The United Arab Emirates (“UAE”) and the Kingdom of Bahrain have decided to end their involvement in the Arab League’s economic boycott of Israel. On August 29, 2020, the president of the UAE announced the dissolving of the domestic boycott. Domestic relations between the two countries were normalized when the Abraham Accords Peace Agreement was officially signed on September 16, 2020. Not far behind was the Kingdom of Bahrain with similar proclamations. Signals are also coming from Saudi Arabia and Oman that they, too, will join the dissolution of the economic boycott of Israel.
By way of background, the U.S. government’s response to the Arab League Boycott of Israel has been around since the 1970s, when it implemented the Antiboycott Regulations. The primary boycott of Israel by the Arab League would have required U.S. companies to participate in the refusal to ship goods to the UAE from Israel or to ship goods from the UAE to Israel. In response, the U.S. government prohibited and even penalized U.S. companies in a secondary boycott if the company agreed to refuse to do business with U.S. persons who participated in business with Israel (e.g., the infamous “blacklist”). In addition, there was a third boycott that could affect a U. S. business if they refused to do business with a U.S. person who conducted business with a U.S. person on the “blacklist.”
Both the Department of the Treasury and the Department of Commerce require U.S. companies to report boycott requests that fall under the second and third (tertiary) prohibitions. There were some “outs” if you could show in your documentation to both agencies that the customer in the boycotting countries agreed with your “positive” statements. I can well remember combing through Letters of Credit from Middle Eastern countries to ensure a transaction would not be caught up in these prohibitions.
Prior to September 16th, from the Department of Treasury side, if a company knowingly participated in such boycott requests there were certain tax losses to the company, along with the potential for an additional $25,000 fine and imprisonment of not more than a year, and/or both. When the Department of the Treasury removes the UAE, Bahrain and possibly other Middle Eastern countries from their boycotting list, which could be as soon as October 2020, U.S. business will no longer be required to provide information in the annual boycott reports on their operation in these countries for future taxable years. Of course, the caveat is if the business receives a request “that they have reason to know it requires participation in or cooperation with the boycott as a condition of doing business with the country’s government or one of its companies or national; or that any other person has received such a request.”
The Department of Commerce, on the other hand, requires U.S. persons (companies) to report any boycott requests received and prohibits the participation in any such request. Violations of the antiboycott provisions in the EAR (15 C.F.R. §760) can be costly to a company. On the administrative side, the monetary penalty could reach $300,000 per violation or twice the amount of the transaction (whichever is greater). Criminal penalties could result in a fine of $1,000,000 and/or 20 years of imprisonment.
It’s likely that the Department of Commerce will amend the EAR to exclude the UAE and the Kingdom of Bahrain, essentially, from any boycott-related presumptions, similar to the exclusions both Jordan and Egypt were granted in the EAR after signing peace accords with Israel in 1979 and 1994, respectively. Compliance professionals will need to stay on top of upcoming dates and changes as any boycott request received prior to the EAR being amended may potentially be reportable under the regulations. As a reminder, the EAR requires the quarterly reports by U.S. persons where a request is received with the intent to boycott and the receiving company knows (or has reason to know) the intent of the request is to further cooperation with a boycott; whether it is directly related to the boycott of Israel, the blacklist of companies, or boycott-related discrimination.
If other Middle Eastern countries come on board, it could be the end of the boycott as we know it.
Beverly Demma is a Sr. Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.