On August 6, the Bureau of Industry and Security (BIS) of the Commerce Department issued a press release announcing a settlement of charges under the EAR antiboycott regulations. Johns Hopkins Health System Corporation in Baltimore, MD agreed to pay the maximum civil penalty of $10,000 to settle charges that it violated U.S. antiboycott laws by discriminating against an individual in support of the Arab League boycott of Israel.

BIS Charges

BIS had charged that in 1995, the corporation discriminated against a U.S. person because she was Jewish. The person had been seeking a position in the company’s International Services Department, which markets medical services around the world, including in the Middle East. The press release stated, “BIS believes that the discriminatory conduct was motivated by the company’s concern about having a Jewish person in that position because of the Arab League boycott of Israel.”

The charging letter in this case alleged five candidates were interviewed for the position of Foreign Embassy Liaison to market Health System’s services at embassies and diplomatic missions in the United States. The Director of the Office of Career Services subsequently interviewed at least one of these candidates.

In the course of the second interview, the Director asked the candidate, “Are you Jewish?” The candidate answered affirmatively and the Director explained they already had a “Jewish person working on the Jewish population.” The candidate was not hired for the position. Commerce alleged the person was not hired because she was Jewish and the company discriminated against a U.S. person because she was Jewish. This constituted a violation of Section 769.2(b) of the EAR.

Who could rise to the position of Director of the Office of Career Services in a corporation and ask a person’s religion in an interview?

The Settlement

This “settlement” raises some interesting and, perhaps troubling, issues for U.S. companies and their foreign subsidiaries.

To the best of my knowledge, this is the first action by BIS (formerly BXA) charging discrimination against a U.S. person under the Restrictive Trade Practices or Boycott (commonly known as the Antiboycott) provisions of the EAR (Part 760). Don’t get me wrong; I strongly believe discrimination against anyone for any reason is wrong. However, how many people know that BIS can impose penalties under the EAR for discrimination?

Also, EAR 760(b)(2) states “This prohibition [discriminatory action] applies only when such activities are undertaken with intent to comply with, further or support a unsanctioned foreign boycott.” Unless the Director in this case is a very savvy individual, he or she is probably not aware of the Arab boycott or the antiboycott regulations. If this is the case, how could the Director intend to support the boycott?

The press release stated that Johns Hopkins voluntarily disclosed the incident and cooperated fully with the subsequent investigation. Given this, why was the “settlement” for the maximum civil penalty? This suggests Johns Hopkins may have admitted the violation and the “settlement” avoided criminal charges with a potential penalty of $1,000,000.

Considerations

Suppose a company has a position requiring travel to Middle Eastern countries. Can they consider the safety of an employee traveling to these countries? Can they consider that the employee may not be allowed entry into these some of these countries? It sounds as if the answer is no. If they have knowledge of the regulations and don’t hire a person, the company could face criminal charges even though the hiring decision is based on these reasons.

Consider the implications on the foreign subsidiaries of U.S. firms. The antiboycott regulations apply to “controlled-in-fact” foreign subsidiaries of U.S. firms. A subsidiary is generally considered “controlled-in-fact” if the U.S. parent owns 51% or more of the outstanding stock in the subsidiary. Also, if the U.S. parent owns at least 25% of the stock and no other entity owns or controls an equal or larger share, the subsidiary is also considered “controlled-in-fact.” Controlled-in-fact subsidiaries are included in the definition of U.S. person. Suppose a Jewish American applies for a job with a foreign subsidiary of a U.S. company and the job responsibilities include business interaction with Middle Eastern countries. If the individual is not hired, BIS could charge it was on the basis of the boycott although I would still question intent if the individual(s) involved are not aware of U.S. antiboycott regulations.

Summary

Without knowing Johns Hopkins’ side of this case, what conclusions should we draw?

First, it is clear that BIS in the current administration is going to aggressively enforce the antiboycott regulations.

Second, voluntary disclosures may no longer be considered much of a mitigating factor on penalties. My experience has been that voluntary disclosures mitigated civil penalties (when intentional violation was not involved) to the range of $1,000 to $2,000. The imposition of the maximum penalty on a voluntary disclosure case may cause firms to reassess their policies on disclosures.

Finally, it is important that firms increase the knowledge of the antiboycott regulations’ requirements throughout the organization, including foreign subsidiaries. It is not adequate to assume these regulations will not apply if you don’t do business in Middle Eastern countries. These requests may often flow through parties in third countries on RFQs, contracts, purchase orders and other business documents. The receipt of a boycott request, even if unsolicited, triggers a requirement to report the request to the Commerce Department within specified time frames.

by Chuck Hough