Introduction

Sharing technical information or technology with a sanctioned entity—even under an NDA—creates significant legal and compliance risks. Sanctions regimes (such as those enforced by the Office of Foreign Assets Control (OFAC) in the US, the EU, or South Africa’s targeted financial sanctions framework) prohibit not only financial transactions but also the transfer of goods, services, and technology to sanctioned parties. An NDA does not override these prohibitions.

Key Risks

• Legal liability: Providing technical data or technology to a sanctioned entity can constitute a violation of sanctions laws, leading to civil or criminal penalties, including heavy fines and imprisonment.
• Secondary sanctions: Even indirect dealings (e.g., through intermediaries or subsidiaries) can trigger enforcement actions if the ultimate beneficiary is a sanctioned party.
• Reputational damage: Association with sanctioned entities can harm credibility with regulators, clients, and partners.
• Contract unenforceability: Agreements with sanctioned entities may be void or unenforceable under applicable law, leaving you exposed without legal recourse.
• Operational disruption: Breaches can lead to restrictions on banking, insurance, or supply chain relationships, as counterparties avoid exposure to sanctions risk.

How to Address These Risks

• Sanctions screening: Rigorously screen all counterparties (including beneficial owners and affiliates) against updated sanctions lists before entering into NDAs or sharing information.
• Legal review: Obtain specialist sanctions compliance advice before any engagement. An NDA should explicitly state that obligations are subject to compliance with applicable sanctions laws.
• Restrictive clauses: Include representations and warranties that the counterparty is not sanctioned, and termination rights if sanctions apply.
• Information controls: Limit disclosure of sensitive technical data until compliance clearance is confirmed.
• Training and policies: Ensure staff understand that sanctions override contractual obligations, including NDAs.
• Use of licenses/exemptions: In rare cases, regulators may grant licences to engage with sanctioned entities for specific purposes (e.g., humanitarian projects). Apply formally if relevant.

Conclusion

Navigating sanctions compliance in the context of NDAs requires vigilance and proactive risk management. Organizations must recognize that NDAs do not exempt them from sanctions laws and should implement robust screening, legal safeguards, and internal controls to mitigate risks. By doing so, they protect themselves from legal penalties, reputational harm, and operational disruptions.

References and Further Information

• https://www.cliffedekkerhofmeyr.com/news/publications/2021/investigations/corporate-investigations-alert-8-december-Rather-safe-than-sanctioned-Mitigating-your-organisational-risk-of-transacting-with-sanctioned-entities-and-individuals.html
• https://www.ey.com/content/dam/ey-unified-site/ey-com/en-gl/insights/digital/documents/ey-identifying-and-interdicting-sanctions-risk-in-global-transshipment-and-intermediary-points.pdf?download
• https://www.swift.com/risk-and-compliance/sanctions

Disclaimer

This practice note is for informational purposes only and does not constitute legal advice. Organizations should consult qualified legal professionals for guidance on sanctions compliance and related contractual matters.