The Bureau of Industry and Security (“BIS”) recently released a settlement agreement pursuant to which Aviall Pte Ltd agreed to pay $3600 for violation of BIS’s antiboycott regulations. Aviall Pte Ltd. is a Singapore-based subsidiary of U.S.-based Aviall, Inc., which is, in turn, a wholly-owned subsidiary of Boeing.

According to the charging letter, Aviall Pte. received a purchase order in November 2002 from a customer in Bahrain with the following language:

9. ISRAELI BOYCOTT: In the case of overseas suppliers, this order is placed subject to the Suppliers being NOT on the Israeli Boycott list published by the Central Arab League.

Aviall fulfilled the order without deleting or otherwise taking exception to this condition in violation of section 760.2(a) of the Export Administration Regulations. Furthermore, and in violation of section 760.5 of the EAR, Aviall Pte. failed to report the boycott request to BIS.

This case is a good occasion to remind exporters and companies with foreign subsidiaries that the anti-boycott regulations apply fully and directly to controlled foreign subsidiaries of U.S. companies under sections 760.1(b) and 760.1(c) of the EAR. Under section 760.1(b)(1) a U.S. person includes a “controlled in fact” foreign subsidiary of a U.S. company. Section 760.1(c)(2) a company is “controlled in fact” if the U.S. company owns more than 50 percent of the stock of the foreign subsidiary or owns 25 percent or more of the stock of the foreign subsidiary if no other person owns or controls an equal or larger percentage of the foreign subsidiary. Here Aviall Pte. was a wholly-owned subsidiary of Aviall, Inc., which is a U.S. company incorporated in Delaware.

Although the fine here was relatively small, larger fines are a distinct possibility, meaning that U.S. companies should impress the need upon their foreign subsidiaries doing business in the Middle East to carefully read contracts for anti-boycott language, and to delete and report such language when found.

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