Staying Out of Jail: Legal & Compliance Risks in Supply Chains

In an era of tightening global regulations, traceability has become a non-negotiable foundation for responsible business. Laws like the EU Deforestation Regulation (EUDR) are raising the bar on what companies must prove about their sourcing practices — demanding detailed, verifiable data down to the plot of land.

But traceability isn't just about compliance for compliance’s sake. Without it, companies expose themselves to significant legal, financial, and reputational risks. Regulatory breaches can trigger fines, loss of market access, and even criminal penalties.

In this blog, we explore why strengthening your traceability systems is essential to protecting your business — and what can happen when companies fall short.

1. Avoiding Criminal Proceedings

Failure to comply with regulatory requirements, such as EUDR, can expose businesses to legal action, substantial fines and even executive liability. In some cases, business leaders may face personal accountability, including criminal prosecution, for regulatory breaches. By maintaining full compliance, companies protect their executives from legal repercussions and uphold corporate integrity.

A recent example is Poole-based luxury yacht maker Sunseeker International Limited, which was fined £240,000 after pleading guilty to breaches of the UK Timber Regulation. The company failed to conduct due diligence and maintain proper records for timber imports in 2021 and 2022, including Teak from Myanmar, Wenge from Africa and Oak from Europe. The investigation, led by the Office for Product Safety and Standards (OPSS), resulted in additional penalties, including a £66,950 confiscation order and £51,619 in prosecution costs. 

2. Preventing Goods Seizure & Supply Chain Disruptions

Non-compliant goods risk being seized at international borders, leading to costly supply chain disruptions, or fall victim to costly demurrage fees if goods do not have the necessary documentation to pass customs. This not only results in financial losses but also delays in fulfilling customer orders, potentially harming business relationships. 

For example, in 2022 two individuals were convicted of importing teak from Myanmar into the Netherlands via the Czech Republic in breach of the EU Timber Regulation - resulting in hefty fines and community service. Unconditional imprisonment would have usually been appropriate for such offences but not given due to the extended duration of the legal proceedings in its sentencing.

Implementing a robust traceability system ensures that all products meet regulatory standards, preventing costly operational setbacks and ensuring maximise organisational efficiencies.

3. Maintaining Business Licenses & Market Legitimacy

In highly regulated industries, failure to provide adequate traceability can result in losing the right to trade. Governments and regulatory bodies may revoke business licenses if companies fail to meet compliance requirements. By proactively investing in compliance mechanisms, businesses secure their operational legitimacy and maintain access to key markets.

Want to Strengthen Legal Defensibility? 

Download our recently launched Traceability Guide to learn how to reduce the risk of fines and legal settlements and strengthen legal defensibility.

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