Is this happening in your company? A customer places a large order, and as the final paperwork is being signed, someone notices that that the letter of credit specifies that “Under no circumstances may a bank listed in the Arab Israeli boycott blacklist be permitted to negotiate documents under this documentary credit.” After a tense couple of hours tracking down banking information, you are able to confirm that no banks listed on the blacklist are involved in the transaction. You breathe a sigh of relief, ship the order, and continue to develop your relationship with the customer (or at least not breach this contract!).
Then someone dusts off the export compliance manual and remembers: requests by customers that seek U.S. compliance with other nations’ economic boycotts or embargoes must be reported to federal officials. In not reporting the request, your company has violated U.S. laws enacted to counter these other nations’ boycotts. Because of that, you may be subject to criminal, civil, and/or administrative penalties from the U.S. government.
U.S. Anti-Boycott Overview
Since the mid-1970s, two laws have sought to counteract the participation of U.S. citizens in other nation’s economic boycotts and embargoes.1 These are commonly referred to as “anti-boycott” laws and their objective is to encourage—and sometimes require—U.S. companies to refuse participation in unsupported foreign boycotts. The unsupported foreign boycott for which the most requests are received is the Arab League boycott of Israel.
These laws apply to activities of U.S. persons in interstate or foreign commerce. “U.S. persons” includes: all individuals, corporations, and unincorporated associations resident in the United States; all U.S. citizens wherever located, except those residing abroad and employed by non-U.S. persons; and all controlled in-fact affiliates of domestic concerns (i.e., foreign entities for which U.S. affiliates establish general policies or control the day-to-day operations). This means that companies in the United States or controlled by U.S. affiliates are subject to the laws.
But We Chose the Banks Independent of the Request
On first blush, many people believe that because the boycott language in the order documentation did not cause them to make any changes to the transaction (e.g., change banks or products), their conduct does not constitute a violation. Unfortunately, that line of reasoning is not relevant to the application of the anti-boycott laws. The sample language used above (“Under no circumstances may a bank listed in the Arab Israeli boycott blacklist be permitted to negotiate documents under this documentary credit”) is an actual contract provision alleged to be a refusal to do business in violation of the anti-boycott laws.2 The anti-boycott laws prohibit and/or penalize the following:
- Agreements to refuse or actual refusal to do business with or in certain countries or blacklisted companies (i.e., Israel)
- Agreements to furnish or actually furnishing information about business relationships with certain or in certain countries or blacklisted countries
- Implementing letters of credit containing prohibited boycott terms or conditions
- Agreements to discriminate or actual discrimination against other persons based on race, religion, sex, national origin, or nationality
- Agreements to furnish or actually furnishing information about the race, religion, sex, or national origin of another person
- Furnishing or knowingly agreeing to furnish information concerning charitable or fraternal organizations that support a boycotted country
- Taking any other action with the intent to evade the anti-boycott regulations
There are some exceptions to these prohibitions. They are based on the recognition that individual countries have the sovereign right to trade (or refuse to trade) with other countries. For example, U.S. persons are permitted to:
- Comply with the import requirements of a boycotting country subject to other anti-boycott information provision restrictions;
- Comply with the shipping requirements dictated by the boycotting country (e.g., agree to perform under a contract where the boycotting-country purchaser dictates that a boycotted-country vessel or port not be used); and
- Comply with import and shipping documentation requirements of the boycotting country.
These exceptions are nuanced and any transaction should be reviewed in detail before proceeding. In particular, the last point allows U.S. persons to positively state the country of origin or country of carrier, but not to indicate that the goods are not from a boycotted country or that the vessel is not from a boycotted country.
The Department of Commerce also reviews export transaction documentation (such as the commercial invoices submitted with other paperwork to a freight forwarded) for terms that violate the anti-boycott laws. Its agents can and do issue warning letters and initiate investigations based on what they find in the documentation.
Criminal penalties of a fine of up to $1 million and 20 years imprisonment per violation can be imposed. Civil penalties of up to the greater of $250,000 per violation or twice the value of the transaction can be imposed. Additionally, administrative penalties of a general denial of export privileges and exclusion from practice can be imposed. Recently, York International Company was assessed a civil penalty of $140,850, and M-I Production Chemicals (ME) FZE, United Arab Emirates was assessed a civil penalty of $44,625 for violations.
The most important steps toward protecting your company are to ensure that there is a reliable reporting chain for potential anti-boycott requests received by your reporting companies, and that a compliance officer or other expert reviews the potential requests carefully. Requests can come from anywhere, but they are most likely to come from Bahrain, Egypt, India, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Malaysia, Nigeria, Oman, Pakistan, Qatar, Saudi Arabia, Syria, United Arab Emirates, and the Republic of Yemen.
The receipt of requests for the compliance with, furtherance of, or support of unsanctioned foreign boycotts should be reported quarterly to the U.S. Department of Commerce, Bureau of Industry and Security on form BIS 621-P or BIS-6051P, depending on volume. Customers from which you receive requests should be reviewed to confirm that the value of the relationship outweighs the potential risk for your company.