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Scopelitis International Newsletter - February 2019

by Braden K. Core, Jacob R. Fisher, John  N. Hove, Nathaniel G. Saylor

February 27, 2019

Scopelitis International News – February 2019

              Freight Forwarder Contract Issues

In this month’s installment, we scratch the surface regarding stoppage-in-transit issues, which are a recurring fact of life for international forwarders.  These issues typically come up when there is a dispute between the buyer and the seller (most typically when the seller provides notice that it has not been paid).  These situations can put the forwarder in all sorts of difficult spots, including incurring container demurrage and storage charges, and being in the unenviable position of having to withhold delivery from its customer based on the instructions of a foreign entity with which it has no relationship.  The forwarder’s best bet in such situations is to ensure that it has a strong lien on the cargo against the claims of the parties so that it can withhold delivery and also refuse to return the goods unless and until all its charges are paid.  The problem is that the forwarder might not have such a lien in some instances.  For instance, if the forwarder only acted as the “agent” of the importer, and never issued a bill of lading or air waybill covering the goods, its only lien may be via its default trading terms and conditions (if in fact it obtained its customers assent to such terms and conditions).  However, such lien may only be valid as against the forwarder’s customer (but not, for example, the shipper), or worse, it may have no lien if its services were undertaken pursuant to a customer contract containing a lien waiver.   In short, every stoppage-in-transit scenario is different and requires an understanding of the various factors in play.  Forwarders are advised to understand the issues generally, and quickly identify a game plan for mitigating potential exposure including, but not limited to, determining as quickly as possible if goods can be devanned from containers to avoid incurring unnecessary demurrage fees. 

 

FCPA Update

Here are the statistics for U.S. Foreign Corrupt Practices Act (“FCPA”) enforcement in 2018: 

  • 17 combined DOJ/SEC corporate enforcement actions
  • U.S. $1 billion in sanctions
  • 21 FCPA enforcement actions brought against individuals by the DOJ, and 4 by the SEC

Geographically, most of the enforcement actions were spread more or less evenly across Africa, Latin America and China. Over the entire life of the FCPA, the average length of prison sentence for a criminal FCPA conviction is 28 months.  The average length of an FCPA investigation is 38 months. Although not as directly verifiable as some other statistics, at least one normally reliable resource indicates that the average monthly cost of an FCPA investigation is approximately $2 million.

 

Brexit Impact on Dispute Settlement  

If you have a contract that provides for settlement of disputes in the UK or in an EU country, it would be prudent to examine the potential impact of a “no-deal” Brexit on the law that will apply to disputes that may arise after April 1, 2019 and to the enforcement of judgements rendered before and after that date.  Where treaties that are currently in force cease to be applicable, the intended result of the original jurisdiction clause may not be achieved.  It may be possible to amend such agreements to secure a specific jurisdictional objective.   

 

OFAC Enforcement Activity 

Despite the recent shutdown crimping many federal agency activities, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) remains active, thus far in 2019 settling two enforcement cases involving risks to U.S. companies for the actions of overseas affiliates or subsidiaries (and their suppliers) in engaging in prohibited transactions.  While both cases do not involve logistics companies directly, they highlight OFAC’s attention to compliance by affiliates or subsidiaries of U.S. companies with evolving U.S. sanctions programs.  Thus, if your company is considering the acquisition of a foreign freight forwarding or logistics company, special attention must be paid as to whether that company has had dealings with countries that, post-acquisition, may become illegal under U.S. law and which could result in upstream OFAC liability.  Robust controls should be placed on the acquired company, especially where there might be the economic incentive for personnel at that company to continue doing business into or out of a sanctioned country.  At a higher level, all U.S. logistics and forwarding companies should have in place, even without overseas affiliates or subsidiaries, a robust regulatory compliance and training program to empower employees to spot and report possible noncompliance issues, without fear of retaliation.  Even if “just the forwarder” for a given shipment, the forwarder should be able to demonstrate to government investigators that it acted in a diligent manner and had effective processes and procedures in place to reasonably detect possible illegal shipping activity. 

 

For more information on the latest in international transportation law, contact a member of Scopelitis’ International Transportation & Logistics Law team - Nathaniel Saylor, Braden Core, John Hove, or Jake Fisher, or your Scopelitis contact. 

 

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Scopelitis newsletters are intended as reports to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.

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