BIS Update 2007, Day 1, Breakout Session: Antiboycott Compliance
In the morning breakout session on antiboycott compliance, Fred Davidson, Assistant Director for Policy of the Office of Antiboycott Compliance, started the program by noting that BIS's role in antiboycott compliance is based on the antiboycott regulations set forth in Part 760 of the EAR. He also gave a few examples of how the antiboycott regulations can impact transactions in the Middle East. For example, he noted that the receipt of boycott questionnaires or language from Iraqi or Libyan companies or nationals can implicate the antiboycott regulations and lead to a violation.
Mr. Davidson stated that U.S. companies need to have their compliance staff and counsel actively engaged in analyzing any boycott-related language or requests received. He also reiterated that the antiboycott regulations focus on unsanctioned boycotts. However, he noted that while the only unsanctioned boycott is the Arab Boycott of Israel, there are other boycotts, involving India, Pakistan,Bangladesh, China, Taiwan and Serbia that may require the submission of boycott reports.
Mr. Davidson also provided examples of the three levels of the Arab boycott of Israel. The first level, or primary boycott, is when a Kuwaiti asks a U.S. company not to ship Israeli goods to Kuwait. The second level, or secondary boycott, is when the Government of Syria or a Syrian company requires a U.S. company to refuse to do business with Israel in order to do business with Syria. The third, or tertiary boycott, is when a Lebanese company asks a U.S. company to refuse to do business with anyone on a blacklist compiled by Lebanon or by the Arab League Boycott office (in fact, he mentioned that the Arab League will be meeting next week).
Mr. Davidson stated that there are four basic steps to analyze a boycott problem: (1) Jurisdiction – Is there a U.S. person?; (2) Prohibitions – Is the conduct prohibited by the EAR? (3) Exceptions – Does the activity fall within one of the exceptions (i.e., war risk clause)?; and (4) Reporting – Is the boycott request reportable to BIS?
Next, he discussed the three main prohibitions included in the antiboycott regulations, including (1) refusing to do business; (2) taking discriminatory actions based on religion or national origin; and (3); furnishing information about business relations with a boycotted country or a blacklisted person.
The next speaker was Ned Weant, Director of BIS’s Office of Antiboycott Compliance. Mr. Weant started his presentation by noting that providing prohibited information (on race, religion, etc.) is the most common violation, such as providing a negative certificate of origin to a customer in the Middle East.
In a welcome move, Ned Weant immediately fielded and answered a number of specific questions from the audience.
For example, in response to a question regarding reporting boycott requests, Ned noted that there is no chance that antiboycott reports will be able to be submitted via SNAP-R.
In response to another question regarding the scope of country requirements, Mr. Weant said that exporters should interpret the regulations broadly and should report any boycott against a country that is friendly to the U.S. (i.e., India, Pakistan, etc.). Whether an enforcement action would be taken for failing to report receipt of a boycott request not involving Israel is a policy decision that BIS would have to make.
Mr. Weant noted that the increased $250,000 maximum penalties set forth in the IEEPA Enhancement Act will apply to antiboycott violations. (Note: See today's post on this issue, indicating that BIS will apply the new penalties to violations occurring after October 16, 2007.)
Mr. Weant also indicated that that BIS recently published boycott penalty guidelines and for the first time information and clarification on voluntary self-disclosures.
Next, David Joy, an attorney in the Treasury Department's Office of the General Counsel, complimented the audience by noting that, based on the questions asked so far, they were the most well-informed audience that he had ever spoken to on antiboycott issues. Mr. Joy noted that the Treasury Department has a separate set of antiboycott laws and that the basis for the Treasury Department's antiboycott penalties (the Ribicoff Amendment to 1976 Tax Reform Act - Section 999 of the Internal Revenue Code) was issued before the antiboycott regulations contained in the EAR.
Mr. Joy mentioned that Treasury’s boycott statute is enforced by the Internal Revenue Service and the Office of General Counsel answers general legal and policy issues associated with boycott issues. He also stated that the Treasury Department’s statute applies to a company's worldwide operations and that a person who "participates in or cooperates with an international boycott" may lose certain tax credits, including the Foreign Tax Credit and Foreign Subsidiary Deferral Benefits (CFC Deferral). Mr. Joy noted that the Treasury law and guidelines contain exceptions that permit companies to agree to "primary" boycotts (direct restrictions on imports from or exports to a boycott country) or U.S. sanctioned boycotts.
Mr. Joy noted that boycott reporting for Treasury Department purposes is reported by companies on IRS Form 5713, which is filed annually when normal corporate or partnership tax returns are due.
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