A private-equity firm closes an acquisition in a third market. Eighteen months later, a portfolio company it co-owns becomes indirectly linked to a newly designated party. The legal team faces two interlocking questions: does OFAC prohibit continued ownership, and does the Export Administration Regulations regime administered by BIS impose separate constraints on the underlying technology the company holds? The answer to each question differs – and acting on one without the other is exactly where cross-border divestiture programmes break down.
Divesting a sanctioned interest under OFAC requires a firm to obtain a specific licence or rely on an applicable general licence before the blocked interest transfers, because the transfer itself is a prohibited transaction involving blocked property. The BIS / EAR adds a parallel layer: where the target company holds items, technology, or software subject to the Export Administration Regulations, the divestiture may trigger separate end-use, end-user, and re-export controls that OFAC does not address. As of January 2026, both regimes are active enforcement priorities, and a divestiture that resolves the OFAC exposure while ignoring the EAR can leave the seller facing BIS scrutiny for the period of continued ownership and for the mechanics of the transfer itself.
This analysis maps the key divergences between OFAC and BIS / EAR for cross-border businesses managing a divestiture, identifies the procedural sequence under each regime, and flags the points at which the two analyses must be run in parallel.
How does OFAC treat a blocked ownership interest?
Under OFAC's rules, any property in which a blocked person has an interest – including an equity interest – is itself blocked, and any transaction that deals with that property is prohibited absent authorisation. The mechanics follow from IEEPA and the programme-specific regulations that implement it. The prohibition bites from the moment of designation or from the moment the blocked person acquires the relevant interest. A seller who continues to hold an ownership interest in a blocked entity without authorisation is not in a safe position simply because it did not initiate the relationship.
The 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) extends this analysis down ownership chains. Where a portfolio company is 50 percent or more owned in the aggregate by one or more blocked persons, OFAC treats the portfolio company as itself blocked. In our experience, sellers frequently focus on direct holdings and miss aggregated minority stakes that together breach the threshold. Have you mapped every layer of the ownership structure, including indirect holdings through intermediate entities?
Practically, the seller must do three things before transfer: identify whether blocked property exists, determine whether a general licence covers the proposed divestiture, and if not, apply for a specific licence. A specific licence application to OFAC for a divestiture typically sets out the parties, the nature of the interest, the proposed transferee, the consideration, and the steps taken to ensure proceeds do not flow to a blocked person. OFAC does not publish firm processing timelines, but in practice a complete, well-supported application is processed on a timescale that should be built into any deal schedule from the outset. Delays in filing are among the most common – and most avoidable – errors we see.
What does BIS / EAR add that OFAC does not cover?
The EAR, administered by BIS, governs items – goods, software, and technology – that originate in the United States or fall under US jurisdiction through foreign-produced direct product rules. A company holding EAR-controlled items does not become free of those controls simply because its ownership changes. The BIS / EAR analysis in a divestiture context therefore runs independently of the OFAC analysis and addresses a distinct set of questions.
First, the classification question: does the target company hold or have access to items with an ECCN (Export Control Classification Number under the US Commerce Control List) that carries licence requirements for the proposed recipient country or end-user? Second, the end-user question: is the proposed transferee or any party in the post-divestiture ownership chain on BIS's Entity List or the Denied Persons List? Third, the re-export question: does the transfer itself, or any subsequent movement of controlled items by the new owner, constitute a re-export or transfer in-country that requires a BIS licence?
None of these questions is answered by an OFAC general or specific licence. An OFAC authorisation addresses the sanctions prohibition; it does not constitute BIS approval for controlled items. We regularly advise clients who have resolved the OFAC side of a divestiture and then discover that the EAR imposes a separate licensing obligation for technology the target company developed or holds. The two regimes operate from different statutory bases, administered by different agencies, and they do not cross-authorise.
The position above covers the standard case. Your facts – the nature of the target's assets, the proposed transferee's jurisdiction, the route through which EAR-controlled technology was acquired, and the specific programme in play – change the analysis materially.
For an assessment of your cross-border exposure at the outset of a divestiture, contact Calder & Vance at info@caldervance.com.
Where do the procedural sequences diverge?
The OFAC procedure is authorisation-first: without a licence, the transfer is prohibited and any step towards it that constitutes a dealing in blocked property is itself a potential violation. The seller's first act must therefore be to determine whether any authorisation covers the proposed transaction. General licences under the relevant programme may permit divestiture to a non-blocked transferee on specified conditions; if none applies, a specific licence application precedes the transaction.
The BIS procedure is classification-and-verification-first: the seller must identify every EAR-controlled item, software, or technology the target holds, classify it by ECCN, determine the licence exception or requirement for the proposed transfer, screen the transferee against the Entity List and Denied Persons List, and – where a licence is required – file with BIS before the export, re-export, or transfer takes place. BIS licence processing adds further time to the deal schedule, again separately from any OFAC timeline.
A divergence that causes repeated difficulty in practice: OFAC treats the blocked interest itself as the controlled asset. BIS treats the controlled items as the subject of regulation. A divestiture can therefore proceed under an OFAC licence while simultaneously creating a BIS compliance obligation for the items the transferee will receive. Conversely, a divestiture that involves no EAR-controlled items may have no BIS dimension at all – but the seller must verify that, not assume it.
For a divestiture involving both OFAC and BIS dimensions, the procedural matrix looks like this:
- Situation A: The target is OFAC-blocked; no EAR-controlled items. Route: OFAC specific licence application. Timeline: determined by OFAC's review. BIS risk: low if verified.
- Situation B: The target is OFAC-blocked; holds EAR-controlled items; proposed transferee in a restricted country. Route: OFAC specific licence plus BIS licence application. Timeline: the longer of the two review periods governs the deal schedule. Risk: high if either filing is delayed or incomplete.
- Situation C: The target is not OFAC-blocked but a co-owner is designated; the 50 percent test may capture the entity. Route: ownership analysis first; OFAC position confirmed; EAR classification run in parallel. Risk: misidentification of the blocked status is itself a compliance failure.
How do the ownership and control tests differ between OFAC and BIS / EAR?
OFAC's ownership test is mechanical. A non-listed entity is treated as blocked when blocked persons own 50 percent or more of it in the aggregate. Ownership is measured by equity interest, whether the holding is direct or indirect. Control – the ability to direct management, constrain disposal, or exercise board rights – is relevant to OFAC's analysis in certain programme contexts, but the primary threshold is the numerical ownership test. It does not require an intent to control; it does not require the blocked person to exercise any management function.
BIS / EAR does not apply a comparable entity-capture rule based on ownership thresholds. The Entity List designates specific persons and entities; placement on that list is the operative restriction, not inferred status from a 50 percent calculation. A company co-owned by an Entity List person is not automatically treated as itself subject to Entity List controls. However, BIS has its own end-user tools, including the Unverified List, and its licence requirements can apply where there is reason to know that an end-user intends to use controlled items in a prohibited manner – a broader and more fact-sensitive test.
In our cross-border practice, the divergence between these tests creates a specific risk: a company may clear the OFAC ownership analysis (because no blocked person owns 50 percent or more) but still face BIS restrictions because a minority stakeholder is on the Entity List. The reverse is also possible. Running only one analysis produces an incomplete picture.
What risk flags should a divestiture programme address?
Several recurring patterns create disproportionate compliance risk in sanctioned-interest divestitures. Identifying them early substantially reduces the likelihood of a voluntary self-disclosure or enforcement inquiry.
Aggregated ownership is the most frequent blind spot. Two minority shareholders who are separately designated may together meet the OFAC 50 percent threshold. Screening tools that assess each counterparty in isolation will not catch this. The ownership map must be consolidated across all blocked persons before the transfer is executed.
A second risk is deal structure as a prohibited transaction. Steps taken to prepare a divestiture – valuation of the blocked interest, execution of a share purchase agreement, receipt of proceeds – can each individually constitute a dealing in blocked property if they precede an OFAC authorisation. Parties have received enforcement scrutiny not for the divestiture itself but for preparatory steps taken before the licence was in place. Sequence matters.
Third, proceeds routing. An OFAC licence for a divestiture typically conditions authorisation on the proceeds not flowing to the blocked person. Where the ownership structure routes sale proceeds through a chain that ultimately benefits a designated party, the condition is violated even if the direct transferor is not blocked. Have you mapped the economic beneficiaries of the proceeds, or only the legal title holders?
Fourth, EAR-controlled technology in the target. A portfolio company that has developed or received US-origin technology, even under a prior licence, does not shed those controls when ownership changes. The incoming owner inherits them. If a divestiture transfers EAR-controlled items to a foreign acquirer in a country subject to comprehensive BIS restrictions, the seller may need a BIS licence – and the absence of one is the seller's exposure, not the buyer's.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com.
Does a VSD (voluntary self-disclosure to a regulator) apply to both agencies?
OFAC and BIS each operate their own voluntary self-disclosure programmes, and a disclosure to one does not constitute a disclosure to the other. Where a divestiture has proceeded in a manner that may constitute an apparent violation of both regimes, the question of whether to file a VSD – and in what sequence – requires careful legal analysis. The two agencies apply different standards for credit, different timelines for resolution, and different bases for calculating any civil penalty.
OFAC's enforcement guidelines distinguish between egregious and non-egregious cases, and voluntary self-disclosure is among the mitigating factors explicitly recognised in those guidelines. BIS operates a separate disclosure process under its own regulatory framework, with its own mitigating factors and penalty matrices. In our experience, a co-ordinated approach – addressing both agencies in a sequence that reflects the facts and the relative exposure under each regime – produces better outcomes than filing one disclosure while deferring the other.
A VSD is not a safe-harbour guarantee. It is a structured mechanism that, properly prepared and filed, gives the agency the information it needs to make a determination and gives the disclosing party the best available case for a reduced or non-monetary outcome. The content, completeness, and timing of the disclosure determine its value. Incomplete or delayed voluntary self-disclosures can be treated as aggravating, not mitigating, factors.
A common misconception: OFAC clearance resolves the full divestiture exposure
A persistent myth among in-house teams is that an OFAC licence – whether general or specific – clears the divestiture for all US regulatory purposes. It does not. OFAC's authorisation addresses the sanctions-law prohibition under IEEPA and the programme regulations. It says nothing about BIS licence requirements, end-user controls, or the Entity List. It does not affect the EAR obligations that attach to items the target company holds or has developed.
Equally, a clean BIS analysis does not resolve the OFAC question. A company whose items are not EAR-controlled – for instance, a pure services business – still faces the full OFAC blocking prohibition if a designated person owns 50 percent or more of it. The two agencies operate independently and must both be addressed.
In practice, the mistake usually runs in one direction: businesses that are familiar with OFAC screening obtain an OFAC licence and proceed, without running the parallel BIS classification and end-user check. The BIS exposure then surfaces during post-closing diligence by the acquirer, or – worse – in the context of a BIS enforcement inquiry. We have acted for clients on both sides of that sequence, and the legal position is materially harder to manage after the transfer than before.
Related practices
- Correspondent Banking & De-risking under OFAC – managing sanctions exposure in cross-border financial flows and correspondent relationships
- OFAC vs EU: Divesting a sanctioned interest – regime divergences and procedural comparison for cross-border divestitures