ECTI Blog » Antiboycott

Treasury Lists – Countries Requiring Cooperation with an International Boycott

Holly Thorne — Wed, 05 Oct 2011 17:45:48 +0000

The Department of the Treasury has published a current list of countries which require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).

The countries are:

Kuwait
Lebanon
Libya
Qatar
Saudi Arabia
Syria
United Arab Emirates
Yemen

Republic of Iraq is not included in this list, but its status with respect to future lists remains under review by the Department of the Treasury.

While this list officially applies to the Internal Revenue Service (IRS) antiboycott rules, it is a reasonable indicator of the high risk countries for the EAR antiboycott regulations.

GM Daewoo in Korea Pays $88,500 for Antiboycott Violations

John Black — Fri, 16 Apr 2010 14:19:32 +0000

GM Daewoo Auto & Technology Company (“GMDAT”), a company incorporated under the laws of the Republic of Korea, agreed to pay an $88,500 penalty for 59 antiboycott violations that it voluntarily disclosed to the Department of Commerce. The 59 violations of 760.2(d) of the Export Administration Regulations (“EAR”) involved GMDAT furnishing information about its business relationships with boycotted countries or blacklisted persons related to the export of products from South Korea to Libya through an Egyptian distributor.

There are a couple of instructive points in this case: First, the prohibited information GMDAT furnished was that it made these two statements repeatedly in different documents during 2005 and 2006:

“We certify above goods are not Israeli origin. They do not contain any Israeli material and they are no [sic] being exported from Israel.”

“We hereby state that the carrying vessel…is allowed to enter the Libya ports.”

The first statement is a pretty straight forward violation of the EAR antiboycott rules that most export compliance people would notice as being prohibited. The second statement is one that some people might not catch. It is acceptable to say that the carrying vessel is not Israeli, because Israel is a boycotted country. To state however, that a vessel is allowed to enter Libyan ports may imply that the vessel is not on the Arab League Blacklist (because blacklisted carriers may be prohibited from entering Libyan ports), and the EAR prohibits US persons from providing information as to whether another person/entity is on the Arab League Blacklist.

The second instructive point is how EAR antiboycott jurisdiction applied to this situation. GMDAT is a controlled-in-fact* foreign subsidiary of General Motors Company, a company incorporated in the United States. That makes GMDAT a US person under the EAR antiboycott rules. The antiboycott rules apply when a transactions involves BOTH a US person such as GMDAT and US commerce. The products in question apparently were not US origin nor were they subject to US jurisdiction, so the pure export of such items from Korea to Libya (via Egypt) by GMDAT would not cause the antiboycott rules to apply because there would be GMDAT as a US person but there would be no US commerce.

The critical point in this case is that for all of those shipments, GMDAT sold and transferred title of the products to General Motors Overseas Distribution Corporation (“GM Overseas”), which is a company located in and incorporated in the United States, for resale to Libya through an Egyptian distributor. So, the involvement of GM Overseas created clear US commerce which caused the antiboycott jurisdiction to apply to GMDAT’s activities. Interestingly, GM Overseas did not do anything to violate the antiboycott rules, its involvement just caused there to be clear jurisdiction which meant that the statements GMDAT made violated the antiboycott rules. If GM Overseas were not involved, it could have very easily been the case that there was no antiboycott jurisdiction on GMDAT’s activities.

Whew, that’s a good one.

For more information, see http://efoia.bis.doc.gov/antiboycott/violations/a701.pdf

*(R.I.P., AM)

Treasury Announces Countries Enforcing Boycott on Israel

John Black — Fri, 30 Oct 2009 14:55:42 +0000

The Department of Treasury released a list of countries that “may require participation in, or cooperation with, an international boycott (meaning of section 999(b)(3) of the Internal Revenue Code of 1986).” The following countries have been named on the list:

• Kuwait
• Lebanon
• Libya
• Qatar
• Saudi Arabia
• Syria
• United Arab Emirates
• Yemen, Republic of

Iraq is not included on this list but the Department of Treasury will continue to review its status and it may be added to a future list. This list is published for use by US companies as an advisory that it is quite possible that companies in the above mentioned countries may require participation in a boycott which would be a violation of the Regulations.

The Treasury Department announcement technically applies to the antiboycott provisions of the IRS tax code and not to the antiboycott provisions in the Export Administration Regulations *EAR). But, as a practical matter, if you are trying to comply with the EAR antiboycott rules, these listed countries are a good place to focus your compliance resources—if you do a good job with these countries, then you may use your antiboycott compliance resources for other countries.

Federal Register: http://edocket.access.gpo.gov/2009/E9-27063.htm

New Twist in the Antiboycott Arena: Companies in Libya May Be Asked to Boycott the Swiss

Guest Author — Mon, 30 Mar 2009 13:22:34 +0000

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

Treasury Department Identifies Countries Enforcing Arab League Boycott of Israel

Danielle McClellan — Thu, 01 Jan 2009 03:04:29 +0000

The Department of Treasury has issued a list of countries that may or may not require participation in, or cooperation with, an international boycott. The following countries were identified:

Kuwait
Lebanon
Libya
Qatar
Saudi Arabia
Syria
United Arab Emirates
Yemen, Republic of

It is noted by the Department of Treasury that Iraq is not included on the list but its status for future lists is continually under review.
PRACTICAL IMPACT: Of course, the US Government will never say this is a list of the only countries that might enforce with the Arab boycott of Israel. As a practical matter, US persons should use this as the list of countries where there are most likely to be antiboycott compliance issues under the IRS rules and under the Export Administration Regulations.

More information:

Federal Register, December 31, 2008

Antiboycott Violations Result in Export Denial Order

Danielle McClellan — Fri, 15 Feb 2008 03:17:24 +0000

The US Department of Commerce’s Bureau of Industry and Security (BIS) has issued denial orders for two New York medical device distributor companies. AR-AM Medical Services LLC and DMA Med-Chem Corporation, both located at 49 Watermill Lane, Great Neck, New York. The charging papers explain that the companies supplied commercial invoices to the New York branch of the Bank of Egypt containing the following language that violations the antiboycott rules in the Export Administration Regulations:

The goods are neither of Israeli materials nor [sic] they contain any Israeli materials nor are they exported from Israel.

We declare that no raw material of Israeli origin has been used for production or preparation of the goods mentioned in this invoice.

Because the language was found on invoices that both companies generated, this is not a case where either company missed the boycott language in terms and conditions and/or other documents supplied by the purchaser. AR-AM included the language in three invoices, whereas DMA has allegedly only included it in one of their invoices.

Both companies are prohibited from participating in transactions in Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates, and the Republic of Yemen. Beginning January 14, 2008 the companies will be prohibited from any transactions for two years and AR-AM was fined $7,200 while DMA agreed to a fine of $2,400.

While it is unusual for a violation of the antiboycott rules to result in a company getting its export privileges denied, it is not unprecedented. In the landmark Baxter Healthcare antiboycott case, Baxter was partially denied its export privileges for Saudi Arabia and Syria, in addition to getting hit with a $6 million dollar fine and having its general counsel also personally fined.

More information:

www.exportlawblog.com/archives/288

www.bis.doc.gov/dpl/recentchanges.asp

International Boycott Country List Updated by State

John Black — Tue, 03 Apr 2007 23:05:29 +0000

In late March, 2007, the Department of Treasury released the most current list of countries which require, or may require, cooperation with an international boycott within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986.

The list includes:

Kuwait
Lebanon
Libya
Qatar
Saudi Arabia
Syria
United Arab Emirates
Yemen

Republic of Iraq is not on this list but its status is currently under review by the Department of Treasury and it may be added in the future.

BOTTOM LINE:

The Treasury Department’s list is related to the antiboycott issues for companies who claim foreign tax credits when they file their tax returns, and does not legally have a direct link to the comprehensive antiboycott rules in the Export Administration Regulations. As a practical matter, however, for EAR compliance US persons (as defined the EAR antiboycott rules) should focus their antiboycott compliance resources on transactions and activities involving the above-listed countries who actively participate in the Arab League’s secondary and tertiary boycotts against Israel.

Source:

Federal Register – April 3, 2007 (Volume 72, Number 63, Page 15934)

Companies Settle Charges of Antiboycott Violations

Jill Kincaid — Thu, 14 Dec 2006 23:00:19 +0000

Violations of the 2003 Antiboycott Act have resulted in penalties for two companies. Price Brothers (UK), Ltd. of Surrey, UK has settled charges relating to five violations related to Libyan transactions resulting in a $15,000 civil penalty International Specialists, Inc. of Boston , MA settled charges relating to violations resulting from transactions with Oman. Their imposed civil penalty was for $3,600.

View details of the charges and penalties at efoia.bis.doc.gov/Antiboycott/Violations/TOCAntiboycott.html & efoia.bis.doc.gov/Antiboycott/Violations/A681.pdf

(Hmmm, with penalties like that, it makes you wonder how much of your resources you should devote to antiboycott compliance when the cost of implementing a compliance program is greater than the amount of the fines. OK, I was just kidding… sort of. — John Black. )

Export Enforcement Highlights from Commerce/BIS Regulations and Procedures Technical Advisory Committee Meeting

Jill Kincaid — Tue, 05 Dec 2006 23:59:00 +0000

At the December 5, 2006 meeting of the Regulations and Procedures Technical Advisory Committee, the following enforcement issues were discussed:

The increase in boycott requests from Iraq and Libya. Since power has transferred from the Coalition Provisional Authority to the new Iraqi government, boycott requests there have increased significantly since falling in 2004. Closing the Libyan boycott compliance office has resulted in increased requests from Libya as well. The biggest of the boycotting countries is U.A.E.
The Office of Export Enforcement reported that one of their highest priorities is the renewal of the Export Administration Act (EAA). Proposed changes for the act upon renewal include penalties increased from $11,000 to $50,000 as well as imposing criminal penalties for violations. They will continue to encourage Voluntary Self-disclosures (VSDs) with the policy that penalties will be reduced by 50% with the option to consider other factors which could reduce penalties even further. From 2004-2006 only 5% of VSDs resulted in any penalty at all. Half of the other 95% resulted in the conclusion that no violation had occurred.

Focus Your Antiboycott Compliance Resources Here

John Black — Tue, 26 Sep 2006 23:20:37 +0000

So, you got limited export compliance resources and your probably use only a small part of that pool for compliance with the antiboycott regulations. We can’t get you more resources such as time and money, but we can tell you to focus your antiboycott compliance resources on your business activities that involve these countries:

Kuwait
Lebanon
Libya
Qatar
Saudi Arabia
Syria
United Arab Emirates
Republic of Yemen

( Iraq is not on the list at this time but remains under review by the Department of the Treasury.)

On September 26, 2006 , the U.S. Department of the Treasury published a notice in the Federal Register announcing that the above countries may require cooperation with an international boycott according to the Internal Revenue Code of 1986, the Arab League boycott of Israel , the same unsanctioned boycott covered by the Export Administration Regulations antiboycott rules. The Commerce Department has not recently put in writing an acknowledgement that its antiboycott regulations focus only on the Arab boycott of Israel , but informally Commerce Antiboycott officials may be willing to admit that is the case. (Quite a few years ago Commerce published an article in its newsletter “The OEL Insider” that stated that it interprets the EAR antiboycott rules to apply only to the Arab boycott of Israel.)