U.S. companies and their foreign affiliates can be hit with substantial criminal and civil penalties if they violate prohibitions against participating in foreign boycotts that the U.S. does not sanction.
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, 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 doing the following.
- agreeing to refuse or actually refusing to do business with or in Israel or with blacklisted companies
- agreeing to discriminate or actually discriminating against others based on race, religion, sex, national origin, or nationality
- agreeing to furnish or actually furnishing information about business relationships with or in Israel or with blacklisted companies
- agreeing to furnish or actually furnishing 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 more than $300,000 per violation or twice the value of the transaction, whichever is greater. 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.
For more information on anti-boycott requirements, please contact attorney Kristine Pirnia via email.
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