One of the most basic components of export compliance is often one of the most overlooked: antiboycott regulations. The Export Administration Regulations (EAR) prohibit U.S. companies from acknowledging or complying with requests from foreign entities to boycott Israel and certain other countries.
Not only do these regulations prohibit U.S. companies from complying with these requests, in some circumstances they require companies to report these requests. The Department of Commerce’s Bureau of Industry and Security (BIS) strengthened its enforcement policy of the antiboycott regulations on Oct. 7, 2022.
Current Antiboycott Conduct
The Arab League boycott of Israel is the primary foreign boycott that U.S. exporters must pay attention to. According to BIS, many of the antiboycott requests come from the United Arab Emirates (UAE) and Malaysia.
In the past 10 years, the Office of Antiboycott Compliance (OAC) has issued penalties against more than 50 U.S. companies, banks or other entities. The OAC reports that some U.S. companies unwittingly violate these regulations because the antiboycott provisions are inserted into the fine print of a foreign purchase order or sales contract and are agreed to without notice.
You’ll find examples of some of the language foreign entities have used in the past to solicit antiboycott cooperation from U.S. companies on the OAC website.
The History of Antiboycott Regulations
In the mid 1970s, the United States adopted two laws intended to counteract the participation of U.S. citizens in other nations’ economic boycotts or embargoes. These antiboycott laws are the 1977 amendments to the Export Administration Act (EAA) and the Ribicoff Amendment to the 1976 Tax Reform Act (TRA).
Antiboycott compliance refers to the provisions found in Part 760, Restrictive Trade Practices or Boycotts, of the EAR. These laws discourage, and in some cases, “prohibit U.S. companies from furthering or supporting the boycott of Israel sponsored by the Arab League, and certain other countries, including complying with certain requests for information designed to verify compliance with the boycott.”
Antiboycott Provisions
Antiboycott provisions under the TRA and/or found in the EAR prohibit a variety of activities:
- 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.
The TRA does not actually prohibit any conduct, but it penalizes companies that participate in these agreements by denying them certain tax benefits. Needless to say, they are significant enough to make non-compliance expensive.
According to the OAC, these laws apply to “U.S. persons in the interstate or foreign commerce of the United States.” This includes all individuals, corporations and unincorporated associations resident in the U.S. including the permanent domestic affiliates of foreign concerns.
U.S. persons also include U.S. citizens abroad (except when they reside abroad and are employed by non-U.S. persons) and the controlled in fact affiliates of domestic concerns. The test for “controlled in fact” is the ability to establish the general policies or to control the day-to-day operations of the foreign affiliate.
Antiboycott Enforcement Enhancements
BIS says they have strengthened their enforcement against antiboycott violations in October 2022 in four ways:
- Increased penalties for violations. While BIS has relied on the maximum penalty allowed under the Anti-Boycott Act of 2018 for the most serious violations, it has increased penalties for what it considers Category B and Category C violations as well.
- Reprioritized its violation categories to reflect what the agency considers the most serious violations.
- Eliminated violation settlements that allow companies to pay a penalty without admitting misconduct. According to the BIS, “OAC will require those who enter into settlement agreements for antiboycott violations to admit to a statement of fact outlining their conduct as part of the settlement agreement.” This is consistent with BIS enforcement changes for other export regulation violations.
- Renewed focus on enforcement activities against foreign subsidiaries of U.S. companies.
For More Information
For more information about the antiboycott regulations, check out these additional resources:
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This article was first published in February 2016 and has been updated to include current information, links and formatting.
