BIS Enhances Antiboycott Enforcement
International Trade and Investment Alert™ | October 11, 2022
Authors: Michael T. Gershberg and Gregory Bernstein
On October 7, 2022 the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a final rule (“the Final Rule”) and an enforcement memorandum (“the Enforcement Memo”) intended to strengthen BIS’ antiboycott enforcement program. The Final Rule reprioritizes a number of violations of the antiboycott regulations, and the Enforcement Memo announces other changes to BIS’ enforcement strategy. The Final Rule is effective immediately, and along with the Enforcement Memo, sends a strong signal that antiboycott enforcement and compliance remains a high priority for BIS.
Reprioritized Violation Categories
Under the Export Administration Regulations (“EAR”), BIS places violations of the antiboycott requirements into three different categories based on the level of severity of the offense and, as explained in the following section, the appropriate penalty. Category A is reserved for the most severe violations, with less severe violations falling into Categories B or C. The Final Rule recategorizes certain antiboycott violations to better comport with current boycott-related activity.
In particular, furnishing information about associations with charitable or fraternal organizations that support a boycotted country was moved from Category B to Category A. Knowingly agreeing to refuse to do business, implementing letters of credit, and furnishing information about business relationships with boycotted countries or blacklisted persons were all moved from Category A to Category B. A full list of the violations in each category is included at the end of this alert.
The Enforcement Memo states that BIS intends to impose penalties that reflect the seriousness of the violation and are commensurate with the harm caused. Accordingly, for all Category A violations, BIS will begin its penalty calculations at the statutory maximum of $300,000 or twice the value of the underlying transaction. The Enforcement Memo also noted that penalties for Category B and Category C violations will be increased, but did not provide further details regarding how the penalty calculations for such violations will proceed.
Admission of Misconduct
In the Enforcement Memo, BIS stated that it will require those who enter into settlement agreements for antiboycott violations to admit to a statement of facts outlining their conduct as part of the settlement agreement. Under current practice, companies can enter into “no admit/no deny” settlements in which the company is able to resolve the matter and pay a reduced penalty without admitting to misconduct or even a specific set of factual circumstances. BIS indicated that its move away from allowing such no admit/no deny settlements is to allow the offending company’s peers to learn from the offending company’s mistakes and to adjust their behavior accordingly.
Focus on Foreign Subsidiaries of U.S. Companies
The Enforcement Memo also stated that BIS intends to more forcefully go after controlled foreign subsidiaries of U.S. companies when they violate BIS’ antiboycott regulations. Specifically, BIS will increase its enforcement efforts against such foreign subsidiaries that make antiboycott requests. Under current practice, BIS has been more focused on the U.S. party that receives the antiboycott request and either complies with it or fails to report it. U.S. businesses with subsidiaries in countries with higher levels of boycott-related activity should closely monitor their subsidiaries’ actions to ensure that they do not run afoul of U.S. antiboycott requirements.
The Final Rule and Enforcement Memo make clear that BIS intends to make enforcement of U.S. antiboycott requirements a top priority going forward. Businesses with international operations, especially those with operations in the Middle East, should familiarize themselves with U.S. antiboycott requirements and understand their reporting obligations in the event that they receive a request to participate in an unsanctioned foreign boycott.
If you have any questions regarding U.S. antiboycott requirements and how they may affect your business, please reach out to the contacts listed below.
Appendix A: Antiboycott Violation Categories
Category A violations:
- Discriminating against U.S. persons on the basis of race, religion, sex, or national origin
- Refusing to do business
- Furnishing information about race, religion, sex, or national origin of U.S. persons including, but not limited to, providing information in connection with a boycott questionnaire about the religion of employees
- Evading the antiboycott provisions of the Export Administration Regulations
- Furnishing information about associations with charitable or fraternal organizations that support a boycotted country
Category B violations:
- Knowingly agreeing to refuse to do business
- Requiring, or knowingly agreeing to require, any other person to refuse to do business
- Implementing letters of credit
- Furnishing information about business relationships with boycotted countries or blacklisted persons
- Making recordkeeping violations
Category C violation:
- Failing to report timely receipt of boycott requests
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