From a legal perspective, cross-border transactions are contractual agreements between parties residing in different jurisdictions. In such transactions,  it is crucial for parties to comply with regulatory requirements and applicable law stipulated in the contract. There are mainly three types of cross-border transactions: Financial transfers, trade transactions and investments. 

Now, when it comes to these transactions, there are key considerations, that can be outlined as:

• Regulatory and Legal Compliance: it is well known that each country has its own regulations governing cross-border transactions. So it is crucial for both parties to be aware of these set of rules when engaging in an international transaction. 

• Legal Framework and Jurisdiction: You should always make sure, when drafting a contract with a party residing in another country to determine the applicable law, or treaty in some cases. It is also very important to determine which jurisdiction should intervene in case a litigation occurs. Let’s not forget about the importance of considering arbitration as a dispute resolution mechanism, as it proves a confidential setting where details of the case are not disclosed to the public, it saves a lot of time due to its speed of resolution and finally it costs way less than litigation as a dispute resolution mechanism.

• Tax Implications: Transactions by U.S. taxpayers in other countries are generally referred to as “outbound transactions”. Now, if you’re involved in a cross-border transaction, you should necessarily: pay attention to tax structures in both countries involved, utilize DTAs (double taxation agreements and finally the applicable treaties. This way, you could avoid liabilities. However, criminal liability could occur in some cases, as an example, a U.S. company fails to properly structure its transactions with a foreign subsidiary, resulting in violation of transfer pricing rules. The IRS imposes significant penalties and back taxes for not complying with arm’s length pricing requirements.

• Currency related risks: In simple terms, currency fluctuations, in other words, exchange rates that can vary. That’s why it’s important to consider the cost implications of multiple currencies.

Due Diligence: In this case, we’re talking about “international due diligence”. In other words, parties should, before delving into an international arrangement, be aware of the legal, financial, and commercial health of the transacting party. In this case, seeking legal help is crucial, in the sense that an attorney could help you investigate and verify the target company’s financial records, contracts, regulatory compliance, litigation history, etc. And that will help identify potential risks and legal issues to avoid. To illustrate the importance of due diligence, here is a case that could have been avoided if legal help was sought, a client purchased goods from an unverified seller who offered suspiciously low prices led to serious legal consequences. The seller was part of a drug trafficking organization using legitimate-seeming transactions to launder illicit funds. The purchaser was charged with conspiracy to commit mail fraud for participating in a scheme that involved selling stolen goods and using the mail system to facilitate fraudulent activities. This highlights how transacting with unknown entities without verification can result in criminal charges, even if the purchaser had no definitive knowledge of the goods’ illegal origin.