A private equity group holds a minority stake in a distribution business. A routine compliance review surfaces a problem: one of the other shareholders has been added to the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The aggregate ownership held by that person, together with a related party, crosses the threshold that renders the entire entity blocked. The group can no longer receive distributions, vote its shares, or sell to a third party without first obtaining authorisation. The clock starts the moment the designation is published.
Divesting a sanctioned interest under OFAC requires a specific licence from OFAC before the transaction closes, because the sale itself constitutes a dealing in blocked property. Under the EU regime, the obligation differs: the Council regulation prohibits making funds or economic resources available to designated persons, and a divestiture must be structured so that the designated counterparty receives no value — directly or indirectly — without prior authorisation from the competent national authority. The two regimes share the same purpose but impose different procedural and analytical burdens on the seller.
This analysis maps the divergence criterion by criterion: the legal trigger, the ownership and control tests, the licensing routes, the cross-border interaction risk, and the practical steps a business must take before it can close a compliant divestiture.
What is the legal trigger for a forced divestiture, and how do OFAC and the EU define it?
Under OFAC, the legal trigger is the designation of a person whose ownership of, or interest in, a counterparty causes that counterparty itself to become blocked property. The operative rule is the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by one or more blocked persons, in the aggregate, as themselves blocked regardless of whether the entity is separately listed). Once the entity is blocked, all property and interests in property that are in the United States or in the possession or control of a US person are frozen. A US person holding equity in the now-blocked entity holds blocked property. So does a non-US person if the transaction has any US nexus — dollar clearing, a US-incorporated intermediate, a US-citizen director.
The EU trigger is structured differently. The relevant Council regulation prohibits making funds or economic resources available to, or for the benefit of, a designated person. A divestiture from a jointly-held company where a designated co-shareholder holds any economic interest requires careful analysis. The question is not solely whether the entity is "blocked" in the OFAC sense. It is whether proceeding with the transaction would, directly or indirectly, make an economic resource available to the designated person — for instance, by releasing that person's co-ownership exposure or by restructuring the cap table in a way that benefits the designated interest.
That distinction matters. OFAC's test is mechanical at the entity level: does the designated person (or persons in aggregate) hold 50 percent or more? If yes, the entity is blocked and every transaction involving it is prohibited absent a licence. The EU test operates at the transaction level: does this specific divestiture confer any economic benefit on the designated person? Two different fact patterns can therefore reach the same entity and produce different analytical outcomes under each regime.
As of early 2026, both regimes have been applied to divestiture scenarios involving minority stakes, complex group structures, and earnout arrangements. In our cross-border practice, the most common error is a seller who applies only one regime's analysis to a transaction that has a nexus to both.
How do the ownership and control tests diverge — and why does that change the analysis?
OFAC's ownership test is numerical and cumulative. Add up the direct and indirect holdings of all blocked persons in the target entity. If the sum reaches 50 percent or more, the entity is blocked. Control is not separately required: a blocked person who owns 51 percent through four layers of intermediaries captures the entity at each layer. Conversely, a blocked person who controls an entity but owns less than 50 percent does not automatically block it under the rule — though OFAC retains discretion to designate the entity directly.
Under the EU regime, both ownership and control are relevant. The Council regulations typically define a covered entity as one that is owned or controlled by a designated person. Control can arise from contractual rights, board appointment rights, voting arrangements, or other structural mechanisms that give the designated person the ability to direct the entity's affairs — even without a majority economic stake. This means an EU-analysis can conclude that a divestiture is prohibited where an OFAC-analysis based purely on the 50 percent arithmetic would not, because a designated person exercises effective control through a minority position.
The UK position under OFSI closely tracks the EU model on the ownership-and-control question. OFSI applies a combined ownership and control test under SAMLA and the relevant thematic regulations. A non-listed entity owned or controlled by a listed person is treated as subject to the asset-freeze prohibitions. Control is assessed functionally — meaning the analysis looks beyond the share register to the real levers of influence.
For a cross-border business, the practical consequence is this: an ownership analysis under the EU or UK regime requires a governance review, not just a cap-table calculation. Does the designated person sit on the board? Do they hold veto rights over significant transactions? Can they appoint or remove directors? Each of these can establish "control" under the EU and UK tests even where the numerical 50 percent threshold is not met. We regularly advise clients who have passed an OFAC ownership screen and assumed they are clear, only to identify a control issue under the EU or OFSI analysis.
What are the licensing routes under each regime, and how do processing timelines compare?
Under OFAC, a seller wishing to divest a blocked interest must obtain a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) before closing the sale. OFAC does not publish binding processing timelines, and the duration depends on the complexity of the transaction, the regime under which the target is blocked, and the volume of applications before the agency. Applications must describe the transaction in detail, identify all parties, explain the structure of the divestiture, and address how the proceeds will be handled. If the proceeds would flow to or through a blocked person or blocked account, that element requires separate analysis and authorisation.
OFAC does operate general licences (standing authorisations that permit a defined category of transactions without a separate application) for certain wind-down and divestiture scenarios. Whether a general licence is available depends on the specific sanctions programme under which the target is designated. In our experience, general licences in divestiture contexts are narrowly drawn and often expire within a defined window — the seller who discovers the problem late may find the general licence has lapsed or does not cover the precise transaction structure.
Under the EU regime, authorisation is issued by the competent national authority (CNA) of each member state. There is no single EU-level licensing authority. A French-registered seller applies to the French CNA; a German entity applies to the German authority. The substantive test — broadly, whether the transaction serves a legitimate purpose and does not confer prohibited benefit on the designated person — is interpreted consistently across member states in principle, but processing timelines and administrative practice vary. This creates a structural divergence from OFAC: a multi-entity European group caught by the same divestiture may need authorisations from more than one CNA, running parallel applications on different procedural tracks.
The UK position through OFSI sits between the two. OFSI issues specific licences for transactions that would otherwise breach financial-sanctions prohibitions. OFSI's published licensing guidance identifies a number of licensing grounds — including "wind-down" and "legal fees" grounds — that may be relevant in a divestiture context, but a divestiture involving a sanctioned co-shareholder will typically require a transaction-specific licence rather than reliance on a published general ground. OFSI has the power to issue licences for a defined period and with conditions attached, including requirements to report on the transaction's completion.
What should a cross-border business do when it faces parallel licensing requirements under OFAC and the EU? The answer is to sequence the applications — identifying which authority has the longer realistic timeline and filing first, while ensuring that the transaction documents include conditions precedent for all required authorisations. Do not close under one licence while the other is outstanding: closing creates a fait accompli that may prejudice the pending application.
Where do the regimes diverge on extraterritorial reach and secondary-sanctions risk?
OFAC's primary prohibitions apply to US persons wherever located, to transactions in US dollars, and to transactions involving US-origin goods or technology. Secondary sanctions operate differently: they allow OFAC to designate non-US persons who conduct certain activities with a primary-sanctioned party, even where no US nexus exists. The secondary-sanctions exposure in a divestiture context arises when a non-US seller, holding equity in a blocked entity, proceeds with the divestiture without OFAC authorisation and the transaction has a material US-nexus element — a US bank in the payment chain, a US-incorporated intermediate in the group structure, a US person on the board.
For a non-US business that holds a stake in a US-sanctioned entity, the question is not purely whether a US person is directly involved. It is whether any element of the divestiture — payment, documentation, clearing, governing law — runs through a US nexus. If it does, OFAC jurisdiction is engaged. In our cross-border practice, we have seen divestiture structures designed to avoid the problem that introduced a US nexus precisely at the point of payment because the seller's bank correspondent-cleared in US dollars. The correspondent-banking chain is the most frequently overlooked US nexus. For a fuller treatment of that risk, see our analysis at Correspondent Banking and De-risking: OFAC Service.
The EU's extraterritorial reach in sanctions matters is grounded in the Council regulations, which apply to EU-incorporated entities and EU nationals wherever located, as well as to any business conducted within the EU. The EU does not operate a secondary-sanctions mechanism equivalent to OFAC's. However, where a non-EU seller holds assets that sit within EU jurisdiction — real property, bank accounts, shares in an EU-registered entity — the EU prohibitions apply to those assets and to the transaction that disposes of them.
The divergence in extraterritorial design produces a specific cross-border risk: a non-EU, non-US seller may believe it falls entirely outside both regimes, when in fact its assets or its payment infrastructure pulls it into one or both. The stricter prohibition governs in any jurisdiction where the activity takes place: where OFAC and EU rules both apply to the same transaction, the seller must satisfy both.
For businesses operating between the UK and Australia, a parallel analysis on OFSI and the Australian autonomous-sanctions regime is equally necessary; see our comparative analysis at Divesting a Sanctioned Interest: OFSI vs Australia.
What are the most significant risk flags in a cross-border divestiture of a sanctioned interest?
The first and most dangerous risk is delayed identification. Designations are published without advance notice to private parties. A seller holding equity in a joint venture may not have a compliance trigger that captures the designation of a co-shareholder in real time. By the time the issue surfaces — at the next distribution, at a board meeting, during a refinancing — the seller has already received value from blocked property, or has taken corporate actions that constitute a dealing. The unauthorised receipt of funds from a blocked entity is itself a potential violation, even if the seller was unaware of the designation at the time.
The second risk is misapplication of the 50 percent rule. Sellers frequently check whether their own holding is above or below the threshold and stop there. The rule looks at the aggregate holdings of all blocked persons across the cap table, not the seller's stake. A seller with a 30 percent interest in a company where designated persons hold 55 percent in aggregate holds a 30 percent interest in blocked property — a very different position from holding 30 percent of an unblocked entity.
Third: earnout and deferred consideration structures. If the transaction includes consideration contingent on future performance — an earnout linked to revenue, a deferred payment over 24 months — each future payment is a separate dealing in blocked property that requires its own authorisation or confirmed coverage under the original licence. OFAC licences do not automatically authorise future payments unless the licence terms explicitly cover them. This is a common structural error in M&A contexts.
Fourth: the role of the escrow. Many divestiture transactions use an escrow agent to hold proceeds pending satisfaction of conditions. If the escrow is held at a US financial institution, or the escrow agent is a US person, the blocked proceeds are in the possession or control of a US person and must be treated as blocked property in that agent's hands. The escrow documentation must be drafted with OFAC compliance requirements in mind from the outset — not retrofitted after the application is filed.
Fifth: joint-venture governance obligations between signing and closing. While a licence application is pending, the parties remain bound by the JV agreement. Can the seller attend board meetings? Can it vote on resolutions? Can it receive information that is, in effect, an economic benefit of the investment? In our practice, we advise clients to treat the period between identification of the problem and licence grant as a restricted period and to take no steps under the JV agreement beyond what is strictly required by mandatory legal obligations, pending advice on each specific action.
A common myth: "if we are not a US or EU entity, the licence requirement does not apply to us"
This is one of the most frequently held misconceptions we encounter in cross-border divestiture mandates. The argument runs: neither entity is incorporated in the US or EU; neither is a US or EU national; therefore the prohibitions do not reach the transaction. It is wrong in most practical scenarios.
OFAC's jurisdiction follows the US nexus, not the nationality of the seller. Any payment in US dollars — routed through any correspondent bank with a US presence — is a transaction subject to OFAC jurisdiction at the point of clearing. Any use of US-origin technology in the divestiture process (cloud infrastructure, US-developed software used to sign documents, a US-based data room) can introduce a technical nexus. Any US-citizen or US-permanent-resident employee with signing authority is a US person whose actions are regulated regardless of where the transaction closes.
Under the EU regime, the analysis focuses on the location of the assets and the activity, not only the nationality of the seller. A non-EU business that holds shares in an EU-registered entity, or holds those shares through an EU-registered intermediate, is dealing with assets that are within EU jurisdiction. The prohibition on making economic resources available to designated persons applies to those assets wherever the seller is domiciled.
The practical implication is that a non-US, non-EU seller disposing of a stake in a business with a US and EU footprint needs OFAC and EU authorisation for the divestiture to be fully compliant. The licensing analysis must be run for every regime that has jurisdiction over any component of the transaction — not only the regime of the seller's home jurisdiction. For a comparative analysis of how EU and SECO regimes interact on cross-border joint-venture structures, see JV Sanctions Structuring: EU vs SECO Analysis.
How does Calder & Vance assist with a cross-border divestiture of a sanctioned interest?
In a recent matter, a multinational industrial business discovered during a sale process that a minority shareholder in one of its subsidiary joint ventures had been designated under a major sanctions programme. The buyer's counsel had flagged the issue in due diligence. We were instructed to assess eligibility for a licence, prepare and submit the licence application to OFAC, and manage the regulator's queries while simultaneously advising on the parallel EU authorisation process through the relevant competent national authority. The matter concluded with both authorisations granted and the transaction closing within the commercially-required window, though no outcome can be guaranteed.
For a business facing a divestiture of a sanctioned interest, our work typically covers six areas.
First, we scope the jurisdictional exposure: identify every regime with a nexus to the transaction — OFAC, the EU, OFSI, or others — and confirm which authorisations are legally required before closing.
Second, we conduct the ownership and control analysis under each applicable regime, mapping the full ownership chain to assess whether the 50 percent rule is triggered under OFAC and whether a control test captures the entity under the EU or UK analysis.
Third, we assess whether any general licence or standing authorisation covers the transaction. Where it does, we document the basis for reliance. Where it does not, we prepare the specific-licence application.
Fourth, we advise on transaction structuring: how to document the consideration, whether an escrow arrangement is permissible and on what terms, how to handle earnout provisions, and what governance restrictions apply during the application period.
Fifth, we manage regulator communications: preparing responses to OFAC or the competent national authority's questions, providing supplemental information, and monitoring the application status.
Sixth, we advise on post-closing obligations: record-keeping requirements, any required reporting to the licensing authority on completion, and the treatment of any residual interests or contingent payments under the licence terms.
The position above covers the standard structure of a divestiture matter. Your facts — the programme under which the designated person is listed, the structure of the holding, the location of the assets, the proposed consideration mechanism — change the analysis materially. If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. For an assessment of your exposure, contact Calder & Vance at info@caldervance.com.
Related practices
- Correspondent Banking and De-risking – OFAC Service – structuring and managing US-dollar payment chains to reduce OFAC exposure
- Divesting a Sanctioned Interest: OFSI vs Australia – comparative analysis for UK and Australian regime interactions
- JV Sanctions Structuring: EU vs SECO – how EU and Swiss sanctions regimes interact on joint-venture structures