A freight-forwarding group based in Singapore has just received a revised commercial contract from its US technology partner. The new draft contains three clauses it has never seen before: a BIS end-use certification, a prohibition on re-export without written consent, and a termination right triggered by any designation under US export-control law. Its legal team must decide whether to accept them, push back, or walk away – and the clock is running.
Sanctions and export-control clauses in commercial contracts serve a specific legal function under the BIS / EAR: they transfer disclosure obligations, restrict onward transfer of controlled items, and allocate the legal risk of a prohibited end-use or end-user. Under the EAR (Export Administration Regulations administered by the Bureau of Industry and Security), the exporting party's obligations do not disappear because a contract is silent; the clauses are the mechanism by which those obligations are operationalised across the supply chain.
This analysis sets out how BIS / EAR-driven contract clauses work, where they diverge from OFAC, EU, and UK approaches, what the risk flags are for a non-US counterparty, and when to involve sanctions and export-control counsel before signing.
What is the legal basis for BIS / EAR sanctions clauses in contracts?
The EAR imposes obligations on US persons, persons located in the United States, and any person in respect of items subject to US jurisdiction – regardless of where the transaction takes place. That last point is what drives the contractual regime. A foreign buyer of US-origin goods, technology, or software acquires those items subject to the EAR; the contract clause is the mechanism through which the US exporter discharges its obligation to ensure onward compliance.
BIS enforces compliance through the Entity List (a list of parties to which exports, re-exports, and transfers are restricted or prohibited absent a licence) and the Commerce Control List (the CCL, which classifies items by their Export Control Classification Number or ECCN). A contract between a US exporter and a foreign buyer typically references both: the ECCN of the item, any applicable licence or licence exception, and the downstream restrictions on the buyer. Where the ECCN carries a control for national security or anti-terrorism reasons, the EAR's extraterritorial reach is at its broadest – covering re-exports by the foreign buyer to third countries or third parties.
The result is a layered contractual obligation. The US exporter warrants that the item is being exported under lawful authority. The foreign buyer certifies the end-use and end-user. Any sub-buyer or sub-licensee is bound by identical restrictions passed down the chain. In our cross-border practice, we regularly advise foreign businesses that are surprised to find these obligations survive the original sale – they run with the item, not just the transaction.
How do BIS / EAR contract clauses differ from OFAC-driven clauses?
BIS / EAR clauses and OFAC clauses look superficially similar but serve structurally different purposes. OFAC administers economic and financial sanctions: its prohibitions target designated persons, blocked property, and specified transactions. An OFAC clause in a contract is typically a representation that no party, beneficial owner, or counterparty is a Specially Designated National (SDN, a person on OFAC's list of blocked parties) and a warranty that the transaction does not involve blocked property or a sanctioned jurisdiction.
BIS / EAR clauses, by contrast, are export-control clauses. They address the nature of the item and its downstream use, not merely the identity of the contracting party. A shipment of dual-use goods may pass cleanly through an OFAC screen – the buyer is not designated, no blocked property is involved – yet still require a BIS licence and a robust end-use undertaking because of the item's ECCN classification. The two regimes operate on different axes and a contract that addresses one can be entirely silent on the other.
Three concrete divergences matter most in practice. First, scope: OFAC clauses focus on parties and jurisdictions; BIS / EAR clauses focus on goods, technology, software, and their ultimate destination and use. Second, mechanism: OFAC sanctions flow from designation status, which changes; BIS / EAR controls flow from the CCL classification of the item, which is more stable but can be updated. Third, risk allocation: under OFAC, the analysis is largely binary – the counterparty is sanctioned or it is not. Under BIS / EAR, there is a spectrum, from fully controlled items requiring a licence to EAR99 items (items not specifically controlled under the CCL) that require only basic diligence.
The position above covers the standard case. Your facts – the item's classification, the destination, the end-user's profile, the contractual chain – change the analysis significantly. For a tailored review of a contract's export-control provisions, contact Calder & Vance at info@caldervance.com.
Where do OFSI, EU, and UK clauses diverge from the BIS / EAR model?
A cross-border contract involving European parties or UK-regulated goods will attract at least three distinct contractual regimes, each with its own drafting requirements. Understanding where they pull in different directions is essential before any clause is finalised.
Under the OFSI regime (the UK's Office of Financial Sanctions Implementation), financial sanctions clauses address party identity and the ownership and control test – the UK standard for whether a non-listed entity is effectively controlled by a designated person, even without the mechanical 50 percent or more ownership threshold that governs the OFAC analysis. A UK-law contract drafted to satisfy OFSI will typically contain: a representation that no party is a designated person or owned or controlled by one; an obligation to notify on change of circumstance; and a right to suspend or terminate on a designation event. These are party-focused and backward-looking. They say nothing about the item's classification or its onward journey.
EU Council regulation-based clauses add a layer of asset-freeze and funds-and-resources prohibition. They apply to EU persons and EU-territory transactions and extend to non-EU subsidiaries of EU entities in some circumstances. An EU-law contract may include a prohibition on making funds or economic resources available – broader than OFAC's blocked-property concept because it captures indirect benefit. The EU also applies an ownership and control standard, not a pure percentage threshold, meaning that a well-advised counterparty can challenge a characterisation that OFAC would accept automatically.
UK export-control clauses under the Export Control Order administered by ECJU (the Export Control Joint Unit) follow a model closer to BIS / EAR in that they focus on the item, its classification under the UK's own Strategic Export Control Lists, and the end-user. Post-Brexit, the UK's lists and the EU's lists have largely tracked each other but they are not identical. A dual-use item subject to an EU licence requirement may not require a UK licence, or vice versa. In our experience, contracts drafted before the UK left the EU's single licensing regime still circulate with clauses that conflate the two.
The cardinal rule: when a contract is governed by English law but the goods are US-origin, both BIS / EAR and UK export-control obligations apply independently. Satisfying one does not satisfy the other. Does your current contract template address both? Many do not.
What are the structural elements of a sound BIS / EAR clause package?
A BIS / EAR-compliant clause package in a commercial agreement typically comprises five elements, each addressing a different compliance obligation. The elements are sequential in the sense that each presupposes the one before, but all must be present for the package to be effective.
The first element is an item-classification disclosure. The exporter states the ECCN of the goods, technology, or software being transferred. If the item is EAR99, that too is stated. This is the anchor for everything that follows: an end-use restriction written against the wrong classification provides no real protection.
The second element is the licence or exception statement. The exporter identifies the authority under which the export is made – whether a specific licence from BIS, a licence exception under the EAR, or a determination that no licence is required. The buyer's compliance obligations in the subsequent clauses are then tied expressly to that authorisation.
The third element is the end-use and end-user certification. The buyer certifies the specific use for which it is acquiring the item, the final end-user if different from the buyer, and the country of ultimate destination. This certification is not a formality: BIS treats a false end-use statement as a basis for denial, and in enforcement proceedings a false certification is an aggravating factor. The certification should be updated before any material change – including a corporate restructuring of the buyer.
The fourth element is the re-export and retransfer restriction. The buyer undertakes not to re-export or retransfer the item without first confirming licence requirements in the destination country, and not to re-export to any party on the Entity List or to any prohibited end-use. This clause is the practical extension of the US exporter's original obligation into the downstream supply chain. It is also the clause most commonly omitted or diluted by foreign counterparties who resist what they see as an extraterritorial intrusion.
The fifth element is the termination and audit right. The exporter retains the right to terminate on a designation event affecting the buyer, on a material change in end-use or end-user, or on a reasonable concern that the goods may be diverted. An audit right – the right to request end-use verification – is increasingly standard in high-technology contracts, particularly in sectors where BIS has issued specific guidance on diversion risk.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Reach the Calder & Vance team at info@caldervance.com.
Which regime is stricter on sanctions clauses in contracts?
Strictness is not a single variable: it depends on whether you are measuring breadth of coverage, severity of enforcement, or the burden placed on the contractual counterparty. On each dimension, the answer differs.
On breadth, BIS / EAR is arguably the widest-reaching regime for export-control purposes. Items "subject to the EAR" include not only US-origin goods but also foreign-made items that incorporate controlled US-origin content above a de minimis threshold, or that are produced using certain US-controlled technology. That foreign direct product rule – the MEU rule – extends the EAR's reach to items manufactured outside the United States and outside any transaction with a US person. No other major regime has an equivalent provision of comparable breadth. A contract for a product that has never physically been in the United States may still carry EAR obligations if the production technology was subject to the EAR.
On enforcement posture, OFAC's civil penalty regime is well-established and well-publicised. BIS civil penalties are also significant, and criminal penalties for wilful violations under the Export Control Reform Act can reach very substantial terms. In recent years BIS has expanded its coordination with DOJ (the US Department of Justice) on enforcement, particularly in technology-diversion cases. The practical lesson is that export-control enforcement is no longer a regulatory-fine risk only – it carries personal liability for individuals.
On contractual burden, the EU's prohibition on making funds or economic resources "available" – directly or indirectly – places a heavier burden on the drafting party than either BIS / EAR or OFAC, because it captures indirect benefit to a designated person. A contractual arrangement that would pass OFAC and BIS scrutiny can still fall within EU scope if a designated party derives any economic benefit. This is the point at which the regimes most sharply diverge and where standard-form clauses regularly fail.
The answer to which regime is strictest is therefore: it depends on the item, the parties, the transaction route, and the jurisdiction of enforcement. Where multiple regimes apply – as they routinely do in a cross-border supply chain – the strictest prohibition governs each element of the transaction, and they need not be the same regime for different elements of the same deal.
What are the most common risk flags in BIS / EAR contract clauses?
In our practice, the same categories of weakness appear repeatedly in contracts submitted for review by exporters, distributors, and foreign buyers. They fall into four groups.
The first is outdated or missing ECCN references. Technology transfers in particular are often contracted on templates that pre-date a reclassification of the item. The item may now be controlled where it previously was not, or the applicable licence exception may have been removed. A clause drafted in reference to an old ECCN provides contractual certainty of the wrong kind.
The second is a mis-calibrated re-export clause. Foreign distributors frequently receive US-origin goods and resell into third markets as a matter of course. If the re-export restriction in the contract is not tied clearly to BIS's licence requirements for the relevant countries of onward sale, the distributor may inadvertently create an EAR violation on every third-country sale. We regularly advise distributors who have been operating under contracts of this form for years before the issue is surfaced in a due-diligence review.
The third is a termination clause that is either too broad or too narrow. A clause that triggers on any OFAC, BIS, or foreign designation – without carve-outs for general licences, for legacy supply obligations, or for a wind-down period – may give the exporter an unrestricted exit right in circumstances that do not actually create a compliance obligation. Conversely, a clause drafted only by reference to the SDN List may miss an Entity-List designation of the buyer or a sub-buyer, which is an equally significant BIS risk.
The fourth is the absence of flow-down provisions. Where the foreign buyer intends to incorporate controlled technology into a product for onward sale, the BIS obligations must flow down to the next tier. A contract that contains a robust end-use undertaking from the direct buyer but no obligation to impose equivalent terms on sub-buyers creates a gap that BIS will treat as a red flag in an enforcement context.
Related practices
- Sanctions compliance audit and testing – testing screening logic, ownership chains, and programme design against live regulatory standards.
- Sanctions clauses in contracts under EU law – how EU Council regulation-based clauses compare and where they impose a stricter standard.
- Sanctions clauses: OFAC vs BIS / EAR compared – a direct regime-by-regime comparison for cross-border drafting teams.
A myth worth addressing: "The clause is the US party's problem"
A persistent view among foreign counterparties – particularly in Asia and the Middle East – is that BIS / EAR compliance is exclusively the US exporter's obligation. The foreign buyer signs the end-use certificate and regards its role as complete. The US party carries the risk.
That view is incorrect, and it is increasingly costly to hold. A foreign buyer who makes a false end-use statement, who re-exports to a prohibited party or destination, or who facilitates a diversion of US-controlled technology is themselves subject to BIS jurisdiction in respect of those items. The EAR applies to conduct occurring outside the United States where the items involved are subject to the EAR. BIS can deny export privileges globally, restrict access to US-origin items across all of a company's business lines, and refer criminal matters to DOJ for prosecution.
We have acted for foreign distributors and manufacturers that came under BIS scrutiny not for anything their US supplier did, but for their own downstream conduct. The lesson from those matters is consistent: a foreign party that treats the BIS / EAR clause package as a US formality, rather than as a set of binding obligations it has independently assumed, is carrying undisclosed risk on every transaction involving US-origin items.
The broader point is this: in a supply chain that touches US-origin goods, technology, or software at any point, the EAR is present throughout the chain – not only at the point of original export. Contractual silence does not exclude it.
What should a cross-border business do about sanctions clauses in contracts?
For a cross-border business regularly dealing in goods, technology, or software that may be subject to the EAR, the starting point is classification. Until the ECCN of each item is confirmed – not assumed – no meaningful contract review is possible. Classification determines which controls apply, which licence exceptions are available, and what the downstream buyer must certify.
Once classification is confirmed, the contract review can proceed in a structured sequence. The first question is whether the existing clause package addresses BIS / EAR obligations at all, or only OFAC and party-identity questions. The second is whether the ECCN reference in the contract is current and correct. The third is whether the re-export and retransfer provisions map accurately onto BIS's licence requirements for the buyer's anticipated onward markets. The fourth is whether flow-down obligations are imposed on sub-buyers for any incorporated technology.
For a business that both exports and imports US-controlled items – a common position for a multinational manufacturer or distributor – the contract review should be conducted as part of a broader compliance-programme assessment. In our practice, we test the screening logic, map the ownership and control chain of the counterparty, and assess the contract clause package against the five-element standard described above. That combined review typically surfaces gaps that a pure contract review would miss.
In a recent matter, a mid-sized European manufacturer distributing US-origin components into South-East Asian markets had operated for several years under a contract that contained an OFAC representation but no BIS end-use clause at all. The component's ECCN carried a national-security control. We identified the gap in the course of a pre-acquisition due-diligence exercise, assessed the potential BIS exposure, and assisted the business in implementing a compliant clause package and an end-use-certification programme across its distribution network. The position was regularised before closing.
The decision matrix for a cross-border business looks broadly as follows. Where the item is EAR99 and the counterparty is not on any restricted-party list, a standard OFAC/SDN representation and a short BIS compliance acknowledgement will usually be sufficient. Where the item carries an ECCN with a national-security or anti-terrorism control, a full BIS clause package – classification disclosure, licence statement, end-use certification, re-export restriction, and audit right – is required. Where the item is subject to the foreign direct product rule, additional counsel is needed to assess whether the rule is engaged and what downstream restrictions apply. In all cases, flow-down provisions should be mandatory where any sub-supply is anticipated.