A trading company headquartered in Dubai signs a long-term supply agreement with a European counterparty. The contract contains a sanctions clause – but it was drafted to OFAC standards. Six months later, the UAE's own autonomous sanctions regime and a divergent EU clause create a direct conflict. Which clause governs? What happens to payment obligations when a designated party enters the chain? These questions are not hypothetical. They arise on cross-border desks every week.
Sanctions clauses in contracts under UAE law operate within a distinct legal environment that diverges meaningfully from OFAC, OFSI, and EU-standard drafting. The UAE maintains its own autonomous sanctions regime, administered through the Executive Office for Control and Non-Proliferation (EOCN), alongside its implementation of UN Security Council Consolidated List obligations. A clause drafted exclusively for one regime will not protect a party adequately under another – and the consequence of that gap is contractual exposure, regulatory liability, or both.
This analysis maps the key divergences across the UAE, OFAC, OFSI, and EU regimes as they affect sanctions clause drafting, compares the ownership and control tests that determine when a clause triggers, identifies the risk flags most commonly overlooked in cross-border contracts, and sets out when specialist counsel should be involved.
What is the legal basis for UAE sanctions obligations, and why does it matter for contract drafting?
The UAE autonomous sanctions regime is grounded in federal legislation and Cabinet resolutions administered by the EOCN, which maintains the UAE's own targeted financial sanctions lists alongside its obligations under UN Security Council resolutions. This dual structure – autonomous UAE designations and UN-derived obligations – means that a contract governed by UAE law must account for two overlapping sets of prohibitions.
OFAC operates under IEEPA and related US statutes. Its prohibitions bind US persons and, through extraterritorial mechanisms, non-US parties dealing in US-origin goods, services, or currency. OFSI administers UK financial sanctions under the Sanctions and Anti-Money Laundering Act (SAMLA), with prohibitions framed by the relevant thematic sanctions regulations. The EU Council regulations impose asset-freezing and dealing prohibitions on EU persons, EU-incorporated entities, and transactions conducted within EU territory.
Each regime has a different legal basis, a different jurisdictional trigger, and a different administrative authority. A sanctions clause that refers only to "applicable sanctions" without specifying which regime's list, which regulator's authority, and which ownership threshold is operative invites exactly the interpretive dispute that courts and arbitral tribunals are increasingly asked to resolve. In our cross-border practice, we regularly see boilerplate clauses that assume OFAC primacy – a drafting approach that can leave the UAE-law side of the contract materially under-specified.
The position above covers the standard architecture. Your facts – the governing law, the counterparties' jurisdictions, the goods or services in question, and the currency of payment – will determine which of these regimes actually bites, and in what order.
To discuss how the UAE sanctions regime applies to your contracts, contact Calder & Vance at info@caldervance.com.
How do ownership and control tests differ across the UAE, OFAC, OFSI, and EU regimes?
The ownership and control analysis is where cross-regime divergence is most consequential for contract drafting. Under OFAC, the 50 percent rule (OFAC's rule treating entities owned 50 percent or more in the aggregate by blocked persons as themselves blocked) is mechanical: ownership at or above 50 percent, whether direct or layered, triggers the prohibition regardless of who manages the entity. Control is not independently determinative under the OFAC standard.
OFSI and the EU apply a different test. Both look at ownership – using the same 50 percent threshold – but they add a control limb. Under OFSI's guidance and the relevant EU Council regulations, an entity can be caught even where a designated person holds less than 50 percent, provided that person is found to control the entity by other means: through voting rights, through board appointment powers, or through contractual arrangements that give effective direction. This control limb is qualitative. It requires an assessment of how decisions are made, not merely a count of shares.
The UAE regime applies the UN Security Council standard for UN-derived designations. For autonomous UAE designations, the EOCN's approach to ownership and control broadly tracks the international standard, but the administrative practice and the guidance available to practitioners are less developed than the OFAC or OFSI bodies of guidance. That gap creates interpretive uncertainty – which must be managed at the drafting stage, not after a dispute arises.
What does this mean for the sanctions clause in a cross-border contract? It means that a clause referencing only a single ownership threshold, without addressing the control limb, will be under-inclusive under OFSI and EU law. Equally, a clause drafted to the EU control standard may be over-inclusive relative to the OFAC mechanical test, potentially triggering contractual rights of termination where OFAC would not itself impose a prohibition. Have you tested your current clause template against all three standards?
What are the principal drafting divergences between OFAC-standard, OFSI-standard, and UAE-governed sanctions clauses?
The divergences between regime-specific sanctions clause drafting are structural, not merely cosmetic – and a cross-border contract that straddles these regimes must resolve each divergence explicitly.
The first divergence is list specificity. OFAC-standard clauses typically refer to the SDN List and, sometimes, OFAC's other consolidated lists. OFSI-standard clauses reference the UK's consolidated list maintained under SAMLA. EU-standard clauses cite the EU's consolidated list under the relevant Council regulation. A UAE-governed contract must also reference the EOCN's list and the UN Consolidated List. A clause that refers only to "government sanctions lists" without specifying which ones creates an enforcement gap: a party that is designated on one list but not another may not trigger the clause at all.
The second divergence is the trigger event. OFAC clauses typically trigger on designation or listing. OFSI and EU clauses may also trigger on the ownership and control test being met – meaning the clause fires when a counterparty becomes indirectly caught, not just when it is directly named. UAE-governed clauses that adopt only the direct-listing trigger may miss the control-caught scenario entirely.
The third divergence is the consequence of triggering. Under US sanctions, dealing with a blocked person is strictly prohibited; there is no contractual mechanism that can override the legal prohibition. Under OFSI and EU law, specific licences can permit otherwise-prohibited transactions. A well-drafted sanctions clause should address whether the parties will seek a licence before invoking termination rights – and who bears the cost and delay of that process.
The fourth divergence is governing law and the applicable regime. A contract governed by UAE law but involving US-dollar payments through a US correspondent bank is simultaneously within the scope of the UAE regime and of OFAC's US-nexus jurisdiction. Clauses that define "applicable sanctions" by reference only to the governing law of the contract will miss this overlap. The stricter prohibition governs in practice – and that principle must be built into the clause.
In our experience, the most common drafting error is the assumption that one clause template can serve all regimes. It cannot.
How does extraterritorial reach affect sanctions clause drafting for UAE-based businesses?
Extraterritoriality is the single most under-appreciated risk factor in sanctions clause drafting for businesses operating through the UAE. The UAE sits at the intersection of US, UK, EU, and UN sanctions regimes, each with a different extraterritorial footprint.
OFAC's extraterritorial reach is broadest. Any transaction cleared in US dollars through a US correspondent bank is within OFAC's jurisdictional scope, regardless of the nationality of the contracting parties or the governing law of the contract. For UAE-based businesses, this means that the USD-denominated payment leg of a contract creates US sanctions exposure even when both parties are non-US and the goods never touch US territory. The sanctions clause must address this leg specifically.
BIS and the EAR extend jurisdiction to items that contain US-origin content above a de minimis threshold, or to items produced using US technology, regardless of where the item currently sits. A UAE-based trading house re-exporting goods that include US-controlled components is within EAR jurisdiction. The sanctions clause must therefore address both financial-sanctions prohibitions (OFAC) and export-control prohibitions (BIS), which are legally distinct instruments with different licensing regimes.
UK secondary-sanctions risk is lower than the US secondary-sanctions exposure. OFSI's prohibitions bite directly on UK persons and UK entities. However, a UK-incorporated subsidiary of a UAE-based group is a UK person for OFSI purposes. Contracts involving that entity must carry an OFSI-compliant clause, regardless of whether the contract is otherwise UAE-governed.
EU extraterritoriality operates similarly: EU-incorporated entities and transactions conducted within EU territory are within scope, even if the contract is UAE-governed. For a UAE group with a European subsidiary or a European payment counterparty, the EU clause must sit alongside the UAE clause.
What this means operationally is that a UAE-headquartered business with a US-dollar payment leg, a UK subsidiary, and a European customer may need a single contract to satisfy four overlapping sanctions regimes simultaneously. A clause drafted to satisfy only one will expose the other three.
If a transaction has already been flagged under one of these regimes, or a payment has been returned or blocked, an early review can preserve options that narrow considerably with time. Contact Calder & Vance at info@caldervance.com for a confidential assessment.
What risk flags should compliance counsel identify before a cross-border contract is signed?
Effective pre-signing review of sanctions clauses in cross-border contracts requires a structured risk assessment across five dimensions, each of which can expose gaps between the clause as drafted and the regulatory exposure as it actually exists.
First: list coverage. Does the clause enumerate every relevant list – the EOCN list, the UN Consolidated List, the OFAC consolidated list (for USD-nexus transactions), the UK consolidated list (for UK-person involvement), and the EU consolidated list (for EU-territory or EU-person involvement)? A clause that names only one or two lists creates an enforcement gap that a counterparty or a regulator may exploit.
Second: ownership and control chain. Has the compliance team mapped the full ownership and control chain of each counterparty against every applicable regime's test? The mechanical OFAC test and the qualitative OFSI/EU control test require different analysis. A counterparty may be clean under the OFAC 50 percent aggregation test but caught under the EU control limb. Screening tools that check only direct shareholders will miss layered or control-based exposure.
Third: payment currency and correspondent bank exposure. If any leg of the transaction uses US dollars, OFAC jurisdiction is engaged regardless of governing law. The clause must address this explicitly, including what happens to the USD payment leg if OFAC designates a party after signing.
Fourth: material change provisions. Does the clause address what happens when a party becomes designated after contract execution? Many standard clauses address pre-signing status but are silent on post-signing designation. A post-signing designation can create obligations to freeze performance, report to regulators, and potentially exit the contract – none of which should be left to implication.
Fifth: licensing and force majeure interaction. Under OFSI and EU law, a specific licence may allow a prohibited transaction to proceed. Under OFAC, a licence from the US Treasury can permit otherwise-prohibited dealing. A sanctions clause should address whether the parties are obliged to seek a licence before invoking termination rights, and whether the licensing period triggers or suspends any force majeure clock. Leaving this silent creates a gap that arbitral tribunals have had to fill on equitable grounds – a suboptimal outcome for both parties.
A single mis-specified clause in a high-value supply agreement can convert a commercial dispute into a regulatory matter. The cost of pre-signing review is a fraction of the cost of post-signing remediation.
What is the common myth about UAE sanctions clauses, and why is it dangerous?
A persistent myth in cross-border contract practice is that the UAE's relatively recent autonomous sanctions regime means that UAE-governed contracts can rely on generic international-standard clauses without further specification. The reasoning runs: "We are an international business; our OFAC-standard clause covers the main prohibitions; the UAE regime is narrower, so we are covered."
This reasoning is wrong in three ways. First, the UAE regime applies the UN Security Council standard for UN-derived designations as a matter of direct obligation – not by incorporation from OFAC. A clause that omits reference to the UN Consolidated List is therefore under-inclusive on its own terms. Second, the UAE's autonomous sanctions regime, while narrower in scope than OFAC's, creates standalone obligations that an OFAC-standard clause does not address. Third, a contract governed by UAE law but executed by a party with US, UK, or EU connections carries full extraterritorial exposure to those regimes, regardless of what the contract says about "applicable sanctions."
The practical danger is this: a counterparty facing a claim under the sanctions clause will argue that the clause, as drafted, does not engage the UAE obligation on which the claim is based. That argument may succeed if the clause is OFAC-specific in its list references and trigger events. The result is that the party invoking the clause loses the protection it thought it had – and the deal proceeds despite the exposure.
We regularly advise clients who have inherited contracts with exactly this gap. In our experience, the remediation cost – renegotiating clause language, seeking regulatory comfort, and managing the interim compliance position – is substantially higher than a proper review at the drafting stage.
When should a cross-border business involve sanctions counsel on UAE-governed contracts?
The threshold for involving specialist sanctions counsel is lower than most businesses assume, and the cost of delay is asymmetric.
Counsel should be involved at the drafting stage whenever a contract involves: a UAE-incorporated entity with a US, UK, or EU parent or subsidiary; a USD-denominated payment leg; goods or services with dual-use characteristics; a counterparty in a jurisdiction subject to heightened scrutiny under any of the major regimes; or a contracting structure where the beneficial ownership chain passes through multiple jurisdictions.
The decision matrix looks like this. If the contract is purely UAE-domestic, involves no USD payments, and all parties are UAE entities with no foreign subsidiaries, the UAE and UN standards govern and the clause review is relatively contained. If the contract has a US-dollar payment leg or a US-person involvement, OFAC jurisdiction is engaged and the clause must satisfy both the UAE standard and the OFAC standard – the stricter prohibition governs. If the contract involves a UK or EU person or entity, or a payment routed through a UK or EU correspondent, the OFSI and EU clause standards apply in addition. In each case, the question is not which regime the parties prefer, but which regimes have jurisdiction over the transaction as actually structured.
For businesses that are already mid-contract and have identified a clause gap – or where a counterparty has raised a sanctions issue – early review preserves the options available. Reporting obligations under both OFSI and OFAC are subject to defined windows; delay can convert a manageable disclosure into an aggravated compliance failure.
In a recent matter, a commodity trading business operating under a UAE-governed framework agreement discovered that a sub-contractor had been designated on the UN Consolidated List after contract execution. The clause was silent on post-signing designation. We assessed the applicable regime obligations, advised on the reporting requirements under the relevant UAE and UN frameworks, and assisted in restructuring the performance obligations to remain within the scope of a specific licence application. The matter was resolved without regulatory sanction. No outcome can be guaranteed, but early instruction materially narrowed the exposure.
Related practices
- Compliance audit and testing – structured review of sanctions-programme design and screening logic across major regimes
- Sanctions risk assessment under BIS and the EAR – export-control classification and extraterritorial exposure analysis for cross-border traders
- Sanctions risk assessment under OFAC – OFAC ownership, control, and secondary-sanctions exposure review for non-US businesses
Frequently asked questions: sanctions clauses in contracts under UAE
Where do the regimes diverge on sanctions clauses in contracts?
The principal divergences are list coverage, ownership and control test, trigger event, and the treatment of post-signing designation. OFAC applies a mechanical 50 percent ownership threshold and does not independently assess control. OFSI and the EU add a qualitative control limb that can catch entities below the ownership threshold. The UAE regime applies the UN Consolidated List standard for UN-derived designations and its own autonomous list for EOCN designations. A clause that addresses only one regime's list references and trigger events will be under-inclusive for the others. Verify the current position for each regime before finalising clause language.
Which regime is stricter on sanctions clauses in contracts?
Strictness is not a single axis. OFAC's prohibitions are broadest in jurisdictional reach, given the US-dollar nexus and secondary-sanctions mechanisms. The EU control limb is arguably broader than the OFAC mechanical test in the ownership analysis. OFSI's enforcement has become more active since the Sanctions and Anti-Money Laundering Act was introduced. As a practical matter, where multiple regimes apply to a single transaction, the stricter prohibition governs – and a compliant sanctions clause must be built to the highest applicable standard across all engaged regimes, not the lowest common denominator.
What should a cross-border business do about sanctions clauses in contracts?
Three immediate steps apply. First, audit existing contract templates to identify which regimes' lists and ownership tests are actually specified – and which are missing. Second, for contracts with a US-dollar payment leg, a UK or EU counterparty, or dual-use goods, obtain a regime-specific clause review before signing. Third, ensure material-change provisions address post-signing designation explicitly, including the reporting obligations, the licensing route, and the interaction with any force majeure mechanism. Where the contract is already executed and a gap has been identified, involve counsel promptly to assess disclosure and remediation obligations.
About the author
Viktor Lindqvist advises exporters and trading houses on dual-use export controls, maritime and trade sanctions, and end-use compliance. He has extensive experience advising cross-border businesses on multi-regime sanctions clause drafting and contractual risk allocation across OFAC, OFSI, EU, and UAE-governed transactions. Calder & Vance – International Sanctions & Export Control Counsel.
About Calder & Vance
Calder & Vance is an independent international sanctions and export-control boutique. We advise multinationals, financial institutions, exporters, and individuals on the major regimes – OFAC and BIS in the United States, OFSI and ECJU in the United Kingdom, the EU Council regulations and the EU General Court, the United Nations Consolidated List, and the regimes of Switzerland, Canada, Australia, the UAE, Singapore, and Japan. Our work is limited to lawful compliance, licensing, delisting, enforcement defence, and due diligence. To discuss a matter, contact info@caldervance.com.
Disclaimer: This material is general information, not legal advice, and is not a substitute for advice on your specific facts. Sanctions and export-control rules change frequently and differ by regime; verify the current position before relying on anything stated here. Calder & Vance does not advise on circumventing or evading sanctions. For advice on your situation, contact info@caldervance.com.