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Anti-Boycott Violations Can Yield Substantial Penalties

Thursday, July 23, 2020
Sandler, Travis & Rosenberg Trade Report

U.S. companies and their foreign affiliates are prohibited from participating in foreign boycotts that the U.S. does not sanction. Such actions can result in substantial criminal and civil penalties.

For more information on anti-boycott requirements, please contact ST&R’s export controls and sanctions practice leader Kristine Pirnia.

The Arab League boycott of Israel is the principal foreign economic boycott that U.S. companies must be concerned with today, but the anti-boycott laws apply to all boycotts imposed by foreign countries that are unsanctioned by the U.S. In that context, the Treasury Department recently published its quarterly list of countries that require or may require participation in, or cooperation with, an international boycott. This list currently comprises Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, the United Arab Emirates, and Yemen.

The U.S. maintains two anti-boycott laws that are enforced by the Commerce Department through the Export Administration Regulations and the Treasury Department through the Internal Revenue Code. Under the anti-boycott provisions of the EAR, companies are prohibited from the following.

- agreement to refuse or actual refusal to do business with or in Israel or with blacklisted companies

- agreement to discriminate or actual discrimination against others based on race, religion, sex, national origin, or nationality

- agreement to furnish or actual furnishing of information about business relationships with or in Israel or with blacklisted companies

- agreement to furnish or 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 also require U.S. persons to report each quarter requests they have received to take certain actions to comply with, further, or support an unsanctioned foreign boycott. Maximum civil penalties under the EAR for anti-boycott violations are the greater of $302,584 per violation or twice the value of the transaction. For criminal violations, penalties of up to $1 million and/or 20 years’ imprisonment may be imposed.

The anti-boycott provisions of the Internal Revenue Code require U.S. taxpayers to report annually to the Internal Revenue Service their (1) operations in or related to countries maintaining unsanctioned boycotts, (2) participation in unsanctioned boycotts, and (3) receipt of requests to participate in unsanctioned boycotts. These provisions also penalize taxpayers who participate in or cooperate with an unsanctioned foreign boycott by denying them the right to claim certain tax benefits. A willful failure to report anti-boycott requests can lead to a criminal fine of up to $25,000 and/or imprisonment for one year.

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