WHY.2 EU Sanctions DD

EU Sanctions DD WHY.2: Contractual No-Re-Export and Sanctions Clauses

What This Control Requires

Has the counterparty agreed to contractual no-re-export and sanctions compliance clauses?

In Plain Language

Resistance to including sanctions compliance clauses in contracts is itself a red flag. Legitimate counterparties understand that these clauses are standard practice in international trade and have no reason to object to them.

A 'no re-export to sanctioned destinations' clause does two things: it creates a contractual obligation on the buyer (giving you legal recourse if they divert goods), and it demonstrates your due diligence effort (providing a defence if goods are diverted despite your best efforts).

If a counterparty pushes back on sanctions clauses - arguing they are unnecessary, too restrictive, or commercially unreasonable - treat this as a high-priority red flag requiring escalation before the transaction proceeds.

How to Implement

Include standard sanctions compliance clauses in all contracts involving controlled goods, dual-use items, or transactions with counterparties in higher-risk jurisdictions. Standard clauses should include:

1. Representation - the buyer represents that it is not a sanctioned person or acting on behalf of one 2. No-re-export commitment - the buyer commits not to re-export goods to sanctioned territories or supply them to sanctioned persons without the seller's prior written consent 3. Termination right - immediate termination upon sanctions breach or reasonable suspicion thereof 4. Audit rights - the seller may verify compliance through audits or information requests 5. Indemnification - the buyer indemnifies the seller for losses resulting from the buyer's sanctions breach 6. Information obligation - the buyer will promptly inform the seller of any changes in ownership, control, or sanctions status

If a counterparty pushes back on these clauses, this is a high-priority red flag. Escalate to compliance and legal before proceeding. Document the pushback and the resolution.

For existing contracts without sanctions clauses, prioritise adding them at renewal. For ongoing relationships, consider issuing sanctions compliance letters that counterparties must acknowledge.

Evidence Your Auditor Will Request

Standard sanctions compliance clause templates used in contracts
Sample contracts showing sanctions clauses included and executed
Records of counterparty pushback on sanctions clauses and resolution
Compliance letters or amendments for existing contracts lacking sanctions clauses
Legal review of sanctions clauses for enforceability in relevant jurisdictions

Common Mistakes

Not including sanctions clauses in contracts as standard practice
Using boilerplate clauses that are too vague to be enforceable
Proceeding with contracts despite counterparty refusal to accept sanctions clauses
Not updating existing contracts to include sanctions clauses at renewal
Treating sanctions clauses as a legal formality rather than a genuine compliance tool

Related Controls Across Frameworks

Framework	Control ID	Relationship
EU Sanctions DD	EU Sanctions DD WHY.1 (related mapping)	Related
EU Sanctions DD	EU Sanctions DD GEO.2 (related mapping)	Related
EU Sanctions DD	EU Sanctions DD WHY.3 (related mapping)	Related

Frequently Asked Questions

Are no-re-export clauses legally enforceable in all jurisdictions?

Enforceability varies by jurisdiction. In most EU and common-law jurisdictions, these clauses are enforceable as standard contract terms. In some jurisdictions, there may be limitations on extraterritorial application. However, even in jurisdictions with limited enforceability, the clause serves a critical due diligence purpose: it demonstrates that you took reasonable steps to prevent diversion, and it puts the buyer on notice of the restrictions.

What should we do if a long-standing customer refuses the clauses?

The length of the relationship does not change the sanctions risk. Explain that sanctions clauses are now standard practice across your industry and are required by your compliance programme. If the customer still refuses, escalate to your compliance officer and legal team. A customer with no intention of diverting goods has no reason to refuse these clauses. Their refusal itself is informative.

Do sanctions clauses replace other due diligence?

No. Contractual clauses are one layer of defence but do not replace screening, end-use verification, or other due diligence measures. A determined bad actor will sign any clause. The clauses provide legal recourse and demonstrate your compliance effort, but you still need to verify through other means that goods are being used as stated. Think of clauses as necessary but not sufficient.

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