US Antiboycott Requirements Are Having a Moment

01.02.2024
exports
Manufacturing

The core of U.S. antiboycott requirements revolve around one key principle: preventing participation in foreign boycotts that are not endorsed by the United States. 

In recent years, U.S. antiboycott requirements have garnered increased attention due to increasing examples of enforcement. 

With the world’s eyes on the conflict in Israel and Palestine, new trade restrictions are being implemented and many U.S. companies are evaluating their business matters in the Middle East as a whole, including antiboycott requirements. 

Often lost among related trade restrictions like export controls, import duties and economic sanctions, antiboycott requirements may finally be having their day and manufacturers would do well to evaluate their state of compliance.

Antiboycott Laws: An Overview

As noted, antiboycott requirements exist to offset the effects of foreign boycotts that the U.S. does not support. 

The antiboycott requirements were created to address the Arab League’s boycott of Israel (and this certainly remains the primary boycott of interest), but the rules apply to any unsanctioned foreign boycott. 

To enforce antiboycott compliance, the U.S. government relies on two key authorities: the Export Administration Regulations and the Internal Revenue Code. 

Export Administration Regulations

The EAR, best known for regulating exports of commercial and dual-use items, includes specific antiboycott regulations in Part 760. 

The price for noncompliance can be steep, with civil fines over $300,000 per violation and possible criminal penalties of up to $1 million and/or 20 years in prison.

Activities that may be prohibited for U.S. persons under the EAR’s anti-boycott provisions include:

  • Refusals (or agreements to refuse) to do business with or in a boycotted country (e.g., in Israel or with an Israeli company) or with blacklisted companies (e.g., companies disfavored by a boycotting country)
  • Discrimination (or agreements to discriminate) against a U.S. person based on race, religion, sex, or national origin
  • Furnishing information (or agreements to furnish information) about business relationships with or in a boycotted country or with blacklisted companies.
  • Furnishing information (or agreements to furnish information) about the race, religion, sex, or national origin of a U.S. person
  • Implementation of letters of credit containing prohibited boycott terms or conditions
  • Taking actions with the intent to evade the antiboycott provisions of the EAR

If a company receives such a boycott request, it must generally report it to the Office of Antiboycott Compliance on a quarterly basis. 

Internal Revenue Code

U.S. persons are also subject to a separate set of antiboycott laws under the Internal Revenue Code, which require reporting to the Internal Revenue Service. 

Although the IRS provisions do not explicitly prohibit participation/agreement with boycotts, they eliminate certain tax benefits for entities that do participate.  

Taxpayers must disclose their participation or cooperation with an international boycott, and any requests they receive to participate. 

If the U.S. taxpayer has no such tax benefits, there is no “punishment”—but must still report it to the IRS. 

Failure to report may lead to criminal fines up to $25,000 and/or imprisonment for one year. 

The Department of the Treasury lists Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, and Yemen as countries requiring cooperation with an international boycott.

Office of Antiboycott Compliance

Further, manufacturers must be vigilant about boycott-related requests from countries outside the IRS list.

The Commerce Department’s OAC, with regard to its own set of boycott reporting regulations (EAR 15 CFR § 760.5), has indicated that reportable boycott requests can (and do) come from more countries than those named in the IRS list. 

OAC has no formal list of boycotting countries, but has shared recent examples of unlawful boycott terms from companies in Bahrain, Bangladesh, and Oman. 

Recent Enforcement Trends

In recent years, the Bureau of Industry and Security has taken a stricter approach to antiboycott enforcement. 

Recent developments have raised the stakes for U.S. companies:

  1. Tougher penalties. In October 2022, BIS announced its intent to seek higher penalties than before for all categories of EAR violations.
  2. New Reporting Requirements. In July 2023, BIS announced that reports must now identify the boycott requesting parties in addition to the countries from which the boycott requests originated.
  3. Voluntary Self Disclosure May Still Result in Penalties. All four antiboycott enforcement settlement agreements this year involved VSDs yet still resulted in penalties. While the majority of VSDs may result in no penalties, this shift in enforcement policy underscores the importance of compliance. 

U.S. antiboycott requirements are not an area that manufacturers should overlook. 

As enforcement efforts intensify, compliance with these antiboycott laws and regulations becomes paramount. 

With global interest in the state of Middle East affairs, manufacturers must be diligent about identifying (and reporting) boycott-related issues in their tenders, purchase orders and contracts.


Alfredo Fernández and Ian Leon, Shipman & Goodwin

About the authors: Alfredo Fernández is a partner at Shipman & Goodwin LLP, serving as the chair of the firm’s manufacturing team and practicing in the firm’s national environmental and international trade practices. Ian Leon is an associate in Shipman’s real estate, environmental, energy, and construction practice group.

For more information about Shipman’s manufacturing practice, please contact Alfredo Fernández (860.251.5353).

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