Three overlapping regimes
A commercial contract can be caught by at least three sanctions regimes at once. The UK regime runs on the Sanctions and Anti-Money Laundering Act 2018, enforced for financial sanctions by the Office of Financial Sanctions Implementation (OFSI) and, since 2024, for trade sanctions by the Office of Trade Sanctions Implementation (OTSI). The US regime, administered by the Office of Foreign Assets Control (OFAC), is the most far-reaching: it binds US persons and US-nexus conduct (primary sanctions) and also targets non-US persons who deal with sanctioned parties (secondary sanctions). The EU regime adds a further twist, because its Blocking Statute can prohibit EU operators from complying with certain US measures.
The practical consequence is that a contract between two non-US parties, governed by English law, can still be exposed to US sanctions - most obviously where payment is in US dollars and clears through a US correspondent bank. Sanctions risk is therefore not solved by choosing a friendly governing law; it has to be screened for on its own terms.
Sanctions can override the contract
Where a sanction bites, it does not merely make performance commercially awkward - it can make performance unlawful, and the courts will not compel an unlawful act. The effect is usually to suspend the obligation for as long as the sanction applies rather than to discharge the contract altogether, and frustration is hard to establish where a licence might have been sought. The leading English cases - Lamesa Investments Ltd v Cynergy Bank Ltd [2020] EWCA Civ 821, Mamancochet Mining Ltd v Aegis Managing Agency Ltd [2018] EWHC 2643 (Comm), and Celestial Aviation Services Ltd v UniCredit Bank GmbH [2026] UKSC 10 - are covered in the performance article.
Because sanctions can change the legal position overnight, the contract should anticipate them: a well-drafted sanctions clause allocates the risk, provides for suspension and termination, and interacts cleanly with the force majeure and governing-law clauses.
Export controls are a separate regime
Export controls overlap with sanctions but are conceptually distinct: they regulate the cross-border movement of controlled goods, software, and technology - particularly dual-use items capable of both civilian and military use - regardless of who the counterparty is. A transaction can clear sanctions screening yet still need an export licence. The catches are easy to miss: a 'deemed export' can occur when controlled technology is merely shown to a foreign national without anything crossing a border, and EU rules now require a contractual 'no re-export to Russia' clause for sensitive goods sold into third countries (with the UK treating the same clause as due-diligence best practice rather than a legal requirement).
The export-controls article covers the dual-use regimes, deemed exports, and the contractual clauses now expected in supply and technology agreements.
Due diligence is continuous, not a one-off
Sanctions exposure is not fixed at signing. A counterparty that is clean at onboarding can become sanctioned overnight, or can become caught indirectly: under OFAC's 50% rule, an entity owned 50% or more in the aggregate by blocked persons is itself blocked even though it never appears on any list. Ownership and control therefore have to be traced, and screening has to be repeated through the life of the contract, not performed once.
Jurisdiction also matters: dealing with a counterparty connected to a high-risk jurisdiction raises the diligence required, and the risk map shifts quickly - regimes are eased as well as tightened, as the substantial easing of Syria-related sanctions across the US, EU and UK during 2025 showed. The due-diligence article covers screening, the 50% rule, and ownership tracing.
Strict liability and serious penalties
Sanctions breaches are penalised heavily and, increasingly, without any need to prove fault. In the UK, the Economic Crime (Transparency and Enforcement) Act 2022 made OFSI monetary penalties strict liability, so a firm can be penalised on the civil standard without OFSI proving it knew or had reason to know. The EU has harmonised criminal penalties through Directive (EU) 2024/1226, and US enforcement settlements regularly run into the hundreds of millions of dollars.
The combination of strict liability, extraterritorial reach, and large penalties is why sanctions and export-control compliance now belongs in the contract and the compliance programme together, rather than being left to a boilerplate clause. The enforcement article covers the penalty regimes and the EU Blocking Statute.
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Practical checklist
- Screen every transaction against the UK, US and EU regimes - not just the governing-law jurisdiction.
- Watch the US-dollar nexus: USD payments clearing through US banks can pull a non-US deal into OFAC's reach.
- Include a sanctions clause that suspends and, if needed, terminates - and that interacts cleanly with force majeure.
- Check whether controlled goods, software, or technology need an export licence, including deemed exports.
- Trace ownership and control (the OFAC 50% rule) and re-screen counterparties through the life of the contract.
- Treat compliance as strict-liability: build the clause and the compliance programme together.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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