BIS Office of Antiboycott Compliance Settles Penalty Case for $162,000

The U.S. Department of Commerce, Bureau of Industry and Security, Office of Antiboycott Compliance (“OAC”) reached its first penalty settlement of the year last month. On February 17, 2017, the OAC settled with a California company, Pelco, Inc., regarding allegations of sixty-six (66) violations of the Export Administration Regulations (“EAR”) in the amount of $162,000.

The antiboycott regulations of the EAR impose two (2) separate obligations on companies and individuals that are subject to the jurisdiction of the BIS. Relevant to this case, first, U.S. parties are prohibited from agreeing to refuse or actually refusing to do business with or in Israel or with so-called blacklisted companies, in compliance with an unauthorized boycott under U.S. law. In addition, U.S. parties are required to report requests to engage in a restrictive trade practice of a foreign boycott against a country friendly to the United States. The primary boycott of concern is the Arab League boycott of Israel.

In the recent settlement, the OAC proposed charging that on thirty-two (32) occasions Pelco, Inc., with intent to comply with, further or support and unsanctioned foreign boycott, or knowingly agreeing to refuse to do business with another party according to an agreement, requirement, or a request from or on behalf of a boycotting country, in violation of EAR’s antiboycott compliance regulations. In addition, the OAC proposed charging Pelco, Inc., with failing to report receiving these requests on thirty-four (34) occasions. Parties receiving such requests are required to report them quarterly on form BIS 6051P, which can be accessed here or through the BIS website.

The limited facts contained in the Proposed Charging Letter, Settlement Agreement and BIS Order show that the alleged violations occurred over a nearly five (5) year period, between May 2011 through January 2016. The transactions involved the sale of goods from the U.S. to the UAE and Kuwait, both of which are generally considered to be countries friendly to the U.S.

Specifically, the alleged violations involved conditions in purchase orders that Pelco, Inc. received that required it to conform to Israeli boycott regulations or to comply with the Israeli boycott list. In the Proposed Charging Letter, BIS alleged that several purchase orders stated “PRODUCTS MUST CONFORM TO ‘ISRAELI BOYCOTT & UAE REGULATIONS’” and that purchase orders from Kuwait stated “PLEASE ENSURE THAT THE CONSIGNMENT DOES NOT CONTAIN ANY GOODS MANUFACTURED BY THOSE…ON THE ISRAELI BOYCOTT LIST.” Pelco, Inc. allegedly failed to delete, amend, or otherwise expressly take exception to these provisions.

The settlement agreement indicates that the company, at least in part, voluntarily disclosed the apparent violations. In reaching the settlement, the company did not admit the truth of the allegations in the Proposed Charging Letter or that it violated the antiboycott regulations under the EAR.

The Trump Administration’s public statements of strong support for Israel, coupled with its equally strong statements on trade enforcement and this significant penalty settlement, must serve as a stark reminder of a company’s dual compliance obligations under the antiboycott regulations of the EAR and that violations of them can be costly.

For questions on and assistance with antiboycott compliance and related export control matters, including representation in voluntary self-disclosures and investigations, please contact Jon P. Yormick, Esq., at jon@yormicklaw.com or toll free (Canada & U.S.) 866.967.6425.

Sales Department Wake-up Call: Costly Antiboycott Violations Lurk in Documents and Communications

Violations of the U.S. Antiboycott sections of the Export Administration Regulations (EAR) tend to not get much attention compared to other violations of the EAR, such as those involving evasion, acting with knowledge, or aiding and abetting.  Antiboycott violations tend to lead to fewer civil penalty settlements with the Office of Antiboycott Compliance (OAC), Bureau of Industry and Security, U.S. Department of Commerce (BIS). When settlements are reported, they tend to be relatively minimal, but that might be changing in the wake of 2 settlements in the last several days.

In general, the OAC explains that the Antiboycott regulations “prohibit U.S. companies from furthering or supporting the boycott of Israel sponsored by the Arab League, and certain other countries, including complying with certain requests for information designed to verify compliance with the boycott.”  Sales forces of U.S. companies that are well-trained in export control compliance know that complying with these requests might be prohibited under the EAR and just the request to comply may be reportable to BIS.

The June 7, 2013 Proposed Charging Letter to the Director of Sales & Marketing Operations at one of the companies that recently settled its alleged Antiboycott violations seems to show that the sales teams (and maybe the Credit Department) at some  companies might not be knowledgeable enough about the Antiboycott regulations and compliance with them.  The first case involved a $32,000 settlement with the OAC on 16 violations occurring between 2009-11 – one violation of furnishing information about business relationships with boycotted countries or blacklisted persons and 15 violations of failing to report the receipt of requests to engage in a restrictive trade practice or foreign boycott against a country friendly to the U.S. aka Israel.  The company was alleged to be involved with selling or transferring goods or services from the U.S. to Bahrain, Oman, Qatar, and the UAE, all of which are generally friendly to the U.S. as well.

A table attached to the Proposed Charging Letter shows that the company provided information in a transport certificate for Oman stating “…the ship is permitted to enter Port Sultan Qaboos, in accordance with the Laws of Sultanate of Oman.”  The company failed to report boycott compliance requests from Bahrain and Oman found in various transaction documents (possibly emails) and letters of credit.  The requests included requests to ensure that the company “Delete all products, manufactured in Israel as they are banned in Bahrain,” or noting that “All Produce of Israel are Banned” and that the shipping company or agent was to issue a certificate that the ship was permitted to enter Muscat or Sultan Qaboos.

The second settlement with OAC involved 63 violations of the Antiboycott regulations – 5 for furnishing information and 58 for failing to report requests to comply with the boycott. This case was settled for $56,000.  The 5 violations of furnishing information arose from emails and invoices, each confirming certain parts sold to a UAE party were not made in Israel.  Additionally, 57 sales orders from the UAE and one from Malaysia each requested that the U.S. company cancel portions of the order because parts originated from Israel, requested substitute parts, confirm that parts were not made in Israel, of otherwise made clear that Israeli-origin products were prohibited.

As with all civil penalty settlements that are released to the public, these recent settlements with the OAC should be a “wake up call” for U.S. companies doing business in the Middle East and in other countries that support the Arab League boycott against Israel.  The failure to train the sales and credit teams on identifying boycott requests, properly analyzing those requests for potential reporting to the OAC and complying with the U.S. Antiboycott regulations can be costly in terms of penalties and reputational harm.

For assistance with understanding and complying with the Antiboycott regulations, other provisions of the Export Administration Regulations (EAR) or other export controls and economic sanctions, as well as representation before BIS in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Esq., jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

 

Vessel Certificate that Goods Allowed to Enter Oman Leads to Antiboycott Penalty Settlement

A recent Antiboycott penalty settlement serves as a reminder that U.S. parties have a dual obligation under the Antiboycott regulations and must diligently work with outside agents, such as document preparation specialists, to comply.

The Office of Antiboycott Compliance, Bureau of Industry and Security (OAC), alleged that in June, 2007, Polk Audio, Inc., a Maryland company, the company intended to “comply with, further or support an unsanctioned boycott” and failed to report the request that it “engage in a restrictive trade practice or boycott.”  In the May 17, 2012 Proposed Charging Letter, the OAC alleged that Polk Audio’s “document preparation specialists” provided a vessel certificate to “persons in Oman” that certified the “vessel carrying the goods is allowed to enter the ports of Arab States/Oman.”

The second charge – failure to report – explained that the vessel certificate request originated in a letter of credit issued by HSBC Bank in Oman.  By failing to report this request, Polk Audio allegedly violated the Antiboycott regulations a second time.  The proposed charges were settled for a relatively minimal $8,000, not an uncommon amount for an OAC settlement.

This minimal settlement amount, however, should not be shrugged off by U.S. parties.  First, exporting companies should confirm that their export compliance management program addresses the Antiboycott regulations; specifically, the dual duties – reporting a request to engage in a boycott, and not complying with that request.  As this settlement shows, companies that export on letters of credit need to carefully review the terms for language that requests actions that violate the Antiboycott regulations and when outside agents handle letter of credit review and preparation, exporters must be sure those agents are familiar with the regulations as well.

Also, the minimal settlement in Polk Audio was in connection with a single transaction occurring 5 years ago.  Large volume exporters to and those bidding on tenders and responding to RFPs in Middle East countries should be particularly diligent in their compliance efforts. Just 2 years ago Daewoo Auto settled 59 Antiboycott violation charges for $88,500.  So these penalties can add up quickly.  Many companies may need to conduct an internal review of their transactions in the past 5 years and consider a voluntary self-disclosure regarding any Antiboycott violations that may be found.

At the recent BIS Update 2012 Conference, it was noted that the OAC tends to see over-reporting by some companies.  It is not a violation to over-report questionable Antiboycott requests; rather it is a sign of a robust export compliance program.  It was also noted that the OAC can assist U.S. companies by working with different governments to exclude offending language found in tenders, RFPs, and other documents.

For assistance with issues regarding the Export Administration Regulations, including the Antiboycott regulations, please contact Jon Yormick, jon@yormicklaw.com or call Toll Free (Canada & U.S.), +1.866.967.6425, or +1.216.928.3474.

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