Landmark EU court ruling redefines scope of indirect sanctions exposure

LUXEMBOURG, Oct. 15, 2026 — The Court of Justice of the European Union ruled in Case C-842/24, DNO Yemen, that payments to entities not subject to sanctions can constitute prohibited indirect transfers where sanctioned parties have the practical ability to obtain the funds, even without exercising formal ownership or control. The judgment provides significant clarification of the evidentiary standards governing indirect sanctions exposure, particularly in jurisdictions where competing authorities claim control over the same institutions.

The case arose from a dispute involving Norwegian oil company DNO Yemen AS and an arbitration award requiring compensation to Yemen’s Ministry of Oil and Minerals and Yemen Oil & Gas Corporation. DNO challenged the award amid concerns that funds intended for the internationally recognised Yemeni government could ultimately reach individuals associated with the Houthi movement who were subject to EU sanctions. The dispute raised fundamental questions about the application of Council Regulation (EU) No. 1352/2014, which prohibits making funds or economic resources available, directly or indirectly, to designated parties.

In a significant clarification, the court determined that formal ownership or control is not essential for an indirect sanctions prohibition to apply. Payments to an unlisted entity may be prohibited where designated parties claim authority over that entity and possess the practical means to obtain the funds. However, the court rejected the proposition that competing claims of authority automatically establish sanctioned control, ruling that the risk of diversion must be supported by objective, material evidence and be sufficiently significant to justify restrictions. A purely hypothetical possibility that sanctioned parties might benefit is insufficient.

The judgment also establishes important requirements concerning the burden of proof. Courts must assess specific, precise and consistent evidence rather than rely on general presumptions. Where credible evidence initially establishes a risk of diversion, beneficiaries may be required to demonstrate effective safeguards preventing sanctioned parties from accessing the funds. Nevertheless, the ultimate burden of establishing a sanctions breach remains with the party alleging it. The court further recognised that legitimate government authorities may have implemented protective measures that must be considered when assessing the likelihood of funds reaching sanctioned groups.

The ruling has potentially far-reaching implications for financial institutions, businesses and legal practitioners assessing sanctions exposure beyond formally designated entities. It reinforces the importance of examining actual access to funds and practical influence over counterparties, while establishing that sanctions restrictions cannot be justified solely by speculative concerns or disputed claims of control. The French courts must now apply these principles to the underlying arbitration dispute.