Not Another Brick in the Wall

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On June 5, 2017, Saudi Arabia, Bahrain, and the United Arab Emirates cut diplomatic ties with, and imposed an economic embargo on, Qatar. U.S. life sciences companies should be mindful that support for or compliance with this economic embargo against Qatar could violate U.S. law.

U.S. life sciences companies operating internationally should be aware of the Antiboycott Regulations at 15 C.F.R. Part 760 and administered by the Commerce Department. These regulations, and their counterpart administered by the Internal Revenue Service, prohibit U.S. businesses and persons from complying with any international economic boycott in which the U.S. does not participate. Most often, these regulations are cited in connection with the Arab League boycott of Israel. However, since as of the writing of this update the U.S. does not participate in the Saudi-led boycott of Qatar, U.S. life sciences companies should ensure that their antiboycott compliance disciplines observed in connection with commercial ties with Israel will be observed in connection with its commercial ties with Qatar.

The Antiboycott Regulations prohibit the following actions by U.S. companies:

  • Refusing or agreeing to refuse to do business with or in a boycotted country, with a national of a boycotted country or a boycotted person. 
  • Refusing to employ or otherwise discriminating against a U.S. person, in deference to a boycott request, on the basis of race, religion, sex or national origin. 
  • Furnishing information, in response to a boycott request, about the race, religion, sex or national origin of a U.S. person or any owner, officer, director or employee of a U.S. company or controlled in fact non-U.S. affiliate. 
  • Furnishing information about any person’s past, ongoing, or proposed future relationships (or the absence of relationships) with other parties, if that information is sought for boycott-related reasons. 
  • Furnishing information about any person’s association with or support for any charitable or fraternal organization supporting a boycotted country. 
  • Paying, honoring, confirming or otherwise implementing a letter of credit that contains any prohibited boycott requirement or request.

Effective antiboycott compliance efforts require several steps. U.S. life sciences companies should train relevant employees to carefully review all oral and written communications to determine whether any boycott language is present. ‘Boycott language’ includes references to (i) a boycotted country when the transaction does not involve that boycotted country; (ii) a vessel or aircraft, used for shipping products, being able to enter the ports/airport of a boycotting country; (iii) ‘negative’ certificates of product origin (that goods are ‘not of Boycotted Country origin’); (iv) an insurance company having a qualified agent or representative in a boycotting country; (v) compliance with the laws or regulations of a boycotting country generally or boycott laws specifically; and (vi) information about a company’s relationships with a boycotted country. If any problematic boycott language is identified, the relevant transaction should be placed on hold and the specific language sent for review by the U.S. life sciences company’s export compliance officer.

Companies can seek to modify the problematic language to avoid violating U.S. Antiboycott Regulations. Regardless of whether a transaction goes forward, companies should collect required information necessary to ensure proper and timely reporting of any boycott requests to the Commerce and/or Treasury Departments. Commerce Department. Boycott requests must be reported (unless an exception applies), even if the prohibited or penalized action was not taken. Penalties for violations of the Antiboycott Regulations administered by the Commerce Department include civil penalties per violation of $250,000 or twice the value of the transaction, whichever is greater, and criminal penalties of $1 million per violation or 20 years’ imprisonment. The regulations administered by the Internal Revenue Service do not carry specific penalties, but violations of the regulations can result in adverse tax consequences for the U.S. life sciences company.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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