A US–European joint venture is three months from closing. The compliance team identifies a minority shareholder in the prospective partner – a company registered in a third market, with a listed individual holding just under a quarter of its equity. Is the JV partner blocked? Does that change once the venture itself is formed? Will the US parent be in breach the moment it transfers an asset? These questions arise before the ink is dry, and the answer differs materially depending on whether you are reading the OFAC rules or the OFSI rules.
Joint-venture sanctions structuring – the process of designing a JV so that its formation, operation, and eventual exit comply with applicable sanctions obligations – turns on fundamentally different ownership and control tests under OFAC and OFSI. As of January 2026, OFAC's test is predominantly mechanical: a 50 percent or more ownership interest held by blocked persons, in the aggregate, makes the JV itself blocked. OFSI's test adds a control dimension that can catch structures OFAC would not, and the EU regime tracks closely with OFSI on that point. For any cross-border JV involving US persons, UK persons, or EU-established entities, both tests apply simultaneously – and the stricter prohibition governs.
This analysis compares the two regimes criterion by criterion, maps the points of genuine divergence, and closes with the practical structuring implications a GC or compliance officer must address before a JV closes.
The ownership test: where OFAC and OFSI diverge most sharply
Under OFAC, the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) operates as a near-automatic trigger: aggregate blocked-person ownership at or above that threshold makes the entity blocked by operation of law, regardless of who manages it, who controls its board, or who has economic rights. Ownership is measured across all listed persons holding an interest in the same entity, so two blocked persons each holding 30 percent reach the threshold together.
The aggregation point is where screening programmes fail in practice. Most commercial screening tools flag direct holdings. They do not automatically aggregate indirect interests held through intermediate layers. In our experience, a JV structure with two or three holding-company tiers between the listed person and the operating entity will pass an automated screen and fail an OFAC ownership analysis. Before a JV closes, the ownership chain must be traced to its natural persons, not merely to the immediate shareholder of record.
OFSI's ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person) operates differently in one significant respect: OFSI can determine that a listed person exercises control over an entity even where no ownership threshold is met. "Control" includes the ability to appoint or remove a majority of directors, the ability to direct business decisions contractually, and situations where the listed person's influence is such that the entity would not act contrary to their wishes. That last limb is qualitative and judgment-dependent. A JV in which a listed person holds only 20 percent of the equity could nonetheless be treated as their entity under OFSI's analysis, if they hold effective governance rights.
The practical consequence is that a JV structured to sit just below the OFAC 50 percent threshold may still be caught by OFSI. Where UK persons or UK-incorporated entities participate in the JV, OFSI's position applies in parallel. The safer structural approach is to treat the control test as the working standard and to reserve the 50 percent analysis as a confirmatory check.
How does the EU position compare with OFSI on joint-venture control?
The EU ownership and control test, set out in the relevant Council regulations and reflected in guidance issued by the European Commission and national competent authorities, closely mirrors OFSI's approach: both ownership and control over a non-listed entity can bring that entity within the scope of asset-freeze prohibitions. The EU test similarly extends to indirect control and to situations where a listed person can exert a decisive influence over the entity's decisions.
One area of practical divergence between the EU and OFSI relates to the interpretation of "decisive influence." EU member-state competent authorities have in some instances applied that concept more broadly than OFSI, particularly in sectors where contractual arrangements – supply agreements, offtake contracts, licensing deals – give a counterparty leverage over the entity's commercial strategy. We regularly advise JV parties operating in both the UK and the EU that the EU position should be treated as potentially the more expansive of the two, and that any governance mechanism that could be characterised as conferring decisive influence on a listed person warrants careful review.
A JV between a US parent, a UK subsidiary, and an EU-established operating entity will therefore face all three tests simultaneously. The OFAC ownership test applies to the US parent's participation. OFSI's ownership and control test applies to the UK subsidiary. The EU test applies to the operating entity. Where the three tests yield different conclusions, the most restrictive outcome governs the practical question of whether the JV can proceed without a licence.
The position above covers the structural case. Your specific facts – the sector, the counterparty's jurisdiction of incorporation, the nature of governance rights, and the route through which listed-person interests feed into the structure – change the analysis significantly. For a preliminary review of a JV ownership structure, contact Calder & Vance at info@caldervance.com.
What are the key risk flags in JV governance documents?
Governance documents – shareholders' agreements, operating agreements, articles of association – are the site of most sanctions-structuring problems in JV transactions. A governance right that looks commercially standard can constitute prohibited dealing if it is conferred on, or exercised by, a blocked or designated entity.
The principal risk flags in JV governance documents include the following:
- Supermajority approval rights. A minority shareholder holding a blocking right over major decisions may hold sufficient influence to engage OFSI's and the EU's control tests, even where their equity sits below any threshold. Review the scope of reserved matters carefully.
- Information rights and audit access. Providing a blocked entity with material non-public information about operations, financial performance, or strategic plans may itself constitute a prohibited service or dealing depending on the applicable programme. The characterisation depends on the specific regime and whether general licences provide cover.
- Pre-emption and drag/tag rights. Transfer restrictions that require consent from, or give rights to, a blocked entity create a structural link to the blocked party on every future ownership change. Plan the exit mechanics before the JV is signed.
- Management appointment rights. A contractual right to appoint even one board member may be sufficient to engage the control limb of OFSI's test, particularly in a two-seat board. The number of seats is less important than the governance effect.
- Deadlock resolution mechanisms. Automatic buy/sell provisions triggered by deadlock can compel a transaction with a blocked entity on a timeline that does not allow for licensing. Identify the trigger and map it against applicable prohibitions.
Each of these points requires analysis against the specific programme at issue. OFAC's ownership-based test means that the governance rights themselves may not engage OFAC (unless the 50 percent threshold is met through their economic effect), but OFSI and the EU rules make governance the central question.
Licensing and the divergence between OFAC and OFSI routes
Where a JV structure does engage a prohibition – under either regime – the next question is whether a licence can resolve it. OFAC and OFSI operate entirely separate licensing regimes, and the procedures, timelines, and outcomes differ in ways that matter for JV planning.
Under OFAC, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) permits transactions that would otherwise be blocked. OFAC also issues general licences (standing authorisations that permit a defined category of transactions without a separate application) for defined activities in many of its programmes. Where a general licence covers the JV activity in question – formation, ongoing business, or exit – no separate application is required. Where it does not, a specific-licence application must be submitted and resolved before the relevant transaction occurs.
In our practice, the timing mismatch between JV transaction timelines and OFAC licensing timelines is one of the most frequent structuring problems we encounter. A JV scheduled to close in 90 days cannot safely assume that a specific licence will be in hand by that date. The structure must either be conditional on licence receipt, or the licensing issue must be resolved before signing.
OFSI's licensing regime under the Sanctions and Anti-Money Laundering Act and the relevant thematic sanctions regulations follows a broadly comparable structure: specific licences for individual transactions, and general licences for defined categories. OFSI publishes processing timelines in its guidance, and in our experience applications involving complex corporate structures – precisely the pattern of a multi-party JV with a partially tainted ownership chain – take longer than straightforward asset-release applications. The practical planning implication is that OFSI licence applications for JV-related transactions should be submitted well in advance of any scheduled completion.
One important divergence: OFSI has the power under SAMLA to impose monetary penalties for breaches of financial-sanctions obligations with a civil standard of proof. OFAC's civil penalty framework operates under a similar civil standard but with a different penalty calculation basis. Where a JV proceeds without the requisite licence, both authorities can act independently, and neither limits or informs the other's enforcement decision. 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 for a confidential review.
Secondary sanctions risk and the cross-border dimension
For any JV with a US-nexus, secondary-sanctions risk adds a layer of analysis that operates entirely outside the primary OFAC prohibitions. Secondary sanctions – US measures that can restrict non-US persons from dealing with designated parties, even where no US person, US goods, or US dollars are involved – mean that a European or Asian JV partner may face US market consequences from a transaction that is otherwise lawful under OFSI and EU law.
The risk materialises in several ways in a JV context. A non-US party's participation in a JV that includes a designated entity may itself constitute a transaction that triggers secondary sanctions designation risk, even where no US-dollar payment is made. Correspondent banking channels, which still process a significant proportion of international payments including non-USD trades through US-correspondent infrastructure, create a US-nexus in transactions that the parties may regard as purely bilateral. We advise cross-border JV parties that the secondary-sanctions analysis should be conducted before transaction documents are executed, not as a post-closing compliance matter.
The divergence between US secondary-sanctions policy and OFSI and EU primary-law obligations also creates a genuine conflict-of-laws dimension. The EU Blocking Regulation and its UK equivalent post-Brexit create legal obligations on EU and UK persons in certain circumstances that run in the opposite direction to OFAC's secondary-sanctions pressure. Where those instruments apply, the legal and commercial position for a UK or EU JV party is materially more complex than a straight OFAC analysis would suggest. The question of which regime's obligations take priority in a specific JV transaction requires a multi-jurisdictional legal assessment.
Common myths about joint-venture sanctions structuring
A persistent assumption in JV transactions is that minority ownership is inherently safe: if the blocked-person stake is below 50 percent, the entity is clear. This is wrong in two respects. First, as noted above, OFSI and the EU test control as well as ownership, and a minority stake with governance rights can engage both tests. Second, even under OFAC, aggregation means that multiple blocked persons individually below 50 percent can together cross the threshold. A structure designed to keep any single listed person below 25 percent may still be blocked if three such persons each hold 25 percent.
A second myth is that a JV formed under the laws of a third country – a jurisdiction outside the US, UK, and EU – sits outside these regimes. It does not, to the extent that US persons participate, UK persons participate, or UK or EU-incorporated entities are parties. Jurisdiction of incorporation affects which competent authority administers the relevant regime and which court would hear a challenge, but it does not displace the personal-nexus test that determines whether OFAC, OFSI, or EU sanctions rules apply to a given party.
A third assumption is that a sanctions clause in the JV agreement – a standard representation and covenant package – provides a compliance solution. It does not. A sanctions clause allocates risk contractually; it does not resolve a legal prohibition. Where the JV structure engages a blocking prohibition, the clause creates a mechanism for termination or indemnity but does not authorise the transaction. The legal compliance analysis must precede the contractual risk allocation, not substitute for it.
When to instruct sanctions counsel on a joint-venture transaction
The right moment to instruct specialist sanctions counsel in a JV transaction is at the term-sheet stage, before governance mechanics are agreed. The governance terms – voting rights, information access, management appointments, exit provisions – are exactly the variables that determine whether the structure engages OFSI's control test or requires an OFAC specific-licence application. Changing them post-signing is expensive and, in competitive processes, commercially damaging.
In a recent matter, a financial-sector business was structuring a JV with a partner whose upstream ownership chain included a minority holding by an entity subject to a sectoral restriction programme. The programme at issue did not block the entity outright but prohibited certain financing transactions with it. The initial transaction design included a deferred payment mechanism that counsel identified as a prohibited financing transaction under the applicable OFAC programme. We restructured the payment mechanism, confirmed the revised structure sat outside the prohibition, and the JV closed on the original timeline. The outcome was not guaranteed at the outset, but early identification of the issue preserved the solution options.
The practical decision matrix for a cross-border JV:
- Situation A – No listed-person interest identified: Proceed with standard screening documentation; revisit if ownership changes before close. Record the diligence conducted and the basis for clearance.
- Situation B – Listed-person interest below 50 percent, no apparent control: Commission a full ownership-and-control analysis under both OFAC and OFSI / EU tests before signing. Consider whether the transaction nexus engages secondary-sanctions risk independently.
- Situation C – Listed-person interest at or above 50 percent, or control test engaged: Do not proceed without specialist advice. Assess licence availability and timeline under each applicable regime. Condition the transaction on licence receipt or exit the deal if licensing is not viable within the transaction window.
- Situation D – Programme-specific sectoral restriction (not full block): Identify the scope of the restriction precisely; sectoral programmes have defined perimeters and the compliance question turns on whether the specific JV activity falls within or outside them. Obtain written legal analysis before committing to the structure.
Related practices
- Correspondent banking and de-risking under OFAC – managing sanctions exposure in correspondent relationships and cross-border payment flows
- JV sanctions structuring: OFSI vs EU compared – the ownership and control divergence between UK and EU regimes in joint-venture transactions
- M&A sanctions diligence: EU vs SECO compared – regime comparison for acquisition transactions with EU and Swiss sanctions exposure