U.S. Congress Seeks to Expand Antiboycott Laws While the Qatar Boycott Raises Compliance Concerns

U.S. antiboycott laws and regulations prohibit U.S. persons from participating in other nations’ economic boycotts that are not sanctioned by the United States (the “Antiboycott Laws”). While U.S. companies are principally concerned with the Arab League boycott of Israel, the Antiboycott Laws apply to all foreign boycotts in which the United States does not participate.

Among other things, the Antiboycott Laws prohibit U.S. companies, their foreign affiliates and U.S. individuals from complying with requests for information designed to verify compliance with a foreign boycott.  They also prohibit implementing letters of credit containing prohibited boycott terms or conditions.  The U.S. Department of Commerce (“Commerce”), through the Bureau of Industry and Security (“BIS”) Office of Antiboycott Compliance, enforces the Commerce antiboycott regulations.  The U.S. Department of Treasury (“Treasury”) administers antiboycott measures that are codified in the Internal Revenue Code and that penalize U.S. taxpayers for participating in or cooperating with unsanctioned foreign boycotts.  The Commerce antiboycott regulations, unlike those administered by the Treasury, may impose both criminal and civil penalties for violations of these regulations.  Compare 50 U.S.C. § 1705 with 26 U.S.C. § 999.

On March 23, 2017, Senator Ben Cardin (D-MD) sought to strengthen these prohibitions through introduction of the “Israel Anti-Boycott Act.”  See S. 720, 115th Cong. (2017).  The House of Representatives introduced a similar measure the same day.  See H.R. 1697, 115th Cong. (2017).  The Israel Anti-Boycott Act seeks to amend and expand the current Antiboycott Laws in several respects that are important for global compliance considerations.

The Israel Anti-Boycott Act would expand existing Antiboycott Laws—only with respect to Israel—to apply antiboycott prohibitions to boycotts sponsored by international organizations, such as the United Nations and the European Union.  The act would prohibit U.S. persons from responding to boycott requests from international governmental organizations, if those requests concern Israel.  The Israel Anti-Boycott Act does not apply to other unsanctioned foreign boycotts.  In addition, the act would prohibit support for boycotts against Israeli settlements in the West Bank and the Gaza Strip.

Violators of the Israel Anti-Boycott Act would face a minimum civil penalty of $250,000 and/or criminal penalties of up to a maximum of $1 million and 20 years imprisonment.  These are the current penalty levels for violations of the Antiboycott Laws under the International Emergency Economics Powers Act (“IEEPA”).[1]

Currently, 46 U.S. Senators (32 Republicans and 14 Democrats) and 249 U.S. Representatives (185 Republicans and 64 Democrats) co-sponsor the Israel Anti-Boycott Act bills.  The bills, however, have recently drawn criticism from the American Civil Liberties Union (“ACLU”), which sent a letter to all U.S. Senators encouraging them to oppose and refrain from co-sponsoring the legislation due to First Amendment concerns.  Senator Cardin and several other co-sponsors have stated that they are open to amending the bill to address the ACLU’s concerns.

Antiboycott compliance is important for U.S. companies engaged in commerce in the Middle East as well as certain other markets.  Personnel dealing with customers and vendors should receive compliance training to identify potential foreign boycott-related requests and understand how to deal with requests.  Training can assist companies in complying with the potentially broad reaching Antiboycott Laws and reduce the risks of potential violations.  If Congress should pass the Israel Anti-Boycott Act, that will underscore the need for a robust antiboycott compliance program.

More recently, there is a question as to whether the multi-state Saudi-led blockade of Qatar that began on June 5, 2017[2] implicates Antiboycott Laws.  The Antiboycott Compliance Office has stated that the U.S. administration reportedly views the Saudi-led coalition’s conduct as a severing of diplomatic ties that does not rise to the level of a boycott, even while the Saudi-led group refers to it as a “boycott.”

U.S. legal requirements per the Antiboycott Laws apply to any unsanctioned foreign boycott. This means that – as a matter of law – compliance with requests to support the Saudi-led boycott could trigger reporting requirements.  Strict legal compliance with Antiboycott Law requirements is not dependent on whether the administration will enforce the law in a particular matter.  When queried by banks or other third parties about trade compliance, it may be that participation in the Saudi-led boycott could present issues for companies that do not address this in a conservative compliant manner.

The International Trade team at Holland & Hart is well equipped to answer questions about current and proposed antiboycott regulations and how these regulations may affect your international operations.  Our team will provide updates on the Israel Anti-Boycott Act and the multi-state blockade of Qatar as these situations develop.

[1] The Export Administration Act previously provided authority for antiboycott regulations.  The EAA is in lapse, but the regulations have been carried forward under authority from IEEPA.

[2] Saudi Arabia, Bahrain, Egypt and the United Arab Emirates cut off diplomatic relations with Qatar in June 2017.  The severing of relations included withdrawing ambassadors and imposing trade and travel bans.

Clarissa Collier
Lizbeth Rodriguez-Johnson
Triplett (Trip) Mackintosh