A sanctions clause is a contractual provision that regulates the consequences of international trade sanctions for the execution of an agreement. Sanctions against Russia, Iran, or specific sectors can render contracts unenforceable from one day to the next. In our practice, we see entrepreneurs working with outdated clauses from the pre-2022 era. A good sanctions clause offers a direct legal way out of untenable obligations.
What is the legal problem?
Sanctions change rapidly and apply with immediate effect. Compliance is mandatory under severe penalties. At the same time, sanctions disrupt commercial obligations: delivery, payment, and cooperation can suddenly become illegal. Without a clear clause, you must honor contracts or terminate them at risk. International regimes vary (EU, US, UK).
What does the law say?
EU sanctions apply directly in all Member States via regulations. Since February 2022, the EU has applied a comprehensive package under Regulation (EU) 833/2014 (Russia sanctions). The Sanctions Act 1977 provides for Dutch implementation; violations are punishable under the Economic Offences Act. US OFAC sanctions have extraterritorial effect, including secondary sanctions.
Sanction clauses in contracts are not legally mandatory, but are strongly recommended for risk management. Standard clauses are available through the ICC and the International Group of P&I Clubs.
What risks do companies face?
Criminal prosecution and heavy fines under the Sanctions Act 1977 and the Economic Offences Act. Exclusion from international payment systems (SWIFT). Freezing of funds under Regulation 269/2014. Loss of insurance coverage. Banks refuse payments. Without a sanctions clause, you may be forced to comply with contracts that have become illegal.
Practical example from our practice
We represented a Dutch supplier with a multi-year contract with a Russian client without a sanctions clause. Following new sanctions, delivery was prohibited under Regulation 833/2014. The client demanded performance or damages of 1.8 million euros. We successfully defended ourselves based on Article 6:75 of the Dutch Civil Code (force majeure due to statutory impossibility). Upon renegotiation, we incorporated a specific sanction clause: suspension, termination without damages, and retention of advances. Future relationships safe.
What can you do?
Include a comprehensive sanction clause in every international contract. Refer to EU, US, UK, and UN sanctions. Arrange for suspension, termination without damages, and retention of paid advances. Build in screening and declaration obligations for counterparties. Combine with an export compliance clause under Regulation 2021/821. See also our article on Force Majeure in International Contracts.