The Securities and Exchange Commission just released on Monday, according to this article, correspondence that it had with Dell regarding an on-going  investigation by Dell, the DOJ, and the Bureau of Industry and Security (“BIS”) regarding sales of Dell computers to Syria.  These sales were made by a Dell distributor based in the U.A.E. In that correspondence, Dell indicated that it was conducting an internal investigation with outside counsel into sales by one of its Dubai-based distributors, was regularly communicating with the U.S. Attorney regarding that investigation, and had responded to a BIS subpoena requesting information about the sales in question. The company said that the investigation was not yet complete so that the company could not yet respond to the SEC’s questions as to whether Dell had any liability under U.S. export and sanctions law arising from the distributor’s sales to Syria.

The company, however, did try to suggest that it might not be liable because of a clause it cited in its distribution agreement:

Distributor acknowledges that Products licensed or sold hereunder or in respect of which services (including Dell Branded Services) are provided, which may include software, technical data and technology, are subject to the export control laws and regulations of the USA, the European Union, the Territory in which Distributor operates and the territory from which they were supplied, and that Distributor will abide by such laws and regulations. Distributor confirms that it will not export, re-export or trans-ship the Products, directly or indirectly, … to … any countries that are subject to the USA’s or those other relevant territories’ export restrictions or any national thereof … .

To paraphrase someone else, I guess you go to war with the language you have — that is to say, this language is hardly ideal. It relies on the distributor to know what countries are subject to U.S. export restrictions. Do you really think that a distributor in the U.A.E. is aware of the details of U.S. sanctions programs or even which countries are on the current U.S. bad country list? Probably not.

I certainly do not mean to imply that Dell has criminal or civil liability because of this drafting issue. Rather, my point only is that companies should be explicit in these clauses about which countries are subject to sanctions and to affirmatively advise distributors in writing when those countries change. Don’t count on your distributor to know who the U.S. has sanctioned anymore than you would count on him to know the name of last year’s winner of American Idol.

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