The U.S. anti-boycott laws under the Export Administration Act (EAA) and the Tax Reform Act (TRA) are administered and enforced by the Office of Anti-boycott Compliance (OAC), a subset of the Bureau of Industry and Security (BIS), and the Internal Revenue Service (IRS), respectively. The anti-boycott laws prohibit U.S. companies from participating in foreign boycotts that the U.S. has not sanctioned. In other words, U.S. companies cannot participate in foreign boycotts that the U.S. has not recognized, and supported. Even though anti-boycott laws apply to any foreign boycott that the U.S. has not sanctioned, OAC’s current focus is ensuring that companies are not participating in the Arab League boycott of Israel.
There are distinctions between the EAA and TRA in implementation. The TRA, unlike the EAA, does not prohibit certain conduct; instead it penalizes companies for certain boycott-related agreements in the form of denying tax benefits. EAA on the other hand, prohibits certain anti-boycott conduct, and therefore penalizes it accordingly.
Specifically, conduct that may either be penalized under the TRA, or prohibited and penalized under the EAA includes:
- Agreements to refuse, or actual refusal, to do business with, or in, Israel, or with blacklisted companies
- Agreements to discriminate, or actual discrimination against, other persons based on race, religion, sex, national origin or nationality
- Agreements to furnish, or actual furnishing of, information about business relationships with, or in, Israel, or with blacklisted companies
- Agreements to furnish, or actual furnishing of, information about the race, religion, sex, or national origin of another person
- Implementing letters of credit containing prohibited boycott terms of conditions
Furthermore, the EAA and TRA require companies to report any requests they have received to participate in unsanctioned foreign boycotts. EAA reports are filed via form BIS 621-P (single transactions), or BIS 6051P (multiple transactions received in the same calendar year). TRA reports are filed with tax returns on IRS Form 5713. Some recent reported boycott-related requests have come from Bahrain, Bangladesh, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, and Yemen.
So far in 2014, OAC has enacted proceedings against three companies: McWane International Sales Company (McWane), Electro-Motive Diesel, Inc. (EMD), and BWI Corporation (BWI).
- McWane had engaged in business transactions with parties located in the United Arab Emirates and Qatar. In these transactions, McWane allegedly and intentionally, furnished information concerning another person’s business relationships with other persons known, or believed to be restricted from having any business relationship with, or in, a boycotting country. However, the majority of the company’s violations stemmed from the company’s own failure to report the receipts of requests to participate in unsanctioned foreign boycotts. McWane entered into a settlement agreement and was ordered to pay $7,000 in penalties.
- EMD had engaged in business transactions with parties located in Bangladesh. All thirty-one of the alleged violations were due to the company’s failure to report the receipts of requests to participate in unsanctioned foreign boycotts. EMD entered into a settlement agreement and was issued a civil penalty of $26,350.
- BWI had engaged in business transactions with parties located in the United Arab Emirates and Oman. It was alleged, that in connection to these transactions, BWI, with intent, furnished information concerning its, or another person’s, business relationships with other persons known or believed to be restricted from having a business relationship with, or in a boycotting company. The other six violations were from a failure to report the receipts of requests to participate in unsanctioned foreign boycotts. Following a settlement agreement, BWI was ordered to pay $9,000.
There are steps that a company can take to protect themselves from being penalized under the anti-boycott laws. First, when doing business with foreign companies, U.S. companies should train their employees to read documents carefully, making sure that no provision involves them in an unsanctioned foreign boycott. These documents include emails, contracts, purchase orders, letters of credit, import documents, invoices, and shipping terms. Second, U.S. companies should be careful regarding what information they furnish to foreign companies. Third, U.S. companies should immediately report any requests for participation in unsanctioned foreign boycotts. In order to achieve this successfully, U.S. companies must have a procedure in place that ensures employees know what steps to take when they encounter boycott language. Most importantly, employees should know who to speak to about the issue so that it can be resolved in a timely manner (i.e., the legal department, the export compliance department, executive management, or the employee’s immediate manager). Finally, if a company realizes that it may have violated the anti-boycott laws, they should consider filing a voluntary self-disclosure (VSD) specifying the violation(s). A VSD significantly mitigates any resulting penalties. In sum, companies should conduct business with an understanding of the expansive reach of anti-boycott laws.
Zainab Khan, Law Clerk