Sanctions, Export Controls and Supply Chain Due Diligence

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International supply chains depend on relationships between a variety of intermediaries, some of which may have physical control of goods and others that “merely” have the ability to direct how and to where goods are distributed. The use of intermediaries provides obvious benefits to the well-run logistics system. Exporters can leverage the economies of scale that come from using third party logistics providers and can use the intermediary’s network to reach areas of the world where it may not otherwise have a presence. The full benefits of using third party logistics services providers can only be realized, however, if the relationship is also structured to leverage the systems of all parties to enhance compliance.

The affirmative duties imposed by the sanctions and export control laws of the United States create intertwining compliance obligations among the intermediaries to an international transaction and the principals. While it is, perhaps, a tautology to state that each party is responsible for its own actions, in the international trade environment, each party is best served by exercising due diligence over its trading partners and formalizing coordination with their compliance systems. If compliance concerns are integrated into the principal/intermediary relationship, the intermediary may serve as the “first line of defense” for the principal in assuring compliance with international trade regulation. Absent such integration, the intermediary may create gaps in an otherwise coherent and effective compliance program. Similarly, confidence in the principal’s compliance program will facilitate the intermediary’s ability to assure compliance, the opposite creating the potential for substantial risks.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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