Publications - 29/01/20

How far is the importance of Compliance in international trading?

The US-Iran crises and the trade war between the US and China can impact multinational companies


Trade controls regulation was one of the most challenging compliance issues regarding companies that conduct international transactions in 2019 and the expectation is an even higher increase in 2020. Sanctions and regulation of trade controls can increase even more as one of the consequences from the trade war involving US and China, as well as the situation between Iran and the US that occurred in the beginning of the year.

Trade Controls are rules sanctioned by States in which companies that engage in international transactions are required to follow. These companies are subjected to export controls regulation, economic sanctions, payment of customs fees and duties, trade embargoes and import of goods. [1]

Following and cooperating with the laws, sanctions and export control rules are extremely challenging for businesses, because many extra-territorial and conflicting laws are being enacted and, often, more aggressively enforced by some countries.

Enforcing compliance best practices and having a well-designed compliance program, applied with efficiency, integrity and good faith, which is effectively known and used by employees, encourages companies navigate the complexity imposed by trade controls rules. Especially, to identify potential customers and suppliers subject to sanctions and to address and mitigate the effects of potential crises.

In the current international scenario, the US imposed further sanctions on Iran, on the 10th of January of 2020 as a form of retaliation for the missile attack on US forces, they also promised to impose furthermore difficulties in the Iran economy if this tension continues. Those sanctions include Iran’s manufacturing, mining and textile sectors. However, on January 12th, the Iranian government condemned the allegations of the new sanctions from being implemented, for they are reluctant to the economic measures imposed by the US. [2]

Still in the international geopolitical scheme, China and the US, closed on January 15th the first phase of their Bilateral Trade Agreement, after the two nations engaged in a trade war for about 18 months. Essentially, the main solution found is an exchange: China´s commitment to buy more than US$ 200 million American manufactured and agricultural products, energy and services, while the US will suspend tariff increases on some Chinese products. The document has a specific chapter on intellectual property, in which addresses issues related to standards, formulas and processes used to obtain unfair competitive advantage, permission to use coercion in the case of counterfeit goods, among other matters.

The trade war between US and China and the use of trade sanctions until now resulted in a significant fallout of businesses for companies that have a commercial relationship with these countries, with an impact on export controls and multiple sanctions.

The main objective when implementing compliance best practices is precisely to prevent cross border trade companies from being surprised by the trade controls sanctions and consequently suffer from those penalties and economic sanctions. Therefore, compliance programs and trade compliance due diligence initiatives should be reinforced, in order to predict and to mitigate risks resulting from new regulation and sanctions in force.

This complex global framework imposes substantial challenges and uncertainty to the trade economic scope, especially to businesses involved in international transactions. That is why compliance plays a  paramount role in order to prevent and mitigate those risks.


[1] https://www.lawinsider.com/dictionary/trade-control-laws

[2] https://g1.globo.com/mundo/noticia/2020/01/10/eua-impoem-novas-sancoes-a-autoridades-do-ira.ghtml