Compliance with U.S. Antiboycott Laws Critical in Foreign Transactions
International Trade & Customs Update
Date: October 13, 2016
While it often gets little attention, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) administers and enforces certain antiboycott laws outlined in the Export Administration Regulations (EAR). These laws discourage and, in some circumstances, prohibit U.S. companies from furthering or supporting the boycott of Israel sponsored by the Arab League and other countries. They also prohibit fulfilling certain requests for information designed to verify compliance with the boycott. The antiboycott laws were adopted to encourage, and in many cases require, U.S. companies to refuse to participate in foreign boycotts that the United States does not support. They have the effect of preventing U.S. companies from being used to implement other nations’ foreign policies that run counter to U.S. policy. When implementing corporate compliance programs and procedures, U.S. companies often give too little consideration to this aspect of their foreign transactions, which, if doing business in the Middle East, can have significant consequences.
On September 29, 2016, the BIS Office of Antiboycott Compliance (OAC) announced a settlement agreement with Coty Middle East FZCO (UAE) (CME), a foreign affiliate of Coty, Inc., a U.S. company, for violations of the EAR. Specifically, CME was charged with 70 violations of the EAR for participating in, or intending to comply with, an unsanctioned foreign boycott. BIS determined that CME violated the EAR between 2009 and 2013 when it engaged in transactions involving the sale and/or transfer of goods or services from the United States to Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia, Syria, United Arab Emirates (UAE) and Yemen.
CME furnished information to persons in these countries concerning business relationships with or in a boycotted country or with blacklisted persons. Under U.S. law, no U.S. person may furnish or knowingly agree to furnish information concerning his or any other person’s past, present or proposed business relationships with a country that supports a foreign boycott that is not supported by the U.S. government. In the 70 transactions at issue, CME provided certification on its invoices that the goods sold did “not contain any material of Israel origin.”
Although CME voluntarily disclosed the violations, BIS imposed a civil penalty of $238,000 that must be paid within 30 days from the date of the September 29 agreement. Failure to make this payment will result in BIS denying all of CME’s export privileges for one year. Under the settlement agreement, CME waived all available rights to further administrative recourses, and BIS agreed to not initiate any administrative or judicial proceedings or refer the matter to the Department of Justice for criminal proceedings.
This settlement is notable because the OAC often issues warning letters or civil penalties of several thousand dollars, rather than the hundreds of thousands of dollars in the Coty case. This settlement serves as a reminder to U.S. companies (and their foreign subsidiaries and affiliates) doing business in the Middle East that a robust trade compliance program must include educating and training their employees on compliance with U.S. antiboycott regulations.
Boycott-related requests can be difficult to recognize. Some are merely reportable to the U.S. government, while others are strictly prohibited under U.S. law. They may be written or verbal and do not have to be acted upon to require reporting to the U.S. government. Requests tend to arise in four areas during business transactions:
- The initial contact with the customer, where certain questions are asked to determine whether a company is compliant with boycott requirements.
- The drafting of a contract, purchase order or supply agreement, where the customer may attempt to establish boycott-related terms and requirements.
- At the time of importation, where the importing country requests boycott-related information.
- In letters of credit and/or invoices, where the customer may attempt to insert boycott-related requirements.
U.S. companies should review their corporate compliance policies and procedures to ensure that antiboycott compliance measures are included and that their relevant employees are provided the proper education and training.
FOR MORE INFORMATION
For more information on antiboycott compliance requirements, please contact:
Samir D. Varma
Scott E. Diamond
Senior Legislative & Regulatory Policy Advisor
Not licensed to practice law
or any member of our International Trade & Customs group.
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