Analyses & Studies  •  Sectors & markets

Legal risks in supply chain management

Shifting legislative agendas have led to new compliance risks for companies managing their supply chain structures, says Aline Doussin, Partner and trade specialist at the law firm Hogan Lovells

After years of globalisation and expansion, emerging trends point to a return to economic protectionism and a wider definition of national security, which includes an economic view of national security.

According to Aline Doussin, Partner at Hogan Lovells, a global law firm working with multinationals and key legal issues around international supply chains, this has meant that regulatory frameworks are shifting very quickly in a unilateral manner, and that companies need to react to mitigate risks.

Here, she outlines some of the key issues facing Franco-British business operating internationally, where disruptions in the supply chain are expected to continue as the end of the Transition Period for the UK nears.

Sanctions and export controls

Exporters, importers, and those dealing with customers and third parties, are now expected to adhere with a wide range of compliance rules – not only to have information on their suppliers, but to understand who their suppliers are doing business with as well. According to Doussin, these both direct and indirect elements of sanctions and export control regimes are an area of challenge for many businesses.

Sourcing from new suppliers who have not been screened against sanctions and export control lists can contribute to increased risks. Dealing with restricted parties and unauthorised re-exports to embargoed countries, for instance, exposes companies to liability under sanctions and export control regimes.

It is important to have a compliance structure that is well-integrated and which mitigates risks in complex global trading environments, where export and crucially re-export to new markets may be a key feature of doing business.

Tariffs and customs compliance

Recent trade wars, such as those between the US and China and the US and the EU, have increased tariffs, and from a pure legal perspective have faced companies with questions about who is legally responsible to absorb the higher costs.

New customs paperwork and regulatory licences also raise questions about who is responsible to mitigate delays at the border, as well as the need to reflect new agreements in incoterms and other contracts between trading partners.

Anti-bribery and corruption

Increases in the risk of suppliers paying or accepting bribes in connection with their role in the supply chain exposes companies to liability under applicable anti-bribery legislations, such as the Foreign Corrupt Practices Act (FCPA), the UK Bribery Act or the French Loi Sapin II.

Many Franco-British companies will already be accustomed to assessing their supply chains, third-party vendors and supplier processes from both FCPA and Loi Sapin perspectives. Doussin notes that both French and British governments have shown an interest in expanding their own laws in this specific area of compliance.

Human rights, modern slavery, conflict minerals, worker safety and climate change

Many geopolitical issues are also directly impacting the legislative agenda. Companies in the US, for example, are being asked to make sure that they are not exposed to human rights violations, while companies in the UK must report a Modern Slavery Statement, among many new compliance processes.

It is important to note that new rules extend to companies sourcing from regions where labour or other human rights abuses are common. Liability falls directly on the company, and class action law suits can lead to both corporate and personal liabilities.

Aline Doussin spoke at the French Chamber Webinar ‘Managing supply chain risks effectively in times of crisis,’ sponsored by Hogan Lovells. Other speakers included Christian Fatras, Economic Counsellor at the French Embassy in the UK, and Benham Heidari, Head of Supply Chain at Sanofi.