If a U.S. company is persuaded by an overseas importer to provide a written statement that it has no business ties to Israel, that’s a violation of the federal government’s decades-old antiboycott regulations.
Antiboycott regulations prohibit U.S. persons from complying with certain requirements of unsanctioned boycotts. In addition, the regulations require that persons report the receipt of these boycott requests to the Commerce Department’s Bureau of Industry and Security.
The antiboycott regulations date back more than 40 years ago — namely to Congress’ 1977 amendments to the Export Administration Act (EAA) and the Ribicoff Amendment to the 1976 Tax Reform Act — and were aimed primarily at precluding U.S. participation in the Arab League’s boycott of Israel. However, they also apply to all boycotts imposed by foreign governments against countries that are friendly to the United States.
Although the laws have been on the books for decades and are generally well known by companies, especially those engaged in exports of goods and services to the Middle East, violations of the antiboycott regulations still occur.
In August, Citibank settled a $60,000 civil penalty with BIS over allegations that it provided information about business relationships with boycotted countries or blacklisted persons on 20 occasions between January 2012 and March 2016 for export transactions from the United States to Kuwait, Lebanon, Oman, Pakistan, Qatar and the United Arab Emirates.
Earlier this year, Mitsui Plastics of New York agreed to pay a $28,000 civil penalty with BIS that it illegally supplied information about business relationships with boycotted countries or blacklisted persons to a customer in Bahrain from December 2010 to April 2011 and for failure to report to the agency receipt of the request to engage in this restrictive practice.
Last year, eight companies were charged for failure to comply with U.S. antiboycott regulations.
Freight forwarders aren’t immune to these regulations. In August 2017, C. H. Robinson Freight Services Ltd. (formerly Phoenix International Freight Services Ltd.) was assessed a civil penalty of $37,000 for 10 violations of furnishing information about business relationships with boycotted countries or blacklisted persons for exports from the United States to the United Arab Emirates between June 2012 to July 2015. In addition, the company committed seven violations of the antiboycott regulations by failing to report to BIS requests to engage in this restrictive trade practice, which occurred between June 2012 and September 2014.
“Anyone who comes in contact with letters of credit, sight drafts or certificate of origin information — exporters, banks, forwarders and even packaging firms — have a hand in the compliance with our country’s antiboycott laws,” said Paul DiVecchio, president of Boston-based export compliance consultancy DiVecchio & Associates.
For the exporters, the corporate departments that will most likely come in contact with boycott requests are finance, order administration, sales and marketing, logistics and supply chain, and trade compliance, he said.
BIS has assessed civil penalties for antiboycott violations on about a dozen large and small forwarders during the past 10 years.
“Freight forwarders come into contact with these potential issues when dealing with orders that are generally destined to the Middle East region and a majority of the time we see requests or potential requests when letters of credit are being used in the transaction,” said Michael Ford, chief compliance officer at BDP International.
“While antiboycott regulations are neither new nor that exciting for most people, they are important at BDP,” Ford said.
BDP uses a combination of methods to bring the seriousness of complying with antiboycott regulations to its staff’s attention, including through its export control manual, which provides the corporate policy on how to handle these types of requests, as well as through online training modules.
Other firms assessed civil penalties by BIS for antiboycott regulation violations during 2017 included Great Lakes Dredge and Dock Co., Bank of America, Whirlpool Europe SrL (Italy), Whirlpool Corp., Oxyde Chemicals, Carrier Saudi Services Co. Ltd. (Saudi Arabia) and Pelco.
Enforcement agents from BIS’ Office of Antiboycott Compliance often encounter violations through company voluntary self-disclosures or when a party to the transaction, such as the bank, forwarder or exporter, files a boycott report to the agency, but one or both of the other parties fail to do the same.
The civil penalty amounts for antiboycott violations during 2017 were generally well below $100,000, with the exception of security and surveillance technology manufacturer Pelco, which was assessed a civil penalty of $162,000 based on the number of antiboycott violations — 32 for refusing to do business in support of an unsanctioned foreign boycott and 34 for failure to report the receipt of boycott requests to BIS.
While the penalty amounts may be viewed by some companies as simply a cost of doing business, BIS believes the negative publicity from posting the settlements on its website is usually enough to encourage most companies to stay compliant.
As required by the law, the agency also publishes its warning letters to companies with alleged antiboycott violations. These are the only types of warning letters that BIS makes public.
For example, Phillips Specialty Products Inc. of Bartlesville, Okla., received a warning letter from BIS on Sept. 29, 2017, that described the agency’s discovery of a shipping certificate affixed to a letter of credit that stated, “We hereby state that the carrying vessel is allowed to enter Libyan ports.”
BIS did not charge the company because it had voluntarily self-disclosed the violation, but warned, “You should, therefore, assure that Phillips Specialty Products Inc. strictly adheres to the regulations in all future transactions.”
U.S. companies still encounter unsanctioned boycott requests from Bahrain, Bangladesh, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen, with many consignees specifying that goods are not to be of Israeli origin or shipped through an Israeli port.
“Granted, some of the relationships among Israel and the members of the Arab League have changed since 1977, but I don’t think that undercuts the utility of the antiboycott regulations,” said Eric L. Hirschhorn, former undersecretary of commerce for industry and security and head of BIS, as well as a longtime legal scholar of U.S. export controls.
“For one thing, the rules continue to constitute an important statement about U.S. foreign policy, namely that we won’t allow U.S. persons to participate in foreign boycotts hostile to U.S. allies. Second, although relationships between Israel and some Arab League members are better than in 1977, and the Arab League no longer is monolithic in that regard, there still are members who maintain their hostility toward Israel,” he explained.
Hirschhorn does not expect BIS to diminish its focus on antiboycott compliance. “BIS is very busy these days, but my sense is that they’re continuing to direct a reasonable quantum of resources to the boycott program — ‘reasonable’ probably being less than at one time because there are fewer instances of requests for boycott participation these days,” he said.
DiVecchio said BIS’ Office of Antiboycott Compliance, under director Cathleen Ryan, “does a good job at covering what’s considered prohibited and what’s considered reportable.” He further complimented the office for its accessibility to companies with antiboycott compliance questions. “They will usually respond within 24 to 48 hours,” he said.
In addition to seminars about its antiboycott program, BIS offers detailed compliance information, including a multitude of examples and interpretations in Part 760 of the Export Administrations Regulations, on its website, as well as a telephone number, (202)482-2381, to speak with a duty officer.