Sanctions screening in a share acquisition: indirect control and frozen assets

Screening starts with the immediate parties. It should cover buyer and seller, the target, its directors and beneficial owners, and persons with material decision-making or financing rights in the deal. In group transactions, add parent companies, acquisition vehicles, co-investors, financing banks and key contractual counterparties.

A name alone is not enough for reliable matching. Date of birth, registered office, address, registration numbers and other identifiers help distinguish a genuine hit from a namesake. Record the date of the check because EU sanctions regimes can be amended, renewed or lifted. The due-diligence topic page places this sanctions workstream within the wider transaction review.

An asset freeze prevents, under the definitions in the relevant EU acts, movement, transfer, use or other dealing that would change the amount, location, ownership, possession or destination of funds. A frozen bank account therefore generally cannot be used for the purchase price or a distribution. A credit to the account may be possible only under the applicable derogations and with the required information to the competent authority.

For a share acquisition, assess separately whether the purchase price would reach a listed person, whether the target is controlled and whether the transaction gives economic resources to the listed person. Paying a non-listed company does not automatically resolve the issue. The Commission addresses controlled entities through a fact-specific assessment of actual control and the ability to use the assets.

A percentage is an important screening point, but it does not answer the control question by itself. The Commission identifies indicators of decisive influence such as the power to appoint or remove a majority of a management or supervisory body, influence over strategy, finance, personnel and legal matters, and the ability to use assets or monitor business conduct.

The practical data-room rule is to review voting agreements, trust arrangements, veto rights, appointment rights, loan terms, powers of attorney and intra-group instructions alongside the percentage. A seemingly small holding can, together with these rights, amount to actual control. A negative finding should explain why the listed person cannot exercise decisive influence.

EU sanctions consist of different regimes. Alongside personal financial measures, sectoral rules can prohibit particular transactions, services, financing, investment or business activities. Whether a share acquisition is affected depends on the relevant legal act, the target sector, the transaction and the companies involved. It would be too broad to say that every share purchase connected with a particular country is prohibited.

Due diligence should therefore compare the business model and relevant contracts with the applicable sectoral rules. Check whether a prohibition also reaches companies owned or controlled by an affected entity. This complements the basic share deal and asset deal comparison without replacing it.

The acquisition agreement should treat sanctions screening as an ongoing closing issue. Include representations on list status, ownership and control, disclosure duties when facts change, cooperation with competent authorities and a fresh check before closing. If a hit is unclear, the SPA needs an agreed escalation route rather than a blanket clearance.

Depending on the finding, the parties may use a condition to closing, a termination right, purchase-price mechanics, an indemnity or a different buyer and payment route. Wording cannot make a prohibited transaction lawful. The contract mechanism should be coordinated with the review of SPA warranties and closing conditions.