A cross-border trading business acquires a minority stake in a logistics company. Months later, a co-investor in the same target is designated. The target itself is not yet listed. Under US export controls and the broader US regulatory regime, the question is immediate and operational: can the business continue to hold that stake, export goods through that entity, or must it sell? Under the EU sanctions rules, the question looks similar but the answer turns on different legal tests, different timelines, and a different enforcement philosophy. Which regime governs? Both may – simultaneously.
Divesting a sanctioned interest under the BIS / EAR and under EU export-control and sanctions rules involves parallel but divergent obligations. The US regime, administered by BIS and OFAC under instruments including IEEPA and the Export Control Reform Act, applies an ownership-threshold test and ties export-licence eligibility to the status of the end-user and the ultimate beneficial owner. The EU framework applies both an ownership and a control test, and the two regimes frequently point to different divestment timelines, different permitted-activity carve-outs, and different disclosure obligations. As of January 2026, both regimes are actively enforced with significant civil and, in the US, criminal exposure for non-compliance.
This analysis maps the key divergences between BIS / EAR and the EU across six dimensions of a divestment, identifies the risk flags that practitioners encounter most often, and sets out when a business should involve specialised cross-border sanctions counsel before it acts.
How BIS / EAR Governs Export-Licence Eligibility When a Co-Investor Is Designated
Under the Export Administration Regulations administered by BIS, the status of the end-user and the beneficial owner of the consignee or party to a transaction can independently eliminate licence exceptions and trigger a licensing requirement – or an outright denial order. BIS maintains the Entity List and the Denied Persons List as the primary look-up tools, and a business must screen all parties to an export transaction, not merely the immediate buyer.
The critical question when a co-investor is designated is whether that designation migrates the exposure to the entity in which the interest is held. BIS does not apply a mechanical 50 percent rule (OFAC's rule treating entities owned 50 percent or more in aggregate by blocked persons as themselves blocked) in the same automatic fashion for all purposes. Instead, the analysis under the EAR is transactional: the question is whether the designated party is the end-user, the end-use is prohibited, or the transaction meets the criteria for a red-flag inquiry that the exporter cannot ignore without further due diligence. This means a business holding a minority stake alongside a designated co-investor may not face an immediate export prohibition – but it faces an elevated due-diligence obligation it cannot defer.
In our cross-border practice, we regularly advise exporters who treat the BIS analysis and the OFAC analysis as identical. They are not. An entity can be unlisted under OFAC's SDN List and still trigger BIS restrictions if it appears on the Entity List or if a red-flag pattern makes the export suspicious. The converse also applies: OFAC blocking does not automatically suspend an export licence, though in practice the two sets of obligations will frequently align.
The position above covers the standard analysis. Your facts – the goods classification, the designated co-investor's ownership percentage, the entity's jurisdiction of incorporation, and the specific export transaction in view – each change the BIS analysis materially.
To discuss a cross-border divestment or export-compliance question involving BIS and a designated counterparty, contact Calder & Vance at info@caldervance.com.
What Is the EU Test for When a Divestment Obligation Arises?
The EU test for whether a divestment obligation arises is broader than the BIS transactional analysis: it is triggered by the ownership and control test (the EU principle under the relevant Council Regulations that catches entities not directly listed but owned or controlled by a listed person), which applies both a quantitative ownership threshold and a qualitative control assessment. Where a listed person owns or controls an entity, the EU rules prohibit making funds or economic resources available to that entity, and holding a stake in it can itself constitute making an economic resource available.
The practical effect is that a business can face a divestment obligation under EU law before any formal designation of the target entity, provided the co-investor's control over the target can be established. Control is assessed by reference to voting rights, board representation, shareholder agreements, and other structural factors. An EU-based business – or any business with EU-nexus, including EU-currency transactions or EU-incorporated intermediaries – must conduct this analysis promptly when a co-investor is designated.
The EU dual-use export-control rules, set out in the relevant EU Regulation on dual-use items, add a further layer. An export licence granted to an entity whose beneficial owner has been designated may be reviewed, suspended, or revoked by the competent national authority. The grounds for revocation are broader than those available under BIS, because the EU rules also allow revocation when there is a change in the security environment, not merely a change in the legal status of the exporter.
What does this mean for the divestment timeline? Under the EU rules, once an obligation arises it applies immediately and without a wind-down grace period, unless a specific authorisation or derogation is granted by the competent national authority. BIS, in contrast, does not routinely grant wind-down authorisations for export-licence purposes – but OFAC's general licence architecture, which sits alongside the BIS framework, does sometimes provide short wind-down windows. A business relying on an OFAC window to manage the timing of a BIS-related divestment needs to read both sets of rules together – and must avoid any assumption that a window available under one instrument covers obligations under the other.
How Do the Ownership Thresholds Diverge in Practice?
The most operationally significant divergence between the US and EU regimes is the threshold at which an entity is treated as captured. OFAC's 50 percent rule is a hard numerical trigger: 50 percent or more aggregate ownership by blocked persons, directly or indirectly, means the entity is itself treated as blocked. The rule is aggregated across multiple blocked owners – two listed persons each holding twenty-six percent together clear the threshold.
Under the EU framework, the ownership test is typically set at 50 percent or more direct or indirect ownership by a listed person for the purposes of the asset-freeze provisions. However, the control leg of the EU test can capture entities where ownership falls below that line. A listed person holding forty percent and exercising de facto control through shareholder agreement, board dominance, or veto rights may cause the entity to be treated as controlled – and therefore caught – for EU purposes, even though neither OFAC's 50 percent rule nor BIS's transactional analysis would automatically reach that conclusion.
In our experience, this divergence creates the most significant practical problem in multi-jurisdictional divestments. A business may conclude, correctly, that the OFAC 50 percent rule does not capture the target entity. It may then proceed with a transaction only to find that the EU competent authority takes the view that the designated co-investor exercised control over the target, and that the business's continued participation constituted a prohibited economic-resource transfer. The two analyses must be run in parallel, not sequentially.
The BIS analysis adds a further dimension that has no direct EU analogue: the end-use and end-user controls under the EAR require the exporter to assess not only the immediate counterparty but the ultimate consignee and any party the export is known to benefit. A divestment that removes the designated co-investor from the ownership structure may cure the OFAC 50 percent problem. It does not automatically cure the BIS red-flag problem if the exporter has existing knowledge suggesting the entity will re-route goods to a prohibited end-use.
What Are the Procedural Steps for Divesting a Sanctioned Interest Under Each Regime?
A structured divestment under the BIS / EAR and EU regimes requires a sequenced approach that respects the legal obligations of each regime at each stage.
Under the US framework, the first step is to determine whether OFAC's blocking rules apply independently of BIS. If OFAC blocking applies, then completing the divestment – receiving sale proceeds, executing transfer documents – may itself constitute a prohibited transaction unless OFAC has issued a specific or general licence authorising it. A specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) from OFAC must be sought before the divestment is executed, not after. BIS considerations layer on top: if the entity holds export licences issued by BIS, those licences may be affected by the change in ownership, and BIS should be notified of material changes in the ownership or control of licence holders.
Under the EU framework, the competent national authority of the relevant member state is the primary contact for authorisations. The EU rules permit member states to grant authorisations for the release of frozen assets and the completion of transactions in defined circumstances, including where necessary to give effect to a prior contractual obligation or to protect third-party rights. A business seeking to divest must identify the relevant national authority, prepare an authorisation request setting out the transaction, the designated counterparty, the asset, and the legal basis for the authorisation, and submit it before completing the transfer.
The procedural timelines differ materially. OFAC specific-licence applications are subject to processing in a timeframe that can extend to several months in complex matters, though OFAC prioritises applications involving time-sensitive commercial transactions when the application clearly sets out the urgency. EU national authorities operate under their own domestic procedural timelines, and these vary between member states. A business with operations in multiple EU jurisdictions may need to engage more than one national authority – which adds coordination complexity.
The documentation required by each regime also differs. OFAC expects a detailed factual record: the parties, the assets, the transaction structure, the connection to the blocked person, and the proposed safeguards. EU national authorities expect a similar factual record but will also consider the effect of the transaction on the integrity of the EU sanctions programme and, in some cases, the foreign-policy objectives underlying the designation. Neither process is formulaic. Both reward early, thorough preparation.
If a transaction has already been flagged by a counterparty bank or a transfer agent, or if a regulatory query has been received, an early compliance review by specialised counsel can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com.
Risk Flags That Practitioners Encounter Most Often
Practitioners advising on divestments of sanctioned interests encounter a consistent set of risk flags that are worth mapping before any transaction proceeds. The list below is not exhaustive, but it captures the patterns that most frequently cause deals to stall or create post-closing enforcement exposure.
- Layered ownership structures: A target entity with two or three layers of intermediate holding companies between the designated person and the asset is the most common source of missed exposure. Screening the immediate counterparty without tracing the full chain is inadequate under any of the major regimes.
- Aggregation across multiple designated co-investors: Where two or more designated persons each hold a sub-threshold stake, their combined position may cross the 50 percent threshold under OFAC's aggregation rule. Businesses that assess each investor individually – rather than in aggregate – routinely miss this.
- Existing export licences covering the entity: A BIS export licence issued to an entity in which the designated person holds an interest may need to be reviewed or re-applied for following the divestment. Failing to notify BIS of a material change in the ownership or control of a licence holder can itself constitute a violation.
- Currency and payment-channel exposure: Even where BIS and EU primary obligations are managed, a transaction denominated in US dollars and routed through a US correspondent bank will attract OFAC's jurisdiction. The payment leg of a divestment can independently create a blocked-property problem if not properly structured.
- Post-divestment re-engagement: A business that divests its interest in a sanctioned entity and then re-engages through a service contract, a licensing arrangement, or a distribution agreement may find that the re-engagement revives the underlying exposure. The divestment must be clean – and the post-divestment commercial relationship must be independently assessed.
- EU Blocking Regulation considerations: Businesses with EU connections that are also subject to US secondary-sanctions pressure face a specific structural tension. The EU Blocking Regulation is designed to counter the extraterritorial effect of certain US sanctions designations, and an EU business that divests purely in response to US secondary-sanctions pressure may be in breach of EU law. This is a genuine conflict of laws, not a compliance gap – and it requires legal advice that spans both regimes.
A Divergence Map: The Four Points of Greatest Legal Distance
Having walked through the mechanics of each regime, it is useful to set out explicitly the four points at which the BIS / EAR and EU approaches are most distant from each other. These are the points at which a compliance programme calibrated to one regime will fail to cover the other.
First: the control test. BIS applies a transactional red-flag standard. The EU applies a structural control test that reaches entities not captured by a mechanical ownership threshold. A business screening only for majority ownership by designated persons will miss EU-controlled entities that fall below the threshold.
Second: the licensing architecture. Under the BIS / EAR, licences are issued by BIS for specific items and end-users; OFAC issues authorisations for financial transactions. The EU national-authority architecture means that a single multi-jurisdictional divestment may require authorisations from several competent authorities in different member states, each operating under its own procedural rules. There is no single EU-level licensing body for sanctions authorisations, though the Council and member states have been moving towards greater coordination.
Third: the role of voluntary disclosure. BIS has a well-established VSD (voluntary self-disclosure) programme under which a business that self-reports a potential export-control violation can significantly reduce its exposure. OFAC has a comparable VSD practice. Most EU member states' competent authorities accept voluntary disclosures, but the procedural treatment, the disclosure standards, and the mitigation credit offered vary considerably between jurisdictions. In our practice, we have seen EU-based clients who self-disclosed receive very different treatment between two member states handling the same apparent violation, which reflects both the decentralised enforcement structure and the different enforcement cultures of EU national authorities.
Fourth: extraterritorial reach. The BIS / EAR reach extends to any item that contains US-origin technology or software above a de minimis threshold – the de minimis rule – and to foreign-produced items that are the direct product of US-origin technology – the foreign direct product rule. These mechanisms mean that an EU-based business divesting a stake in a non-US entity can still be subject to BIS jurisdiction if the entity's products incorporate US-controlled technology. The EU's dual-use controls do not have an equivalent extraterritorial reach; they apply primarily to exports from EU territory. This asymmetry means that a divestment structured to comply fully with EU export-control rules may still require a BIS analysis.
When Should a Cross-Border Business Involve Sanctions Counsel?
The question of when to involve specialised counsel is one we are asked often – usually after a potential problem has already surfaced. The correct answer is: before the divestment structure is agreed, not after it is signed.
There are specific triggers that should prompt immediate engagement of cross-border sanctions counsel. If any party to the transaction, any beneficial owner above a material threshold, or any entity in the ownership chain appears on any sanctions list – including the SDN List, the Entity List, the EU Consolidated List, or the UN Consolidated List – a legal analysis of the applicable obligations must precede any commercial negotiation. The list-screening result is the trigger, not the commercial decision.
A second trigger is the identification of a red-flag indicator that does not resolve after reasonable inquiry. Under BIS guidance, a business that identifies a red flag and does not resolve it before proceeding loses the protection of a good-faith analysis. In our experience, the most common unresolved red flag in divestment contexts is an unusual ownership structure in a jurisdiction associated with designation risk. Where the full ownership chain cannot be verified within a reasonable timeframe, the transaction should pause.
A third trigger is the receipt of a query or notice from a bank, transfer agent, or regulatory authority. Banks conducting their own sanctions screening are increasingly likely to flag transactions involving entities with even indirect exposure to designated persons. When a correspondent bank freezes a payment or requests enhanced due diligence on a transaction, the business must treat that as a regulatory-risk signal, not merely a commercial inconvenience. Early engagement with counsel at that point can prevent what might have been a manageable compliance question from escalating into a formal enforcement matter.
The myth we encounter most often from sophisticated clients is that US export controls and EU export controls are substantively the same, and that compliance with one automatically satisfies the other. This is incorrect. The item-classification methodologies differ – BIS uses the ECCN (Export Control Classification Number under the US Commerce Control List) while the EU dual-use system uses a different classification structure with different control triggers. The licence-exception architecture differs. The end-user screening obligations differ. And, as set out above, the extraterritorial reach of the BIS / EAR has no direct EU equivalent. A business that has mapped its obligations only against one regime has not completed its divestment analysis.
Related practices
- Correspondent banking and de-risking under OFAC – guidance on sanctions exposure in cross-border financial transactions
- Divesting a sanctioned interest: OFAC vs BIS / EAR analysis – comparing the OFAC and BIS frameworks for divestment obligations
- BIS / EAR vs EU divestment analysis – Part II – extended analysis of procedural and enforcement divergences