Most American companies who do business internationally know that U.S. law prohibits them from agreeing to participate in foreign boycotts that the U.S. does not sanction. Most also know that the law prohibits an American company from agreeing to language in a contract by which the company explicitly agrees not to do business with blacklisted companies. Most might even know that the law prohibits the American company from agreeing to discriminate based on race, religion, sex, national origin, or nationality.
Those are the easy cases. How can American business avoid a violation when the request is not that explicit, though? This article will address those situations in which the request is not as clear and provide some examples of recent requests that have been deemed violations by the Bureau of Industry and Security (BIS).
The antiboycott laws that apply to U.S. companies’ participation in international transactions are actually two laws: the 1977 amendments to the Export Administration Act (EAA) and the Ribicoff Amendment to the 1976 Tax Reform Act (TRA). There are distinctions between the two laws, the companies and individuals that are subject to them, and the penalties that may be levied for a violation. Those distinctions are, of course, important, but they are largely beyond the scope of this article. As always, consultation with counsel or the BIS is recommended when a company faces any request that may constitute a violation.
In general, however, the laws were adopted to encourage, and in some cases, require U.S. businesses to refuse to participate in foreign boycotts that the United States does not sanction. They also prevent U.S. businesses from being used to implement foreign policies of other nations which run counter to U.S. policy. The Arab League boycott of Israel is the principal foreign economic boycott that U.S. companies must avoid participation in. The antiboycott laws, however, apply to all boycotts imposed by foreign countries that are unsanctioned by the United States. The Department of Commerce implements the EAA and the Department of the Treasury implements the TRA.
According to the two laws, conduct that may be penalized under the TRA and/or prohibited under the EAR 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 or conditions.
Both laws contain reporting requirements and penalty provisions. The EAA requires a quarterly report of requests a person has received to comply with, support, or further an unsanctioned foreign boycott. Participation in the boycott or a failure to report a request to participate may subject the individual to criminal penalties as well as substantial civil penalties. The TRA requires a report of operations with a boycotting country and requests received to participate in an unsanctioned boycott. The Department of the Treasury publishes a quarterly list of boycotting countries. Violations of the TRA subject the individual to the denial of tax benefits received from exporting. Both Departments encourage voluntary reporting of violations.
Recognizing Requests to Participate
So how does a U.S. company know when it is being asked to participate in a foreign boycott? A look at some examples identified as violations by the BIS may help companies distinguish an innocuous from a reportable request.
If the counterparty explicitly excludes the use of Israeli goods, the violation is fairly clear. Examples of such conditions are:
“Goods of Israeli origin are not acceptable.”
“The Contractor shall comply in all respects with the requirements of the laws of the State of Bahrain relating to the boycott of Israel.”
“All shipments under this order shall comply with Israel Boycott Office Rules and Regulations.”
The request could come earlier in the transaction, however, before a contract is signed. For example, if asked by a potential counterparty, the following questions are probably reportable, even if the U.S. company does not sign a contract, because they are an attempt to impose the boycott:
“Do you have or ever have had a branch or main company, factory or assembly plant in Israel or have sold to an Israeli?”
“Do you have or ever have had general agencies or offices in Israel for your Middle Eastern or international operations?”
“Do you participate or ever participated or owned shares in an Israeli firm or business?”
Context matters though. A simple request to state the names or residences of a U.S. company’s owners might not constitute a violation. But if that request follows questions that specifically address the ownership of shares by Israeli nationals or if there are other indications that the residence only matters if it is in Israel, that simple request is not so simple.
Of course, the request or the requirement might not be in the contract but in shipping or finance documents. For example, the following requirements are also violations:
A bill of lading must state that “the vessel delivering the cargo is not on the ‘Black List’ and does not call at Israeli ports.”
A letter of credit requires a certificate of origin but “a certificate of origin covering goods originating in Israel is not acceptable.”
A letter of credit states, “On no conditions may a bank listed on the Arab Israeli Boycott list be permitted to negotiate this credit.”
Finally, certain requests ought to signal that some additional due diligence is required. For example:
A letter of credit requires a “Certificate issued by the shipping company or its agent testifying that the carrying vessel is allowed to enter the Lebanese port . . .” Such a request might seem innocuous on its face, but a simple search would reveal that Lebanon has blacklisted vessels that have called at Israeli ports.
As with all aspects of international business, U.S. companies need to exercise caution when reviewing documents that contain requests that could constitute violations of the antiboycott laws. Companies should consult with experienced counsel when addressing such requests. More information is also available from the website of the BIS.