U.S. Companies Warned Not to Comply with Requests to Boycott Israel
February 2002
The U.S. Department of Commerce (DOC) recently published an alert for the U.S. trading community regarding an expected increase in requests from certain countries to comply with a boycott of Israel. U.S. export and tax laws contain antiboycott provisions that prohibit and penalize cooperation by U.S. businesses from honoring boycott requests.
U.S. Antiboycott Laws and Regulations
U.S. antiboycott laws, instituted as a reaction to the Arab boycott of Israel in 1976 by the "Ribicoff Amendment" to the Tax Reform Act (TRA) and in 1977 as amendments to the Export Administration Act, are intended to prevent the participation of U.S. citizens in other nation’s economic boycotts or embargoes that are not sanctioned by the United States. The following conduct may be penalized under the TRA and/or prohibited by the Export Administration Regulations (EAR):
- Agreements to refuse or the actual refusal to do business with or in Israel or with blacklisted companies
- Agreements to discriminate or the actual discrimination against other persons based on race, religion, sex, national origin or nationality
- Agreements to furnish or the actual furnishing of information about business relationships with or in Israel or with blacklisted companies
- Agreements to furnish or the 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 EAR and TRA, respectively, also impose reporting requirements relating to boycott requests from and operations in boycotting countries. Certain boycott requests must be reported to the DOC quarterly and relevant operations in boycotting countries (as identified by the U.S. Treasury Department) must be filed with the taxpayer’s tax return.
Recent Boycott Activity
The DOC alert resulted from indications that certain Arab states would increase their Israeli boycott activities following a meeting in October 2001 of the Arab League Boycott Office. The DOC Antiboycott Office had already documented an increase in reportable boycott requests in the fiscal year ending in September 2001. Corresponding enforcement actions by the DOC may also follow.
Countries from which recent reportable boycott requests and prohibited contract conditions have emanated include Bahrain, Bangladesh, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen. Reportable and prohibited conditions have appeared in various documents, including purchase orders, instructions to contract bidders, instructions in customs documents, letters of credit, requests for information in trademark application forms and documents required by freight forwarders.
Penalties for Subscribing to Boycotts
Civil or criminal penalties may be imposed for violations of the antiboycott rules under the EAR. Civil penalties for each violation of the EAR may include denial of export privileges, fines of up to $12,000 and/or exclusion from practice. Criminal penalties for each knowing violation may include fines of up to the greater of $50,000 or five times the value of the exports and imprisonment of up to five years. The TRA does not prohibit conduct, but it does deny certain tax benefits for engaging in specific boycott-related agreements.
McDermott Will & Emery has advised numerous clients with exporting interests in the Middle East and other areas regarding the scope of permissible contract language, commercial assurances, certificates of origin and other requirements imposed by foreign governments relating to prohibited boycotts.
