While a significant amount of time and effort is spent on explaining and understanding US anti-bribery laws and US laws and regulations pertaining to export controls and import procedures, an effective international trading compliance program must also take into account US antiboycott legislation that prohibits and penalizes cooperation with all unauthorized foreign boycotts and embargoes, requires companies to report most boycott-related requests and imposes a wide range of sanctions on violators. [See, e.g., 50 U.S.C.A. §4610; 15 C.F.R. pt. 760; 26 I.R.C. § 999; Treas. Reg. § 7.999-1; 43 Fed. Reg. 3,454 (1978) (Treasury guidelines).]
Antiboycott Laws Penalizes Cooperation with Unauthorized Foreign Boycotts and Embargoes
The antiboycott laws, which address boycotts generally but have almost always been applied to Arab boycotts of Israel in recent years, apply to US residents, nationals, corporations and their agents in foreign countries. [50 U.S.C.A. § 4607(a).] While not discussed in detail in this article, the Internal Revenue Code contains additional reporting requirements for taxpayer business operations with boycotting countries and imposes adverse tax consequences upon taxpayers who participate in a boycott. These requirements should be carefully reviewed as they differ in some respects from those imposed by the Department of Commerce discussed below.
The antiboycott laws and regulations included in the Export Administration Act of 1979 ("EAA"), and the Export Administration Regulations ("EAR") are administered and enforced by the Department of Commerce ("DOC") Office of Antiboycott Compliance. [See 50 U.S.C.A. § 2408 and "Antiboycott Regulations" at 15 C.F.R. Pt. 760 (1994).] These laws and regulations prohibit companies and individuals from refusing or agreeing to refuse to do business for boycott-related reasons; furnishing information for boycott-related reasons; taking discriminatory acts for boycott-related reasons; and implementing letters of credit that contain boycott-related conditions. [15 C.F.R. § 760.2(a)-(f).]
Penalties for Non-Compliance
While the antiboycott laws often do not get as much attention as the anti-bribery laws and export controls they nonetheless remain relevant to many U.S. companies for several important reasons.
First of all, the penalties for non-compliance have increased significantly as the penalties for breach of export controls generally have stiffened. This is a particular concern given that detecting a reportable event for antiboycott purposes is sometimes difficult and companies may find that a seemingly honest "mistake" leads to substantial liability.
Second, the Middle East, which was the initial and primary focus of the antiboycott laws, remains a sensitive political area with unabated tensions and festering hostility against Israel that will likely continue to generate boycott activities for the foreseeable future. At the same time, however, the Middle East has also made substantial strides as a destination for substantial investment activities which means that more and more U.S. companies will be involved in projects located in, or financed by, countries likely to be involved in boycott activities.
Compliance Facilitated Through Policies and Procedures
Compliance with the antiboycott laws and regulations can be facilitated through the adoption of anti-boycott policies and procedures. Some of the reasons why a corporate policy statement is important include the following:
- Both the tax and export laws contain the concepts of "intent" and "inadvertent violations." Both laws require boycott actions to be taken with some degree of intent, and both contain examples where boycott actions were not violations because they were done inadvertently by persons who either failed to notice the boycott language or did not appreciate its significance. A good corporate policy statement might make the difference in a close case where some document was accepted or certification made. The policy would bolster any argument that low level employee actions inconsistent with the policy were "inadvertent" or that any given action was not taken with the requisite "intent." This, however, should not be overplayed. It is likely that it would make a difference only in a very close case.
- A corporate policy statement can focus management's attention on some of the complexities and perhaps greatly simplify the compliance problem. For example, if management were to allow counsel to simply prohibit any corporate action which could cause a tax problem, compliance on that front would be much simpler than weighing various actions against potential loss of tax benefits.
- The policy statement presents an opportunity to spell out the various roles of company people management, the general counsel, the tax department, etc.
Corporate Policy Statements
While the contents of corporate policy statements in this area vary a good one would include the following features:
- An introduction that provides a little background on the antiboycott laws and regulations and also lays out the content and purpose of the policy statement;
- A brief policy statement stating clearly that it is the policy of the company, its subsidiaries and affiliates to comply with all applicable antiboycott laws and regulations, and that continues with a list of prohibited and required activities (or other information that the company considers to be important);
- A summary of applicable laws and regulations that is more detailed than the brief overview provided in the introduction and which might include:
- A list of "boycotting countries" where close review of all transactions should be required;
- A list of activities that are prohibited under the antiboycott laws and regulations;
- A description of some of the common forms of transactions and documents containing boycott-related requests (e.g., purchase orders, letters of credit, contracts and invitations to bid); and
- Specific examples of boycott-related requests;
- A summary of the reporting requirements of both the DOC and the Treasury Department, which are different, and including a list of what much be reported and a discussion of the reporting deadlines;
- A summary of the company's compliance procedures and responsibilities for compliance, which typically includes such things as the procedures for appointment of compliance officers and alternative compliance officers; responsibilities of the compliance officers; the role of the legal and tax departments in the compliance process; and the specific expectations for all employees of the company;
- A summary of the penalties for noncompliance as contained in the antiboycott laws, which typically goes at the very end of the policy statement and is presented in bold letters to emphasize the fact that violations of the laws can result in serious consequences for the company and individuals engaged in the prohibited activities; and
- A list of related policies and procedures that the reader should refer to such as policies relating to compliance with other laws and regulations pertaining to international trade (e.g., export controls).