Cross-Border M&A in a Sanctions-Driven World

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Sanctions have stopped being a closing-checklist item. In today’s deal environment, they shape cross-border M&A from the first conversation with a target, driving who can buy, what can be bought, how the deal is structured, how it is priced, and whether it closes at all. Recent economic research suggests that the imposition of sanctions reduces the number of cross-border deals between sanctioning and target countries by roughly half, with the effect deepening the longer sanctions remain in place.

Yet the headline number tells only half the story. Sanctions do not simply suppress dealmaking, they redirect it. Forced divestments, exits from sanctioned markets, restructured joint ventures and the realignment of trade routes are themselves generating transactions. For buyers and sellers who understand the rules, a sanctions-driven world is not only a risk landscape. It is a deal landscape.

DUE DILIGENCE: OWNERSHIP IS NOT WHAT IT SEEMS

Classic M&A diligence asks what the target owns. Sanctions diligence asks who owns the target – and the answer is rarely visible on the shareholder register. Under the US 50 Percent Rule and the EU’s ownership-and-control test, an entity can be fully sanctioned without ever appearing on a list, simply because designated persons hold or control it in aggregate, directly or through layered holding structures, nominees or trusts. The same logic increasingly applies to the target’s counterparties: a single distributor, supplier or financing partner with sanctions exposure can taint revenue streams, contracts and – after closing – the buyer itself.

In practice, three questions decide whether a deal is viable:

Who sits behind the target? Beneficial ownership must be traced to the last natural person, across every jurisdiction in the chain.
Where does the money come from and go to? Revenue derived from sanctioned markets, persons or goods does not become clean through an acquisition.
What does the target actually ship, and to whom? Export-controlled products, dual-use items and re-export patterns through third countries are now standard red-flag territory – particularly where goods move through transshipment hubs.

SUCCESSOR LIABILITY: YOU BUY THE PAST, TOO

An acquirer does not just buy assets and earnings, it can inherit the target’s sanctions history. US enforcement practice has made this explicit: regulators expect buyers to identify historic violations in diligence, and the US Department of Justice has created a formal safe harbour that rewards acquirers who voluntarily disclose misconduct uncovered in an acquisition within a defined window after closing. The message to dealmakers is clear – diligence is no longer only about pricing risk, it is about positioning the buyer for the conversation with the regulator that may follow.

European regimes are moving in the same direction. The EU has criminalised sanctions violations across member states and is tightening enforcement coordination, while national authorities (including in Germany) increasingly treat inadequate pre-acquisition screening as a compliance failure in its own right. A buyer who closes with open eyes and no remediation plan should expect little sympathy.

STRUCTURING THE DEAL: PRICING RISK INTO THE DOCUMENTS

Where diligence identifies exposure that cannot be eliminated, the transaction documents have to carry it. The sanctions toolkit in modern SPAs has become correspondingly sophisticated:

Representations and warranties on sanctions, export controls and AML – drafted to survive closing and backed by specific indemnities rather than generic baskets.
Conditions precedent tied to regulatory clearances, licence applications or the termination of problematic contracts before completion.
Carve-outs and pre-closing reorganisations that leave the exposed business line, entity or customer relationship behind with the seller.
Escrows, holdbacks and earn-out adjustments sized against the realistic enforcement and remediation cost, not a token figure.
Wind-down and exit mechanics for the scenario nobody wants: sanctions landscape shifts between signing and closing, or after it.

The common thread: sanctions risk can rarely be warranted away. It has to be structured around – and the earlier the deal team maps it, the more structuring options remain open.

ONE DEAL, MANY RULEBOOKS

Sanctions never travel alone. A cross-border transaction today sits at the intersection of overlapping (and sometimes conflicting) regimes:

Divergent sanctions programmes. US, EU and UK measures target broadly similar conduct but differ in scope, licensing and extraterritorial reach. US secondary sanctions can bite transactions with no US nexus at all, while EU blocking rules may prohibit compliance with certain foreign measures. A structure that is clean under one regime can be a violation under another.
Financing and payment restrictions. Sanctions clauses in facility agreements, restricted currencies and de-risked correspondent-banking channels can make an otherwise lawful deal unbankable. The acquisition financing and the payment route for the purchase price deserve the same scrutiny as the target itself – a lesson some buyers learn only at completion.
Foreign direct investment screening. CFIUS in the United States, the EU FDI framework and national regimes such as Germany’s AWV review now capture an ever-wider range of sectors – and screening authorities increasingly ask sanctions-adjacent questions about ultimate ownership and funding sources.
Export controls. Where the target holds controlled technology, the acquisition itself can constitute a deemed transfer requiring authorisation.
Anti-money laundering. Banks, notaries and advisers along the deal chain apply their own AML lens to the same ownership and funds-flow questions – inconsistent answers across these gatekeepers are a common cause of delayed closings.

For deal teams, the consequence is procedural as much as substantive: regulatory strategy, filing sequencing and timeline management have become board-level topics, and the long-stop date is often the most negotiated clause in the agreement.

THE OTHER SIDE OF THE COIN: WHERE THE DEALS ARE MOVING

Every restriction creates a redirection. As traditional routes close, capital and trade are finding new ones, and M&A follows. We see this daily in our own practice across Europe, the UK and the Caspian region:

Exit and divestment transactions from sanctioned or high-risk markets, often under time pressure and with complex regulatory approval requirements on both sides.
Supply-chain realignment deals, as buyers acquire production, logistics and distribution assets in jurisdictions that keep them on the right side of sanctions and export-control regimes.
New investment corridors – most visibly the Trans-Caspian Middle Corridor connecting Europe with Central Asia and beyond, where infrastructure, logistics and financial-sector M&A is accelerating precisely because it offers a compliant alternative to sanctioned routes. The opportunity is real, but so is the diligence burden: these are jurisdictions where ownership transparency, circumvention risk and correspondent-banking access must be assessed deal by deal.

The buyers who succeed in this environment are not the ones who avoid every jurisdiction with a risk profile. They are the ones who can tell the difference between a risk that can be structured, priced and managed – and one that cannot.

THE TAKEAWAY

Sanctions have turned cross-border M&A into a discipline where regulatory strategy and deal strategy can no longer be separated. Three principles follow for any transaction with an international dimension:

Start sanctions diligence before the LOI, not after. The findings shape valuation, structure and timeline – discovering them late costs money and deals.
Treat the transaction documents as a risk-allocation instrument, not a formality: warranties, indemnities, conditions and carve-outs should map precisely onto the exposure diligence has identified.
Plan for the regulator. Whether through FDI filings, licence applications or a post-closing voluntary disclosure, the authorities are part of the deal – and engaging them early and credibly is almost always cheaper than the alternative.

Kai Scholz is Managing Partner (Germany & Baku) at Oracle Law Global and advises on sanctions, trade compliance and cross-border transactions across Europe, the UK and the Caspian region.