No conflicts with sanctions laws: Overview, definition, and example
What is no conflicts with sanctions laws?
No conflicts with sanctions laws is a contractual provision stating that neither party is violating any government-imposed sanctions or trade restrictions by entering into or performing the agreement. This clause ensures that the contract complies with international and national sanctions laws, which prohibit business dealings with certain individuals, entities, or countries.
For example, a financial institution entering into a loan agreement may require the borrower to confirm that they are not subject to economic sanctions imposed by the U.S. government or other regulatory bodies.
Why is no conflicts with sanctions laws important?
This clause is important because it helps businesses avoid legal penalties, financial losses, and reputational damage associated with violating sanctions regulations. Many jurisdictions impose strict sanctions compliance requirements, and failing to adhere to them can result in fines, asset freezes, or criminal liability.
For companies engaged in international trade, finance, or supply chain agreements, ensuring compliance with sanctions laws protects against unintended legal risks. This provision is particularly relevant for businesses operating in regulated industries such as banking, energy, and defense.
Understanding no conflicts with sanctions laws through an example
A U.S. company enters into a contract with a foreign supplier. The agreement includes a no conflicts with sanctions laws clause, requiring the supplier to confirm that neither they nor their affiliates appear on any restricted trade lists maintained by the U.S. Office of Foreign Assets Control (OFAC). If the supplier is later found to be sanctioned, the company can terminate the contract immediately to avoid legal repercussions.
In another case, a European bank provides financing to a corporate client. The loan agreement includes a requirement that the client and its owners comply with European Union sanctions laws. If the client engages in transactions with a sanctioned country, the bank has the right to suspend or cancel the loan facility.
Example of a no conflicts with sanctions laws clause
Here’s how a no conflicts with sanctions laws clause might appear in a contract:
“Each Party represents and warrants that it is not, nor is it owned or controlled by, any person or entity that is the subject of sanctions administered by the United Nations, the United States, the European Union, or any other applicable governmental authority. If either Party becomes subject to such sanctions, the other Party shall have the right to terminate this Agreement immediately.”
Conclusion
A no conflicts with sanctions laws clause ensures that both parties comply with trade and economic sanctions, reducing the risk of legal penalties and financial liabilities. This provision is essential for businesses involved in international transactions, as it helps protect against inadvertent violations of sanctions regulations. Including a well-drafted sanctions compliance clause in contracts ensures transparency and mitigates legal and reputational risks.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.