On August 29, 2020, the United Arab Emirates (UAE) reportedly formally ended its participation in the Arab League’s economic boycott of Israel when UAE President Khalifa bin Zayed Al Nahyan issued a decree to dissolve its domestic boycott law.1 Diplomatic relations between Israel and the UAE will be officially normalized when the two states sign the Abraham Accord in early September.2
For persons subject to U.S. antiboycott regulations, this development appears likely to generate a more liberal reporting and compliance environment. Although there are other Arab League member states that do not enforce or have never applied the Arab League’s boycott of Israel, only two other Arab League countries — Egypt and Jordan — have entered formal diplomatic treaties with Israel terminating their participation in the boycott.3 Both countries were subsequently explicitly excluded from the scope of the U.S. antiboycott regulations.
Nevertheless, U.S. companies should be cautious not to revise their antiboycott compliance processes too quickly in response to this announcement. Companies instead should continue to watch for the anticipated changes described below.
Overview of U.S. Antiboycott Regulations
The United States responded to the Arab League boycott of Israel in the 1970s by implementing its antiboycott regulations, which permit U.S. companies to participate in the primary boycott of Israel (e.g., refusals to ship goods to the UAE from Israel or to ship goods from the UAE to Israel) but prohibit and penalize their participation in secondary boycotts (e.g., refusals to do business with U.S. persons that do business with Israel, usually in accordance with a blacklist) and tertiary boycotts (e.g., refusals to do business with U.S. persons that themselves do business with U.S. persons on a blacklist). The U.S. antiboycott regulations also require U.S. companies to report certain types of boycott requests. Although the UAE and other Gulf Cooperation Council member states announced in 1996 that they would enforce only the primary boycott, in practice U.S. companies have continued to receive, and been required to report, secondary and tertiary boycott requests from the UAE.
The U.S. antiboycott regulations, found in 26 U.S.C. Part 999, and in 15 C.F.R. Part 760, are administered by the U.S. Department of the Treasury (Treasury Department) and the U.S. Department of Commerce, respectively (Commerce Department).
Anticipated Changes in Treasury Department Requirements
The Treasury Department requires U.S. taxpayers to report (a) operations in or related to a designated list of boycotting countries (known as the Treasury List) or in any other country if the taxpayer knows or has reason to know that participation in an international boycott is required as a condition of doing business within such country, (b) the taxpayer’s participation in or cooperation with an international boycott, and (c) any requests to participate in or cooperate with an international boycott (whether from a Treasury List country or elsewhere) as well as the taxpayer’s response to those requests. A taxpayer’s participation or cooperation in an international boycott results in certain tax detriments, and a willful failure to report may result in a fine of not more than $25,000 or imprisonment of not more than a year or both.
The Treasury List does not include all Arab League member states. Countries that do not enforce the boycott, such as Algeria, Morocco, and Tunisia, are not listed, nor is Mauritania, which never applied the boycott. The Treasury Department has also removed certain countries from the Treasury List based on their commitment to end participation in the Arab League’s boycott. For example, the Treasury Department removed both Jordan and Egypt from the Treasury List after each country formally ended its respective participation in the boycott. Egypt signed a peace treaty with Israel on March 26, 1979, and was removed from the Treasury List effective April 1, 1980 — after lifting its domestic boycott laws. Jordan signed a peace treaty with Israel in October 26, 1994, and was removed from the Treasury List on November 6, 1995, again following changes to its domestic law. The Treasury Department has also rewarded less formal commitments to end the boycott with removal from the Treasury List: Bahrain and Oman, during negotiations of their respective free trade agreements with the United States, each agreed to no longer comply with the Arab League boycott and were subsequently removed from the Treasury List. The UAE is currently on the Treasury List.4
However, based on this precedent, we anticipate that the Treasury Department will ultimately remove the UAE from the Treasury List, which is released quarterly. Given that the UAE has reportedly already terminated its domestic boycott law, Treasury may remove the UAE from the Treasury List as early as next quarter, in October 2020. Until the UAE is removed from the Treasury List, however, U.S. taxpayers remain subject to the same reporting obligations and penalty structure that now applies to their operations in the UAE. The recipient’s knowledge of the requester’s boycott intent is not a requirement for penalties to adhere under Treasury’s antiboycott regulations, and the UAE’s termination of the boycott does not guarantee that companies will stop receiving boycott requests: In fact, the Treasury Department continued to report requests from Jordan and Egypt decades after formally removing those countries from its list. Nonetheless, it is notable that many of the Treasury Guidelines refer to situations in which the “laws, regulations, requirements or administrative practices” of a country require participation in the boycott — such as agreements to comply with the laws of the UAE. To the extent that this is no longer the case in the UAE, antiboycott tax detriments and reporting may no longer adhere to such agreements.
The Commerce Department requires U.S. persons, including U.S. companies, to report any boycott requests they receive and prohibits them from agreeing to a boycott request or taking boycott action. Violations of the antiboycott provisions in the Commerce Department’s Export Administration Regulations (EAR) can result in criminal penalties of up to 20 years of imprisonment and up to $1 million in fines per violation or both. Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.
Though Commerce does not maintain a list of boycotting countries, it has specifically excluded two countries — Jordan5 and Egypt6 — from any boycott-related presumptions after each entered into a diplomatic treaty with Israel and removed its domestic boycott laws or policies. Notably, these exclusions do not apply when the request is facially boycott-related (for example, when the request explicitly mentions the boycott, the boycotted country, or the blacklist).
We anticipate that the Commerce Department will ultimately amend the EAR to specifically exclude the UAE from its boycott presumption, although the department has not yet begun the rulemaking process to do so. The UAE exclusion will likely include the same caveats for explicit boycott requests that are present in the EAR exceptions for Egypt and Jordan.
U.S. persons may continue to receive potentially reportable, prohibited boycott requests from the UAE, despite its reported termination of the boycott. With regard to requests received before Commerce amends the regulations, U.S. persons should note that the EAR’s quarterly antiboycott reporting provisions apply only to those requests that are sent with boycott intent, such that the recipient party knows or has reason to know that the purpose of the request is to enforce or otherwise further, support, or secure compliance with the boycott. Likewise, its prohibitions apply only where a U.S. person takes or knowingly agrees to take a boycott action “with intent to comply with, further, or support” a boycott. Consequently, in the context of requests received after the UAE repealed its boycott law, such intent may be absent — at least where the requests do not explicitly invoke the boycott, the blacklist, or boycott-related discrimination. Antiboycott reporting requirements and prohibitions are detailed and complex.
1UAE Federal Decree Law No. 04 of 2020, dissolving Federal Law No. 15 of 1972.
2Joint Statement of the United States, the State of Israel, and the United Arab Emirates, Aug. 13, 2020, https://www.whitehouse.gov/briefings-statements/joint-statement-united-states-state-israel-united-arab-emirates.
3Egypt-Israel Peace Treaty, Mar. 26, 1979, art. III.3 (“The Parties agree that the normal relationship established between them will include full recognition, diplomatic, economic and cultural relations, termination of economic boycotts and discriminatory barriers to the free movement of people and goods, and will guarantee the mutual enjoyment by citizens of the due process of law”); Jordan-Israel Peace Treaty, Oct. 26, 1994, art. 7 (“[T]he parties agree to the following: (A) To remove all discriminatory barriers to normal economic relations, to terminate economic boycotts directed at the other Party, and to co-operate in terminating boycotts against either Party by third parties ...”).
4List of Countries Requiring Cooperation With an International Boycott, 85 Fed. Reg. 20,028 (Apr. 9, 2020).
515 C.F.R. 760, Supplement 16.
615 C.F.R. 760, Supplement 3.
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