Safeway to Pay $995,000 Boycott Penalty : Firm Was Accused of Complying With Arab Anti-Israel Policy

In the largest penalty of its kind, Safeway Stores Inc. announced Monday that it has agreed to pay the Commerce Department $995,000 to settle the department’s charges that the company had illegally complied with the Arab boycott against Israel.

The settlement stipulated that Safeway had not admitted to any violations of law. But Paul Freedenberg, undersecretary of commerce for export administration, said Safeway’s acceptance of the penalty suggested that the department’s original charges had merit.

“I’m pleased with the settlement,” Freedenberg said. “It is equitable, and it indicates we take enforcement of the anti-boycott laws very seriously and will continue to vigorously enforce them.”

Less Than Maximum

Safeway pointed out that the penalty was less than one-quarter of the maximum that the Commerce Department originally sought.

“The settlement terms clearly vindicate the position that Safeway’s conduct in its dealings with licensees in the Middle East did not merit the harsh penalties originally sought,” the company said in a statement.

“We agree with the purpose and the spirit of the anti-boycott laws,” said Peter A. Magowan, chairman and chief executive officer of Safeway. “We are unequivocally committed to compliance with them.”

Arab countries have boycotted Israeli goods for more than 30 years and have refused to do business with companies that trade with Israel either directly or indirectly. A 1977 U.S. law forbids Americans to cooperate with that boycott.

Safeway provides technical assistance and management expertise to Arab-owned service companies in Saudi Arabia, Kuwait and the United Arab Emirates. The Commerce Department limited its charges to the Safeway operations in Saudi Arabia, where the Oakland-based company licensed two stores, and Kuwait, which had one licensed Safeway outlet.

The department said the three stores had refused to do business with companies on the anti-Israel blacklist. Safeway managers, it alleged, had instructed other customers or suppliers not to do business with Israel or with blacklisted companies.

It also said Safeway had furnished information to the Israel Boycott Office of Kuwait about the company’s dealings with Israelis or with blacklisted companies.

Safeway, in announcing the settlement, pointed out that the Commerce Department had abandoned its original demand that Safeway’s export privileges be suspended for two years. Moreover, the company said, “in apparent recognition of Safeway’s good-faith effort to comply with U.S. law,” the Commerce Department did not require Safeway to submit its legal compliance efforts to government supervision.

‘Record of Friendship’

“We are proud of our relationship with the Jewish community as well as our record of friendship with and support for the State of Israel,” Magowan said. “We are glad to have this matter behind us.”

The settlement came as the two sides were supplying information to the Commerce Department administrative law judge who would have heard the case. “After initial negotiations,” Freedenberg said, “Safeway thought it was more appropriate to settle than to fight it out in court.”

The previous largest anti-boycott penalty was a $323,000 fine imposed about three years ago against Citicorp.