Sanctions clause in a contract — how to protect your B2B agreement

You sign a contract with a new counterparty and you are confident everything is in order — the company is credible, the terms are agreed, the payment deadline is set. But what happens if that counterparty ends up on the EU sanctions list three months from now? Or if it turns out they are already controlled by a sanctioned entity and you simply do not know it? Without the right provisions in the contract, you may find yourself locked into an agreement whose performance has become illegal — or with no evidence that you acted in good faith.

A sanctions clause in a contract is a simple but effective tool that addresses this problem. Below I explain what it should contain, when it is particularly important, and what to do if a counterparty appears on the sanctions list during the course of your working relationship.

Legal status as of: 2026-05-20.

TL;DR — the key points in 60 seconds

• A contract concluded with an entity subject to EU sanctions is void by operation of law — on the basis of Article 2 of Council Regulation (EU) No 269/2014 of 17 March 2014.¹ A sanctions clause does not change that fact, but it gives you tools to act.
• A sanctions clause in a contract should include: a counterparty declaration of no connection with sanctions lists, a commitment to notify of any change of status, the right to immediate termination of the contract, and — when exporting to third countries — a “no re-export to Russia” commitment.
• For counterparties in third countries (outside the EU), the “no re-export” clause derives directly from Article 12g of Council Regulation (EU) No 833/2014 of 31 July 2014²³ and is not optional for specified goods.
• If a counterparty appears on the list during the contract: you immediately suspend all transactions with that entity, freeze assets, and report the matter to the Head of the National Revenue Administration (Szef Krajowej Administracji Skarbowej, KAS)⁴⁵ — the clause gives you the contractual basis for that action.
• Sanctions clauses in contracts with intermediaries and partners from third countries at elevated risk of sanctions circumvention are recognised by authorities as an element of due diligence.⁶
• Breaching EU sanctions carries a financial penalty of up to PLN 20,000,000⁴ and criminal liability — a sanctions clause is one of the pieces of evidence that you sought to prevent the breach.

Why sanctions clauses in contracts matter

EU sanctions regulations — in particular Council Regulation (EU) No 269/2014 of 17 March 2014 (hereinafter: Reg. 269/2014)¹ and Council Regulation (EU) No 833/2014 of 31 July 2014 (hereinafter: Reg. 833/2014)⁷ — apply directly to every company operating within the EU, without requiring separate implementation by national legislators.⁸ This means that the prohibition on dealing with sanctioned entities falls on your company by operation of law — regardless of whether you are aware of the rule or not.

A sanctions clause in a contract fulfils three closely related functions. First, it is a risk-allocation mechanism — the counterparty makes a statement of fact (no connection with sanctions lists) and bears responsibility for its accuracy. Second, it gives you a contractual basis to terminate the contract without liability for damages if the declaration proves to be false or if the counterparty’s status changes during the life of the contract. Third, it forms part of the due-diligence documentation — evidence that, before signing and during performance, you took steps to manage sanctions risk.

Without the clause, you are in a more difficult position on each of these fronts. You have no contractual right to exit the contract if the counterparty appears on the list. You have no evidence that you took verification steps. And you have no mechanism to recover funds from a counterparty who misled you about their sanctions status.

Companies from the United States, the United Kingdom, and Germany have been including sanctions declarations in B2B contracts as standard practice for several years. Polish companies are only beginning to adopt the practice — yet EU regulations impose this obligation directly, at least in respect of the “no re-export” clause.

A contract with a sanctioned entity — void by operation of law

This is the starting point worth understanding before we turn to the clauses themselves. Article 2(1) of Reg. 269/2014 requires the freezing of all funds and economic resources owned, held, or controlled by persons and entities listed in the annex to the regulation.¹ Article 2(2) prohibits making funds or resources available to them — directly or indirectly.¹

In practice, this means that concluding and performing a contract with a sanctioned entity is an act prohibited by law. A contract of that nature is contrary to a mandatory prohibition arising from an EU regulation — and a legal act contrary to mandatory law is void by operation of law. Your company cannot found any claims on such a contract — you are not protected as an innocent counterparty, because the regulation places on you the obligation to exercise due diligence and verify the counterparty before entering into the contract.

Importantly, the nullity of the contract does not protect your company from the consequences. If a transaction with a sanctioned entity was completed — even if the contract is technically void — the Head of the National Revenue Administration (Szef KAS) may impose a financial penalty of up to PLN 20,000,000 under Article 6(2) of the Act of 13 April 2022 on specific solutions for preventing support for aggression against Ukraine and for the protection of national security (Journal of Laws 2022 item 835, hereinafter: the 2022 Act).⁴ A full overview of penalties for sanctions breaches is available in the article What penalties apply for breaching sanctions. Breaching EU sanctions is also criminalised — Directive (EU) 2024/1226 of the European Parliament and of the Council of 24 April 2024 (hereinafter: Directive 2024/1226) requires EU Member States to ensure a maximum term of imprisonment of at least five years for serious violations involving funds or economic resources worth at least EUR 100,000.⁹ The deadline for Member States to implement this Directive expired on 20 May 2025.¹⁰

A sanctions clause does not automatically prevent a breach — what does that is verifying the counterparty before signing the contract. But the clause documents that you carried out that verification and required declarations from the counterparty. That matters when an authority assesses whether you acted in good faith.

What a sanctions clause should contain

There is no single legally mandated template for a sanctions clause — its content depends on the type of transaction, the counterparty’s country of establishment, and the risk profile. Below I describe the elements that should appear in every B2B contract carrying at least a moderate level of sanctions risk.

Counterparty declaration of no connection with sanctions lists

The counterparty declares that, as at the date of signing the contract — neither itself, nor its beneficial owner, nor any entity holding more than 50% of its shares — appears on any sanctions list: the EU consolidated list, the Polish list maintained by the Minister of Internal Affairs (MSWiA)¹¹, the UN list, or the OFAC SDN list of the US Department of the Treasury (where the transaction has a connection with the American market).¹²

The 50%-ownership rule is particularly important — an entity controlled by a sanctioned person to the extent of more than 50% is treated in the same way as a sanctioned entity itself, even if it does not appear on the list explicitly.¹³ The declaration should therefore expressly cover the beneficial owner and ownership structure — not merely the counterparty’s name.

Commitment to notify of any change of status

The EU sanctions list is updated regularly — the EU has adopted 20 packages of sanctions against Russia to date, the most recent on 23 April 2026.¹⁴ An entity that is “clear” on the date of signing may appear on the list a few weeks later. The clause should require the counterparty to notify your company without undue delay of any change of status that could affect the validity or enforceability of the contract.

This commitment does not replace your own obligation to conduct periodic checks, but it complements it and shifts part of the risk onto the counterparty. If the counterparty breaches this clause (by failing to inform you of their listing), you have a clear contractual basis for a damages claim.

Right of immediate withdrawal or termination

The clause should provide that your company has the right to terminate the contract with immediate effect — without a notice period and without any obligation to pay compensation — if the counterparty’s declaration proves to be false or if the counterparty appears on a sanctions list during the term of the contract. You may also stipulate that in such circumstances all payments already made are repayable.

Without this provision, under standard Polish law, terminating a contract mid-performance may require invoking nullity (which involves court proceedings) or may give rise to damages claims from the counterparty. A contractual clause eliminates that uncertainty.

Liability and compensation provision

It is worth adding a reservation that if a false counterparty declaration results in a penalty being imposed on your company by a regulatory authority, your company is entitled to recover the full amount of that penalty from the counterparty. This shifts the financial consequences of a false declaration to the party responsible for it.

The “No re-export” clause in contracts with counterparties in third countries

If you sell goods to countries outside the European Union — and the transaction involves categories of products listed in the annexes to Reg. 833/2014 — you have a legal obligation to include a “No re-export to Russia” clause in the contract. That obligation derives from Article 12g of Reg. 833/2014, introduced by the 11th package of sanctions of 23 June 2023.²³

What Article 12g of Reg. 833/2014 requires

The “no re-export” clause is a written commitment by the buyer (a counterparty in a third country) that the purchased goods will not be re-exported — directly or indirectly — to Russia or to entities established in Russia. The provision applies primarily to dual-use goods (goods with both civilian and military applications) and to other items listed in the annexes to Reg. 833/2014.³

The clause must be in writing — either as a contractual provision or as a separate signed document forming an annex to the contract. A bare email assurance that the goods will not reach Russia does not satisfy this requirement. If the buyer refuses to sign the clause, that is a clear red flag, and you should suspend the transaction and deepen your counterparty verification.

Clauses with intermediaries — exercise particular caution

Selling to a commercial intermediary in a third country creates an elevated risk of sanctions circumvention. The European Commission and the Council of the EU identify certain countries as locations with a particularly high risk of circumventing EU sanctions.¹⁵ If your counterparty is registered in such a state, the “no re-export” clause is especially important — but is insufficient on its own. It should be supplemented by an End-User Certificate, identifying who will actually use the goods and for what purpose.

More about circumvention mechanisms through third countries and how to recognise a high-risk transaction is available in the article Circumventing Russia sanctions via third countries — how to avoid being drawn in.

What to do if a counterparty appears on the list during the contract

This is one of the more challenging practical scenarios — and it occurs more often than one might expect, because sanctions lists are expanded on a regular basis. Below is a concrete sequence of actions.

1. Immediately suspend all transactions with that entity. Do not make any payments, deliveries, or provide any services to the counterparty. Do not wait for legal advice — the obligation to freeze assets and cease transactions arises directly from Article 2 of Reg. 269/2014¹ and takes effect from the moment the entity is listed, not from the moment you learn of the listing.

2. Freeze all funds and economic resources belonging to that entity or held by your company on its behalf. If you have already transferred a deposit or have an outstanding invoice, do not release the funds — keep them frozen until a decision is made by the competent authority.

3. Without delay, report the matter to the Head of the National Revenue Administration (Szef KAS) — the authority that imposes financial penalties for breach of the asset-freezing obligation under Article 6(2) of the 2022 Act.⁴⁵ If you are an obliged institution within the meaning of the Act of 1 March 2018 on anti-money laundering and countering the financing of terrorism, you also have an obligation to inform the General Inspector of Financial Information (Generalny Inspektor Informacji Finansowej, GIIF).¹⁶

4. Invoke the sanctions clause in the contract. Send a written notice of termination — invoking the provision entitling you to terminate in the event that the counterparty is listed. Retain all proof of delivery.

5. Secure all documentation. A printout or saved record of the search confirming the counterparty’s listing, with date and time, together with all correspondence, invoices, transport documents, and the verification log — all of this will be needed if an authority opens an inquiry.

6. Consult a lawyer specialising in sanctions compliance. If the transaction is of significant value, it may be necessary to apply for a derogation (licence) for certain actions — EU rules do provide for the possibility of obtaining authorisation for specific transactions involving sanctioned entities in exceptional circumstances.

Never inform the counterparty that the reason for suspending the transaction is their listing, before consulting a lawyer. AML rules (applied analogously in sanctions compliance practice) contain a prohibition on “tipping off” — alerting a suspect that proceedings have been initiated against them.

Practical guidance on how to verify a counterparty and what to do on a MATCH or POSSIBLE result is available in the article Counterparty verification for sanctions — step by step.

Clauses and due diligence — evidence at an inspection

Supervisory authorities — Szef KAS (Head of the National Revenue Administration), GIIF (General Inspector of Financial Information), and in the future criminal prosecutors following full implementation of Directive 2024/1226 — when assessing a company’s conduct in the context of a possible sanctions breach, ask above all: did the company exercise due diligence? Documentation is evidence; its absence is an argument against you.

A sanctions clause in a contract is one element of that documentation. On its own it is not sufficient — it must be accompanied by documented counterparty verification before signing the contract (checking of sanctions lists with date and result), periodic checks throughout the relationship, and a verification log. But a contract containing a sanctions clause is tangible evidence that:

• before signing, you required the counterparty to provide information about their sanctions status,
• you included provisions enabling you to exit the contract if sanctions were breached,
• you understood the risk and took steps to manage it.

Directive 2024/1226 lists mitigating circumstances that a court or authority takes into account when imposing a penalty — among them voluntary disclosure of information to law-enforcement authorities.⁶ Due-diligence documentation, including contractual clauses, falls within that catalogue. Conversely, the absence of procedures, clauses, and documentation is an aggravating factor.

The Act of 1 March 2018 on anti-money laundering and countering the financing of terrorism provides, in Article 49, for a five-year document-retention period for obliged institutions.¹⁷ For sanctions compliance documentation it is worth applying the same retention standard — at least five years from the end of the business relationship with the counterparty concerned.

What to do specifically — a checklist

1. Audit your active contracts. Review all current B2B agreements — check whether they contain any sanctions provisions. If not, prioritise those with counterparties from elevated-risk areas.

2. Develop a standard sanctions clause for your contract templates. The clause should include: a declaration of sanctions status, a commitment to notify of any change of status, the right to immediate termination, and — for exports to third countries — a “no re-export to Russia” commitment.

3. Update existing contracts by addendum. At the next opportunity (renegotiation, renewal, change of terms) introduce the sanctions clause as an addendum. For high-risk counterparties, do not wait for an opportunity — propose the addendum proactively.

4. Verify the counterparty before signing every new contract. Check the EU consolidated list¹⁸, the Polish MSWiA list¹⁹, the UN list, and — where applicable — the OFAC SDN list²⁰. Apply the 50%-ownership rule.¹³ Document every verification.

5. Implement periodic verification throughout the life of contracts. A one-off check at signing is not sufficient. Sanctions lists are updated regularly — the EU has already adopted 20 packages of sanctions against Russia.¹⁴ The minimum frequency is once per quarter for ongoing counterparties.

6. Maintain a verification log. Date, lists used, result (MATCH / POSSIBLE / CLEAR), person performing the check — this is the complete set of information that, at an inspection, proves the procedure was carried out and not merely planned. Retain the log for at least five years.¹⁷

7. Designate a person responsible for sanctions compliance. This need not be a lawyer or a certified compliance officer — but it must be someone who understands the procedure, carries out verifications, and makes decisions when a MATCH or POSSIBLE result arises.

8. When exporting to third countries, require a signed “no re-export” clause. For goods listed in the annexes to Reg. 833/2014 this is a legal obligation, not an option.²³ A buyer’s refusal to sign the clause means suspending the transaction.

How Sanqto can help

Sanctions clauses in contracts are one layer of protection — but their effectiveness depends on whether the counterparty was actually verified before the contract was signed, and whether verification is repeated on a regular basis. Sanqto offers sanctions-screening software operating in an on-premise model — your counterparties’ data never leaves your company’s infrastructure. The system screens simultaneously against the EU consolidated list, the Polish MSWiA list, and other regimes, returning a three-state result: MATCH, POSSIBLE, or CLEAR. Every screening is automatically logged with the date, lists used, and result — giving you a ready audit trail in the event of an inspection, and supplementing the documentation to which your contractual clauses refer.

The implementation document package includes a ready-made sanctions policy and template sanctions clauses adapted to Polish and EU requirements. If you operate in the real estate sector, see the page sanctions compliance for estate agencies. For travel agencies and OTAs we have prepared a separate guide: sanctions screening in tourism.

The obligation to conduct sanctions screening and the companies to which it applies is covered in detail in the article Does my company need to carry out sanctions screening?.

FAQ — frequently asked questions

Does every contract need to contain a sanctions clause?

There is no statutory obligation requiring a sanctions clause in every contract — with the exception of the “no re-export” clause for the export of specified goods to third countries, arising from Article 12g of Reg. 833/2014.² In all other cases it is a matter of compliance practice and risk management, not an absolute legal requirement. That said, the absence of a clause in contracts with counterparties from elevated-risk areas may be treated by authorities as a failure to exercise due diligence.

Does a sanctions declaration given by the counterparty protect my company if it proves to be false?

The counterparty’s declaration does not relieve your company of the obligation to carry out verification — but it does matter when assessing due diligence. If the counterparty gave a false declaration, you have a contractual basis to pursue a damages claim against them. A regulatory authority will assess whether you had grounds to question the declaration — if a check against sanctions lists returned a CLEAR result and the counterparty’s declaration was consistent with that result, your position is considerably stronger than if you had no documentation at all.

What happens to invoices issued before the counterparty was listed?

Invoices issued and paid before the counterparty was placed on the sanctions list are generally not automatically subject to sanctions — the obligation to freeze assets and cease transactions takes effect from the moment of listing. If an invoice is unpaid on the date of listing, the funds arising from it may be subject to freezing. In every case, advice from a lawyer specialising in sanctions law is required.

Does the “no re-export” clause have to be in Polish or in English?

The clause must be drafted in the language of the contract — in international contracts, this is usually English, or in both languages. The DG FISMA publishes FAQs on Article 12g of Reg. 833/2014 in English.² The content of the clause should be consistent with the requirements of the regulation — there is no EU-mandated wording, but it should clearly describe the prohibitions under Article 12g and commit the buyer to complying with them.

Does a sanctions clause protect me against criminal liability?

The clause on its own does not exclude criminal liability if a sanctions breach has actually occurred. But it is an element of the due-diligence documentation that is taken into account when assessing culpability. Directive 2024/1226 requires the criminalisation of intentional sanctions breaches⁶ — documented screening and contractual clauses are evidence that you did not act intentionally.

How often should I verify a counterparty during the life of a contract?

The minimum frequency is once per quarter for regular counterparties. For counterparties from elevated-risk areas — at every material transaction. Each update to a sanctions list (for example, a new EU sanctions package)¹⁴ is a signal to carry out a fresh verification. The sanctions clause obliges the counterparty to inform you of any change of status — but it does not replace your own verification.

Legal basis

• Council Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine — CELEX 32014R0269
• Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, including Article 12g — CELEX 32014R0833
• Directive (EU) 2024/1226 of the European Parliament and of the Council of 24 April 2024 on the definition of criminal offences and penalties for the violation of Union restrictive measures and on the facilitation of such violations — CELEX 32024L1226
• Act of 13 April 2022 on specific solutions for preventing support for aggression against Ukraine and for the protection of national security — Journal of Laws 2022 item 835 — eli.gov.pl
• Act of 1 March 2018 on anti-money laundering and countering the financing of terrorism — Journal of Laws 2023 item 1124 (consolidated text) — eli.gov.pl
• DG FISMA FAQ — “No re-export to Russia” clause (Article 12g of Reg. 833/2014, updated 18 December 2024) — finance.ec.europa.eu
• DG FISMA — Sanctions adopted following Russia’s military aggression against Ukraine (FAQ, 50% ownership rule) — finance.ec.europa.eu
• EU consolidated list (Financial Sanctions Files) — webgate.ec.europa.eu/fsd
• Polish sanctions list maintained by MSWiA (Ministry of Internal Affairs and Administration) — gov.pl/web/mswia
• OFAC SDN List — ofac.treasury.gov

Information, not legal advice. This article is for informational and educational purposes only. It does not constitute legal advice. Legal status as of: 2026-05-20. Your company’s specific obligations depend on its business profile and require individual assessment — if in doubt, consult a lawyer or compliance adviser.