Federal law and regulations prohibit any U.S. person or company from participating in or facilitating boycotts against nations friendly to the U.S. The rules under U.S. Trade Policy – which include sanctions, embargos, boycotts and antiboycott regulations – can be confusing, mysterious and sometimes inconsistent. Antiboycott rules ensnare unsuspecting companies that do not understand their complexity, nuance and scope. Every year, shipping companies, banks, and other U.S. companies and their non-US branches and affiliates are charged with violating the antiboycott rules, and enforcement promises to increase as the Commerce Department has significantly heightened its enforcement efforts.
In this Client Alert (“Alert”) we discuss antiboycott laws applicable to U.S. companies and their affiliates. We will summarize, at a practical level, two antiboycott regimes: (1) the export rules, which are found primarily in Part 760 of the Export Administration Regulations, and (2) the tax rules, found primarily in § 999 of the Internal Revenue Code of 1986 (“IRC”). This Alert is intended to help companies recognize potential problem areas and refer them to compliance officers, law department, or counsel.
Historically and to this day, the U.S. antiboycott rules have only been applied to the Arab League boycott of Israel. Accordingly, this Alert will focus on U.S. regulations applicable to that particular boycott.
Background: A manufacturer of synthetic reinforcement fibers participated in a 2019 trade show in Abu Dhabi, which was then a participant in the Arab League’s boycott of Israel. In shipping the products and items for display at the trade show, the manufacturing company furnished to its freight forwarder a commercial invoice/packing list certifying that the goods were not of Israeli origin and not manufactured by a company on the “Israeli Boycott Blacklist.” The manufacturer also failed to promptly report its receipt of the request to furnish this information from the trade show, as required by the EAR.
Corrective Action: The manufacturer subsequently and voluntarily disclosed its violative conduct to BIS, cooperated with the investigation by BIS’s Office of Antiboycott Compliance, and took remedial measures after discovering the conduct at issue, all of which resulted in a significant reduction in penalty.
The Penalty: The Department of Commerce’s Bureau of Industry and Security imposed a civil penalty on the manufacturer of $44,750.
The Arab League Boycott of Israel
The Arab League Boycott: 1945 – 2023
Even before the establishment of the State of Israel in 1948, the League of Arab Nations (an umbrella organization of 22 states or political entities established in 1944) instituted a trade boycott against Israel (in formation) and rejected Israel as a nation-state. For almost 80 years this boycott has been implemented in a patchwork of exceptions, frequent lapses, and declining numbers of participating Arab League members. In practice, Israel and numerous Arab League members have been engaged in economic and governmental relations for many years.
The Arab League boycott has been variously enforced through instruments such as customs legislation requiring strict certificates of origin, ship regulations, a blacklist of companies, and prison sentences for offending Arab League businessmen.
Following are the three levels of the Arab League boycott:
- Primary Level: Prohibition on importation of Israeli products or services by members of the Arab League, and Israeli businesses and individuals are barred from doing business with League members.
- Secondary Level: These boycotting nations prohibit trading with a company that has a business relationship with Israel.
- Tertiary Level: In its most extremist form, League members prohibit conducting business with a company that has a relationship with another company which in turn has a relationship with Israel.
U.S. regulation is intended to reach only secondary and tertiary boycotts.
The U.S. Response 1959 – 2023
The U.S. response to the Arab League’s boycott dates from 1959 and has addressed the boycott through various executive and legislative action.
On the export control side (administered by BIS), Congress has enacted various pieces of legislation prohibiting boycotting and requiring disclosure of boycott requests. The legislation makes it illegal for U.S. companies to cooperate with the Arab League boycott, and authorizes the imposition of civil and criminal penalties against U.S. violators. In 2018, permanent statutory export regulation was enacted in the form of The Antiboycott Act of 2018. The statute is administered by the Department of Commerce’s Bureau of Industry and Security (“BIS”), and it includes boycott prohibitions, obligations, and civil and criminal penalties, including incarceration.
The main export controls are included in Part 760 of the Export Administration Regulations (the “EAR”). In brief, the EAR (1) prohibit any U.S. person or company from cooperating or complying with an unsanctioned foreign boycott, and (2) require them to report boycott requests. Civil violation penalties can reach the greater of $300,000 or twice the value of the transaction. Criminal penalties include a fine of up to $1 million and a term of up to 20 years in prison. Companies may also lose export privileges.
On the tax side (administered by the IRS), the Ribicoff Amendment to the Tax Reform Act of 1976, added § 999 to the IRC. The tax provisions (1) deny various tax benefits normally available to exporters if they participate in the boycott and (2) require U.S. taxpayers to report operations in, with, or related to countries that the Department of the Treasury includes on its list of boycotting countries, or face criminal fines of up to $25,000 and imprisonment for up to 1 year.
Complex Regulations. The regulations are complex and highly technical, replete with exceptions. In this Alert, we do not discuss the nuances, such as “controlled in fact” subsidiaries; the difference between positive certificates of origin (generally permitted) and negative certificates (prohibited); or the fact that the BIS regulations have a “U.S. commerce” element while the IRS regulations do not. Nor are we discussing the numerous exceptions and fine distinctions. Rather, below we identify some of the common red flags for U.S. companies in complying with the regulations.
Obvious Requests and Opaque Inducements. Boycott participation requests and information solicitations include virtually any requirement to participate in or cooperate with a boycott. They come in many forms. The requests and solicitations can be direct and obvious in questionnaires, requests for information, purchase orders, tender invitations, contracts, shipping instructions, performance guarantees, and letters of credit. Or, they may be indirect, hidden and unanticipated in invoices, purchase confirmations, consular documents and visas, import clearance documents and registrations or renewals of trademarks and other intellectual property. Cooperation may also be found in email exchanges, inadvertent boilerplate clauses (e.g., compliance with local laws of the parties) of the US company’s standard terms and conditions, and verbal discussions. They may appear in the main text, or in a legend, directive or instruction. They may be verbal or written, express or implied, formal or informal, or may even be inferred from courses or patterns of conduct.
Direct and Indirect Places and Participants. Of the Arab League members, the most recent IRS list (which does not limit the boycotting jurisdictions encompassed by BIS regulations) has particularly identified Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria and Yemen. Obviously, if a U.S. company has branches, subsidiaries, “controlled in fact” non-US subsidiaries, distributors or customers in the Arab League (and despite the inconsistent and patchwork participation by Arab League members), it is likely well-acquainted with the antiboycott rules, tips and tricks. Boycott participation, however, can also be requested or opaquely induced by supply chain intermediaries located outside the Arab League member jurisdictions, such as in EU or UK jurisdictions.
Antiboycott Component of Risk Management Programs. All risk management programs for businesses of any size customarily include the following elements:
- Management Commitment
- Risk Assessment
- Supply Chain (import/export) KYC: Verification/Due Diligence/Monitoring/Management
- Reporting Performance and
- Handling violations and taking corrective actions
Antiboycott compliance should be added to the larger risk management program of U.S. companies. The most important factor will be the “Know Your Customer” analysis of a company’s supply chain, including Middle Eastern and North African divisions, subsidiaries, “controlled in fact” subsidiaries, unrelated intermediate parties and customers. If any of those locations is an Arab League member jurisdiction, a company will obviously have elevated risk.
In any event and for all business transactions (but especially those involving the Middle East and North Africa), companies should be looking for red flags, key words and phrases, including those listed below.
Commerce Department (BIS) Red Flags
The following BIS red flags (not all inclusive) should alert you to a potential boycott-related request in a conversation or document.
The relevant documents, other documents or conversations request or opaquely induce your company, its affiliates or your supply chain:
- To refuse to do business with or in Israel, with any business concern organized under the laws of Israel, with any national or resident of Israel or with any other person pursuant to an agreement with a boycotter or a requirement of a boycotter or a request from or on behalf of a boycotter.
- To refuse or cause others to refuse to employ or otherwise discriminate against any U.S. individual corporation or other organization on the basis of race, religion, sex, or national origin;
- To furnish or agree to furnish information about the race, religion, sex, or national origin of any US individual (including any owner, officer, director, or employee of any corporation or other organization).
- To furnish or agree to furnish information concerning your or any other person’s past, present or proposed business relationships with or in Israel, with any business concern organized under the laws of Israel, with any national or resident of Israel or with any other person who is known or believed to be restricted from having any business relationship with or in a boycotter.
- To furnish or agree to furnish information about whether any person is a member of, has made contributions to, or is otherwise associated with or involved in the activities of any charitable or fraternal organization which supports Israel.
- To pay, honor, confirm, or otherwise implement a letter of credit which contains a boycott condition.
Treasury Department (IRS) Red Flags
The following IRS red flags (not all inclusive) should alert you to a potential boycott-related request in a conversation or document.
The relevant documents, other documents or conversations request or opaquely induce your company, its affiliates or your supply chain:
- To refrain from doing business with or in Israel or with the government, companies, or nationals of Israel;
- To refrain from doing business with any United States person engaged in trade in Israel or with the government, companies, or nationals of Israel;
- To refrain from doing business with any company whose ownership or management is made up, all or in part, of individuals of a particular nationality, race, or religion;
- To remove (or refrain from selecting) corporate directors who are individuals of a particular nationality, race, or religion;
- To refrain from employing individuals of a particular nationality, race, or religion;
- To refrain from shipping or insuring on a carrier owned, leased, or operated by a person who does not participate in or cooperate with an international boycott.
Key Words and Phrases
The following key words and phrases (not all inclusive) should alert you to a potential boycott-related request in a conversation or document.
- Any reference to “Israel.”
- Any reference to “blacklisted” companies, persons, or vessels.
- Any reference to the “eligibility” of the transporting vessel to enter the destination country’s ports.
- Any requirement to “comply” with the host country’s laws.
- Any requirement to use “qualified” insurer local representatives or agents.
- Any request for the “place of birth” or “nationality” of or other personal information about an employee, an employee’s parents, or a supplier.
- Any requirement to certify the “origin of the goods.”
- Any requirement that a supplier retain the “risk of loss” of goods until after their entry into the destination country.
- Any requirement to furnish information concerning business relationships with particular countries or companies.
U.S. antiboycott compliance should become a part of the overall compliance program of any U.S. business – from management commitment through remediation. Before responding to or accepting any direct request, statement, legend or other hidden inducement, these documents or communications should be carefully examined and considered. Although a handful of boycott-related requests are permissible and the problematic language might be negotiated out of the applicable documents (which we have not covered in this Alert), in general all boycott-related requests should be timely reported.
This memorandum is a summary for general information and discussion only. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. The views expressed in this newsletter are the views of the author except as otherwise noted. If you have questions, please contact C. Russel Hansen Jr. (firstname.lastname@example.org; 617-456-8036)
 The Arab League members are Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, the Palestinian Authority, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, the United Arab Emirates, and Yemen.