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.

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