Tucked away between the many export-focused provisions of the Export Administration Regulations ("EAR") is the easily overlooked Part 760, which addresses "Restrictive Trade Practices or Boycotts." It is comprised of (1) prohibitions on intentionally complying with, furthering, or supporting a foreign country's boycott directed against countries friendly to the United States or against any U.S. person, and (2) reporting requirements. Like the rest of the EAR, Part 760 is enforced by the Department of Commerce's Bureau of Industry and Security ("BIS").
The federal government maintains an additional set of antiboycott requirements, which are found in the tax code at 26 U.S.C. § 999 and are enforced by the Internal Revenue Service ("IRS"). The tax code version, instead of applying an outright prohibition, imposes a loss of tax benefits as a result of participating in or cooperating with an international boycott. This tax statute, which also includes a reporting requirement, is backed by the threat of a fine of up to $25,000, imprisonment of up to a year, or both.
There are similarities between the antiboycott provisions of the EAR and the tax code, but also significant differences. (The BIS Office of Antiboycott Compliance ("OAC") created a helpful chart illustrating this, though it is not exhaustive.) The key similarity is that both are intended to dissuade cooperation with foreign governments' economic boycotts in which the United States does not participate, such as the Arab League's boycott of Israel. However, the EAR's provisions have comparatively greater reach, more significant prohibitions, and the potential for greater enforcement penalties than the antiboycott portion of the tax code. Unless specified otherwise, the discussion that follows addresses the EAR's provisions.
Overview of Part 760's Antiboycott Requirements
The EAR's antiboycott requirements have existed, with some modifications, since the 1970s, but did not have permanent statutory authorization until the Antiboycott Act of 2018 (Pub. L. 115-232 §§ 1771 et seq.). Part 760 currently is comprised of one reporting requirement, five sub-parts, six prohibitions, 17 interpretive supplements, and scores of illustrative examples. The critical elements of each prohibition are that the actions at issue are prohibited (a) "only when such activities are undertaken with the intent to comply with, further, or support an unsanctioned foreign boycott" (the wording varies slightly for some prohibitions), and (b) they must be activities in the "interstate or foreign commerce of the United States" ("U.S. commerce"). The regulations spell out the scope of each prohibition and provide explanations to help clarify that scope, including non-exhaustive examples of covered conduct.
Some exporters may never encounter a scenario that falls within the purview of Part 760, while others encounter them regularly. The former can be at greatest risk of violating Part 760 because the requisite diligence cannot be easily accomplished through a standard export compliance process of screening parties and checking export license requirements against a control list and country lists. While screening is still relevant, antiboycott due diligence primarily requires careful review of documents (and verbal communications) from customers, shippers, and other parties in a fulfillment chain to confirm that nothing contains a boycott request. If a request is identified, further review is necessary to determine whether the request triggers a reporting requirement or whether it triggers both a reporting requirement and a prohibition against proceeding with the transaction. The secondary part of antiboycott diligence involves confirming that no activity engaged in—either in anticipation of or in response to a boycott request—involves complying with, furthering, or supporting an unsanctioned boycott.
Key Terms and Definitions
The antiboycott regulations have distinct definitions of certain key terms but do not define some terms that are pervasive in Part 760. For example, neither Part 760 nor the rest of the EAR defines the terms "boycotting country" or "boycotted country." The terms are not tied to a country list, which means the EAR's requirements could be triggered by foreign boycotts other than the Arab League's. Interpretative supplements clarify that certain requests involving Egypt, Jordan, and the United Arab Emirates are currently presumed not to be boycott-related due to those countries' termination of their boycotts against Israel, but the supplements do not name all boycotting countries or itemize every possible type of boycott request. (In contrast, the IRS requirement is tied to a list of countries, published quarterly, that the Department of the Treasury deems to require boycott cooperation. The most recent list names Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, and Yemen.)
A "United States Person" is defined to include any person who is a U.S. resident or national, including individuals, domestic concerns (not limited to companies, associations, and other entities organized under U.S. federal, state, local, and/or territorial laws), and "controlled-in-fact" foreign subsidiaries, affiliates, or other permanent foreign establishments of domestic concerns. It also includes a foreign concern's subsidiary, partnership, affiliate, branch, office, or other permanent establishment in the United States (including in U.S. territories and possessions). The reach of this definition to "controlled-in-fact" foreign operations is a common cause of antiboycott compliance violations.
A foreign subsidiary is "controlled-in-fact" by a domestic concern when the latter has the authority or ability to establish the foreign entity's general policies or control its day-to-day operations. A foreign entity is presumed to be "controlled-in-fact" in a variety of scenarios, such as where the domestic concern has direct or indirect beneficial ownership or control of 25 percent or more of the foreign entity's outstanding voting securities and no one else owns an equal or larger percentage, or the domestic concern is able to appoint the foreign entity's chief operating officer. A foreign branch office or other unincorporated permanent foreign establishment of a domestic concern is always deemed to be "controlled-in-fact" by the latter.
Activities in U.S. commerce include ones that are fairly obvious and others that are less so. In general, if an activity involves goods or services (including information) purchased from, sold to, or otherwise transferred to or from a person in the United States, the activity is in U.S. commerce. This includes imports to and exports from the United States. It can also include a variety of transactions where a foreign third party purchases goods from an unrelated, controlled-in-fact foreign subsidiary—such as when the latter had previously exported goods or services from the United States in anticipation of receiving that order. (Part 760 spells out a variety of activities that are and are not in U.S. commerce, with examples.)
The regulations specify that intent "means the reason or purpose for one's behavior," provable by circumstantial evidence. Intent does not require that the acting party agree with the boycott or desire its success or that it be supported. Circumstantial evidence of intent includes responding to a request knowing the request was made for boycott purposes. So long as the requisite intent is present, the action is subject to the prohibitions even if there are other overarching legitimate business reasons to engage in the prohibited conduct.
The Six Prohibitions
- Prohibition Against Refusals To Do Business: Prohibits refusing or agreeing to refuse to do business in or with a boycotted country or entity or resident of a boycotted country. This prohibition extends to requiring any third party to refuse or agree to refuse to do the same. A violation can occur even without a written agreement or specific request.
Example (prohibited conduct): A U.S.-incorporated establishment of a foreign airline, with the intent to comply with the parent country's boycott, refuses to accept individuals who hold Israeli passports as passengers on flights between the United States and the United Kingdom; the basis for the refusal is the issuing country of the passports. See Case No. 19-04.
- Prohibition Against Taking Discriminatory Actions: Prohibits (i) refusing or agreeing to refuse to employ, or otherwise discriminating against, a U.S. person on the basis of race, religion, sex, or national origin; or (ii) discriminating against any corporation or organization that meets the definition of a U.S. person on the basis of the race, religion, sex, or national origin of any one of that entity's owners, officers, directors, or employees.
Example (prohibited conduct): A U.S.-incorporated business agrees to a contract for a government construction project in a Middle Eastern country; the contract includes a clause that "no persons of country X origin" are allowed to work on the project.
Example (permissible conduct): Instead of prohibiting individuals on the basis of national origin, the contract includes a clause that "no persons who are citizens, residents, or nationals of country X" are allowed to work on the project.
The second prohibition against taking discriminatory actions, by its terms, prohibits boycott-based agreements to refuse to employ or otherwise discriminate against a U.S. person based on that person's national origin, and the first example is within the prohibition. However, the second prohibition does not extend to restrictions based on citizenship, nationality, or residency, which is why the second example is not a violation of the second prohibition.[1] See 15 C.F.R. § 760.2(b) (Examples ii and iii).
- Prohibition Against Furnishing Information About Race, Religion, Sex, or National Origin: Adding to the discrimination provisions, a U.S. person may not furnish or agree to furnish information about the race, religion, sex, or national origin of any U.S. person, or of any owner, officer, director, or employee of a corporation or organization that meets the definition of a U.S. person.
Example (prohibited conduct): The construction contractor from the previous examples responds to a boycott questionnaire with information about the religion and/or national origin of its senior officers and managers (providing the information is a direct violation of the third prohibition) See 15 C.F.R. § 760.2(c) (Examples i and v).
- Prohibition Against Furnishing Information About Business Relationships With Boycotted Countries or Blacklisted Persons: A U.S. person may not furnish or knowingly agree to furnish information about the person's own or any third person's past, present, or proposed business relationships with or in a boycotted country; with an entity, person, or resident in a boycotted country; or with another party known or believed to be restricted from having business relationships with or in a boycotting country.
Example (prohibited conduct): In the course of transactions involving sales to a country in the Middle East, a U.S.-incorporated business sends a shipping certificate to an intermediate consignee in a third country certifying that a shipping vessel is allowed to call at Arabian ports. (By sending the certification, the U.S. business is furnishing information about the vessel owner’s business relationships—or lack thereof—with Israel.) See Case No. 14-07.
- Prohibition Against Furnishing Information About Associations With Charitable and Fraternal Organizations: A U.S. person may not furnish or knowingly agree to furnish information about any person's membership in, contributions to, associations with, or involvement in activities of charitable or fraternal organizations supporting a boycotted country.
Example (prohibited conduct): To avoid being blacklisted, a company trying to establish business relationships in a boycotting country furnishes information to the country's government showing that none of the company's directors are associated with any charitable organization supporting Israel. See 15 C.F.R. § 762(e) (Example ii).
- Prohibition Against Implementing Letters of Credit Containing Prohibited Conditions or Requirements: A U.S. person may not pay, honor, confirm, or otherwise implement a letter of credit that contains a condition or requirement prohibited by the antiboycott regulations. "Implementing" is broadly interpreted to include activities such as issuing, opening, accepting as a valid instrument of credit, paying a draft or demand, confirming, and negotiating a letter of credit.
Example (prohibited conduct): A boycotting country orders goods from a U.S. company. A U.S. bank is then asked to implement a letter of credit for the benefit of the U.S. company; the letter of credit contains a clause requiring documentation that the goods shipped are not of boycotted country X origin. (The U.S. bank may not implement the letter of credit with a prohibited condition, but it may accept a positive certificate of origin as satisfactory documentation.) See 15 C.F.R. § 762(f) (Example (vi) (implementing letters of credit)).
Required Reports
A U.S. person must report any boycott request received if the person knows or has reason to know that the request was made in order to "enforce, implement, or otherwise further, support, or secure compliance with an unsanctioned foreign boycott or restrictive trade practice." This includes receipt of a boycott questionnaire unrelated to a particular transaction or activity if the recipient has or anticipates having a business relationship with or in a boycotting country. It does not include the mere acquisition of information about a country's boycott requirements; receiving a pamphlet or email link to a webpage that spells out boycott provisions, without more, is not reportable. Similarly, receipt of an unsolicited invitation to bid on a contract that contains a boycott request is not reportable if the U.S. person does not respond to the invitation. The regulations spell out a variety of additional requests that are not reportable, such as a request to supply an affirmative country of origin certification, or a request for an individual to supply personal information for immigration or employment purposes.
Reports are submitted to OAC via mail or electronically. U.S. persons in the United States must postmark or electronically date-stamp reports by the last day of the month following the calendar quarter in which the request was received (e.g., by April 30 for a request received in the first quarter). A U.S. person located outside of the United States has an extra month to submit a report (e.g., by May 31 for a request received in the first quarter). (In contrast, antiboycott reporting to the IRS is an annual submission.) Reports must include copies of the boycott request and must address how the recipient intends to respond or has responded to the request (such as by stating "Have taken or will take the action requested but in modified form," accompanied by a detailed explanation).
All of the above is reportable in scenarios where the recipient is a U.S. person, as defined in the antiboycott regulations, and the activity at issue is in the interstate or foreign commerce of the United States in any manner defined in the regulations. If either the U.S. person or U.S. commerce elements are absent, a report is not required.
Enforcement
The EAR's antiboycott regulations are backed by the threat of civil penalties (up to $300,000 or twice the value of the transaction, whichever is greater) and criminal penalties (a fine of up to $1 million, and/or up to 20 years in prison), as well as loss of export privileges. Penalty amounts are calculated by the Office of Export Enforcement ("OEE") in accordance with its determination of the seriousness of the violation under regulatory specifications and the harm caused. Similar to enforcement policies applicable to the rest of the EAR, as of October 2022, a company must admit to the underlying facts of an antiboycott violation in order to earn a reduced penalty. (Previously, companies were able resolve administrative enforcement matters via "no admit/no deny settlements.")
Violations of Part 760 are classified under three categories, A, B, and C, ranging from the most to least serious. As part of an enhanced focus on enforcement, BIS revised these categories in October 2022 to better reflect the relative seriousness of different violations. Violations of the fifth prohibition (furnishing information about associations with charitable and fraternal organizations which support a boycotted country) moved from Category B up to Category A, while violations of the sixth prohibition (implementing letters of credit) moved from A to B. Category B now includes violations of the first prohibition: "knowingly agreeing to refuse to do business" as well as "requiring, or knowingly agreeing to require, any other person to refuse to do business" in violation of the anti-boycott regulations. Category C, the least egregious, remains limited to failure to report receipt of boycott requests within the specified timelines.
Looking at publicly available information on antiboycott enforcement, the most common antiboycott compliance violations appear to include failure to report receipt of boycott requests, violations of the first prohibition ("Prohibition Against Refusals to do Business"), and violations of the fourth prohibition ("Prohibition Against Furnishing Information About Business Relationships With Boycotted Countries or Blacklisted Persons"). One antiboycott enforcement case from the 1990s, which remains among the largest antiboycott enforcement penalties on record, involved a settlement of over $6 million; it included both civil and criminal penalties, and a corresponding guilty plea. In the last five years, most civil enforcement actions have been settled for amounts well under $100,000, though the airline/Israeli passenger case noted above involved a settlement of $700,000 for fourteen alleged violations. The most recent enforcement action, announced May 18, 2023, involved a controlled-in-fact foreign subsidiary's self-disclosed failure to report receipt of boycott requests on 84 occasions; the settlement involved admitting to the alleged conduct, as required by BIS' new policies, and a penalty of $283,500.
Practical Considerations
Due to the reach of the EAR's antiboycott regulations, the risk of antiboycott compliance failures is particularly significant for U.S. businesses with controlled-in-fact foreign operations and for controlled-in-fact foreign subsidiaries that acquire and retransfer goods or services from the United States. A U.S. business that has any ownership or control rights in foreign operations should conduct due diligence to confirm whether its interest triggers antiboycott compliance obligations under the EAR on the part of the foreign operations. If yes, the U.S. business and its foreign operations should make sure the latter has an appropriate antiboycott compliance program. In addition, a foreign operation must take care to track and report boycott requests even when the U.S. controlling entity is not involved in a particular transaction.
In light of the enhanced focus on enforcement of U.S. antiboycott laws, and the potentially severe penalties that can be imposed, U.S. businesses should consider auditing their operations, including those of their foreign subsidiaries, to determine where boycott risks reside, and adopt a compliance program designed to prevent complying with, furthering, or supporting all unsanctioned foreign country boycotts.
[1] Part 760 does not define "national origin" or "nationality" in its definitions section. Supplement No. 5 to Part 760, addressing "Permissible Furnishing of Information," states that "A U.S. person may always provide its own name, address, place of incorporation ('nationality'), and nature of business," but neither that supplement nor any other provision in Part 760 spells out how to interpret "nationality" versus "national origin" for antiboycott compliance purposes.
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