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February 07, 2008 

New Approach to Antiboycott Settlements? BIS Waives Penalties in Exchange for Ceasing Exports to Boycotting Countries

By Douglas N. Jacobson and Laura Martino

In what appears to be a new twist in the settlement of antiboycott enforcement cases, the Bureau of Industry and Security (BIS) recently agreed to waive civil penalties against two U.S. distributors of medical products for violating the antiboycott regulations if the companies agreed to refrain from participating in any export transaction to certain countries in the Middle East.

In the first case, BIS alleged that New York-based AR-AM Medical Services LLC (AR-AM) violated the antiboycott regulations. Specifically, BIS alleged that AR-AM committed three violations of the antiboycott regulations by furnishing information concerning its or another entity’s business relationship with a boycotted country to the National Bank of Egypt. The information furnished to the bank included declarations that the exported goods were not Israeli-origin goods and did not include Israeli-origin material.

According to the terms of the settlement agreement, BIS agreed to suspend the $7,200 civil penalty against AR-AM for two years if the company agreed to refrain from participating in any export transaction involving Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates and Yemen for two years.

In a similar case, BIS agreed to suspend a $2,400 civil penalty against New York-based DMA Med-Chem Corporation (DMA) (While not indicated in the agreements, DMA and AR-AM appear to be affiliated). According to BIS, DMA allegedly provided documents to the Bank of Egypt about business relationships with boycotted countries in connection with the sale of products to Syria. The documents included statements that certain goods were not Israeli-origin.

According to the terms of the settlement agreement, BIS agreed to suspend the penalty for two years on the condition that DMA refrained from participating in any export transactions involving Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates and Yemen.

These companies will avoid having to pay these penalties if they comply with the settlement conditions for the next two years. Of course, the downside to this settlement approach is that these two companies can no longer make sales to the countries named above for two years (although sales of medical devices to Syria, of course, currently require a BIS license) and the company names now appear on BIS's Denied Persons List. In fact, today BIS published in the Federal Register the "non-standard" Orders denying AR-AM and DMA's export privileges until January 14, 2010. The denial orders for each case can be found here and here.

The antiboycott provisions contained in Part 760 of the EAR prohibit U.S. persons from complying with certain requirements of unsanctioned foreign boycotts, including providing information about business relationships with another person who is known or believed to be restricted from having a business relationship with or in a boycotting country. In addition, the antiboycott regulations require "U.S. persons" to report the receipt of certain boycott requests to the Department of Commerce.

Note: In what appears to be a related case, BIS imposed a $22,500 civil penalty against the National Bank of Egypt in January 2007, for furnishing information concerning another person's business relations with a boycotted country.




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