Baxter International Inc. of Illinois, the world's largest supplier of medical equipment, yesterday pleaded guilty and agreed to pay more than $6 million in penalties for illegally helping the Arab League to carry out its economic boycott of Israel.
It was the first criminal charge ever filed and the largest penalty under a federal 1977 anti-boycott statute designed to prohibit U.S. companies from complying with the Arab boycott of companies that do business with the Jewish state.
Baxter pleaded guilty to one criminal charge of providing information to the Arab League about its business in Israel.
The plea agreement did not provide details, but federal prosecutors said the company had sent the league information including a letter showing it had sold a facility in Israel and pulled its money out of that country. Baxter did so in hope of getting off the Arab blacklist and thus obtaining business with Arab countries, the prosecutors said.
"The Commerce Department and Clinton administration place a high priority on vigorous enforcement of the act, and on seeking an end to the Arab League boycott of Israel," said Commerce Secretary Ronald H. Brown.
Commerce, which began investigating the case three years ago under the Bush administration, levied $6 million in penalties to settle civil allegations. The criminal investigation was conducted by the U.S. attorney's office in Chicago. The $500,000 criminal fine is the largest possible under the statute.
Baxter also will be prohibited from entering into new contracts to export goods to Syria and Saudi Arabia for two years -- the most stringent denial period ever imposed under the anti-boycott provisions.
"Clearly, we made a mistake," said Baxter spokesman Geoffrey D. Fenton, "but at the time we thought we were complying with the applicable law."
He added, "We are pleased that the government did not find that we boycotted Israel." The company has a number of long-term commitments in Israel, Fenton said.
The government's action drew applause from Capitol Hill and the U.S. Jewish community.
"The Clinton administration has sent a message loud and clear: American companies have no business aiding the Arabs in their economic warfare against Israel," said Rep. Charles E. Schumer (D-N.Y.).
The Anti-Defamation League of B'nai B'rith praised the Justice and Commerce departments for "upholding U.S. anti-boycott laws by assessing large civil and criminal fines" against Baxter.
Although Commerce brought 118 enforcement actions against U.S. companies last year for violating the law by complying with the boycott, the companies paid a total of only $2 million in fines, according to Commerce officials.
"This is unprecedented in terms of the violations involved," said Douglas E. Lavin, acting assistant secretary for export enforcement at Commerce.
For 45 years, the Arab League has maintained a blacklist of companies that cannot do business in the Middle East because they do business with Israel. The league includes all major Arab countries and the Palestine Liberation Organization.
If a U.S. company wants to do business in Arab League countries, it often receives requests from those countries for information about whether the company, or other businesses it knows about, trades with Israel.
In 1970, according to investigators in Chicago, the league blacklisted Baxter because Baxter owned a plant in Israel. As a result Baxter was unable to penetrate Arab markets, according to authorities.
In the 1980s, Baxter made a corporate decision to get off the blacklist, sources in the investigation said. While getting off the list is not illegal, certain steps taken by the company to accomplish that goal violated the law, according to the plea agreement.
Four days after Baxter sold its facility in Israel in 1988, it provided bank transfer receipts to Arab League authorities showing that it had sent the money from the sale out of Israel, prosecutors said.
Investigators also were prepared to show that Baxter provided the Arab League with a statement saying it had no intention of doing future business with Israel, prosecutors said.
Investigators were prepared to submit evidence that Baxter and its subsidiaries provided the Arab League with more than 340 items of prohibited information, according to the Commerce Department.
"Never before has there been such a case," said Mark L. Rotert, an assistant U.S. attorney in Chicago.
Baxter spokesman Fenton said that while the company had consulted with outside counsel on the matters, all the decisions were made by Baxter officials.
As part of the fine to Commerce, G. Marshall Abbey, the company's general counsel, will pay a fine of more than $100,000. Fenton said it had not been determined whether the company will pay the fine for him and that there has been no change in his status at the firm.
Baxter provides hospital supplies ranging from surgical gloves to high-tech surgical instruments and heart valves to hospitals around the world.