Strengthened Enforcement Policy Against Trade Discrimination

On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) enhanced its enforcement policy for the federal antiboycott regulations, clarifying the categories of violations and their associated penalties in order to underline the serious consequences of disregarding U.S. export control laws.  Specifically, BIS has amended a supplement to the Export Administration Regulations (EAR) that sets forth guidance regarding BIS’s penalty determinations in cases involving violations of the antiboycott rules pursuant to the Anti-Boycott Act (50 U.S.C. § 4841 et seq.) under the Export Control Reform Act of 2018.

Originally enacted in 1979, the U.S. antiboycott legislation granted the President the authority “to prohibit compliance with or support of any foreign boycott against a country which is friendly to the United States.”  Although no specific country is named in the Act, the purpose of the law was clearly intended to protect Israel; as BIS has written, “[t]he Arab League boycott of Israel is the principal unsanctioned foreign boycott that U.S. persons must be concerned with today.”  The Arab League, established in 1945, currently is comprised of 22 countries.  Only six Arab League member states recognize Israel as a state. 

In 2020, four Arab countries—the United Arab Emirates, Bahrain, Morocco, and Sudan—abruptly normalized their relationships with Israel, joining two neighboring countries of Israel, namely Egypt and Jordan, which had already signed peace treaties in 1979 and 1994, respectively.  The significant moves in 2020 by the four Arab states were supported by the United States with weapons deals and diplomatic favors in exchange.

The latest amendment to the antiboycott regulations consists of four enhancements: (1) increased penalties “high enough to both punish those who violate the anti-boycott rules and deter those who would violate them”; (2) reprioritized violation categories to reflect the perceived relative seriousness of different offenses; (3) a prohibition on settling charges without the respondent admitting having committed a violation; and (4) renewed focus on foreign subsidiaries of U.S. companies to dissuade foreign parties from making boycott-related requests.

The Anti-boycott Act has extraterritorial reach; it applies not only to U.S. persons, but to “any foreign subsidiary or affiliate (including any permanent foreign establishment) of any domestic concern which is controlled in fact by such domestic concern.”  The BIS’s policy change to more aggressively explore means to deter foreign parties from making boycott requests is based on a lesson learned from its past practice, whereby U.S. parties receiving the boycott-related requests (for complying with or failing to report receipt of such requests) were penalized only, while foreign parties making the requests were not penalized.

The new “no admission, no settlement” policy emerged from an assessment of the prior practice of allowing companies to pay a reduced penalty without admitting misconduct.  BIS has determined that, although not requiring an admission of a violation facilitates settlement of charges, there are two important disadvantages to that approach.  First, with no factual recitation detailing the violation, other companies cannot learn from the example of the settlement.  Second, a respondent may obtain a significant reduction in penalty without an actual admission of wrongdoing.

As penalties, BIS may impose: (1) a monetary penalty in the amount of the greater of approximately $300,000 per violation or twice the value of the underlying transaction; (2) a denial of export privileges; and/or (3) a revocation of any BIS export licenses.  The U.S. government may pursue a criminal charge, which may result in a penalty of up to $1 million and/or up to 20 years of imprisonment. 

The Assistant Secretary of Commerce for Export Enforcement commented at the start of the enhanced enforcement policy that “discrimination [against U.S. allies] will not be tolerated regardless of whether it impacts people or trade.”  The enhanced anti-boycott enforcement policy was apparently intended to pressure Arab countries on the occasion of the first summit in three years previously postponed due to the pandemic.  Twenty-one Arab League states met on November 1 and 2, in Algeria, where the leaders discussed an agenda including the effects of climate change and the food and energy shortages aggravated by Russia’s invasion of Ukraine.

Boycott as Constitutionally-Protected Right

In addition to the Anti-Boycott Act, which is applicable to “all unsanctioned foreign boycotts” on its face, the Israel Anti-Boycott Act was introduced to Congress in 2018, specifically targeting the Palestinian-led Boycott, Divestment and Sanctions (BDS) movements.  Although the Israel-specific Act was not passed by Congress, currently 34 states including California, New York, Texas, and South Carolina, have enacted some form of state legislation that makes it illegal to participate in the BDS. 

In December 2018, the American Civil Liberties Union (ACLU) filed a complaint on behalf of an Arkansas newspaper alleging that the state’s anti-BDS law violates the First and Fourteenth Amendments of the U.S. Constitution, in Arkansas Times LP v. Mark Waldrip.  The Arkansas law prohibits state entities from contracting with private companies unless the contract includes a certification that the company “is not currently engaged in, and agrees for the duration of the contract not to engage in, a boycott of Israel.”

The district court and Eighth Circuit Court of Appeals both upheld the Arkansas law, finding that a boycott of Israel is “not speech, inherently expressive activity, or subject to independent constitutional protection” (district court opinion of January 2019), and that a certification requirement is not “unconstitutionally compelled speech” (8^th Circuit in June 2022).  On October 20, 2022, the ACLU filed a writ of certiorari to the U.S. Supreme Court, requesting review of the challenge.