THE EXPORT COMPLIANCE MANAGER S HANDBOOK

Transcription

1 THE EXPORT COMPLIANCE MANAGER S HANDBOOK Published by WorldECR, the joural of export cotrols ad sactios

2 U.S. ATIboYcoTT LAwS l 1 U.S. atiboycott laws: overview ad compliace strategies By Kim Strosider ad Christie Miarich U.S. atiboycott laws ad regulatios are complex, ad ofte ot well uderstood. Yet, U.S. ad o-u.s. compaies that ru afoul of these laws ad regulatios ca face potetially sigificat civil ad crimial pealties ad the loss of certai U.S. tax beefits. Recet efforts to overhaul U.S. export cotrols ad recet developmets i U.S. ecoomic sactios have received widespread attetio. However, this related area of U.S. atiboycott laws ad regulatios which target compliace with the Arab League boycott of Israel has bee little chaged i more tha 40 years ad appears ulikely to be revamped ay time soo. Durig the 1960s ad 1970s, the Uited States adopted laws ad regulatios desiged to couteract other atios ecoomic boycotts ad embargoes. These atiboycott measures were adopted to ecourage, ad i some cases require, U.S. firms to refuse to participate i foreig boycotts that the Uited States does ot edorse. They are iteded to prevet U.S. firms from supportig the policies of other atios that ru couter to U.S. policy. Despite the lack of attetio these laws ad regulatios receive, they ca substatially impact both U.S. ad o-u.s. compaies. Moreover, as tesios i the Middle East cotiue, U.S. officials have reported receivig icreased reports Kim Strosider is a Parter i Covigto & Burlig LLP s Iteratioal Trade & Fiace practice group ( ad leads its trade cotrols practice. Christie Miarich is Global Trade Compliace Cousel at Raytheo Compay. The views expressed i this chapter by Ms. Miarich are her persoal views, ad ot ecessarily the views of Raytheo.

3 2 l U.S. ATIboYcoTT LAwS U.S. ANTIBOYCOTT LAWS KEY TAKEAWAYS Atiboycott laws are iteded to discourage U.S. busiesses ad their foreig braches, subsidiaries, ad affiliates from participatig i other coutries boycots that the Uited States does ot edorse. The prime focus of U.S. atiboycott laws is the official boycott of Israel, which is maitaied ad still eforced by some members of the Arab League. Both the U.S. Departmet of Commerce ad the U.S. Departmet of the Treasury maitai atiboycott measures. While the Commerce Departmet atiboycott rules are desiged to catch trasactios withi U.S. commerce, trasactios coducted outside the Uited States are ot ecessarily out of reach of these regulatios, ad the Treasury atiboycott measures do ot have such a U.S. commerce limitatio. Boycott laguage ca appear i may forms. Examples iclude: l l l The Cotractor shall apply all rules of the Israeli Boycott. Certificate issued by the shippig compay or its aget testifyig that the carryig vessel is allowed to eter the Lebaese port. Goods of Israeli origi ot acceptable. of boycott requests from that regio, Asia, ad orth Africa. The Uited States maitais two separate ad distict atiboycott regimes, oe admiistered by the U.S. Departmet of commerce, the other by the U.S. Departmet of the Treasury. These regimes are sometimes icosistet. Further, the problematic boycott laguage targeted by these two schemes ca be buried i the fie prit of purchase orders or letters of credit ad ca be difficult to idetify, makig compliace a challege. This chapter provides backgroud ad a overview o these laws ad regulatios, ad discusses compliace strategies. Backgroud U.S. atiboycott laws ad regulatios are desiged to prohibit or pealise

4 U.S. ATIboYcoTT LAwS l 3 cooperatio with iteratioal ecoomic boycotts i which the Uited States does ot participate. U.S. atiboycott legislatio adopted i 1965 required persos exportig from the Uited States to report to the commerce Departmet the receipt of ay request to take actio or provide iformatio supportive of a iteratioal boycott directed agaist a coutry friedly to the Uited States. The law was ameded i the 1970s to exted these reportig requiremets to all etities cotrolled by U.S. firms ad, for the first time, prohibited certai boycott-related coduct. I additio, a 1976 law created a separate tax retur reportig requiremet ad imposed tax burdes o U.S. taxpayers if they or members of their cotrolled groups participate i certai iteratioal ecoomic boycotts. The primary (but ot the oly) target of U.S. atiboycott programmes is the Arab League boycott of Israel. This boycott has a primary aspect, which bars the import of Israeli goods ad services ito the boycottig coutries ad bars the export of goods ad services from those coutries to Israel. However, U.S. atiboycott laws geerally do ot target such prohibitios. Rather, they are directed agaist the secodary ad tertiary aspects of the boycott. The secodary boycott precludes dealigs with compaies ad idividuals that do busiess with Israel. The tertiary boycott precludes doig busiess with compaies or idividuals who have bee blacklisted because of their relatioships with Israel. curretly, the U.S. govermet has listed ie coutries as supportig the boycott of Israel: Iraq, Kuwait, Lebao, Libya, Qatar, Saudi Arabia, Syria, the Uited Arab Emirates, ad Yeme. At least several of these coutries reportedly have moved away from eforcig aspects of the secodary or tertiary boycott, but cotiue to maitai those laws o their books. U.S. Commerce Departmet atiboycott programme The U.S. commerce Departmet s atiboycott regulatios are foud i the Export Admiistratio Regulatios ( EAR ), 15 c.f.r. part 760. These regulatios apply to the coduct of Uited States persos, which icludes idividual U.S. residets or atioals, domestic cocers, ad o-u.s. etities that are cotrolled i fact by a domestic cocer, if the coduct is i U.S. commerce. Domestic cocers iclude: 1. ay partership, corporatio, compay, associatio, or other etity of, or orgaised uder the laws of, ay U.S. jurisdictio ad 2. ay permaet U.S. establishmet of a o-u.s. cocer.

5 4 l U.S. ATIboYcoTT LAwS Pealties for o-compliace with U.S. atiboycott laws ad regulatios ad recet eforcemet actios by the U.S. Departmet of Commerce Compaies igore U.S. atiboycott laws ad regulatios at their peril. Maximum pealties for violatios of the Commerce atiboycott regulatios iclude civil pealties per violatio of $289,238 or twice the value of the trasactio, whichever is greater, ad crimial pealties of $1 millio per violatio or 20 years imprisomet. Compaies ad operatios outside the Uited States are ot beyod the reach of these regulatios. I fact, a umber of the settlemet agreemets etered ito by the Commerce Departmet s Office of Atiboycott Compliace ( OAC ) ivolve o-u.s. braches or affiliates of U.S. compaies or the U.S. activities of o-u.s. compaies. While the Treasury Departmet s atiboycott measures do ot carry civil or crimial pealties for o-compliace, they ca result i adverse U.S. tax cosequeces, such as a loss of foreig tax credits ad the iability to defer foreigsource icome. The maer ad degree to which U.S. taxes are affected by boycott participatio are complex ad deped upo the circumstaces of the particular taxpayer. I additio, wilful failure to file a required boycott report with the Treasury Departmet may result i a $25,000 fie ad/or imprisomet for up to oe year. Followig are summaries of several recet atiboycott eforcemet actios pursued by the Commerce Departmet s OAC: Two related foreig compaies doig busiess i Texas, Vimar Iteratioal, Ltd. ad Vimar Overseas, Ltd., agreed i 2015 to settle atiboycott matters for civil pealties of $19,800 ad $41,400, respectively, for furishig prohibited iformatio ad failig to report boycott requests. The prohibited iformatio allegedly furished icluded (i the case of Vimar Overseas) certificates that vessels used i trade with Lebao were eligible to eter ito the Arabia ports or to eter the Lebaese ports ad (i the case of Vimar Iteratioal) bills of ladig idicatig that vessels were ot blacklisted. I 2014, Electro-Motive Diesel, Ic. of Illiois agreed to pay a civil pealty of $26,350 for 31 alleged failures to report boycott requests from Bagladesh, which stated as follows: Goods ad related services from the followig coutries are ot eligible: Israel. Digi-Key Corporatio of Miesota agreed i 2013 to pay a civil pealty of $56,600 for 63 alleged violatios of the EAR, icludig five charges of furishig prohibited iformatio ad 58 charges of failure to report. The alleged impermissible furishig of iformatio ivolved s ad ivoices to the UAE that idicated parts were ot made i Israel. The requests that Digi- Key allegedly failed to report were from the UAE ad, i oe case, Malaysia.

6 U.S. ATIboYcoTT LAwS l 5 A o-u.s. etity is cotrolled i fact by a domestic cocer if the domestic cocer has the authority to establish the geeral policies or cotrol the day-today operatios of the o-u.s. etity. certai factors e.g., direct or idirect beeficial owership or cotrol of a certai percetage of outstadig votig securities, the existece of a exclusive maagemet cotract, the authority to appoit a majority of the members of the board of directors or chief operatig officer, etc. give rise to a rebuttable presumptio of cotrol i fact. below, we discuss the jurisdictioal requiremet that a trasactio be i U.S. commerce for these regulatios to apply. The, we describe the type of coduct these regulatios prohibit. U.S. commerce coectio I order to trigger the commerce Departmet s atiboycott regulatios, the idividual trasactio that ivolves boycott-related coduct or i which the boycott request was made must be i U.S. commerce. As a threshold matter, sales, purchases, ad trasfers of goods or services betwee persos i the Uited States ad persos iside or outside the Uited States ad its territories are i U.S. commerce, icludig exports of goods or services from the Uited States ad imports of goods or services ito the Uited States. Services i this cotext icludes iformatio. I additio, trasactios betwee a cotrolled-i-fact foreig affiliate of a domestic cocer ad a perso located i the Uited States is a activity i U.S. commerce. For example, if a wholly-owed foreig affiliate of a domestic cocer purchases goods or services from the Uited States i order to fill a order for a customer, that trasactio will be i U.S. commerce ad the commerce Departmet atiboycott provisios would apply. Determiig whe the o-u.s. sales activities of o-u.s. affiliates of a U.S. compay are i U.S. commerce requires a careful trasactio-by-trasactio iquiry. Geerally, o-u.s. sales activities are cosidered to be i U.S. commerce if they ivolve: l Goods or services (icludig iformatio ad igrediets or compoet parts) specifically acquired from the Uited States i order to egage i the trasactio; or l Trasactioal services provided to or for the beefit of the customer by a perso i the Uited States (e.g., U.S. guaratees of performace or techical services provided to the o-u.s. affiliate s customer). However, this does ot iclude U.S. accoutig, legal, or other support to the foreig affiliate itself.

7 6 l U.S. ATIboYcoTT LAwS Boycott requests six categories of prohibited coduct The commerce Departmet defies the term boycott request broadly to iclude virtually ay requiremet to participate i or cooperate with a boycott. I some coutries, registratios or reewals of trademarks ad other itellectual property rights may give rise to boycott requests. I additio, boycott requests may appear i questioaires, purchase orders, teder ivitatios, cotracts, ad letters of credit. boycott requests also may be received from customs or cosular officials i the course of clearig goods for import. There are six categories of prohibited boycott-related coduct uder the EAR: l Refusig or agreeig to refuse to do busiess with or i a boycotted coutry (e.g., Israel), or with a atioal of a boycotted coutry (e.g., a Israeli compay), or a boycotted perso (e.g., a blacklisted party). This icludes, amog other thigs, agreeig to comply with a coutry s boycott laws; l Refusig to employ or otherwise discrimiatig agaist a U.S. perso, i deferece to a boycott request, o the basis of race, religio, sex, or atioal origi; l Furishig iformatio, i respose to a boycott request, about the race, religio, sex, or atioal origi of a U.S. perso or ay ower, officer, director, or employee of a domestic cocer or cotrolled-i-fact o-u.s. affiliate; l Furishig iformatio about ay perso s past, ogoig, or proposed future relatioships (or the absece of relatioships) with other parties, if that iformatio is sought for boycott-related reasos. This icludes, for example, furishig a certificate idicatig that the goods were shipped to a boycottig coutry o a carrier eligible to eter the ports of the boycottig coutry (other tha Saudi Arabia), or furishig a certificate idicatig that the goods are ot made i Israel; l Furishig iformatio about ay perso s associatio with or support for ay charitable or frateral orgaisatio supportig a boycotted coutry; ad l Payig, hoourig, cofirmig, or otherwise implemetig a letter of credit that cotais ay prohibited boycott requiremet or request. There are several arrowly-draw exceptios to these prohibitios. For example, it is permissible to agree ot to ship goods to a boycottig coutry o Israeli vessels or airlies or o a ship or aircraft that will call at a Israeli port e route to a boycottig coutry. These requiremets are treated as reasoable

8 U.S. ATIboYcoTT LAwS l 7 security measures of a boycottig coutry rather tha prohibited boycott requests. commerce Departmet statistics idicate that traditioal boycottig coutries propagate most boycott requests, with the UAE ad Iraq amog the leadig propagators of boycott requests i recet years. However, compaies also must be alert for requests that may come from other coutries, such as bahrai, bagladesh, Malaysia, oma, Pakista, ad Tuisia, with requests from Malaysia, i particular, beig quite umerous i recet years. I additio, compaies may receive boycott requests from distributors or other itermediaries workig for customers i boycottig coutries. For example, a distributor i the Europea Uio with a Lebaese customer may propagate a boycott request i order to satisfy the requiremets of its customer. o some occasios, though rare, boycott requests may relate to boycotts other tha the boycott of Israel, such as boycotts betwee chia ad Taiwa, Idia ad Pakista, ad Turkey ad cyprus. U.S. Treasury Departmet atiboycott programme The U.S. Treasury Departmet s atiboycott measures are codified i sectio 999 of the Iteral Reveue code ( IRc ). These measures pealise U.S. taxpayers if they or members of their cotrolled groups agree to participate i or cooperate with a boycott that is ot sactioed by the Uited States. Such agreemets are ot prohibited ad do ot carry civil or crimial pealties but, rather, ca result i adverse U.S. tax cosequeces for the taxpayer. Boycott participatio uder the IRC The defiitio of boycott participatio uder the IRc does ot alig exactly with prohibited boycott activities uder the EAR. Uder the IRc, the term icludes ay agreemet as a coditio of doig busiess withi a boycottig coutry or with the govermet, a compay, or a atioal of a boycottig coutry to refrai from ay of the followig: l Doig busiess with or i a boycotted coutry (e.g., Israel) or with the govermet, compaies, or atioals of a boycotted coutry; l Doig busiess with a boycotted or blacklisted perso or udertakig, as a coditio of sale, ot to ship goods o a blacklisted carrier or isure goods with a blacklisted isurer; l Doig busiess with a compay by reaso of the atioality, race, or religio of its owers or idividuals i its maagemet, or removig corporate directors or idividuals from maagemet for such reasos; or

9 8 l U.S. ATIboYcoTT LAwS l Employig idividuals of a particular atioality, race, or religio. Some of the most commo types of boycott participatio agreemets are udertakigs to comply geerally with the laws of a boycottig coutry (deemed to iclude that coutry s boycott laws). For example, a agreemet to comply geerally with the laws of the UAE would be reportable to ad pealisable by Treasury, but ot prohibited by or reportable to commerce (uless the compliace provisio specifically refereced the boycott laws). I additio, Treasury cosiders a agreemet to provide certai iformatio i the future, such as a commitmet to provide a certificatio of o-blacklist status, to be boycott participatio. Perhaps most importatly, ulike the EAR provisios, the IRc provisios reach the coduct of o-u.s. affiliates who are members of a U.S. taxpayer s cotrolled group uder the IRc, eve if that coduct is ot associated with a activity i U.S. commerce. Compliace strategies Respodig to boycott requests Receivig a boycott request i the course of a proposed trasactio does ot ecessarily require compaies to walk away from the busiess opportuity. Rather, compaies ca egotiate amedmets ad chages to problematic boycott laguage so as to arrive at cotract laguage that is ot prohibited or pealised by U.S. atiboycott laws. ofte, small chages that may appear subtle to busiess parters ca successfully eutralise problematic boycott requests. The likelihood of successfully egotiatig the ecessary chages will deped o the customer, coutry, ad goods ivolved i each trasactio. However, may customers i boycottig coutries are aware of U.S. atiboycott laws ad accept that U.S. compaies ad their affiliates must comply with these laws or risk pealties or the loss of tax beefits. Further, a umber of boycottig coutries have moved away from eforcig the secodary ad tertiary boycotts, focusig istead o the primary boycott (icludig i some cases requests that are ot prohibited or pealisable uder U.S. atiboycott law). Recommeded compliace measures Give the complex ad uaced ature of these regulatios, implemetig practical ad effective compliace strategies ca be a challege. At a miimum,

10 U.S. ATIboYcoTT LAwS l 9 compaies that are subject to U.S. atiboycott regulatios should cosider the followig compliace strategies: Review Trai resposible employees to carefully review all oral ad writte commuicatios, icludig, but ot limited to, s, cotracts, purchase orders, letters of credit, import documets, ivoices, teders, ad requests for iformatio, to determie whether ay boycott laguage is preset. Special attetio should be paid to documets emaatig from the coutries idetified by the U.S. Treasury Departmet as boycottig coutries ad coutries idetified by the U.S. commerce Departmet as havig propagated recet boycott requests. All trasactio documets should be reviewed, eve if the compay does ot ited to pursue the busiess. Problematic boycott laguage might iclude: l Refereces to Israel or Israeli whe the trasactio does ot otherwise ivolve ay apparet coectio to Israel; l Refereces to a vessel or aircraft beig eligible to eter the ports or airports of a boycottig coutry; l Refereces to egative certificates of product origi (e.g., goods are ot of Israeli origi ); l Refereces to a isurace compay havig a qualified aget or represetative i a boycottig coutry; l Requests to comply with the laws or regulatios of a boycottig coutry geerally or boycott laws specifically; or l boycott questioaires seekig iformatio about relatioships with Israel, icludig data about the compay s owership, maagemet, subsidiaries, licesees, or affiliated firms. This list is ot exhaustive. whether a boycott request is problematic from a U.S. legal stadpoit will deped o jurisdictioal factors ad how the request is framed. Refer If ay problematic boycott laguage is idetified, place the trasactio o hold ad promptly forward a copy of the exact laguage received to the export compliace or legal departmet for further evaluatio. Give the complexities ivolved i applyig this area of the law, compaies frequetly elect for a cetralised review rather tha traiig employees extesively o the uaces of this area.

11 10 l U.S. ATIboYcoTT LAwS Further examples of boycott laguage The followig are examples of boycott requests reported to the U.S. Commerce Departmet i recet years: Prohibited boycott coditios i a cotract The (teders) committee may also exclude ay bid that does ot abide by the provisios of the commercial ad ecoomic laws ad the provisios of the law of boycott of Israel applicable i the state. [A certificate required statig] that the items have ot bee maufactured i Israel ad that ay of the compoets thereof have ot bee maufactured i Israel. Prohibited coditio i a cotract Certificate issued by the maufacturer or exporter statig that the goods are ot of Israeli origi, have ot bee exported from Israel, ad do ot cotai ay Israeli materials. Prohibited boycott coditio i a purchase order Goods/equipmet subject to Israeli Boycott terms must ot be quoted. Prohibited boycott coditio i a letter of credit Uder o circumstaces may a bak listed i the Arab Israeli Boycott Black List be permitted to egotiate this Documetary Credit. Prohibited boycott coditio i a cotract Vedor shall comply with the Israel boycott laws i performig his cotractual obligatios. Prohibited boycott coditio i a cotract The seller warrats that o supplier or maufacturer or ay part of the product is precluded from doig busiess with Saudi Arabia uder the terms of the Arab boycott regulatios. Reportable boycott coditio i list of documets required by a freight-forwarder Certificate from isurace compay statig that they are ot blacklisted. Prohibited boycott coditio i a purchase order Followig statemet should appear at foot of ivoice: We hereby certify that these goods are ot of Israeli origi or do they cotai materials of Israeli origi ad they are maufactured by. Prohibited boycott coditio i a cotract The Cotractor whether a Establishmet or Compay, Natioal or Foreig, shall ot import or eter ito Agreemet with ay Foreig Compay or Establishmet as Sub-

12 U.S. ATIboYcoTT LAwS l 11 Cotractor particularly if such Compay did ot have previous dealig i the Kigdom of Saudi Arabia, except after cotactig the Regioal office of the Arab Boycott to Israel, or oe of the two Sub-Offices of the Miistry of Commerce at Jeddah or Dammam, to esure of the status of the said Foreig Compay, i light of the Rules ad orders issued by the office of the Arab Boycott of Israel. Prohibited boycott coditio i a cotract Israeli Boycott: The Cotractor shall apply all rules of the Israeli Boycott. Prohibited boycott coditio i a boycott questioaire Compay/Corporatio Backgroud: 1. Has the compay/corporatio egaged i or coducted busiess i Israel? 2. Does the compay/corporatio or its subsidiary have a office, facility or busiess operatio i Israel? Prohibited boycott coditio i a teder The quotatio should ot iclude ay material maufactured or exported by boycotted compaies as per the Kigdom of Saudi Arabia regulatios. Prohibited boycott coditio i a teder Eligible Bidders: The bidder/supplier who are ot subject to the Boycott regulatios of the League of Arab States or of the Kigdom of Saudi Arabia will oly be cosidered. Source: BIS website at: eforcemet/578-examples-of-boycott-requests) Respod/report The export compliace or legal departmet should provide istructios o how to proceed. This may ivolve amedig or strikig the problematic laguage. It also could ivolve collectig iformatio ecessary to esure proper ad timely reportig of ay boycott requests to the commerce ad/or Treasury departmets. commerce Departmet reports are required to be filed withi 30 days after the ed of the caledar quarter i which a reportable boycott request is received (or 60 days after the ed of the relevat caledar quarter if the request is received outside of the Uited States). Treasury Departmet boycott reports are filed aually with the U.S. taxpayer s tax returs. boycott requests must be reported (uless a exceptio applies) eve if the prohibited or pealised actio was ot take.

13 12 l U.S. ATIboYcoTT LAwS Coclusio The complex ad sometimes icosistet ature of U.S. atiboycott programmes ca substatially impact both U.S. ad o-u.s. compaies ad, i some situatios, lead to civil or crimial pealties or the loss of tax beefits. As a result, compaies should esure that compliace staff are adequately traied o this area of U.S. law. I additio, compliace policies for U.S. ad covered o- U.S. etities should iclude procedures for reviewig trasactio materials, referrig problematic boycott-related laguage for appropriate review, ad reportig boycott requests as required. Reprited from The Export Compliace Maager s Hadbook, published by WorldECR, the joural of export cotrols ad sactios Iformatio preseted here is ot to be cosidered legal advice. Although every precautio has bee take i the preparatio of material, the publisher ad authors ad cotributors assume o resposibility for errors or omissios. No liability is assumed for damages resultig from the use of the iformatio cotaied herei.