A technology distributor based in Singapore signs a re-sale agreement with a buyer in a third market. The contract is silent on export-control obligations. Six months later, a shipment is detained: the end-user has been added to the Entity List (a list maintained by the US Bureau of Industry and Security, BIS, of persons subject to enhanced or case-by-case licence requirements under the Export Administration Regulations). The distributor had no clause allowing it to suspend delivery, no contractual right to require an end-user statement, and no termination right tied to a designation event. The commercial loss is significant. The compliance exposure is worse.
Sanctions clauses in contracts under BIS / EAR are the contractual mechanism by which exporters, re-exporters, and distributors allocate and manage US export-control risk across the supply chain. They draw their legal necessity from the Export Administration Regulations (EAR) – the rules administered by BIS under the Export Control Reform Act – which impose obligations on the US-origin exporter regardless of where downstream transactions occur. As of mid-2026, BIS enforcement posture has sharpened materially, and a well-drafted clause is no longer a formality; it is a live compliance tool.
This guide walks through the drafting steps, the cross-regime comparison that changes the picture for multi-jurisdiction contracts, the risk flags that most in-house teams miss, and the point at which a sanctions lawyer should step in.
Step 1: Understand what the EAR requires before you draft anything
Before a single clause is drafted, the legal obligation must be understood: the EAR imposes export-control requirements on the export, re-export, and in-country transfer of US-origin items, items containing US-controlled content above a defined de minimis threshold, and items produced using certain US technology or software – the foreign-produced direct product rule (the rule that extends EAR jurisdiction to non-US goods produced with specified US technology or production equipment).
Those obligations travel with the goods and the technology. They bind the original US exporter, but they also create downstream risk for distributors, re-sellers, and integrators who handle EAR-controlled items. The contract is the mechanism by which that risk is shared, disclosed, and managed. If the contract says nothing, every party in the chain carries an uncontrolled exposure.
The starting question for any drafter is therefore not "what clause should I use?" but "what is the Export Control Classification Number of this item, and what does the applicable Commerce Control List entry say about licence requirements?" The ECCN (Export Control Classification Number – the alphanumeric code that specifies the level and type of control under the Commerce Control List) determines which end-uses, end-users, and destinations are restricted, which licence exceptions might apply, and therefore what the contract clause needs to address. Classification drives everything downstream.
In our cross-border practice, we see contracts drafted before classification is complete. The clause is then written in terms too broad to be enforceable or too narrow to catch the actual risk. Getting the classification right first is not a legal nicety; it is the foundation of every other step.
Step 2: Identify the contractual relationships that carry EAR risk
EAR risk in a commercial contract concentrates at four points: the initial export from the United States; any re-export by a non-US party; any in-country transfer to a new end-user; and any transfer of technology or software – including technical data shared for integration, maintenance, or training purposes. Each of those points needs a corresponding clause.
The parties who need to be bound differ by transaction structure. In a direct sale from a US manufacturer to an overseas buyer, the buyer needs a compliance undertaking, an end-use certificate, and a right-of-audit clause. In a distribution chain – manufacturer to regional distributor to local reseller to end-user – each link in the chain needs its own contractual obligation, and the manufacturer's contract with the distributor needs to flow those obligations down. What does your distribution agreement actually say to the tier below you?
The answer in most standard agreements is: almost nothing. Generic boilerplate reciting that "the parties will comply with applicable export laws" is not equivalent to a substantive clause. It does not specify which items are controlled, which end-uses are prohibited, what the distributor must do before a re-export, or what happens when a counterparty is designated. We regularly advise manufacturers that discover their entire distribution network is covered by a single line that would not survive regulatory scrutiny.
A practical mapping exercise before drafting identifies: (a) every jurisdiction in the chain; (b) every item and its ECCN; (c) every end-use type that appears in the Commerce Control List for that ECCN; and (d) every party with authority to re-export or transfer. That map is then used to design the clause set – not the other way round.
Step 3: Draft the core clause elements for BIS / EAR compliance
A well-constructed BIS / EAR sanctions clause set has six elements, each serving a distinct compliance function.
- Export-control representation. The buyer or distributor represents, at signing and on each delivery, that it is not on the Entity List, the Denied Persons List, or the Unverified List, and that the transaction does not require a licence that has not been obtained. This allocates the screening obligation explicitly.
- End-use and end-user undertaking. The counterparty undertakes that the item will be used only for the stated end-use and will not be transferred to a restricted end-user or for a restricted end-use – particularly proliferation-related programmes – without prior written consent and a required licence.
- Re-export and in-country transfer restriction. The counterparty undertakes not to re-export or transfer in-country without the exporter's written approval and, where required, a BIS licence or a valid licence exception. The clause should specify which exceptions, if any, the parties have agreed may be relied on.
- Designation event clause. Either party may suspend performance, and the exporter may terminate with immediate effect, upon the designation of the other party or a material end-user to any US government restricted-party list. This is the clause that protects the exporter from being locked into a contract with a newly designated counterparty.
- Record-keeping and audit right. The counterparty agrees to maintain records of all transactions involving the controlled items for a period consistent with EAR requirements and to provide access to those records on reasonable notice. The exact retention period applicable to a specific transaction should be confirmed against current EAR requirements.
- Flow-down obligation. The counterparty undertakes to impose equivalent obligations in any sub-distribution, resale, or transfer agreement further down the chain. Without this clause, the compliance architecture collapses at the second tier.
Each element is a working part. The six together create a contractual framework that mirrors the actual EAR obligation structure and gives the exporter both a compliance paper trail and an exit right if the transaction goes wrong.
Step 4: Compare the BIS / EAR approach with OFAC, OFSI, and EU requirements
For any cross-border contract, BIS / EAR clauses are rarely the only layer. A multi-jurisdiction contract typically requires alignment across at least two of the three major regimes: OFAC (US financial and economic sanctions), OFSI (UK financial sanctions), and the EU Council regulations. The clauses operate differently, and a drafter who treats them as interchangeable creates gaps.
Under the EAR, the primary question is whether an item is controlled for export to a destination, end-user, or end-use. The prohibited-party lists (Entity List, Denied Persons List, Unverified List) are administered by BIS. OFAC, by contrast, administers asset-freezing and transaction-prohibition programmes that apply to specially designated nationals (SDNs) – the list maintained by the US Treasury's Office of Foreign Assets Control. OFAC's 50 percent rule (treating any entity owned 50 percent or more by a blocked person as itself blocked) has no direct equivalent in BIS's entity-based controls; under the EAR, the question is whether a named person or entity is on a list, not whether an unlisted entity is owned by someone who is.
OFSI and the EU use an ownership and control test that is broader than OFAC's mechanical 50 percent threshold. Both require analysis of whether a non-listed entity is owned or controlled by a designated person – and "control" can be established through contractual arrangements, board influence, or economic dependence, not just equity ownership. A contract clause drafted only to the BIS / EAR standard therefore does not address OFSI or EU exposure. In our experience, this is the most common structural gap in cross-border agreements.
For contracts involving dual-use goods with European parties, the EU dual-use rules add a further layer: catch-all controls requiring a licence where the exporter knows or suspects end-use in certain programmes, regardless of whether the item is formally controlled. The EU's regime and the EAR can both apply to the same shipment. The clause must address both.
The practical consequence: for a UK or EU business dealing in EAR-controlled goods, the contract needs at minimum two distinct clause sets – one for BIS / EAR and one for the applicable UK or EU regime. Where the regimes diverge, the stricter prohibition governs in practice.
The position above covers the standard multi-jurisdiction structure. Your facts – the specific goods, the route, the counterparties, the regimes in play – will change the analysis at each step.
For a compliance audit of your current contract templates and screening controls, or to assess how your programme holds up against the BIS / EAR standard, contact Calder & Vance at info@caldervance.com.
Step 5: Address the specific risk flags that standard boilerplate misses
Standard boilerplate export-control clauses fail in predictable ways. The risk flags below are the ones we encounter most consistently across sectors.
Insufficient list coverage. Many standard clauses reference "applicable US export controls" without naming the relevant lists. A counterparty placed on the Unverified List – a designation that does not prohibit all transactions but significantly affects licence-exception availability – may not understand that its status triggers a contractual obligation if the clause does not say so.
Technology and software scope. Physical goods attract the most attention in drafting, but EAR controls apply equally to technology transfers and software releases. A contract for the supply of hardware that is silent on the associated technical data, software updates, and maintenance support leaves a material gap. The technology controls can be more restrictive than the hardware controls for the same ECCN.
No designated-event clause. This is the single most common omission. A buyer added to the Entity List mid-contract creates an immediate EAR compliance problem for the exporter. Without a designation-event clause, the exporter has no contractual right to suspend or terminate; it must rely on force majeure or frustration, which are slower and less certain.
Inadequate flow-down. A manufacturer's direct agreement with a distributor can be strong. But if the distributor's agreement with the sub-distributor contains only a generic compliance recital, the item enters a zone where the manufacturer has no contractual visibility or control. BIS enforcement does not stop at the first tier.
Licence-exception reliance without disclosure. Some exporters rely on a licence exception without disclosing that reliance to the counterparty. If the conditions of the exception are then not met by the counterparty's use or re-export, the original exporter's exposure is not mitigated by a clause that was silent about the exception conditions.
No governing-law / jurisdiction clause aligned with the export-control clause. Export-control clauses are often drafted by US counsel under US law, inserted into contracts governed by English, French, or Singapore law. The interaction between a unilateral termination right under US-law export-control obligations and the remedies available under the governing law of the contract needs to be thought through explicitly. This is a point where US export-control counsel and commercial counsel need to work together.
Step 6: Build in the review and update mechanism
A sanctions and export-control clause is not a set-and-forget provision. The legal environment it reflects changes continuously: new Entity List additions, changes to licence-exception conditions, new BIS rules on specific technologies, and the periodic tightening of end-use controls. A contract signed today and performed over three years needs a mechanism for updating the export-control obligations as the rules change.
The practical tools are: a periodic review right (at least annually) allowing either party to request renegotiation of the export-control clause if material changes in the applicable law affect performance; a change-in-law clause that suspends performance obligations where a new restriction makes performance unlawful; and a stepped escalation process – notification, suspension, renegotiation, termination – rather than a binary suspend-or-terminate structure.
The escalation structure protects both parties. It gives the exporter time to obtain a licence or restructure the transaction before termination crystallises; it gives the buyer or distributor notice and an opportunity to remedy before the relationship ends. In our experience, a well-designed escalation clause resolves most designation events without litigation.
The review mechanism also matters for a different reason: it keeps the parties' attention on the compliance infrastructure. We have acted for businesses where the contract's export-control clause was strong but the underlying screening and record-keeping programme was not being maintained. The clause is the commitment; the programme is what delivers on it.
If a transaction has already been flagged, or a filing has been refused, an early review of the contractual position and the compliance record can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com.
When should you involve a sanctions lawyer?
For routine transactions in well-classified, lower-controlled items, a well-informed in-house team working from a tested template can handle BIS / EAR clause drafting without external counsel. But there are five situations where engaging a sanctions lawyer is the right call.
First, classification uncertainty. If the ECCN is not clear, or the item sits at the boundary between controlled and EAR99 (items subject to the EAR but not listed on the Commerce Control List, requiring no licence for most destinations), external classification analysis protects the legal basis for every downstream clause. An incorrect classification makes the entire clause set unreliable.
Second, multi-regime contracts. Where a contract must satisfy BIS / EAR, OFAC, and at least one of OFSI or the EU Council regime, the interaction between the clause sets needs to be designed as a coherent whole. Drafting in sequence – EAR clause first, OFAC clause added later, OFSI clause bolted on – produces gaps and conflicts.
Third, a counterparty has been designated or listed. A designation event mid-contract is a compliance emergency. The legal analysis – can the exporter continue to perform? does the existing licence exception survive? is a specific licence required? does a voluntary self-disclosure obligation arise? – needs to be completed quickly.
Fourth, the contract involves a novel technology. Certain categories of emerging technology attract heightened BIS scrutiny and increasingly prescriptive end-use controls. Contracts in those areas need clause sets that reflect current BIS guidance rather than standard templates, which may be several years old.
Fifth, a re-export chain that is not fully visible. Where the manufacturer does not know the ultimate end-user – a common position in multi-tier distribution – the contract's flow-down and audit provisions are the primary tool for managing that risk. Getting those clauses right matters more, not less, when the downstream supply chain is complex.
Related practices
- Sanctions compliance audit and testing – stress-testing screening logic, ownership mapping, and programme design against the applicable regime standard.
- Sanctions clauses in contracts under BIS / EAR: guide 4 – extended treatment of licence exceptions, end-user certificates, and flow-down enforcement.
- Sanctions clauses in contracts under Canadian law – how GAC export controls and Canadian sanctions interact with BIS / EAR in cross-border agreements.