Scenic view of Dubai Marina in UAE in the evening

In brief

On 29 August 2020, the United Arab Emirates (“UAE“) Government’s Emirates New Agency (Wakalat Anba’a al Emarat, or ‘WAM’) publicly announced that H.H. Sheikh Khalifa Bin Zayed Al Nahyan, President of the UAE, issued Federal Decree Law No. 4 of 2020, abolishing Federal Decree Law No. 15 of 1972 Concerning the Arab League Boycott of Israel (the “UAE Israeli Boycott Law“) (the “UAE Israeli Boycott Repeal Law“).  The UAE Israeli Boycott Repeal Law follows the announcement of the historic peace agreement between the UAE and Israel (known as the “UAE-Israel Abraham Accords” – Treaty of Peace, Diplomatic Relations and Full Normalization between the UAE and the State of Israel) on 13 August 2020 issued jointly by H.H. Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu.  Officially signed on 15 September 2020 , the UAE-Israel Abraham Accords (available in full here) outlines a number of areas of intended cooperation, and the establishment of full diplomatic ties in exchange for Israel’s suspension of further annexation of Palestinian territories, between the two states under Article 5 and supplemented in its Annex.  This includes: (1) finance and investment; (2) civil aviation; (3) visas and consular services; (4) innovation, trade and economic relations; (5) healthcare; (6) science, technology and peaceful uses of outer-space; (7) tourism, culture and sport; (8) energy; (9) environment; (10) education; (11) maritime arrangements; (12) telecommunications and post; (13) agriculture and food security; (14) water; and (15) legal cooperation.

The UAE Israeli Boycott Repeal Law, which was published in a supplement to UAE Federal Official Gazette No. 685 dated 27 August 2020 (but circulated publically by the UAE Ministry of Justice on 15 September 2020 – the date of the signing of the UAE-Israel Abraham Accords), has a specific effective legal start date of 16 August 2020.  The UAE Israeli Boycott Repeal Law allows individuals and companies in the UAE to now enter into agreements with Israeli firms, citizens and residents as part of commercial or financial operations or dealings of any other nature. It is now permissible to enter, exchange or possess Israeli goods and products of all kinds and trade in them in the UAE, which was previously prohibited under the UAE Israeli Boycott Law.

Notwithstanding these developments, as of now, there have been no changes to US antiboycott lawswith respect to the UAE.  In short, if a particular boycott request would have been problematic or reportable before the issuance of the UAE Israel Boycott Repeal Law, it remains problematic or reportable today.

Additionally, on 11 September 2020, the Kingdom of Bahrain (“Bahrain” – who along with the UAE is a fellow member of the Gulf Cooperation Council – “GCC“) had also announced its decision to establish full diplomatic relations with Israel through the Bahrain News Agency (or ‘BNA’).  On the same day as the signing of the UAE-Israel Abraham Accords, Bahrain and Israel also entered into a separate historic peace agreement (known as the “Bahrain-Israel Abraham Accords” – Declaration of Peace, Cooperation and Constructive Diplomatic and Friendly Relations) covering the same areas of intended cooperation (available here in full).

Overview of Israeli Boycott Law

Formed in March 1945, the Arab League has issued boycott resolutions against Israel ever since Israel’s declaration of independence in 1948 (and even before this in 1946, against Zionist produced goods under Arab League Council Resolution 16).  On 19 May 1951, the Arab League Council passed Resolution 357 establishing the Central Boycott Office (“CBO”) in Damascus, Syria, with branch offices to be established in each Arab League Member State.

On 11 December 1954 the Arab League Council passed Resolution 849, approving the Unified Law on the Boycott of Israel (“Arab League Council Resolution 849“).  Arab League Council Resolution 849 contained what is often referred to as the ‘secondary’ and ‘tertiary’ elements of the Israeli Boycott in providing new recommendations prohibiting entities and individuals from or based in Arab League Member States from also dealing with agencies of persons working for Israel, and with foreign companies and organizations with interests, agencies, or branches in Israel.

Following the foundation and independence of the UAE on 2 December, 1971, the UAE became the eighteenth Member State of the Arab League on the same date.  By September 1972, the UAE issued the UAE Israeli Boycott Law which included the ‘secondary’ and ‘tertiary’ elements mentioned above (in-line with Arab League Council Resolution 849).  Following an announcement on 30 September 1994 by the GCC to longer enforce the ‘secondary’ and ‘tertiary’ elements of the Israeli Boycott (which came in wake of developments in Israeli and Palestinian relations expressed through the Oslo Accords), the UAE Cabinet issued Resolution 462/17M in 1995 (“1995 Cabinet Resolution“), reducing the scope of its Israel Boycott Law to only its ‘primary’ elements.  Under the ‘primary’ elements of the UAE Israel Boycott Law. it remained a criminal offence to deal (i) with or in goods or services from Israel or of Israeli origin, and (ii) with the State of Israel and its citizens.  Although the 1995 Cabinet Resolution did not formally amend the UAE Israeli Boycott Law itself, it demonstrated the UAE Government’s official position on the matter.

Following the new UAE Israeli Boycott Repeal Law, the UAE Israel Boycott Law has been revoked in its entirety, paving the way for economic, political and cultural cooperation between the UAE and Israel across an extensive range of sectors and issues as mentioned above.

Overview of US Anti-Boycott Law

US antiboycott laws prohibit or penalize US companies and in some instances their non-US subsidiaries from participating in or cooperating with foreign boycotts against countries friendly to the United States, including Israel.  In addition to prohibiting certain types of boycott-related actions or agreements, these laws also require companies to report requests to participate in or cooperate with such boycotts to the US Government.  US antiboycott laws consist of two legal regimes, including regulations administered by the US Department of Commerce through Part 760 of the Export Administration Regulations (“Commerce Regulations), as well as Section 999 of the Internal Revenue Code as interpreted by the US Treasury Department (“Treasury Rules“).  The Commerce Regulations and Treasury Rules vary in their jurisdictional reach, treatment of certain boycott requests, and penalties imposed.

Violations of the Commerce Regulations are punishable by civil penalties (fines of $305,292 or an amount that is twice of the value of the transaction at issue, whichever is greater, and/or the denial of export privileges) and criminal fines of up to $1,000,000 and/or imprisonment of up to 20 years for willful violations.  By contrast, the Treasury Rules do not “prohibit” boycott-related activities or agreements and do not threaten civil and criminal penalties, but instead subject US taxpayers to potentially significant tax penalties if they or any of their controlled group members enter into agreements inconsistent with the Treasury Rules.

Key takeaways

The historic UAE-Israel Abraham Accords aim to further advance peace in the Middle East and to open up the region in a number of ways, including in wider trade and investment and technological innovation.  This development is also a step towards potential diplomatic breakthroughs between Israel and other Arab nations in the future. Currently, the only Arab states with full diplomatic relations are Jordan and Egypt (with the UAE and now Bahrain to follow), with a few other Gulf nations, including Qatar and Oman, having ties with Israel.

On 01 September 2020, it was announced on the Emirates News Agency that H.E. Abdulhamid Saeed Alahmadi, Governor of the UAE Central Bank, and Ronen Peretz, Director-General of the Israeli Prime Minister’s Office, signed a Memorandum of Understanding, for future cooperation in the banking and financial services, and to form working groups and bilateral committees to facilitate banking between the UAE and Israel.  Key institutions in the Israeli banking sector have already made announcements of forthcoming delegations to the UAE to explore opportunities, and public announcements have already been made in terms of cooperation agreements in the education, maritime, aviation, space, healthcare, asset management, and telecommunications sectors. The UAE and Israel had established direct telephone links on the day when the UAE Israeli Boycott Repeal Law took effect. It has also been announced that the state-run Abu Dhabi Investment Office will open its first office outside the UAE in Tel Aviv.

The new UAE Israeli Boycott Repeal Law has far-reaching political and economic implications, particularly for companies with multiple operations and nationalities across the Gulf including in Israel. Notwithstanding the new UAE Israeli Boycott Repeal Law, companies will still need to consider carefully their position on doing business with Israel  in light of the continuing prohibitions that exist in other Gulf countries on doing business or otherwise engaging with Israeli persons. These prohibitions may continue to apply to the citizens of both Arab League and non-Arab League Member States that continue to adhere to either the Arab League boycott of Israel or separate independent Israeli boycott legislation, wherever they reside.

However, there has been no change to US antiboycott laws thus far.  As such, boycott requests that were prohibited, penalizable, or reportable under the Commerce Regulations or Treasury Rules before the UAE-Israel Abraham Accords remain so today.  In other words, the status of the application of US antiboycott laws regarding the UAE remains the same as it was before the UAE-Israel Abraham Accords.  While these developments may eventually result in changes to the Commerce Regulations and Treasury Rules to reflect the UAE’s repeal of the boycott, this has not happened yet, and it could be some time before any changes occur.

For further information, please reach out to one of the lawyers below or your usual Baker McKenzie contact.

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