Dealing with Anti-Boycott

in the Real WorldICPA Fall Conference 2015Lila Rose, LCB

Disclaimer The information and opinions presented herein are solely

those of the presenter, and do not necessarily represent the opinion of or any official communication by PolyOne Corporation or any of its subsidiaries.

All case information presented herein is publicly available as reported by the U.S. Bureau of Industry and Security. The selection of cases presented herein are selected for the specific language that caused the penalty and do not reflect any opinion on the specific entities involved.

Agenda Anti-Boycott 101 BIS Rules vs. Treasury Rules Boycott Language

Examples from penalties Anti-Boycott Compliance Program

Manual Software-based Partnering with other departments

The U.S. and other countries prohibit companies from complying with unsanctioned economic boycotts

These laws are specifically aimed at the Arab League Boycott of Israel, but may also involve boycotts between India and Pakistan

Requests may be made by phone, email, or in documents such as: Purchase Orders, Contracts, Tenders/RFP/RFQ, Letters of Credit / Applications for Letters of Credit, Document requests from a freight forwarder, Powers of Attorney, Certificates of Origin, Terms and Conditions, or Questionnaires

Primary countries: Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates, Yemen. BIS also lists Bahrain, Bangladesh, and Oman in its recent examples and Pakistan is listed in penalty cases.

Other possible boycotting countries include China, India, Indonesia, Malaysia, Taiwan, and Tunisia.

Anti-Boycott 101

Red flags: “no trans-shipment through Israel”, “goods of Israeli origin are not acceptable”, “must not sail on a vessel flying an Indian flag”

Penalties may be issued for complying with a boycott request (such as changing sourcing); furnishing information to support the boycott (such as information on activities with Israel); or failure to report boycott requests.

The penalties for violations of the anti-boycott laws are targeted at both the individual and the company US$50,000 per violation Imprisonment of up to five or ten years

Anti-Boycott 101

Levels of BoycottsPrimary: No imports from or exports to IsraelSecondary: No business with companies that do

business with IsraelTertiary: No business with “blacklisted” companies that

have relationships with Israel Who must comply with Anti-Boycott regulations?

U.S. “persons”Foreign company controlled by a U.S. “person”U.S. locations of foreign companies

Anti-Boycott 101

BIS Rules vs. Treasury Rules Department of Commerce, BIS rules:

15 C.F.R. 760 Illegal to refuse to do business with a person or entity to

comply with a boycott, furnish information, or take discriminatory actions

Quarterly reports (Form BIS 621-P) sent by the end of the month after the end of the quarter

Department of Treasury, Tax rules: 1979 Tax Reform Act Ribicoff Amendment Illegal to comply even if no explicit reference to boycotting Legal for the contract to be governed by the law of the

boycotting country Annual reports (Form 5713)

What is prohibited under BIS rules?1. Refusing or agreeing to refuse to do business with a boycotted

country, its citizens, or a blacklisted party. Includes general agreement to comply with boycott laws,

agreement to use a carrier permitted to enter Arab ports, and negative certifications (ex: These products are not of Israeli origin.)

2. Discrimination against a U.S. person due to race, religion, sex, or national origin

3. Furnishing protected information about a U.S. person or employee of a U.S. person or U.S. controlled foreign company

4. Furnishing information about business relationships for boycott reasons, includes past, present, and future relationships

5. Furnishing information about charitable relationships for boycott reasons

6. Accepting a letter of credit with a boycott request7. Failure to report any boycott request

BIS Rules vs. Treasury Rules

What is not prohibited under BIS rules? Exceptions include:

Agreeing to not ship goods on an Israeli vessel or airline, or a vessel that will call at an Israeli port, for shipments to a boycotting country

What is prohibited under Internal Revenue Code (IRC) rules? Refusing to do business with or in a boycotted country or its

companies, nationals, or government Refusing to do business with a blacklisted person Discrimination in employment or business relationships due to

nationality, race or religion for boycott reasons Refusing to use a blacklisted carrier or insure with a blacklisted

insurer Agreeing to certify non-blacklisted status

BIS Rules vs. Treasury Rules

Department of Commerce, BIS rules: Exceptions may apply

Legal to agree to comply with requirement for no boycott country vessels, but not refrain from using blacklisted vessels (positive vs. negative)

Legal to provide some shipping documentation such as positive Certificates of Origin, positive statements on manufacturer and origin

Even if the exception applies, the language must still be reported! Many penalties are assessed not for compliance with the boycott

request, but simply for failure to report. Department of Treasury, Tax rules:

Even if the language is allowable, it must be reported. Example: contract governed by the laws of Saudi Arabia

BIS Rules vs. Treasury Rules

So can I agree not to use an Israeli vessel or not? While the BIS provides an exception, the language must be reported, and there isn’t

an exception under IRS rules. Best practice is to not comply.

When in doubt, consult Legal Counsel.

BIS Rules vs. Treasury Rules

Boycott Language – Real World Examples Some boycott language doesn’t include “boycott” or Israel –

may not be a negative statement, but a positive one 47% of the Alleged Anti-boycott Violations published by BIS

include penalties for ambiguous language Of those, UAE was the most common origin country at 55%,

followed by Oman Letters of Credit were the most common document, followed

by shipping certificates Some cases also included penalties for “standard” boycott

language that specifically referenced boycott or Israel, but some did not

Boycott Language – Real World Examples

Does this look like boycott language to you? Insurance Broker’s Letter: Name and address of the insurance company surveyor in Qatar.

Case No. 99-15 / A687, 29 August 2007, shipments to Qatar, US$8,600 Penalties assessed for furnishing information and failure to report

Letter of Credit: “A certificate issued by the carrier or master of the vessel or their agents stating that the ship is allowed by the Arab authorities to call at Arabian ports.” Case No. 06-22 / A694, 20 October 2008, shipments to U.A.E., US$30,000 Failure to report

Letter of Credit: “Complete set of…ocean bills of lading…should state: - (1) that the carrying vessel is allowed to enter Kuwaiti ports. Separate declaration to that effect from the owner/captain of the vessel or from shipping company/their agent is acceptable.” Case No. 07-10 / A702, 26 March 2010, shipments to Kuwait, Bahrain, U.A.E., US$19,800 Failure to report

Boycott Language – Real World Examples

Letter of Credit: “Certificate issued by the carrier/master or their agent certifying that the carrying vessel is allowed by Arab authorities to call at Arabian ports during its voyage to the United Arab Emirates.” Case No. 08-06 / A707, 3 August 2010, shipments to U.A.E., US$28,800 Furnishing information and failure to report

Letter of Credit Application: “A certificate from the shipping company or their agents stating that the goods are shipped on conference/regular line vessel…that is allowed by Arab authorities to call at Arabian ports/Oman or in case of shipments from USA, Canada, Germany and UK the vessel is allowed to enter ports in the Sultanate of Oman according to its maritime laws and port regulations.” Case no. 09-20(B) / A709, 13 August 2010, shipments to Oman, US$18,500 Refusal to do business, furnishing information, failure to report

Boycott Language – Real World Examples Letter of Credit: “Documents Required…The name and nationality/origin of

the manufacturers of each item of the manufactured/processed goods. Bill of lading to mention: The carrying vessel is allowed to enter Kuwaiti ports. A separate declaration to this effect from the captain or owner or agent of vessel is acceptable.” Case No. 09-13 / A719, 04 October 2011, shipments to Kuwait, US$8,000 Furnishing information and failure to report

Certificate of Insurance: “The undersigned does hereby certify on behalf of the above insurance company, that the said company has a duly qualified and appointed agent or representative in Kuwait, whose name and address appear below…” Case No. 09-03 / A720, 06 October 2011, shipments to Lebanon and Kuwait,

US$19,200 Furnishing information

Boycott Language – Real World Examples Be careful with company questionnaires:

“What companies in whose capital are your shareholders? Please state the name and nationality of each company and the percentage of share of their total capital.“

Furnishing information to support a boycott is a violation, AND this language is reportable.

Anti-Boycott Compliance Program Do not trust that your forwarder or your bank will catch boycott

language Major banks and freight forwarders are listed in the Alleged

Violations! Anti-Boycott compliance has to start with Sales

The first point of contact and the primary contact with the customer needs to be trained in anti-boycott to recognize and report boycott language

Don’t assume that your Legal Department understands Anti-Boycott Don’t assume that they will report boycott language

Don’t assume that your Tax/Finance/Treasury Department understands Anti-Boycott

Anti-Boycott Compliance Program Manual program

Train Sales, Contracts, Finance, Order Entry, and Legal on Anti-Boycott

Flag transactions for any possible boycott country Review contracts, Purchase Orders, Letters of Credit, Terms and

Conditions, shipping instructions, and any document requests for boycott language

Record any boycott requests received and file your quarterly (BIS) and annual (IRS) reports

Issues: Getting buy-in from other departments Need to refresh training regularly and train new hires Relying on the other department to recognize the transaction is for a

boycotting country

Anti-Boycott Compliance Program Software Based

Use your ERP system to flag new customers and transactions for possible boycotting countries

Automated alert to Trade Compliance and Legal to review the customer/transaction

Manual review of the contract/LC/other documents still required Still need to train Sales, Contracts, Finance, and Legal on anti-boycott;

catch the boycott language before the contract or L/C is finalized Issues:

Getting buy-in/resources from IT to set up the system flag Getting buy-in from other departments to catch boycott language early Regularly reviewing the list of countries to include as possible boycotting

countries

Anti-Boycott Compliance Program Partnering with other Departments

Develop a close relationship with your Legal Department Attend their monthly meetings Keep them informed of your projects, concerns, struggles Get them to see you as a resource too; differentiate between legal

expert and trade compliance expert Tailor your communications to your audience, such as citing the

specific regulations Getting Sales to buy-in

A Tale of Two Approaches: Personal Liability and Keeping the Sale Personal Liability: Educate them on their liability for agreeing to boycott

requests to get them to contact Trade Compliance Keeping the Sale: Stress the importance of involving Trade Compliance

early in the process to avoid having to reject a contract

Other departments: Customer Service – personal liability usually works Finance – avoid having to amend the L/C Contracts – approach the same as Sales

Anti-Boycott Compliance Program

Final ThoughtsDon’t Assume

That only countries in the Middle East are boycott risks, or that all boycott requests are about Israel

That all boycott requests are negative statements, or obviously boycott related

That anti-boycott is just a BIS rule That declining the boycott request is the end of your

responsibility That someone else is taking care of anti-boycott

compliance – not your bank, not your forwarder, not your Legal Department

Questions

References

U.S. Department of Commerce, Bureau of Industry and Security. Alleged Antiboycott Violations. Retrieved from http://efoia.bis.doc.gov/index.php/electronic-foia/index-of-documents/7-electronic-foia/226-alleged-antiboycott-vilations

U.S. Department of Commerce, Bureau of Industry and Security. Examples of Boycott Requests. Retrieved from https://www.bis.doc.gov/index.php/enforcement/oac/7-enforcement/578-examples-of-boycott-requests