The U.S. antiboycott provisions of the Export Administration Act prohibits U.S. firms from participating in foreign boycotts or embargoes not authorized by the U.S. government. Even though this law was primarily aimed at the Arab boycott against Israel, it prevents U.S. firms from being used to implement foreign policies of other nations that are inconsistent with or contrary to U.S. policy. The law requires companies to report boycott-related requests by other nations and imposes a range of sanctions in the event of violations. In July 2011, for example, Smith International Inc. of Houston, Texas, agreed to pay a $20,500 civil penalty to settle charges that it had violated the antiboycott provisions of the EAR. BIS alleged that during the period 2006-2008, the company violated the EAR in connection with transactions involving the sale of goods and services to Libya and the United Arab Republic. BIS charged that the firm violated the EAR by (a) its failure to report its receipt of nine requests to engage in a restrictive trade practice or boycott; (b) its agreement to refuse to do business with another person pursuant to a request from a boycotting country; (c) its furnishing of prohibited information in a statement certifying that no materials were of Israeli origin nor had Israeli content.
Scope of Coverage
1. Who Is Covered by the Laws?
The sources of U.S. antiboycott regulations can be found in the Export Administration Act (EAA) and its implementing regulation, the Export Administration Regulations (EAR), and in the Internal Revenue Code. The EAR applies to all “U.S. persons” (individuals and companies located in the United States). It also covers foreign subsidiaries that are controlled by a U.S. company through ownership or management. In such cases, the foreign affiliate is subject to the antiboycott laws and the U.S. parent will be held responsible for any noncompliance. The regulations cover the activities of individuals or companies related to the sale, purchase or transfer of goods or services within the United States or between the United States and a foreign country. This includes U.S. exports, imports, financing, forwarding, and shipping and certain other transactions that may take place outside the United States. To trigger the application of the antiboycott laws, the activity must involve U.S. commerce with foreign countries (EAR, part 760).
2. What Do the Laws Prohibit?
The laws cover several types of actions:
Refusals to do business: The law prohibits any U.S. person from refusing to do business (expressly or implicitly) with any person pursuant to a request from, agreement with, or requirement of a boycotting country. The use of a designated list of persons also constitutes a refusal to do business prohibited under the act.
Discriminatory Actions: The statute prohibits any U.S. person from discriminating against an individual (who is a U.S. person) on the basis of race, religion, gender, or national origin. It also prohibits similar action against a U.S. corporation on the basis of the race or religion of the owner, officer, director, or employee. Such prohibitions apply when the action is taken in order to comply with or to support an unsanctioned foreign boycott.
Furnishing information to a boycotting country: The statute prohibits the furnishing of information about any business relationship with or in a boycotted country or with blacklisted firms or persons. It also prohibits the actual furnishing of or agreements to furnish information about the race, religion, sex, or national origin of another U.S. person or any U.S. person’s association with any charitable organization that supports the boycotted country.
Implementing letters of credit with prohibited conditions or requirements: The statute also prohibits any U.S. person from implementing a letter of credit that contains a condition or requirement from a boycotting country. This includes issuing, honoring, paying, or confirming a letter of credit. The prohibition applies when a beneficiary is a U.S. person and the transaction involves the export of U.S. goods (i.e., shipment of U.S.-origin goods or goods from the United States).
Some exceptions to the prohibitions include the following:
- Compliance with import requirements of a boycotting country
- Compliance with unilateral and specific selections by buyers in a boycotting country
- Compliance with a boycotting country’s requirements regarding shipment and transshipment of exports
- Compliance with immigration, passport, visa, employment, and local requirements of a boycotting country.
3. Reporting Requirements
The regulations require U.S. persons to report quarterly to the U.S. Department of Commerce any requests they have received to take any action to comply with, further, or support an unsanctioned foreign boycott. The U.S. Treasury also requires taxpayers to report activities in or with a boycotting country and any requests to participate in a foreign boycott (see International Perspective 15.7).
4. Penalties for Noncompliance
The law provides both criminal and civil penalties for violations of the antiboycott statute. On the criminal side, a person who knowingly violates the regulations is subject to a fine of up to $50,000 or five times the value of the exports involved, whichever is greater. It may also include imprisonment of up to five years. In cases in which the violator has knowledge that the items will be used for the benefit of countries or persons to which exports are restricted for national security or foreign policy purposes, the criminal penalty varies. For individuals, a fine up to $250,000 and/or a prison term of up to ten years may be imposed. For firms, the penalty for each violation can be $1 million or up to five times the value of the exports involved, whichever is greater. Administrative or civil penalties may include any or all of the following: revocation of export licenses, denial of export privileges, exclusion from practice, and imposition of fines of up to $11,000 per violation or $100,000 if the violation involves items controlled for national security reasons. The Treasury Department may also deny all or part of the foreign tax benefits.
Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.