Understanding Legal Knowledge for SMEs Expanding Globally

For small and medium-sized enterprises (SMEs) seeking to expand and scale globally, the importance of legal knowledge cannot be overstated. One of the fundamental concepts related to international business law that every entrepreneur should understand is the principle of concurrence in criminal law, which refers to situations where it is possible for an individual or organization to be held liable for a criminal act. For example, if a laptop is stolen from a shipping container during transportation, the logistics company, the recipient, or the shipper could be liable if evidence suggests that any of these parties participated in the theft. The intent of such a provision is to ensure the rule of law prevails in all parts of a transaction and prevent individuals or organizations from escaping the consequences of criminal acts by claiming that they were not involved in the commission of such acts.

While concurring liability is an essential principle behind how a marketplace ensures that bad actors are kept in check, it can also be a source of mischief for SMEs operating in the international space. For example, it is very common in many countries for tax authorities to be given special powers to impose fines and prison sentences on taxpayers who are suspected of violating relevant tax laws. As a result of this provision, it is not uncommon for governments to determine that an individual will be held criminally responsible for tax evasion even if there is no evidence they were aware that their actions were criminal. This means that entrepreneurs could end up being charged with a crime for not understanding tax law, even if the action they have committed is no worse than a simple oversight.

In order to avoid such a scenario, the best advice to any entrepreneur is to pay attention to local laws and disclose as much information as possible to the relevant revenue authorities. While the practical result of complying with these recommendations may lead to additional tax and burdensome compliance obligations, failing to effectively mitigate your exposure will likely cost you far more down the road. Similarly, as businesses expand internationally, officials should pay attention to applicable accounting rules and corporate governance regulations in the markets in which they operate. Issues related to accounting misstatements or director’s duties are common sources of concurring liability and can easily result in jail time.

All said, this does not necessarily mean that compliance with all local laws and regulations is appropriate or even feasible. First, there is often strong evidence that legal compliance is a double-edged sword, meaning that it makes it easier to track SMEs (Eisner Amper, 2016). To this end, some criminals have been known to exploit legal requirements in order to set up tracking systems designed to keep track of sensitive data. Furthermore, legal compliance could be impossible for SMEs if it implies the imposition of unreasonable restrictions on the organization’s ability to function.

In conclusion, the net effect of the above is that compliance with relevant local laws and regulations, including but not limited to those of criminal law, may not always be in an SME’s best interest. Instead, it may be better to explore innovative ways of getting around such restrictions since the encumbrances posed by legal compliance may result in a largely negative experience for entrepreneurs looking to scale internationally. That said, attempting to skirt or bypass relevant laws, especially in the case of criminal law, could create more problems than it solves. In the worst-case scenario, an SME could face significant fines and imprisonment for officer-directors if it is determined that the enterprise has engaged in dubious practices.

The implications of this reality is that SMEs looking to scale internationally will need to take legal issues into account during the development of their growth plan. It also means that legal advising will become more important than ever as companies seek to ensure that their directors and other officers are protected from criminal liability for the purposes of facilitating their expansion. For this reason, it is worth reaching out to an experienced local attorney to obtain relevant support.