A trading house incorporated in Dubai is finalising a commodity supply agreement with a European buyer. The buyer's legal team inserts a sanctions representations and warranties clause – and asks the seller to confirm, as a condition precedent, that neither it nor any entity in its ownership chain appears on any applicable sanctions list. The seller's compliance officer has never seen a clause drafted with this level of specificity before. Does the clause reflect UAE law? Which lists apply? What happens if the representation turns out to be false on closing day?
Sanctions representations and warranties under the UAE sanctions regime are contractual statements in which a party confirms compliance with applicable sanctions obligations – primarily those administered by the UAE's Executive Office for Control and Non-Proliferation (EOCN) under the relevant UAE Cabinet resolutions and federal anti-money-laundering legislation. As of January 2026, the UAE operates an autonomous sanctions regime that is increasingly aligned with UN Security Council obligations, while also imposing its own designations. A well-drafted clause must therefore address UAE-domestic obligations, UN Consolidated List requirements, and – for any transaction that touches the US or EU financial system – the extraterritorial reach of OFAC and the relevant EU Council regulations.
This guide sets out how to draft, negotiate, and test sanctions representations and warranties in cross-border agreements governed by or touching the UAE, covering the governing authority, the procedure for building an effective clause, the cross-regime comparison, and the practical risk flags that compliance counsel and legal teams must keep in mind before signing.
What is the legal basis for sanctions obligations in the UAE?
The UAE sanctions regime is anchored in federal legislation and Cabinet-level resolutions that transpose UN Security Council obligations and establish the EOCN as the central administrative authority. UAE sanctions law imposes asset-freeze, travel-ban, and dealing-prohibition obligations on persons and entities designated under UAE lists, as well as on those appearing on the UN Consolidated List.
The regime draws a direct link to Chapter VII of the UN Charter. Any person subject to UAE law – including a company incorporated in any of the UAE's onshore and free-zone jurisdictions – is required to give effect to UN Security Council designations without delay. This is the baseline from which any sanctions representation in a UAE-law agreement must be built.
In practice, the EOCN publishes its own list of designated persons and entities. That list is not identical to the UN Consolidated List, and parties who draft representations referencing only the UN list risk leaving a material gap. In our practice, we see this omission regularly in template agreements that originated outside the UAE and were adapted without a regime-specific review.
The UAE financial intelligence framework – operated in coordination with the UAE Central Bank's Financial Intelligence Unit – adds a reporting and suspicious-transaction layer. An entity that discovers, mid-contract, that a representation it made has become inaccurate may face concurrent obligations: a contractual trigger (breach of warranty) and a regulatory obligation to report. Knowing which obligation runs first, and how to handle both simultaneously, is a question for compliance counsel with UAE experience.
Step 1 – Map the applicable lists before drafting
Before a single word of a representations and warranties clause is drafted, the transaction team must identify every list that the clause will need to reference. For a UAE-seated transaction, this typically means at least three distinct bodies of designations.
First, the UAE-domestic list maintained and published by the EOCN. Second, the UN Security Council Consolidated List, which the UAE is obligated to implement and which covers a number of thematic programmes – proliferation-related designations, ISIL and Al-Qaida-related entries, and others. Third, where the transaction has any nexus to the US financial system – a US-dollar settlement leg, a US-bank correspondent, a US-person party, or goods of US origin – the OFAC SDN List and any relevant OFAC country-programme lists must be added.
Where the transaction also touches the EU single market, or involves a party incorporated in an EU member state, the relevant EU Council regulation designations apply as a separate layer. Does your standard-form agreement already cross-reference all of these? If not, the representation is likely under-inclusive – and under-inclusive representations are routinely challenged in post-closing disputes.
The practical output of this mapping exercise is a defined list of "Sanctions Authorities" that becomes a defined term in the agreement. That defined term should be capable of capturing future designations, not only those in force on the date of signing. The clause should also address how the parties will handle a situation where a new designation occurs between signing and closing.
Step 2 – Draft the core representation and the related covenant
A sanctions representation in a cross-border agreement typically contains three linked components: a status representation, an activity representation, and a knowledge-and-investigation qualifier. Each has a distinct legal function.
The status representation confirms that neither the representing party nor any person in its ownership and control structure is itself a designated person, nor is it owned or controlled by a designated person. For UAE purposes, the ownership and control analysis is consistent with the approach taken under the relevant UAE federal law: the question is whether a designated person exercises direct or indirect ownership or control that is meaningful enough to capture the entity. The UAE does not publish a formal percentage threshold equivalent to OFAC's aggregate 50 percent or more rule, but in practice EOCN guidance treats majority ownership as a strong indicator of control. Where ownership is indirect or layered, a documented ownership-chain analysis is prudent.
The activity representation confirms that the representing party has not engaged in, and does not contemplate engaging in, any transaction or dealing that is prohibited under any of the identified Sanctions Authorities. This is distinct from the status question: a party that is not itself designated can still breach sanctions by dealing with a designated counterparty, by facilitating a prohibited transaction, or by providing financial services that benefit a restricted programme.
The knowledge-and-investigation qualifier addresses the question of how far the representing party's search has gone. A bare "we are not sanctioned" statement is far less reliable than a statement that the party has conducted a reasonable inquiry of its ownership and control chain and its recent transactions against the identified lists. In our cross-border practice, we regularly advise clients to attach a brief due-diligence schedule to the representation, setting out what was checked and when, so that the knowledge qualifier has a documented evidential basis.
The related covenant – which runs forward in time – commits each party to notify the other promptly if any representation becomes inaccurate. For UAE-law agreements, this covenant should also address the party's obligations under UAE law to freeze assets and report to the relevant authority where a prohibited dealing is discovered. A contractual notification obligation to a counterparty does not displace the regulatory obligation to the EOCN or the UAE Central Bank.
Step 3 – Agree the consequences of breach and the remedies mechanism
The practical force of a sanctions representation depends almost entirely on what happens when it is breached. A misrepresentation that carries no consequence other than a contractual right to terminate is of limited deterrent value. Equally, an automatic-termination clause that triggers the moment any screening match is identified – without a materiality threshold or a cure period – can create its own problems, including under the applicable insolvency and set-off rules.
The most effective clauses build in a three-stage remedies sequence. At the first stage, a party that discovers a potential breach notifies the other and both parties cooperate in a defined investigation period – typically expressed in business days. At the second stage, if the breach is confirmed, the innocent party has the right to suspend performance. At the third stage, if the breach is not remediated within a further defined period, the innocent party may terminate and claim contractual damages.
In a recent matter, a financial-services business operating across the UAE and European markets discovered, shortly after a joint-venture agreement had been executed, that a minority shareholder in the counterparty appeared on a UN list that had been published after the parties had conducted their pre-signing due diligence. We assisted the client in invoking the investigation mechanism in the agreement, managing the regulatory notifications required under UAE law, and structuring the restructuring of the counterparty's shareholding in a manner that brought the position back within compliance before the cure period expired. The matter was resolved without litigation and without a regulatory finding against either party. No outcome of this kind can be guaranteed; each situation turns on its specific facts.
One area where UAE practice diverges from common-law market standards is the treatment of wilful breach. UAE law, as a civil-law system, approaches the question of damages for breach of warranty through a causation-and-loss analysis that differs from the English-law warranty-as-indemnity model. Cross-border agreements that are UAE-law governed but drafted on an English-law template sometimes include indemnity language that does not sit cleanly in a UAE-law context. This is a drafting risk that specialists in cross-border UAE transactions will flag at term-sheet stage.
How does the UAE approach differ from OFAC, OFSI, and EU positions?
The most significant structural difference is that the UAE does not operate a general-licence regime equivalent to OFAC's. Under OFAC, a party wishing to conduct a transaction that would otherwise be prohibited can apply for a specific licence authorising that transaction. The UAE regime has no formal equivalent at the level of individual transaction licensing of this kind. The practical consequence for a representations-and-warranties clause is that the fallback position in a UAE-only agreement – "we will apply for a licence" – is not reliably available.
Under OFSI in the United Kingdom, parties who discover that a dealing involves a designated person may apply for a specific licence to permit that dealing in defined circumstances, including for legal fees and for certain humanitarian purposes. The EU Council regulations similarly provide for licensing routes and humanitarian carve-outs. These routes are relevant where a counterparty operating under the UAE regime also faces OFSI or EU designations, because the licensing analysis must be conducted regime by regime: a licence under OFSI does not authorise the same dealing under UAE law.
The extraterritoriality of US secondary sanctions is the dimension most commonly misunderstood by UAE-based businesses. OFAC's secondary-sanctions risk applies to non-US persons who conduct significant transactions with designated persons in certain OFAC programmes. A UAE company that is not itself a US person, and whose agreement contains no US-law governing clause, can still face US secondary sanctions consequences if its commercial activity falls within the relevant OFAC programme parameters. A well-advised UAE counterparty should therefore include in its representations a statement addressing not only UAE and UN list compliance but also the OFAC secondary-sanctions position, at least as a matter of negative confirmation.
Singapore and Japan – two jurisdictions with significant trade relationships with the UAE – each maintain autonomous sanctions regimes that are relevant for multiparty trade agreements. Singapore's regime, administered under the relevant Monetary Authority of Singapore framework, operates its own list and its own licensing mechanism. Japan's regime, administered through METI, imposes its own export-control and asset-freeze obligations. Where a UAE-centred transaction involves cargo routing through Singapore or goods originating in Japan, those regimes produce additional screening obligations that a regime-specific representation should address.
What are the principal risk flags in UAE sanctions representations?
Several risk flags appear persistently in UAE-law agreements that contain sanctions representations, and each can generate material liability if left unaddressed.
Stale due diligence is the most common. A representation is true at the date of signing but becomes false because of a new designation before closing. The remedy is a combination of a bring-down representation at closing, a commitment to re-screen within a defined window before the closing date, and a condition precedent that both representations remain true at closing. Where the gap between signing and closing is long, a programme of periodic rescreening should be built into the agreement's interim covenants.
The second risk flag is incomplete ownership-chain analysis. A party that screens only the named contracting entity and does not trace the ownership chain behind it – including any special-purpose vehicles, holding companies, or trust arrangements – produces a representation that may be accurate on its face but misleading in substance. UAE free-zone structures and offshore holding arrangements can obscure the identity of the ultimate beneficial owner. In our experience, this is the point at which manual review is essential: automated screening tools that read only registered entity names miss beneficial-ownership linkages that a structured ownership analysis would catch.
A third risk flag is the use of undefined or circular defined terms. A representation that states "we are not subject to any applicable sanctions" is of limited value if "applicable sanctions" is not defined, or is defined by cross-reference to a defined term in another agreement that is itself undefined. Every representation and warranty clause should contain a self-standing definition of the Sanctions Authorities it covers.
Fourth, parties sometimes overlook the interaction between the sanctions representation and the anti-bribery and anti-money-laundering representations in the same agreement. In UAE law, these are closely connected: the same federal legislation that establishes the AML framework also underpins the sanctions obligations. A compliance breach on one limb can trigger scrutiny on the other. Reviewing these representations as an integrated set, rather than as standalone clause-by-clause outputs, produces a more coherent and defensible compliance position.
When should a business involve sanctions counsel?
The question of when to involve external counsel in the representations and warranties process is itself a risk-management decision. Waiting until a problem has already materialised – a screening hit, a closing condition that cannot be met, a notice of breach from the counterparty – significantly narrows the options available.
The right moment to involve sanctions counsel is before the term sheet is finalised. At that stage, counsel can advise on which Sanctions Authorities the defined term should capture, whether the proposed ownership-chain representation is achievable given the client's structure, and whether any aspect of the intended transaction creates a licensing or notification obligation under the UAE regime or under any overlapping regime. This is the point at which the representations are shaped, not the point at which they are defended.
For businesses that have already executed an agreement and are now facing a question about compliance with a representation they have made, the priority is to scope the issue accurately. What exactly was represented? Which lists were in scope? What has changed? Has the change triggered a notification obligation under UAE law, a contractual notification obligation to the counterparty, or both? Answering these questions in the right order matters: disclosing to a counterparty before consulting on the regulatory reporting obligation, or vice versa, can create additional risk.
A common myth in this space is that sanctions representations and warranties are "boilerplate" – standard clauses that can be lifted from any international agreement and inserted without regime-specific review. This is incorrect. The applicable lists, the ownership and control test, the consequences of breach, and the licensing landscape all differ by regime. A clause that works well in a New York-law credit agreement may create significant gaps and ambiguities when used in a UAE-law supply contract. Regime-specific review is not optional where the stakes include regulatory enforcement, contractual termination, and reputational consequences.
Related practices
- Correspondent banking and de-risking under OFAC – advice on managing OFAC exposure in correspondent and clearing relationships
- Sanctions representations and warranties under the UN regime – a parallel guide covering UN Consolidated List obligations and the Ombudsperson process
- Supply-chain mapping under the Australian autonomous sanctions regime – practical guidance on ownership-chain analysis for Australia-connected transactions