Compliance clauses regulate compliance with laws and regulations by both contracting parties. Many entrepreneurs view these as mere window dressing — long texts that no one reads. In our practice, however, they make the difference between liability and protection. A good compliance clause transparently shifts risks and obligations, offers auditing opportunities, and strengthens your negotiating position.
What is the legal problem?
Compliance clauses cover anti-corruption, sanctions, competition law, GDPR, ESG, export control, and sector rules. In international relations, risks are more diverse and the consequences of non-compliance are more severe. Vague clauses are unenforceable. Unilateral demands lead to resistance or refusal. A balanced structure is essential.
What does the law say?
The UK Bribery Act 2010, the US FCPA 1977, and the Dutch Economic Offences Act prohibit corruption regardless of where it takes place. The GDPR (Regulation 2016/679), the Sanctions Act 1977, and Regulation 2021/821 (dual-use) establish chain obligations. Anti-money laundering rules are governed by the Wwft and Regulation 2024/1624 (AML package).
Sector rules (finance under the Wft, healthcare under the Wkkgz, energy under the Competition Act) impose additional compliance.
What risks do companies face?
Compliance violations lead to heavy fines, criminal prosecution, and reputational damage. Due to extraterritorial effects, American and British enforcement can affect you without a direct connection. During acquisition due diligence, unknown risks undermine the transaction price. Without indemnification and termination rights, you bear the damages yourself that you could have contractually shifted.
Practical example from our practice
We advised a Dutch company on the acquisition of a British subsidiary without a detailed compliance indemnification. After closing, it turned out that the subsidiary had secured contracts through bribery for years. The UK SFO opened an investigation; the Dutch parent company was fined 8.2 million pounds. For subsequent M&A transactions, we built in: strong compliance warranties, uncapped indemnities, and escrow for compliance claims (15 percent of the purchase price for seven years). Next deal successfully closed without residual claims.
What can you do?
Incorporate compliance clauses into all contracts, tailored to sector and country. Require declarations, training, and audit rights. Combine with indemnification and immediate termination rights. Appoint an internal compliance officer for oversight. For M&A: provide for escrow for compliance claims. Update clauses in response to new regulations. See also our article on Anti-corruption provisions in international trade.