On October 7, 2022, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) published in the Federal Register (87 Fed. Reg. 60890) a final rule updating its guidance regarding BIS’s penalty determinations in the settlement of administrative enforcement cases involving violations of the antiboycott provisions of the Export Administration Regulations (EAR). The final rule was accompanied by a Policy Memo providing further direction on the implementation of this rule to strengthen the U.S. antiboycott enforcement program.
Background
The U.S. antiboycott legislation, which was originally passed as part of the Export Administration Act of 1979 and reauthorized by the Anti-Boycott Act of 2018, prohibits U.S. persons from participating in any unsanctioned boycott imposed by a foreign government against a country friendly to the U.S. These laws preserve U.S foreign policy interest by preventing U.S. industry from implementing the foreign policy prerogatives of other nations. The Office of Antiboycott Compliance (OAC) within BIS administers and enforces these antiboycott rules.
New Rules and Policies
Reprioritization of Violation Categories
Paragraph (d) of the Antiboycott Penalty Guidance in Supplement No. 2 to part 766 of the EAR specifies the factors BIS considers in determining the appropriate sanctions in the settlement of administrative enforcement cases involving violations of the EAR antiboycott provisions. One of these factors is the category of the violation. Supplement No. 2 to part 766 classifies violations into three categories based upon their seriousness: Categories A, B, and C, with Category A representing the most severe violations that warrant the maximum penalty under the Anti-Boycott Act of 2018. This rule amends Supplement No. 2 to part 766 to recategorize certain violations. This amendment ensure that violation categories better comport with current boycott-related activity and better align BIS’s penalty determinations with the agency’s view of the seriousness of the alleged violations.
This rule moves the following violations from Category A to B:
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Knowingly agreeing to refuse to do business with or in a boycotted country, with a business organized under the laws of a boycotted country, with a national or resident of a boycotted country, or with any other person, when such refusal is pursuant to an agreement with the boycotting country, or a requirement of the boycotting country, or a request from or on behalf of the boycotting country as outlined in EAR § 760.2(a);[1]
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Requiring, or knowingly agreeing to require, any other person to refuse to do business with or in a boycotted country, as outlined in § 760.2(a);
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Implementing Letters of Credit that contain prohibited conditions or requirements as outlined in EAR § 760.2(f); and
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Furnishing Information About Business Relationships with Boycotted Countries or Blacklisted Persons as outlined in EAR § 760.2(d).
This rule moves the following violation from Category B to A:
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Furnishing Information About Associations with Charitable or Fraternal Organizations Which Support a Boycotted Country as outlined in EAR § 760.2(e).
Enhanced Penalties
According to the Policy Memo, BIS will begin its penalty calculus for Category A violations with the maximum penalty under the Anti-Boycott Act. Previously, BIS reserved the maximum penalty for only a small subset of violations. Now, all Category A violations will be subject to the maximum penalty as the starting point in the penalty calculus. Category B and C penalties will be enhanced as well.
Admission of Misconduct
Under the new policy described in the Policy Memo, OAC will require entities who enter into settlement agreements for antiboycott violations to admit to a statement of facts outlining their conduct as part of such agreement. Previously, OAC permitted entities to pay a reduced penalty without admitting misconduct. These “no admit/no deny” settlements will no longer be available.
Renewed Focus on Foreign Subsidiaries of U.S. Companies
According to the Policy Memo, OAC will renew enforcement efforts against controlled foreign subsidiaries of U.S. parent companies when they act in violation of U.S. antiboycott regulations. OAC will look for ways to be more aggressive in deterring foreign parties from issuing or making boycott requests of U.S. parties rather than only imposing consequences on U.S. parties that comply with or fail to report such boycott-related requests.
FOOTNOTES
[1] Refusing to do business with such entities or persons, which is also described in § 760.2(a), will remain a Category A violation.
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