The content of economic sanctions imposed by the U.S., EU and the U.K. has evolved and changed over time and will continue to evolve.

Since 2022, there has been a significant growth in the use of economic sanctions arising out of the Russia-Ukraine conflict and more broadly in the context of geopolitical conflict. Sanctions can have a significant impact on commercial relationships not just for the sanctioned parties themselves but also for other entities that may have commercial dealings with them, and indeed where sanctions prohibit the sale or supply of an ever-increasing range of goods and services to or from anyone from certain jurisdictions. A party that has entered into a contract may find that supervening sanctions fundamentally affect the bargain they think they have struck and the practical application of the dispute resolution procedure for enforcing that bargain. It is, therefore, advisable for parties to anticipate and address the risk of sanctions in their contractual relationships and dispute resolution procedures.

This Alert first provides an overview of the sanctions and restrictive measures that the United States, the European Union and United Kingdom have imposed. Later, we discuss how these economic sanctions can impact the conduct of an international transaction at its different stages. Finally, we provide some practical takeaways for parties involved in international transactions that are or may be impacted by economic sanctions.

Overview of the Sanctions and Restrictive Trade Measures

The content of economic sanctions imposed by the U.S., EU and the U.K. has evolved and changed over time and will continue to evolve. Unlike United Nations sanctions, unilateral sanctions imposed by different states do not constitute international law. The jurisdictional scope of their application depends on the country/countries that have adopted them.

This section provides an overview of the different sanctions regimes as of December 2025.

U.S. Sanctions

The U.S. currently has 37 different sanctions regimes in a complex system designed to advance its foreign policy and national security goals. The regimes are primarily implemented through asset freezes and import/export prohibitions often tied to particular industries including energy, technology and advanced computing, and specific goods and raw materials, as well as military goods.

The U.S. currently adopts sanctions regime against, among others, Russia, Belarus, Venezuela and Iran. Companies from anywhere in the world can be listed under these different regimes including Chinese and Indian parties.

Broadly speaking, there are two types of U.S. sanctions. Primary sanctions apply to “U.S. persons” that have a significant nexus with the U.S., e.g., citizens, permanent residents, U.S. corporations and anyone physically within the United States. For some U.S. sanctions regimes, foreign subsidiaries are also counted as U.S. persons. In turn, secondary sanctions target non-U.S. persons and companies that conduct significant transactions with sanctioned countries or entities even without any U.S. nexus.

EU Sanctions

The EU has its own sanctions regime. Sanctions must be passed by the 27 member states unanimously. There are four core types of sanctions measures:

• Asset freezes: These are imposed on individuals and entities designated, and on any companies or assets that such individuals and entities own or control.
• Financial sanctions: These impose restrictions on access to capital markets and bans on transactions with banks and other parties.
• Trade restrictions: These ban the import or export of specific goods (e.g. military and dual-use goods, crude oil, advanced technology) and prohibits the provision of certain services.
• Other measures: These can include restrictions on economic cooperation, travel bans and bans on broadcasting for state-sponsored media.

Although the EU has more than 40 different sanctions regimes, currently its most extensive sanctions regime targets Russia and Belarus following the conflict with Ukraine and involves all four types of the sanctions measures above. As with the U.S., the EU has a lengthy track record of sanctioning those who do business with sanctioned entities.

U.K. Sanctions

Following Brexit, the U.K. has established its own sanctions regime that is independent from the EU sanctions regime. The key legislative framework is the Sanctions and Anti-Money Laundering Act 2018 and the country-specific regulations adopted thereunder, for example, the Russia (Sanctions) (EU Exit) Regulations 2019.

The independent U.K. sanctions regime creates additional compliance obligations for companies, including non-U.K. companies trading with British partners. Like the EU regime, the U.K. regime adopts asset freezes of funds and economic resources of designated entities and also to entities that are owned or controlled by the designated person or entity. The U.K. regime also adopts various trade bans on the export/import of restricted goods and technology to/from sanctioned countries.

The Impact of Economic Sanctions on International Transactions and Disputes

Sanctions affect the substantive obligations between parties, as well as how parties conduct dispute resolution proceedings effectively.

This section will outline how economic sanctions can affect parties at the transaction and performance stages in disputes and at the enforcement stage once a binding decision has been issued.

Pre-Contractual Actions

There are a number of actions that commercial parties should undertake before entering into a new contract. The first is to conduct due diligence on the proposed counterparty and to understand what sanctions risks might apply to any given transaction. This would include sanctions screening the counterparty, its directors and ultimate beneficial owners, and if the contract involves the sale or supply of goods and services that are subject to sanctions, understanding the final destination and likely user of those goods and services.

Understanding the potential impact of sanctions on a contract or transaction can not only assist in avoiding potential criminal liability, but also provide the necessary information upon which to base the negotiation of the contract itself.

The greater the perceived risk that future sanctions might disrupt a contract, the more important it is to put in place express provisions dealing with that scenario. Depending on the situation, there are a wide variety of options available ranging from termination rights, the ability to suspend performance without breach, changes or suspension of payment obligations, permitting delays to allow for license applications, as well as limitation or exclusion clauses excusing nonperformance of contract arising out of sanction issues.

Where flexibility of performance is possible, consideration can also be given to provisions that allow obligations to be performed in slightly different ways. For example, where sanctions exposure could be generated by one particular type of payment, there may be a benefit to allowing payment to be made in different currencies. As discussed below, English law does not require payment in a different currency as part of an obligation to use reasonable endeavors for alternative performance unless expressly specified in the contract. Such clauses cannot be used to circumvent sanctions, but where an alternative method of performance is lawful there is a benefit to the contract permitting such a method.

A countervailing consideration is that the more specific the contract is on the risks of sanctions, the less likely a party can avail itself to protections like force majeure and frustration. The more specific the contract is on any subject matter, the more likely the event and risks will be considered to have been within the contemplation of the parties at the time of contract, and thus not unforeseeable. Given the difficulties with raising such arguments (see below), creating greater certainty through express provisions will have a number of advantages.

Sanctions considerations can also be factored into decisions as to the governing law of a contract and any dispute resolution provisions. This should include whether to submit to a particular jurisdiction’s courts or to arbitrate, as well as the choice on the seat of any arbitration.

It may also be advisable to specifically provide in the dispute resolution clause that issues related to sanctions are arbitrable and to be assessed through the perspectives of the substantive governing law. This can avoid complicated and technical disputes over what law should govern the issue of sanctions and performance of the contract, which can be costly and inefficient to the resolution of the commercial dispute.

Effect on Transaction and Performance Stage and How to Mitigate Risks

While commercial parties may allocate the civil law risks of sanctions in contracts to some extent, they cannot allocate risks on criminal or administrative liabilities arising from breach of sanctions. Thus, commercial parties should be aware of the criminal and administrative liabilities that may be imposed for failure to comply with applicable sanctions. It is not possible for a person that falls within the criminal jurisdiction of a court to contract out of the criminal jurisdiction in the same way that it is possible to contract out of a court’s civil jurisdiction.

The risk of serious liability and secondary sanctions means that once an entity has been designated, a wave of actions from counterparties to wind down positions or divest from transactions usually follows. The U.K. and U.S. will sometimes issue short-term General Licenses to permit an orderly wind down. The EU has no General License mechanism, but new trade prohibitions will often come with a “sunset” clause. When the issue of sanctions first arises, parties should act promptly to investigate the availability of any such short-lived exemptions. From the sanctioned entity’s perspectives, it may want to complete pending transactions, but whether alternative performance that does not violate the sanctions regime is required or permissible is likely to depend on the language of the contract and the applicable law.

There are several key issues that the sanctioned entity or parties dealing with a sanctioned entity should be aware of in the contractual allocation of risks.

First, in many modern commercial contracts, there may be some provision for force majeure events. Force majeure is not a standalone legal concept in most common law jurisdictions. Parties can only raise force majeure as an excuse to nonperformance if it is provided under the contract, and a party may only be able to rely on force majeure in the sanctions context if sanctions are expressly included within the clause.

In any event, it is likely that an event will only be considered as a force majeure event if it is unavoidable, unforeseeable and insurmountable. This in turn means that the party claiming force majeure will need to try all other available alternative methods of lawful performance to benefit from such protection.

Parties should seek legal advice before declaring force majeure events to ensure they are compliant. For example, under English law, a party is not required to accept payment in a different currency than the one specified in the contract to satisfy a “reasonable endeavours” obligation in a force majeure clause unless the contract provides otherwise (see RTI v Mur Shipping [2024] UKSC 18).

Secondly, one or more contracting party becoming sanctioned, or sanctions creating a prohibition against performance, may allow a pleading of frustration of the contract. Frustration arises when an after-the-contract event occurs that is beyond the parties’ control, rendering performance impossible, or where the relevant obligation is transformed into a radically different obligation from what was contemplated at the time of contract (see The Eugenia [1964] 2 QB 226). As with force majeure, the requirement to show the impossibility of performance places an obligation to try alternative means. A frustrated contract will automatically terminate, and the parties will be discharged from further performance.

As the test for frustration is inherently fact and contract specific, any party seeking to claim frustration of contract should seek legal advice. If the contract has already sufficiently allocated the contractual risks arising from sanctions, any subsequent imposition of sanctions may not rise to the level justifying frustration of the contract. On the other hand, it might also be argued in certain scenarios that a party will also not be able to invoke the doctrine of frustration if it was at fault for causing its own designation— for example, if its own activities caused it to be sanctioned. A frustrating event must generally be beyond the control of the party invoking frustration.

Thirdly, a party may be able to claim that its performance has become illegal by way of sanctions, rendering performance impossible. While the English courts will not usually enforce the criminal statutes of foreign jurisdictions, as a matter of English contract law, the court will not enforce a contract if the performance requires an illegal act at the place of performance (see Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287).

This was the case in LLC EuroChem v Societe General SA [2025] EWHC 1938 (Comm). The English court dismissed claims brought by EuroChem asking for the payment of on-demand bonds guaranteeing a contractor’s performance in the construction of a fertiliser plant in Russia. The ultimate beneficial owners of EuroChem became designated persons under the EU sanctions regime and the defendant banks refused to pay out the on-demand bonds when the contractor stopped work. The court decided that since the defendant banks are in France and Italy, the payment of the on-demand bonds would mean payments in breach of the EU sanctions regime. As such, the defendant banks were not required to make payment under the bonds. This case demonstrates how, even where the contract is governed by English law, parties should consider the consequences of illegality at the place of performance. The parties may either wish to specify that performance must take place in a certain place in a certain way or to specify ways in which alternative lawful performance may be rendered depending on how they intend the risk of sanctions to be allocated.

Fourthly, whenever a party faces difficulty in performing the contract, it is advisable for that party to comply with any notice provisions under the contract to notify the counterparty and protect its position. A failure to comply with the notice provision in a contract can, depending on the contractual wording, prevent a party from benefitting from substantive protections under the contract subsequently.

Fifthly, parties contemplating termination of the contract because of limitations imposed by sanctions should seek legal advice before doing so. While nonperformance and repudiatory breaches of contract may justify termination, a decision to terminate should only be taken after careful legal advice evaluating whether there is a good legal basis to terminate. Under English law and other common law systems, if a party wrongly terminates a contract, it may expose itself to a claim for repudiatory breach of contract (which can, in principle, include damages over the lifetime of the contract).

Affect on Dispute Resolution Proceedings

In addition to affecting the substantive rights and obligations of the parties under a contract, sanctions can also have an impact on the dispute resolution process. If a party is sanctioned, it may affect the dispute resolution process in multiple manners.

First, the imposition of sanctions can have an impact on the rights and remedies a party can claim, including the quantum of any damages. For example, when constructing a counter-factual scenario to assess damages, a tribunal will assume that the party in breach would do everything in its power to perform the contract—but it will also assume that other objective elements remain the same (i.e. the sanctions would still have been imposed). Put differently, if the sanctions imposed would have prevented performance by the party in breach in any event, it may be arguable that the loss suffered by the innocent party was caused by the sanctions regime rather than the breach of contract itself.

Secondly, sanctions can also impact the availability of certain interim remedies, most notably freezing orders or attachments. While in many circumstances it may be thought unnecessary to obtain a freezing order against a sanctioned entity as a result of the asset freeze imposed by the general law, the courts of the EU have made clear that where an attachment is sought over assets frozen by sanctions, a license must first be obtained from the relevant national competent authority.

Thirdly, depending on the seat of the arbitration, sanctions may have an impact on the ability (or otherwise) of one or more of the parties to participate fully in the arbitration. For example, sanctions may affect (1) whether the sanctioned entity can pay its share of costs for the arbitration institution and tribunal; and (2) whether the sanctioned entity can pay security for claim and security for costs.

Finally, as practical note for parties and legal advisors who must comply with the U.K.’s sanctions, there are advantages to selecting London arbitration and U.K.-based arbitrators. The U.K. government has issued a General License to permit a person designated under the U.K.’s Russian sanctions to pay arbitral fees. Initially specific to the London Court of International Arbitration (LCIA), the General License now covers the fees payable to arbitrators and arbitral “associations” (this term covers arbitral institutions like the LCIA, but also venue providers like the International Development Research Centre), including venue hire, transcription, etc., subject to a cap of £500,000 per arbitration. In many other jurisdictions, an application would be required to the relevant competent authority for permission to make such payments, which can create unnecessary delay and cost.

Effect on Enforcement Proceedings

The different sanctions regimes have different rules permitting the enforcement of judgments and arbitral awards. For example, the EU’s asset freezes include as a standard exception permission for payments to be made to designated persons to satisfy judgments or awards, so long as the payment is being made to a frozen account. The EU sanctions also allow a national competent authority to permit a designated person to make a payment under a contract if that contract pre-dated the imposition of sanctions.

Under the U.K. regime, a sanctioned entity can apply for a license to permit a payment to satisfy a judgment or arbitral award, and also to satisfy an obligation that arose prior to becoming sanctioned. There is an exception permitting (without a need for a licence) payment to a frozen account held by the sanctioned person where the payment is to discharge “an obligation which arose” prior to the person’s designation.

Numerous jurisdictions are currently grappling with sanctions-related arguments being deployed to avoid enforcement. An ongoing case in Singapore will determine the issue of whether it is contrary to Singapore’s public policy to allow enforcement by a company that is owned or controlled by a person sanctioned under U.S. law. Similarly, the EU’s Court of Justice has had a case referred to it from Latvia on the question of whether it is contrary to public policy under the New York Convention to permit a successful claimant who is sanctioned to be able to enforce an arbitral award. As this case law develops, it may need to be factored into decisions as to the seat of an arbitration.

At the same time, the applicable sanctions regime may contain mechanisms for obtaining disclosure of assets belonging to a sanctioned entity against which enforcement may be sought.

In the EU and U.K., all sanctioned entities are obliged to disclose their assets in the relevant jurisdictions. In addition, third parties (e.g. banks and accountants) are also obliged to disclose any assets they hold on behalf of the sanctioned entity. The regulators, therefore, have significant information on a sanctioned-party’s assets in their jurisdiction. There have been examples where parties seeking to enforce judgments have been able to obtain that information to better enforce against those frozen assets.

Overall Practical Lessons

As can be seen from the above, sanctions can have a myriad of potential consequences for parties’ substantive rights and obligations, the dispute resolution process and the prospects of enforcement.

From the above discussion, we draw a few practical lessons:

Allocating Risks of Sanctions in the Contract  

It may be generally advisable for parties to anticipate and allocate risks of sanctions in the contract. This can include through limitation or exclusion clauses and alternative payment provisions.

Consider Other Means of Lawful Performance

Once a party is sanctioned, both the sanctioned entity and its counterparty should consider whether alternative performance is available to satisfy the contract (e.g. in the form of licences, exceptions or sunset clauses, or by permitting payment in an alternative currency or permitting performance at an alternative location where sanctions do not prevent performance).

Choice of Seat  

The parties should consider the potential impact of sanctions on their choice of arbitral seat. The laws of the seat may have an impact on the extent to which a sanctioned party can participate in the arbitration through, for example, a General License that may permit a sanctioned entity to pay legal fees or whether a specific license is required (and, if so, the process and timescale for obtaining such a license).

Obtain Early Legal Advice  

The sanctioned entity and its counterparty should seek legal advice before adopting potentially irreversible steps that may give rise to significant liability, including the declaration of force majeure, claiming frustration and impossibility to perform. In particular, a commercial party dealing with a sanctioned entity should obtain legal advice before suspending performance or terminating the relationship. If there is a legal basis, termination can enable the party to extricate itself from the relationship. However, a wrongful termination can constitute a repudiatory breach of contract and may give rise to significant liabilities.

For More Information

If you have any questions about this Alert, please contact Duncan Speller, Mark Handley, Justin Li, any of the attorneys in our International Disputes Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.