On July 27, 2023, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that U.S. persons reporting boycott-related requests to its Office of Antiboycott Compliance (OAC) must now also disclose the identity of the specific party that made the request. Previously, U.S. persons were required to disclose when they had received a boycott-related request and only the country the request originated from.
BIS says this added reporting requirement will assist OAC’s efforts to deter foreign parties from issuing boycott-related requests in the first place, a priority BIS first identified in its October 2022 memorandum “Enhanced Enforcement of the Antiboycott Rules”. The memorandum made several policy changes designed to strengthen OAC enforcement and compliance, including increased penalties, required admissions of misconduct, and a renewed enforcement focus on foreign subsidiaries of U.S. companies. The new mandate also comes as BIS resolves its first several enforcement actions under the enhanced policy.
In May, BIS announced its first settlement under the new enhanced compliance guidelines when it issued a $283,500 fine against Regal Beloit FZE, the Dubai-based subsidiary of U.S. electrics manufacturer Regal Beloit America, for the company’s failure to report boycott requests in violation of the antiboycott provisions of the Export Administration Regulations (“EAR”). Specifically, Regal Dubai did not report 84 requests from a Saudi Arabian customer, which included language in its purchase orders that the import of Israeli-origin goods into Saudi Arabia was prohibited. BIS noted that Regal Dubai earned a “significant reduction in penalty” because Regal Dubai voluntarily self-disclosed the violations, cooperated with the OAC’s investigation, and took remedial measures after discovering the violations.
In July, BIS resolved two more enforcement cases against U.S. defense companies Profense LLC and B.E. Meyers & Co. for penalties of $48,500 and $44,740, respectively, for a total of seven (7) apparent violations stemming from the same 2019 trade show in Bahrain. BIS stated that, in order to display their products at the trade show, both companies provided to their freight forwarder a commercial invoice/packing list certifying that the goods were not of Israeli origin and were not manufactured by a company on an Israeli boycott blacklist. Profense and B.E. Meyers also failed to report the requests. BIS stated both companies received a significant penalty reduction after voluntarily disclosing, cooperating, and taking remedial measures.
Boycott-related requests come in many different forms. In some instances, the EAR’s boycott regulations will outright prohibit persons subject to U.S. jurisdiction from performing contracts which contain boycott-related requests. In other instances, these regulations will permit the performance of those contracts but require that the recipient report the request to the OAC. Slight variations in language and phrasing can make the difference between a prohibited, reportable, and not-reportable request. If the reporting obligations of the EAR’s boycott regulations apply, then U.S. companies are reminded that they are required to report the boycott-related requests to the OAC even if they do not intend to accept or agree to comply with the request. To further complicate matters, the U.S. Internal Revenue Code imposes additional boycott prohibitions and reporting obligations which can sometimes be inconsistent with the EAR’s boycott regulations. Therefore, U.S. companies should take measures to ensure that they and their foreign subsidiaries and personnel are equipped to identify and respond appropriately to boycott-related requests.
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