Although companies doing business in Libya may be accustomed to seeing requests to participate in the Arab League boycott of Israel, some companies are seeing a surprising new twist on the familiar refrain. Instead of being asked to avoid doing business with Israeli nationals, some companies in Libya have recently been asked not to do business with companies of Swiss nationality.

The tensions between Libya and Switzerland arose after an incident last summer involving the Swiss police and the youngest son of Libyan leader Muammar Qaddafi. On July 15, 2008, Qaddafi’s son, Hannibal, was arrested after two hotel employees from Tunisia and Morocco accused him and his expectant wife, Aline, of beating them with a belt and a coat hanger. The young Qaddafi spent two days in custody, while his wife remained under police supervision in a clinic in Geneva. They were later released on $490,000 bail.

The incident caused an uproar in Tripoli and led to the detention of two Swiss nationals, who were later released. In protest, Libya’s General National Maritime Transportation Company stopped oil shipments to Switzerland and recalled its diplomatic representatives in Switzerland. News sources report that several Swiss firms were forced to close their Libyan branches, and the Libyan embassy stopped processing visa requests from Swiss nationals. In addition, Libya’s air carrier, Afriqiyah, was instructed to cut its flights to Switzerland to one flight per week. The same instructions were apparently given to Swiss International Air Lines. See http://www.gulfnews.com/World/Switzerland/10231675.html. Then, in October of 2008, Libya announced it would withdraw $7 billion of assets in Swiss banks and cut all economic ties with Switzerland, in addition to cutting off its oil supply. See http://www.reuters.com/article/newsMaps/idUSTRE49A0G720081011?pageNumber=2&virtualBrandChannel=0.

U.S. law prohibits firms from participating in foreign boycotts that the U.S. Government does not sanction and imposes tax penalties for such participation. These regulations are aimed in particular at curbing U.S. cooperation with the Arab League boycott of Israel, with which Libya is known to participate. U.S. antiboycott laws are separately administered by the U.S. Department of Commerce through the Export Administration Regulations (“EAR”), and by the U.S. Department of the Treasury through § 999 of the Internal Revenue Code (“IRC”).

According to a Commerce Department official, Libya’s actions with respect to Switzerland are not considered to amount to an “unsanctioned foreign boycott” under the EAR. Therefore, the official said, requests to cooperate with Libya’s activities against Switzerland fall outside of the scope of these regulations. A Treasury official maintained a contrary view, however, stating that such requests do qualify as an “international boycott” under the IRC and therefore must be reported on a U.S. taxpayer’s annual tax return.

Given the scope and history of U.S. antiboycott regulations, it would seem that Commerce has taken the more reasoned view of the matter. First, both Treasury and Commerce antiboycott regulations are limited to activities in support of a boycott imposed by the government of a participating country. It is not clear that Libya’s activities with respect to Switzerland rise to the level of a government-imposed boycott since there are no reports of any implementing Libyan laws. Secondly, U.S. antiboycott regulations were originally developed to address the Arab League boycott of Israel. It seems inappropriate that these regulations should be used as a platform by which the U.S. government can take a position on any and all diplomatic rifts that may occur around the world, even if one of the countries involved happens to be an Arab League country.

According to a Treasury representative, Commerce and Treasury are working with the State Department to get further information on the Swiss-Libya standoff in hopes that the problem between the two countries can be resolved in the near future.

— Ginger T. Faulk, Esq. Baker Botts L.L.P. bakerbotts.com