Feb

5

An Eye for an Eye, A Boycott for a Boycott

Posted by at 10:20 pm on February 5, 2008
Category: Anti-Boycott • BIS

Arab LeagueThe Bureau of Industry and Security (“BIS”) released Settlement Agreements that the agency entered into with AR-AM Medical Services LLC and DMA Med-Chem Corporation, two related medical device distributors located in Great Neck, NY. According to the charging papers, the companies supplied commercial invoices to the New York branch of the Bank of Egypt containing the following language:

The goods are neither of Israeli materials nor [sic] they contain any Israeli materials nor are they exported from Israel.

We declare that no raw material of Israeli origin has been used for production or preparation of the goods mentioned in this invoice.

AR-AM was alleged to have included this language in three invoices and agreed to a fine of $7,200. DMA was alleged to have included this language in one invoice and agreed to a proportionate fine of $2,400. Both companies agreed to a “non-standard” two-year denial order forbidding them from engaging in exports to Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates and the Republic of Yemen. Both fines were suspended for two-years contingent upon compliance with the non-standard denial order and no further export violations by the companies.

Since the language was contained in the invoices generated by both companies, this is not a case where the company simply missed the boycott language in terms and conditions or other documents supplied by the purchaser. As a result, neither company was in very good position to claim that it was an oversight or a failure to read all documents thoroughly. This probably explains the two-year denial order.

However, the “non-standard” denial order is hard to defend even in this circumstance. Section 764.3(a)(2) of the EAR permits a “non-standard” denial order which is described as “narrower in scope” than a “standard” denial order. The order at issue is non-standard because it is restricted to specific Arab countries. Since only four instances of anti-boycott compliance were alleged, and three of those for Syria and the fourth was for an unspecified country, these aren’t the countries that were involved in the transactions in dispute. Nor or these all the countries in the Arab League.

Instead, the list seems to be derived from the list of countries reported in the 2007 BIS report to have been involved in anti-boycott requests, excluding Egypt and Jordan which were involved in only a handful of such requests. That being said, it seems more than a little ironic that a boycott would be punished not be a general denial order but by an order that in effect was itself a boycott of specific countries.

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Copyright © 2008 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

3 Comments:

In the settlement agreement I noticed that the civil penalty was suspended for two years – a possible trade-off for the non-standard denial order?

Comment by Ladyx on February 6th, 2008 @ 8:03 am

Thanks, Ladyx, I should have mentioned the suspension of the fine. Since the fines seemed, frankly, small in comparison to the denial order, I didn’t really mention it. And you’re right, there may have been a trade-off.

Comment by Clif Burns on February 6th, 2008 @ 8:58 am

It should be noted that these are information furnishing violations, rather than an actual agreement to engage in a boycott. Aside from the question of whether the expiration of the EAA pursuant to a clear “sunset” provision (Section 19 of the EAA)constitutes an emergency occurring outside the United States as required by the granting provisions of 50 USC 1701, restrictions on furnishing information are not supported while the EAA “is in lapse” (bureaucratic double speak for having expired by a clear provision of law) and the EAR is continued under IEEPA because 50 USC 1702(b)(3), as last amended in 1994 by the Free Trade in Ideas Act, excludes from Presidential power under IEEPA any regulation on the import or export of information or informational materials unless such information is controlled for national security purposes pursuant to section 5 of the EAA or for anti-proliferation or anti-terrorism purposes pursuant section 6 of the EAA. Prohibitions on furnishing information for boycotting purposes were authorized only under section 8 of the EAA and are therefore not supported by emergency power under IEEPA. The amendments to IEEPA in 1988 and 1994 restricting the power to regulate the free flow of non-technical information were contemporaneous with legislation amending the EAA, and well after the adoption of IEEPA in 1977, so under the cannons of construction it cannot be argued that Congress could not have intended to restrict executive authority in this regard.

Moreover, it is highly unlikely that the regulation on furnishing boycott information alone, unrelated to and/or without proof of actual boycott conduct, would survive First Amendment challenge, especially without a clear Congressional mandate. The Baldridge case by the 8th Circuit rejecting an early First Amendment challenge was decided before the line of Supreme Court cases expanding First Amendment protection for commercial speech. It is difficult to see how the information furnishing prohibitions could survive the test established by the Hudson Valley and 44 Liquor Market cases, especially when the EAA is in lapse and there is no clear Congressional finding regarding the boycott in the text of IEEPA. But even in those rare times when the EAA is in effect, it is unlikely that the prohibition on providing “negative certificates of origin” would pass constitutional muster under the analysis in the 44 case given that the conduct, compliance with a primary boycott is permitted, and provision of an affirmative certificate is permitted. The regulations are pure content related and therefore unconstitutional.

Imposition of a denial order is also unauthorized. 50 USC 1705 authorizes only civil fines and criminal penalties. It does not authorize imposition of a denial order as a penalty. Issuance of a denial order while the EAA is “in lapse” [sic] is therefore a violation of the Administrative Procedures Act because it is a sanction not specifically authorized by statute.

Comment by Mike Deal on February 6th, 2008 @ 9:24 am