In the past year, the U.S. Department of Commerce Bureau of Industry and Security (BIS) has published two enforcement policy updates and issued four enforcement actions resulting in public settlements related to the antiboycott provisions of the Export Administration Regulations (EAR). These updates and enforcement actions highlight BIS’s stricter approach and renewed focus on antiboycott enforcement.
What are U.S. antiboycott laws?
These laws, administered by BIS,1 generally (with some exceptions) prohibit U.S. persons from
- taking action or agreeing to take action in furtherance or support of a boycott of a U.S. allied country by a foreign country
- providing information on relationships with such boycotted countries or blacklisted companies or charitable or fraternal organizations that support the boycotted country
- taking discriminatory actions or agreements to take discriminatory actions based on race, religion, sex, or national origin
- providing information about race, religion, sex, or national origin
Such requests often appear in a number of routine transaction, financing, and shipping documents.
U.S. antiboycott laws also require the reporting of certain boycott requests. Knowing when an action is prohibited or when a request requires reporting is complicated and often depends on the phrasing of a request.2 There are situations where a person may be (1) both prohibited from complying with a request and required to report the request, (2) permitted to comply with the request but required to report the request, or (3) permitted to comply with the request and not required to report the request. Given the complexity and nuance of these provisions, a legal or compliance expert is often required to navigate these provisions.
While U.S. enforcement has historically focused on the boycott of Israel, these laws could be applied to foreign boycotts of any U.S. ally.
What is new in U.S. antiboycott enforcement?
From 2007 to 2017, BIS averaged nearly seven enforcement actions per year. However, starting in 2018, there was a steep dropoff in the rate of enforcement actions, with an annual average of two settlement agreements from 2018-22.
Enforcement is once again increasing. BIS has published two updates to its antiboycott enforcement policies and measures in the past year previewing its enforcement priorities and already published four enforcement actions this year.
On October 6, 2022, BIS issued a memorandum announcing enhanced enforcement of antiboycott laws, where BIS (1) enhanced penalties by stating it would seek higher penalties than it had historically for all categories of violations, including making the starting point for all Category A violations (the most severe of three categories) the statutory maximum in the Antiboycott Act of 2018; (2) changed the violation categories, which correspond to severity, of certain prohibited actions; (3) required admissions of misconduct in any settlements; and (4) announced its renewed enforcement focus on foreign subsidiaries of U.S. companies.3 In a subsequent memorandum issued on July 26, 2023, BIS announced new reporting requirements — specifically that reports must now identify the boycott requesting parties in addition to the countries from which the boycott requests originated.4 BIS stated that this additional reporting requirement is intended to strengthen its antiboycott enforcement efforts and diminish participation by U.S. companies in boycott-related activity by increasing visibility of boycott requesting companies. BIS also included an antiboycott policy statement on U.S. acquisition management websites to remind U.S. government contractors of their obligations under antiboycott laws.
Below are three key takeaways from the strengthening of enforcement policies and recent enforcement actions:
1. Companies should ensure they are identifying and timely reporting boycott requests.
Earlier this month, BIS published a settlement agreement penalizing a U.S. company for 13 violations of antiboycott laws.5 Under the new enforcement requirements, the company admitted to a failure to report 13 boycott requests and agreed to pay a $48,750 settlement. The company received this penalty despite (1) not engaging in any prohibited conduct in furtherance of a boycott; (2) the relatively small number of unreported boycott requests; and (3) having submitted a voluntary self-disclosure (VSD), thereby reporting (albeit untimely) the boycott requests it had received.
This settlement was the first antiboycott enforcement action since BIS’s July 2023 memorandum strengthening antiboycott reporting measures. Reporting requirements are often viewed as mere technical violations in the absence of additional prohibited conduct. This enforcement action should serve as a reminder that there are consequences for failing to report, and companies should ensure they have procedures in place to identify and assess whether a boycott request must be reported to BIS.
2. Antiboycott enforcement actions are likely to increase.
The recent enforcement policy announcements and uptick in enforcement actions signal that BIS is serious about stepping up antiboycott enforcement. Further, the recent changes in reporting policies articulated in the July 2023 memorandum will increase the amount of information provided to BIS, thereby enabling further enforcement actions. For example, by requiring companies to identify the party making a boycott request when reporting, BIS will have the information needed to investigate and identify higher-risk transactions for antiboycott violations. Additionally, BIS may receive more information with respect to boycott requests by incentivizing better reporting through steeper costs for noncompliance, such as charging higher penalties, requiring admissions of misconduct, and increasing the pace of enforcement actions.
3. Submission of a VSD, even for relatively minor violations, could result in penalties and a public enforcement action.
Notably, all four antiboycott enforcement actions resulting in a public settlement agreement this year involved parties who submitted VSDs. While the overwhelming majority of VSDs to BIS result in no penalty, and the investigations are not made public, these recent enforcement actions signal that BIS is treating antiboycott violations differently than violations of other parts of the EAR and may be using public enforcement actions to provide lessons learned to industry, even where it results in naming and shaming a company who submitted a VSD and was engaged in relatively minor infractions.
While two of the cases involved prohibited conduct, there were relatively few total violations.6 The remaining two cases involved only reporting violations, with the latest enforcement action this month involving only 13 unreported boycott requests.
Of note, this renewed trend in public enforcement actions may undermine BIS policy of encouraging VSDs. Many companies may be concerned about reputational harm, beyond financial penalties, and may be less willing to submit a VSD given the risk of a public enforcement action.
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