z if the request is known to be boycott-based. These are only a few examples of the intricacies of the EAR antiboycott prohibitions so counsel should always review any requests or conditions before a company acts or agrees to act upon a boycott related request.

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About the Author

Doreen M. Edelman

Doreen-Edelman-Baker-Donelson-Bearman-Caldwell-&-Berkowitz Doreen M. Edelman is a shareholder at Baker, Donelson, Bearman, Caldwell & Berkowitz P.C. in Washington, D.C., where she helps clients create business solutions for international trade compliance. She has more than 20 years of experience developing compliance programs and counseling clients on export licensing, export controls, FCPA and Office of Foreign Assets Control (OFAC) sanction laws. Ms. Edelman also helps companies prepare global business plans and work through foreign government market regulations.