'Careful' Diligence Needed to Avoid Sanctions Violations Stemming From Distributors, Law Firm Says

A recent sanctions enforcement case highlighted the various export compliance hurdles associated with sales through overseas distributors, which is becoming one of the “greatest areas of export compliance risk,” Williams Mullen said in an Oct. 13 alert. In the case, the Office of Foreign Assets Control said Texas-based NewTek sold products to third-country distributors despite having knowledge those products were intended for an Iran-based reseller (see 2109100007), which ultimately led to sanctions violations.

Williams Mullen said companies can take several steps to avoid violations associated with distributors, including conducting “careful due diligence reviews of any sales representatives, agents and other third-party intermediaries.” That review should seek to uncover “any information” that shows the intermediaries do business in sanctioned regions “or have a reputation for other law enforcement problems,” the firm said. Companies can also use contract clauses to make a distributor agree not to export the U.S. products to certain regions or parties, and can require end-use statements from the ultimate purchaser. “However, no single step by itself automatically relieves the U.S. exporter from responsibility for export violations,” the firm said, “and there is no substitute for a heightened level of care in the compliance process.”