Comprehensive sanctions sets and ever-changing export control requirements to enforce domestic and international foreign and security policy objectives require businesses to build a new, stronger edifice of compliance efforts. At the same time, investors in M&A deals should expand their due diligence to include a check of the target company’s foreign trade compliance and ensure that all risks are properly allocated and reflected in the purchase contract.

Sanctions related to risk factors and export controls

The sanctions imposed on Russia by the European Union and its Western allies are among the most comprehensive ever imposed on a single state. Nevertheless, global geopolitical tensions had been rising even before Vladimir Putin’s invasion of Ukraine. In this environment, sanctions, export controls of critical technologies, and foreign investment screening have become key tools for governments to enforce their security interests. In this context, compliance with legal requirements poses considerable challenges for companies and has become a central element of risk assessment for M&A investors.

European companies must comply with legal requirements at different levels: export controls and sanctions at European and national levels; US regulations with extraterritorial impact; and political efforts, both European and national, which could prohibit compliance with certain sanctions.

The regulations are manifold: sanctions and embargoes against certain States and individuals, export and import restrictions and licensing requirements for certain products and services, among others. Acts that violate these restrictions are null and void under civil law and, if done negligently or intentionally, generally constitute an administrative or even criminal offense. The risks for investors are considerable, as they face heavy fines and severe economic consequences if, for example, they are denied market access in whole or in part. Due diligence is therefore essential.

In general, risks exist for an investor if, at the time of acquisition, there has already been a sufficiently concrete breach of duty by the target company. In a stock exchange scenario, this means that if the target company remains liable for its past violations of the law, the acquirer gets the shares “infected” with the risk of liability. Possible liability risks of the target company that may be transferred to the acquirer in a stock purchase transaction include liability for fines, claims for damages, and breach liability. of contract, for example, for the termination of contracts in violation of the EU blocking regulation or the EU prohibiting regulatory regime. companies to comply with certain US extraterritorial sanctions targeting Iran and Cuba. At the same time, the continuation of the activities of the target company without adequate commercial compliance also poses a significant risk.

For example, while German authorities are, within their jurisdiction, generally required to investigate and prosecute any violation of applicable sanctions and export control restrictions, the number of cases in which non-compliance has triggered investigations and the imposition of fines or criminal sanctions has, until recently, been rather limited. However, in light of the poor enforcement of EU sanctions by national authorities and the pressure exerted by the European Commission on Member States to ensure effective prosecution of sanctions violations, the German Parliament recently enacted a first package of the Sanctions Enforcement Act (Sanktionsdurchsetzungsgesetz), which contains, among other things, new investigative measures for the competent authorities. The federal government expects all of these measures to increase the number of official investigations and prosecutions for sanctions violations in the near future.

Implications for M&A transactions

Given the complexity and dynamics of legal requirements, the question is therefore not simply whether companies have committed violations. Instead, investors should consider whether the potential violations are material and whether the target companies have strong enough compliance mechanisms in place to prevent such violations from happening again.

If compliance violations are revealed during due diligence, the acquirer is regularly legally obligated (often under the company’s internal compliance regime) to ensure that the violations are corrected before assuming liability for business operations of the target company. For example, the acquirer could force the target to stop exporting certain products or to terminate commercial relations with certain customers. If compliance systems are inadequate, improvements should be made in the short term.

Risks exist for an investor if, at the time of acquisition, there has already been a sufficiently concrete breach of duty by the target company.

Additionally, provisions can be included in the purchase agreement to allocate risk appropriately. A purchase price adjustment clause allows the acquirer to change the price at closing to take into account both liabilities arising from compliance violations and investments in improving compliance.

If the purchase contract contains a warranty of conformity, violations can be accepted as a condition precedent and the buyer is granted the right to refuse to enter into the transaction in the event of a violation. This measure can be very effective in ensuring compliance of the target at the time the transaction is concluded.

With a comprehensive warranty, compliance with international trade regulations can also be ensured. However, sellers will always attempt to limit the warranty “to the best of their knowledge and belief” in order to limit claims for damages.

Finally, the parties may agree that the seller will indemnify the buyer against certain compliance failures. This is particularly relevant in cases that have a significant impact on the value of a business and for which a final valuation is not possible at the time the purchase contract is concluded.


In light of the rapidly changing legal framework for foreign trade, investors should broaden the scope of their due diligence to comprehensively analyze a target’s compliance measures. M&A buyers should also ensure that potential risks are properly identified and reflected in the purchase agreement.

Stephan Müller is a lawyer at Oppenhoff and specializes in export control law, sanctions and compliance, with a focus on the areas of anti-corruption, money laundering and internal investigations. His advice is particularly sought after in crisis situations. He has particular experience in developing and implementing compliance structures. He also advises his clients in the context of authorization procedures or before the administrative courts.

Dr. Carsten Bormann is a lawyer at Oppenhoff and advises and represents national and international clients on all matters concerning public/regulatory law and foreign trade. His work includes advising international companies in the context of foreign direct investment screenings. His other areas of expertise are export control and sanctions law, with an additional focus on developing and implementing compliance frameworks.