OFAC vs OFSI: Evidencing the absence of control compared

A multinational holding company discovers that one of its subsidiaries has been designated – not because of anything the subsidiary itself did, but because a blocked person is alleged to exert control over the parent. The assets are frozen. Correspondent banks have started exiting. The board wants to know: can we prove we are not controlled, and does that proof meet the test that the relevant regulator will actually apply? The answer depends entirely on which regulator you are dealing with. Under OFAC the analysis is mechanical and turns primarily on ownership arithmetic. Under OFSI the question of control is a separate, qualitative inquiry – and the two approaches produce materially different evidential demands.

Evidencing the absence of control under OFAC vs OFSI requires practitioners to satisfy two distinct legal tests built on different conceptual foundations. OFAC's 50 percent rule (the rule that entities owned 50 percent or more in the aggregate by blocked persons are themselves treated as blocked) creates a binary ownership threshold; disproving the threshold requires an ownership trace, not a control narrative. OFSI's ownership and control test (the UK test for whether a non-listed entity is caught through a listed person's ownership or control) adds a qualitative control limb that demands governance evidence, board composition data, and documentary proof of independent decision-making. As of January 2026, the divergence between the two approaches is one of the most practically consequential differences in cross-border sanctions law – particularly for businesses seeking to establish that a designated person does not, in fact, govern their affairs.

This analysis maps the evidential demands of each regime criterion by criterion, identifies where the gap between OFAC and OFSI widens, and sets out the evidence-building approach that a cross-border business or individual should adopt when the control question is live.

The legal architecture: how OFAC and OFSI define the control problem differently

OFAC's approach to blocked status for non-listed entities rests almost entirely on the 50 percent rule. If one or more blocked persons own an entity 50 percent or more in the aggregate, directly or indirectly, that entity is itself treated as blocked – regardless of who manages it, who sits on its board, or what operational decisions are made day to day. OFAC's authority here derives from IEEPA and the specific programme regulations; the test is structural and self-executing.

What this means in practice is that disproving blocked status under OFAC is, at the first level, a mathematical exercise. If the aggregated, direct and indirect ownership of blocked persons in the entity is below 50 percent, the entity is not automatically blocked under the rule. Control, in the governance sense, is not part of the test. A blocked person who chairs the board, approves every capital expenditure, and effectively runs the company does not thereby block a company in which they hold only 49 percent – at least not under the rule alone. This may seem counterintuitive, but it is the legal position under the current framework.

OFSI's position is different in a structurally important way. The UK test under SAMLA and the relevant thematic sanctions regulations applies an ownership limb and a separate control limb. The control limb asks whether a designated person controls the entity – and control, for this purpose, is assessed qualitatively, looking at the actual governance of the entity. UK case law distinguishes existing influence from a hypothetical ability to exert control; the leading authorities hold that control must be actual, not theoretical. A designated person who holds a minority stake but who controls key financial and operational decisions of a company may bring that company within the asset-freeze prohibition, even if the ownership arithmetic would not.

The EU framework mirrors the UK approach closely. The EU ownership and control test looks at ownership above 50 percent and at control as separate limbs. An EU court ruling has held that control must be proved by objective and sufficiently weighty evidence, and that status or political character is not by itself sufficient to establish that a given person controls a given company. The divergence between the US ownership-arithmetic approach and the UK/EU qualitative control approach is not an academic distinction. It defines the entire evidential strategy a practitioner must build.

Criterion by criterion: ownership evidence under each regime

The first evidential task is the same across all three regimes: produce a complete and verified ownership map. Where the tasks diverge is in what you do after you have the map, and what legal effect the map by itself has.

Under OFAC, the ownership map is the evidence. If the aggregated ownership of blocked persons in the entity is below 50 percent, and that is demonstrable through corporate registry documents, shareholder agreements, cap tables, and intermediate-entity corporate records, the entity is not caught by the 50 percent rule. The key pitfalls are aggregation – identifying every blocked person with any holding, direct or indirect, and computing their combined figure – and indirect holdings through chains of companies where the blocking analysis must be applied at each layer.

We regularly advise clients who have missed the aggregation problem. Two separately listed persons each holding a 27 percent stake in the same entity create a 54 percent combined position that triggers the rule, even though neither holding alone reaches the threshold. This is not a technicality; it is the mechanical application of the standard. The evidential task in that scenario is not to argue that they do not control the company – it is to establish that the combined figure is in fact below 50 percent, which requires verified ownership data for every listed person with any stake in the chain.

Under OFSI, the same ownership exercise is necessary, but it is not sufficient. Once the ownership map is produced, OFSI requires a separate assessment of whether any designated person controls the entity. That assessment looks at governance in practice: who authorises major expenditure, who has veto rights, who can appoint and remove directors, what the board minutes record about the origins of key decisions, and whether the designated person exercises day-to-day direction. The ownership map opens the door; the governance evidence is what closes it.

Criterion by criterion: the control limb and what it demands in evidence

The control limb under OFSI and the EU is where the evidential burden becomes most demanding – and most susceptible to gaps. Control is assessed by looking at actual governance, not theoretical capacity. UK authorities have held that control must be existing and real, not merely potential. The practical implication is that an entity must produce affirmative evidence of independent governance, not simply the absence of visible interference.

The evidence base required typically includes the following categories. First, constitutional and structural documentation: the articles of association, shareholder agreements, and any side letters or voting arrangements that define who can actually direct the entity's affairs. Shareholder agreements with reserved-matter provisions that require consent from the designated person will present the most difficult questions, regardless of the ownership percentage.

Second, board composition and function: evidence that the board of directors is independently constituted, meets regularly, records its deliberations, and makes decisions through a process that the designated person does not effectively control. Where the designated person has appointed one or more directors, the question is whether those appointees vote independently. Board minutes are therefore first-order evidence, and their absence – or the presence of minutes that reflect unanimous adoption of positions advanced by the designated person's representatives – is a red flag that regulators will probe.

Third, financial independence: evidence that the entity has its own banking relationships, that its treasury function operates independently, and that the designated person is not effectively the source of all material funding decisions. In our experience, entities that are heavily dependent on intra-group financing from a designated-person-controlled parent face the most difficult arguments. The presence of third-party financing on commercial terms, governed by arm's-length agreements, is strong corroborating evidence of genuine independence.

Fourth, operational evidence: contracts executed independently, regulatory filings made under the entity's own name, employment and HR decisions made at entity level, and commercial decisions that cannot be traced to direction from the designated person. The strength of this evidence lies in its contemporaneity – governance that looks independent only because it has been reconstructed after a designation will carry less weight than records that were created before the designation existed.

Under OFAC, none of this governance evidence is strictly required to rebut the 50 percent rule. But it matters for a different reason: if OFAC believes that a transaction is structured specifically to circumvent a prohibition – using a nominally separate entity as a conduit – the governance reality becomes relevant to whether the facilitation prohibition applies. Governance evidence is therefore not irrelevant in the OFAC context, but it occupies a different position in the analysis.

How should an entity demonstrate independent governance in practice?

Assembling the evidence base for a control analysis is a structured process, and timing is critical. Evidence produced after a designation is scrutinised more closely than records that pre-date it. The core of any effective evidence file is contemporaneous documentation – records made in the ordinary course of business that, taken together, show that the entity operated independently at the time the control question matters.

The practical starting point is an audit of what exists. Companies that have well-governed board processes, independent audit committees, and functioning treasury controls will typically have the documents; the task is to locate, organise, and analyse them. Companies that have been closely managed from a parent – where board meetings have been brief and procedural, where key decisions have been made in correspondence with the parent rather than through a formal board process – face a harder task, because the contemporaneous record may itself suggest dependence.

Where the contemporaneous record is thin, it is possible to supplement it with witness evidence from directors, officers, and external advisers who can attest to how the company was actually run. That evidence is more useful where it is specific and consistent with whatever contemporaneous documents do exist. Generic statements to the effect that the entity "always operated independently" without supporting documentation carry limited weight.

An early assessment of the evidence position is essential. In our cross-border practice, we regularly see clients who have waited too long to audit their governance record, and who find that the period immediately before the designation – often the period a regulator will most closely scrutinise – is the least well-documented. The time to understand the strength of the evidence base is before the licensing or delisting submission is made, not after a regulator has formed a preliminary view.

A further practical point concerns the standard of proof. Neither OFAC nor OFSI articulates a formal burden of proof in the criminal-law sense for these assessments; the question is whether the evidence is sufficient to persuade the relevant decision-maker. Under OFSI and the EU, the courts have required objective and sufficiently weighty evidence to establish control. The implication for the entity seeking to rebut the allegation is that thin or self-serving evidence will not be enough. The file needs to carry positive proof, not merely the absence of a signed direction from the designated person.

Where the regimes diverge most sharply: the practical gap

The widest practical divergence between OFAC and OFSI on the control question arises in three specific scenarios. Understanding where the gap opens is the starting point for any cross-border strategy.

The first scenario is the minority-ownership case. A designated person holds 40 percent of an entity but exercises effective control through shareholder reserved matters, a casting vote, or the practical reality that no major decision is made without their agreement. Under the OFAC 50 percent rule, the entity is not automatically blocked; the 40 percent holding does not reach the threshold. Under OFSI and the EU, the control limb may capture the entity regardless. A business that has obtained a determination from US counsel that the entity is not OFAC-blocked may nonetheless find that it cannot deal with the entity without an OFSI licence – because the UK control analysis reaches a different conclusion.

The second scenario is the indirect-ownership chain. A designated person owns 60 percent of Company A, which owns 60 percent of Company B, which owns 45 percent of the target entity. Under OFAC's 50 percent rule, Company A and Company B are each blocked (the designated person owns them 50 percent or more). But the combined ownership interest of the designated person in the target, computed through the chain, does not automatically reach 50 percent of the target unless the aggregation is done correctly across the chain. The mechanical arithmetic matters. Under OFSI, the same structure may be viewed through the control lens: if Company B effectively acts on the direction of the designated person at every level, does that constitute control of the target? The answer will depend on the governance evidence at each intermediate level.

The third scenario is the post-designation restructuring case. After a designation, an entity restructures to reduce the designated person's formal ownership below the OFAC threshold. Under OFAC, if the restructuring is genuine and the arithmetic now places combined ownership below 50 percent, the 50 percent rule may no longer apply – subject to the question of whether the transaction has been structured specifically to circumvent the prohibition, which would engage the facilitation prohibition. Under OFSI and the EU, a post-designation restructuring that reduces formal ownership but leaves governance unchanged will not resolve the control question. Regulators and courts look at substance. The governance evidence after the restructuring must show a genuine change, not merely a formal one.

For a business with operations or counterparties in multiple jurisdictions, this divergence means that a regime-by-regime analysis is not optional. Where two regimes both apply, the stricter prohibition governs the conduct of a person subject to both; you cannot net out the positions across regimes. An entity that is not blocked under OFAC's ownership rule but is caught under OFSI's control limb must obtain OFSI authorisation before a UK-nexus party can deal with it, regardless of the OFAC position.

Risk flags that indicate the control question is live

Not every connection to a designated person creates a control question that needs a full evidence file. The question becomes acute where specific features of the ownership or governance structure point toward potential control. Identifying those features early allows a compliance team to triage the issue correctly.

The highest-risk indicators are: a minority stake held by a designated person combined with veto rights or reserved matters in the shareholder agreement; a board where a majority of members were nominated by the designated person, even if none of them is individually designated; a treasury or financing structure in which the primary source of operating capital is a designated-person-controlled entity on terms that have not been renegotiated at arm's length; and a pattern of commercial decisions that track preferences or directives that originate with the designated person, even where those directives are informal.

Secondary risk indicators include: a history of regulatory or corporate filings in the designated person's name on behalf of the entity; employment contracts or compensation arrangements that were set or approved by the designated person; and IP, brand, or technology licences that are on terms so favourable to the designated person as to be commercially inexplicable without reference to the relationship.

A sanctions lawyer conducting initial triage will typically run through these indicators against the available documents before advising on whether a full evidence file is needed. Where none of the high-risk indicators is present, the absence-of-control argument may be straightforward. Where several are present, the evidence-building exercise is substantial – and the timing of that exercise matters.

The position also changes across regimes. An indicator that is decisive under the OFSI control analysis – say, a veto right held by the designated person over major capital decisions – may be less directly relevant under the OFAC ownership arithmetic. But that veto right may become highly relevant if the question shifts to whether a US-person facilitation prohibition applies to a transaction structured around the entity. Compliance counsel advising in both jurisdictions must hold both analyses in view simultaneously.

When to involve sanctions counsel – and what to bring to that first meeting

The moment to involve sanctions counsel in an absence-of-control analysis is before a submission is made to any regulator. Once a licensing application, a delisting petition, or a formal response to a designation notice has been filed, the factual and legal position has been committed. Inconsistencies between the initial submission and subsequent evidence are one of the most common and avoidable reasons why these matters become protracted.

A common misconception among boards and compliance officers is that a delisting is automatic once the facts change – that if the designated person's ownership genuinely falls below the relevant threshold, the regulator will simply update the list. That is not how either OFAC or OFSI operates. A change in facts must be brought to the regulator's attention through an appropriate formal channel, supported by evidence, and the regulator must be satisfied that the change is genuine. There is no automatic delisting mechanism. The process takes time, and the quality of the initial evidence package substantially determines the outcome.

What should a business or individual bring to a first consultation? The most useful starting materials are the full ownership chart for the entity, showing all ultimate beneficial owners with their percentage holdings; the constitutional documents for the entity and for any intermediate holding companies; the shareholder agreement and any side letters; recent board minutes covering material decisions; the entity's most recent audited accounts; and any correspondence with the designated person or their representatives that touches on governance or operational decisions.

If the matter is urgent – because a transaction is blocked or correspondent banks are exiting – the most important first step is to preserve and secure the documentary record. Documents that are destroyed or modified after a designation creates legal risk, and the absence of documents that should exist will itself become part of the regulators' assessment. Speed matters, but preservation comes before presentation.

The position under both OFAC and OFSI is that a well-constructed evidence file, submitted through the correct formal channel by experienced sanctions lawyers, gives the best available prospect of an acceptable outcome. No specific outcome can be guaranteed; what can be said is that the quality and completeness of the evidence are the primary determinants of the regulator's decision.

For businesses with cross-border exposure, a coordinated strategy across regimes is essential. A submission to OFSI that succeeds in establishing independent governance will not automatically update the OFAC position; a response to OFAC's enquiries that is framed in ownership-arithmetic terms may not satisfy the qualitative demands of an OFSI control review. The submissions must be designed with both regimes in view from the outset.

Related practices

• Evidencing absence of control – OFAC service – practical support for ownership-trace analysis and OFAC licence and delisting submissions
• Evidencing absence of control: OFSI vs EU analysis – criterion-by-criterion comparison of the UK and EU control tests
• Standard of proof on control: OFAC vs BIS/EAR analysis – how the evidentiary standard differs across US regulatory authorities

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@caldervance.com.