Alex Cotoia, Regulatory Compliance Manager at The Volkov Law Group, rejoins us for an interesting posting on BIS’ recent enforcement action against Pratt & Whitney for violation of the antiboycott regulations.  Alex can be reached at [email protected].

On September 27, 2023, the United States Department of Commerce’s Office of Antiboycott Compliance, a division of the Bureau of Industry and Security (“BIS”), publicized an unanticipated and relatively rare enforcement action against defense behemoth Pratt & Whitney (“P&W”), over allegations that P&W intentionally disregarded antiboycott restrictions contained in the Export Administration Regulations (“EAR”) that categorically prevent U.S. Persons from engaging in any activity that constitutes support for an unsanctioned foreign boycott or restrictive trade practice. 

While the most ubiquitous target of these restrictions is the State of Israel, regulations prevent U.S. Persons from supporting any foreign boycott that is antithetical to U.S. foreign policy objectives. In the context of a settlement agreement and charging letter issued to P&W, BIS contends—and P&W does not deny—that between roughly May 2019 and May 2020, while engaged in the export of goods and services to Qatar, P&W acquiesced on approximately thirteen (13) separate occasions to terms and conditions by Qatar Airways that “parts made in Israel [are] prohibited to be imported in State of Qatar” and that, consequently, all such “parts” would be “held up in customs.” In addition, P&W wholly failed to report the requests for adherence to such restrictive practices to BIS, in defiance of the explicit requirements of 15 C.F.R. Section 760.5, which imposes a duty on U.S. Persons receiving a request whose intention is furthering or supporting a restrictive trade practice of boycott fostered or imposed by a foreign country against a country “friendly to the United States” to report each such request to BIS in a specific manner.

As a result of its failure to comply with U.S. antiboycott requirements, P&W consented to the payment of the seemingly modest sum of $48,750; a sum that likely reflected P&W’s voluntary disclosure of the antiboycott violations, in line with the settlement agreement’s various stipulations.

While the settlement agreement makes little or no reference to the context in which P&W acquiesced to Qatar Airways’ Israel boycott requests, the charging letter and its exhibits clearly refer to certain purchase orders (“P.O.s”) that P&W likely agreed to as standard terms and conditions of transporting it goods to customers in Qatar.

Although the fine ultimately imposed on P&W was modest, it highlights a critical need for organizations to take the issue of antiboycott compliance seriously and scrupulously evaluate each and every contract—especially with entities in the Middle East—for adherence to restrictive trade practice requirements or boycott requests. 

As we noted previously—well before a zealous veteran prosecutor assumed the enforcement reins at BIS and BIS itself announced the strengthening of its own enforcement initiatives as part of a broader reorientation of administrative priorities—we addressed this important, yet often neglected issue in the context of a comprehensive blog post that set forth the principles embodied in the antiboycott regulations. In the context of the same commentary, we noted that effective risk mitigation requires organizations to prioritize antiboycott concerns as part of their periodic risk assessment as a potential material risk factor wholly distinct from general export and trade compliance issues.

Given the fact that application of the antiboycott regulations is fact-specific, employees assigned to sales, procurement, contracts, business development, and other frontline functions should also undergo thorough, scenario-based training that pairs definitions from the actual text of the antiboycott regulations with tangible real-world examples.

Moreover, effective antiboycott compliance requires collaboration across company functions. A company can rely on its legal team, for example, to thoroughly vet all agreements with companies located in a particular region to ensure that no impermissible representations or warranties are incorporated. The legal team can also draft standard contractual covenants that require counterparties to a transaction to specifically abide by all applicable antiboycott laws.

By taking a proactive and holistic approach to antiboycott compliance, companies of all shapes and sizes can substantially mitigate the potential for violations of these important—yet routinely overlooked—facets of trade control, and avoid the reputational damage and public disapprobation that invariably accompanies the publicization of such enforcement actions.