Premise: Almost all companies are exposed to the laws of international trade when doing business. Spotting these risks early on when negotiating agreements and transactions will prevent liability and future costs. Thus, when drafting agreements engaging in mergers or acquisitions and when conducting due diligence parties, there are a number of important business risk points to consider which can be scattered across various activities. commercial.

“Supply chain” is the buzzword right now for a reason; it’s an area where business liabilities are increasing significantly. In addition to safeguards and slowdowns, additional tariffs or duties (import taxes) can make importing from some locations more expensive than before, and new restrictions are being added to this already heavily regulated activity. New ESG and human rights restrictions along with a growing list of banned parties make supply chain planning more difficult than ever. Moreover, if done incorrectly, the penalties associated with customs violations can be quite high or, in the worst case, your shipments can also be seized and even destroyed without compensation.

Trade controls are more important than you think

Always check your transaction for other tangential cross-border issues. If the company directly or indirectly supplies goods or services to the US government under a procurement agreement, make sure that someone has verified that the relevant Buy America criteria are met. Enforcement is on the rise, so include proactive requirements for anti-boycott compliance and anti-corruption representations in agreements and ensure training is provided as needed for employees and third parties to reduce risk of violations. Most trade-related rules and regulations apply to U.S. persons and U.S. corporations both directly and indirectly. For example, if a third-party distributor sells your product to a person in Iran without required authorization, you may be held liable.

Importing becomes more and more complicated

Before committing to acquire, merge, or work with a business, make sure its supply chain is secure and that it correctly reports country of origin, classification codes, and other required information. Confirm that it owns all relevant intellectual property rights and that no counterfeit marks are being used, and determine whether anti-dumping or countervailing duties may apply to the imported product. If it turns out that additional and high tariffs are due, not only can penalties be imposed, but the government will also charge interest on its unpaid income. So, when drafting agreements, consider parties’ representations to minimize the risk of wrong or missing information, changing regulations and government enforcement cases, limit your liability where possible and choose INCOTERMS (contractual terms that determine which party shipped goods responsibly at all times during the shipping process) judiciously to limit exposure.

Sanctions apply to all your customer and supplier relationships

Like import regulations, the US sanction bans and restrictions are also expanding at a constant rate. To protect yourself and your business in this dynamic and rapidly changing environment, ensure that all target companies or business partners already have sanctions compliance programs and proactively comply with economic sanctions and associated mandatory requirements. This is an area where you want to limit successor liability and collateral liability, as the penalties can be extremely high. You don’t want to learn after the fact that your trading partner bought inputs or sold your product to a restricted party in China. Thus, in your own interest, take the initiative to educate your partners as needed and obtain in writing your rights to information and inspection regarding the supply chain, indirect sales and the distribution network.

Export requirements may also apply to the United States

Likewise, export laws also carry a specific set of risks and responsibilities for exporters. Filing and licensing requirements are complex, and the rules broadly apply to all products and technologies of American origin (even online only and SaaS products). Make sure that any target company or potential business partner has determined the correct export classification for their products and technology before committing to invest, acquire, or merge. Watch out for red flags indicating that products are being transhipped to countries without the proper authorizations. Likewise, if you contract with an agent or distributor, make sure that they understand export compliance, as your responsibility does not end when you hand over the product.

Additionally, export classifications are no longer something that businesses only need to know if they are exporting physical products to locations outside of the United States. Export controls are also involved if you are sharing technology in the United States with foreign nationals. and the classification of exports can be a determining factor in whether a CFIUS (Committee on Foreign Investment in the United States) filing with the Treasury Department is required before entering into a transaction – and this filing requirement may apply. regardless of whether the target company exports or not.

Update your compliance agreements and documents

The government is expanding its law enforcement initiatives and broadening its scope of review in corporate criminal law enforcement cases. So, it’s worth it to slow down and do your homework to avoid bigger problems later. Talk to your colleagues. Determine if you are already addressing these issues, and if not, create a plan to integrate business reviews into your regular processes and workflows.

Don’t let simple compliance actions slip through the cracks. If you have compliance documents, read them and make sure they are up to date and useful to protect the business. Otherwise, work with someone familiar with the risks and the law to update, retool, or improve them.

Make your materials practically usable, make sure compliance procedures are taken seriously, and make sure your standard agreements include trade provisions to minimize your risk. Once you are sure you have a strong compliance program or transaction checklist that is well suited to your business operations, perform an internal audit at regular intervals to make sure it is being used and functioning.

Addressing business risks before closing a trade or signing a contract can save you not only headaches, but also getting to know the US authorities too well.