A technology company in Germany finalises a distribution agreement with a partner in Southeast Asia. The contract says nothing about export controls. Eighteen months later, the distributor re-exports a controlled item to an end user that appears on the Entity List (the US Bureau of Industry and Security's list of parties subject to heightened licence requirements or supply restrictions). The German company did not authorise the re-export. Under the Export Administration Regulations ("EAR") – the BIS rules governing the export, re-export, and transfer of items subject to US jurisdiction – the original supplier may still face liability. One missing clause decided the outcome.
Sanctions and export-control clauses in contracts governed by the EAR serve a dual purpose: they document the supplier's compliance position and, when drafted correctly, shift or clarify responsibility for downstream conduct. The EAR applies extraterritorially to items that incorporate controlled US-origin content or technology, regardless of where the contracting parties are located. As of mid-2026, no single standard clause satisfies every BIS requirement; the drafting must track the Export Control Classification Number ("ECCN" – the alphanumeric code that places an item on the Commerce Control List and determines which licence exceptions and end-use restrictions apply) of the goods or technology in question.
This guide walks through each drafting step in sequence, notes where the EAR diverges from the UK, EU, and other regimes, and identifies the risk flags that most frequently trip up cross-border transactions.
Step 1 – Classify the item and confirm the contractual starting point
Before a single contractual word is drafted, the item must be correctly classified under the Commerce Control List. The ECCN determines the applicable controls, the available licence exceptions, and the end-use restrictions that must flow into the contract. Without classification, any clause you draft is an educated guess.
Classification begins with the item's technical parameters and intended function. Most items either carry a specific ECCN (assigned by the manufacturer, the exporter, or BIS on request) or fall under the residual EAR99 designation, meaning they are subject to the EAR but not listed on the Commerce Control List. EAR99 classification does not mean unrestricted: the general prohibitions in the EAR still apply, and a party designated on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons) or the Entity List triggers licence requirements regardless of the item's classification.
The contract must record the ECCN (or EAR99 status) in a schedule or recital. This serves two purposes. First, it binds the counterparty to the classification that was the basis for the transaction. Second, it gives both parties a clear reference point if BIS later audits the transaction or if a re-export question arises. In our experience, contracts that omit the classification entirely are the first to generate post-signing disputes about whether a particular shipment needed a licence.
Before drafting proceeds, confirm: the item's ECCN; the applicable reasons for control on the Commerce Control List; the country of ultimate destination; the end user and end use; and whether any licence exception is being relied upon. Each of these feeds directly into the clause structure at subsequent steps.
Step 2 – Draft the end-use and end-user representations
The counterparty's representations on end use and end user are the functional core of any EAR-compliant contract clause. They document the purpose for which the item is purchased and the identity of the ultimate user – both of which determine whether a licence is required and whether any red-flag indicators are present.
At a minimum, the clause should require the counterparty to represent that: (i) the item will be used only for the stated civil/commercial purpose; (ii) the item will not be used in the design, development, production, or stockpiling of weapons or delivery systems of concern; (iii) neither the counterparty nor any known downstream user appears on the Denied Persons List, the Entity List, or the Unverified List; and (iv) the counterparty has conducted its own reasonable screening against the applicable US lists.
The representations should be qualified to the counterparty's knowledge, but a knowledge qualifier does not dilute the obligation to conduct due diligence. A counterparty that says "to our knowledge" without having screened the end user cannot rely on that qualification as a defence. We regularly advise clients to pair the representation with an obligation to conduct and document screening prior to each shipment – not merely at the time of signing.
Where the item has proliferation-sensitive controls (chemical, biological, nuclear, or missile-related reasons for control), the end-use representation should be unqualified – absolute. BIS's own guidance treats heightened end-use restrictions on those categories as a firm requirement. The drafting distinction between a qualified representation for standard dual-use goods and an unqualified one for proliferation-sensitive items is one that counterparties occasionally resist but is non-negotiable from a compliance standpoint.
Step 3 – Build in the re-export and transfer restrictions
The EAR applies not only to the original export from the United States but also to re-exports from third countries and in-country transfers of items that contain controlled US-origin content or technology. This extraterritorial reach means that a contract between two non-US parties must nonetheless restrict what the buyer does with the item after receipt.
The re-export clause should prohibit the counterparty from re-exporting, releasing, or transferring the item to any country, entity, or individual without either obtaining a BIS licence (where one is required) or confirming in writing that a licence exception applies and has been documented. The clause should identify the licence exception relied upon at the time of the original export, and it should require the counterparty to maintain that documentation for the applicable record-keeping period – which, under the EAR, is five years from the date of export, re-export, or transfer.
One area that regularly generates enforcement exposure is the de minimis rule and the foreign-direct-product rule. A non-US product may become subject to the EAR if it incorporates more than a threshold percentage of controlled US-origin content, or if it is the direct product of certain US technology or software. The contract should include a warranty that the counterparty will not knowingly cause the supplier's item to become the basis for a claim that a third product is EAR-subject without first notifying the supplier. This is not a theoretical concern: extraterritorial jurisdiction under the foreign-direct-product rules has been expanded in recent years, and distributors in complex supply chains frequently underestimate their exposure.
Contrast this with the EU's dual-use rules. The EU regime applies to listed items on the EU Common List of Dual-Use Items, and re-export controls under EU law operate through end-use assurance mechanisms rather than through a blanket extraterritorial rule. A clause drafted only to EU standards may leave substantial EAR exposure unaddressed in a contract involving US-origin technology. The two sets of controls must be read together.
Step 4 – Incorporate the screening and list-management obligations
Representing that a counterparty is not listed is necessary but insufficient. The contract must also require ongoing screening against the relevant US lists – the SDN List, the Entity List, the Denied Persons List, the Unverified List, and the Consolidated Screening List that BIS, OFAC, and the State Department publish jointly – at agreed intervals and before each transaction or shipment.
The clause should specify: the lists that must be screened; the frequency (before each shipment, at contract renewal, and on reasonable request by the supplier); the obligation to notify the supplier immediately if a hit is identified; and the right of the supplier to suspend performance pending verification of the hit. Suspension-on-notice provisions are particularly important for long-term distribution agreements where shipments occur on a rolling basis. A clause that requires notification but does not also grant the right to suspend can leave the supplier continuing to perform into a prohibited transaction.
For contracts involving higher-risk classifications – items with encryption controls, items controlled for missile technology, or items subject to regional stability controls – we advise including a provision requiring the counterparty to maintain a written screening record for each shipment and to make that record available to the supplier on request. This is not a standard clause in most commercial contracts, but it is the kind of provision that materially changes a BIS enforcement analysis if something goes wrong.
Under UK financial-sanctions rules administered by OFSI (the Office of Financial Sanctions Implementation), the screening obligation operates on a similar notification-and-suspension model, but OFSI's reporting obligations for identified matches run to the regulator rather than solely to the contracting counterparty. A cross-border contract involving UK parties should address both the US and UK notification chains explicitly.
What is the right contract structure for long-term distribution agreements?
Long-term distribution agreements present a distinct set of drafting challenges: the item, the counterparty's ownership structure, the end-user base, and the applicable list designations can all change between the date of signing and any individual shipment. A clause that was accurate at execution can become a liability if it is static.
The standard approach – which our practice recommends for any distribution agreement with a term of more than twelve months – is a cascade structure: (i) a master clause in the body of the agreement that sets out the regime, the ECCN, and the absolute prohibitions; (ii) a per-shipment order schedule that records the then-current end user, end use, and applicable licence exception or licence number; and (iii) a compliance annex that can be updated by mutual agreement without amending the main contract.
The compliance annex should also address what happens when a new product generation changes the ECCN. A distributor who signed an agreement covering EAR99 goods may be surprised to discover that a product revision has brought the item within a controlled ECCN. The contract should include an obligation on the supplier to notify the distributor of any ECCN re-classification and an obligation on the distributor to return to the master clause process before placing further orders.
Is a single set of clauses sufficient if the distributor operates across multiple jurisdictions? Almost never. A distributor with sub-distributors in several countries will need country-specific schedules that address the applicable national regime alongside the EAR. Canada, Australia, and the EU each have export-control regimes that may impose obligations beyond what the EAR requires, and in some cases stricter prohibitions under those regimes will govern. The drafting must account for the possibility that a sub-distributor is operating in a jurisdiction where the item requires a local licence that the EAR does not require for the same destination.
The position above covers the standard distribution-agreement structure. Your facts – the counterparty's markets, the goods' classification, the ownership chain behind the distributor – change the analysis materially. For an assessment of your exposure under the EAR, contact Calder & Vance at info@caldervance.com.
Step 5 – Address termination, audit rights, and record-keeping
Termination and audit rights complete the contractual architecture. They are the mechanisms by which a supplier can act on a compliance concern without waiting for a formal enforcement inquiry.
The termination clause should permit the supplier to terminate the contract with immediate effect – not merely for convenience – if: the counterparty is listed on any applicable US, UK, or EU sanctions or export-control list; a required licence is refused or revoked; the counterparty breaches any of the end-use, re-export, or screening obligations; or the supplier reasonably determines that continued performance would require a licence that it does not hold. Reasonable determination is a higher standard than mere suspicion but does not require a formal regulatory finding. In our experience, the dispute most commonly arises over what "reasonably determines" means – drafting a short schedule of agreed triggers resolves the ambiguity.
The audit-right clause should permit the supplier, on reasonable notice, to request documentary evidence of compliance with the export-control obligations in the contract. This is distinct from a general financial audit right. The export-control audit is focused on: shipment records, end-user certificates, screening records, and any correspondence with BIS or OFAC relating to the items sold. Many counterparties resist broad audit rights; in practice, a right to request specified documents rather than a right of physical access is frequently more acceptable and equally effective.
Record-keeping under the EAR runs for five years from the date of export, re-export, or transfer. The contract should require the counterparty to maintain its own export-control records for at least the same period, and to preserve them in a form that can be produced in response to a BIS request. A contractual record-keeping obligation that is shorter than the regulatory period exposes both parties if BIS conducts a retroactive review.
Risk flags and when to involve counsel
Several patterns in contract negotiations and in underlying transaction facts warrant immediate specialist review before signatures are exchanged.
The first is a counterparty that resists the end-use representation. Resistance to a standard end-use clause is itself a red-flag indicator under BIS guidance. If a buyer will not represent what they intend to do with the item, the seller cannot rely on a licence exception that requires knowledge of end use. The contract should not be signed in that form.
The second is a change-of-control provision that does not address export-control consequences. If a counterparty is acquired by an entity that is listed or that would require a licence for the same supply, the acquisition converts a compliant transaction into a potential violation overnight. Export-control practitioners routinely advise inserting a change-of-control trigger that gives the supplier the right to terminate or require re-approval following a change in the counterparty's ownership that could affect the export-control analysis.
The third is a contract that includes an automatic-renewal clause but no periodic compliance reconfirmation. Automatic renewal means the contract continues without either party actively deciding to proceed. For export-control purposes, that is a risk: the original end-use representation is now stale, and neither party has confirmed that the counterparty and end user remain off the relevant lists. Inserting a reconfirmation trigger at each renewal removes this gap.
A common myth in this area is that only US-incorporated exporters need to comply with the EAR. That view is incorrect and has become more so in recent years. The EAR's extraterritorial reach – through the de minimis threshold for US-origin content and the foreign-direct-product rules – means that a non-US manufacturer or distributor handling items that incorporate or are produced from controlled US technology is subject to US export-control jurisdiction. Contracts drafted without regard to this exposure can leave non-US parties holding liability they did not anticipate. If a transaction has already been flagged – or a filing has been refused – an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com.
How do BIS / EAR clauses compare with EU and UK requirements?
The EAR imposes direct legal obligations on exporters and re-exporters; EU and UK dual-use and sanctions controls operate through a different legal mechanism, and the contractual clauses that satisfy one regime do not automatically satisfy the others. A cross-border business operating under all three regimes needs a clause structure that addresses each without producing irreconcilable obligations.
Under EU dual-use rules, the export licence obligation rests on the exporter established in the EU. The contract clause in an EU-governed agreement therefore typically includes a condition precedent to shipment (the EU licence must be obtained) and a representation from the buyer that it will not re-export to prohibited destinations under EU rules. The EU regime does not include a direct-product rule comparable to BIS's; instead, the catch-all prohibition on items not on the EU Common List operates through end-use controls that the exporter must apply.
Under OFSI and the UK's export-control regime administered by the ECJU (Export Control Joint Unit), the sanctions obligations and the export-licensing obligations are separate instruments. A UK contract clause must address both. OFSI's ownership and control test (under which a non-listed entity may be caught if a designated person owns or controls it) is broader than OFAC's mechanical 50 percent ownership rule; control can be established through contractual or de facto means even where the ownership stake is below the threshold. A clause that relies only on screening for listed entities may miss a UK-sanctioned entity that is controlled but not owned at the relevant level.
Switzerland's SECO administers export controls and sanctions through its own instruments. Canadian export controls under the Export and Import Permits Act operate alongside Canada's autonomous sanctions regime. For a supplier with multiple distribution agreements across jurisdictions, the practical answer is a modular clause structure: a universal EAR core clause, supplemented by jurisdiction-specific schedules that address the local regime. In our cross-border practice, we regularly advise that the EAR core clause is the most demanding in terms of extraterritorial reach and end-use documentation requirements, and should therefore be drafted first – other regime-specific requirements can then be layered on top rather than constructed independently.
Related practices
- Compliance audit and testing – Australia – identifying EAR and autonomous-sanctions gaps in your existing programme
- Sanctions clauses in contracts – Canada guide – drafting for Canada's autonomous sanctions and export-control regime
- Sanctions clauses in contracts – Canada guide (part 2) – advanced clause structures for distribution and licensing agreements under Canadian rules