WASHINGTON — As the Persian Gulf crisis drags into a second month, a four-country boycott of Qatar is raising questions about whether American businesses that follow suit could unwittingly run afoul of U.S. anti-boycott laws.
Under obscure tax and export provisions designed decades ago to protect Israel, U.S. companies can be punished if they accept a foreign country’s demand to comply with a boycott not supported by the United States. The provisions were established to ensure American firms aren’t used to advance another nation’s foreign policy.
Qatar has been under siege since early June, when Saudi Arabia, Bahrain, the United Arab Emirates and Egypt severed ties over claims the small, gas-rich monarchy was funding terrorism and breaking regional unity. They cut Qatar’s air, sea and land routes, creating a de facto blockade of the country. They are vowing to isolate Qatar economically until it heeds their demands.
Anti-boycott laws are complicated, but here’s the basic premise: If South Korea, for example, told American companies that to make money in South Korea, they can’t trade with North Korea, that probably wouldn’t cause problems. The U.S. already restricts almost all commerce with North Korea.
But if the Kremlin, for example, said the price of business in Russia is ending any business in neighboring Ukraine, a company agreeing to that would be violating American law. The U.S. isn’t boycotting Ukraine.
While President Donald Trump has voiced support for the Saudi-led bloc, the United States isn’t backing the Qatar boycott. Secretary of State Rex Tillerson has been shuttling around the Persian Gulf region this week, seeking a diplomatic resolution.
That could put American companies in a difficult position, even if so far there haven’t been any public indications of Saudi Arabia or its allies issuing a Qatar-or-us ultimatum.
“If you’re a company operating in those countries, your compliance people should be thinking about those questions, because you can stumble into those issues unknowingly,” said Brian Egan, who was the State Department’s top lawyer until January and now focuses on sanctions and export control at Steptoe & Johnson LLP.
Some groups, sympathetic to the concerns about Qatar, have been pressuring U.S. businesses to cut ties. The Counter Extremism Project, which includes former Sen. Joe Lieberman and is run by former U.N. ambassador Mark Wallace, sent letters to American Airlines and others warning them to stop dealing with Qatar earlier this month.
American Airlines wouldn’t say Wednesday if it would comply. Dozens of U.S. companies do big business in Qatar, especially major energy conglomerates like Chevron Corp., ConocoPhillips and Exxon Mobil Corp. — formerly run by Tillerson.
Despite its anti-boycott laws, the United States has tried to pressure other countries into adhering to American embargoes. European nations complained for years about U.S. efforts to get them to limit trade with Cuba.
Washington has gone after foreign companies violating U.S. sanctions on Iran, North Korea and other countries.
But the U.S. is the world’s largest market and has far more leverage than the four Arab countries squaring off against Qatar.
Given Trump’s position on the crisis, it’s unclear if his administration would punish U.S. companies for cutting ties with Qatar. Eugene Cottilli, spokesman for the Commerce Department’s Bureau of Industry and Security, declined to comment on whether the anti-boycott provisions apply in this case.
“Considering that we’re talking about national security and foreign policy, there’s a wide amount of discretion available to the administration,” said Dan Pickard, a trade attorney and anti-boycott expert at Wiley Rein LLP in Washington, D.C. “However, if people engage in activity that’s prohibited, they do so at their peril.”
The Qatar dispute looks set to drag on. Tillerson spoke on the matter with Saudi Arabia’s king on Wednesday and will return to the Qatari capital of Doha Thursday, but U.S. officials aren’t expecting a quick breakthrough.
U.S. anti-boycott provisions date back to the 1970s, when Arab League countries boycotted Israel. Infuriated by U.S. support for the Jewish state in the 1973 Mideast War, Saudi Arabia and other Arab nations enacted an oil embargo against the United States. Fuel prices surged, most famously in the 1973 oil crisis.
U.S. businesses must keep two laws in mind: the Export Control Act and the tax code. Violations can lead to businesses losing out on tax credits from the Treasury Department. But the Commerce Department can deliver more serious consequences, including fines, ending export privileges and referring potentially criminal violations to the Justice Department.
A few times each year, the U.S. publishes a list of countries known to require participation in boycotts. The most recent list, from late March, includes Saudi Arabia and the UAE.
Companies also must report to the U.S. government any foreign requests to comply with a boycott. A Commerce Department website offers examples of problematic questions or clauses that Saudi Arabia and others have tried to stick into contracts over the years to force companies to join their Israel boycott.