A multinational signs a joint-venture agreement. Weeks later, a routine screening review surfaces a concern: one of the joint-venture partners holds a minority stake through a chain of holding companies that terminates in a listed person. Is the joint venture itself blocked? Does it matter whether the listing is on the UK OFSI register, the EU consolidated list, or both? And does the structure of the joint venture – its governance, its profit-sharing arrangements, its operational control – change the answer?
Joint-venture sanctions structuring sits at the intersection of two tests that look similar on paper but diverge sharply in practice. Under OFSI, the test turns on ownership and control (the combined standard under the relevant UK thematic regulations and the Sanctions and Anti-Money Laundering Act, "SAMLA"), while the EU applies its own ownership-and-control analysis under the applicable Council Regulation. Both regimes can catch a joint venture through indirect ownership, but the weight they place on control – as opposed to raw percentage ownership – differs in ways that change the structuring answer. As of January 2026, practitioners working across both regimes must treat the two analyses as distinct exercises, not as a single pass.
This analysis maps the divergence criterion by criterion, identifies the risk flags that trip up well-advised businesses, and sets out the practical steps a cross-border team should take before a joint-venture structure is finalised.
What is the governing legal basis for each regime?
The legal authority for UK financial sanctions is SAMLA, together with the relevant thematic regulations made under it. OFSI administers these regulations and publishes the UK Consolidated List of designated persons and entities. The test for whether a non-listed entity is caught runs through both ownership and control: a non-listed entity is treated as subject to the prohibitions if a designated person owns or controls it, directly or indirectly. SAMLA does not define a bright-line ownership percentage as the sole trigger. Control is an independent pathway.
The EU's position rests on the applicable Council Regulation and the accompanying Council Decision for each sanctions programme. The EU General Court has developed a body of case law on the ownership-and-control question in annulment proceedings, and the European Commission has issued interpretive guidance. Like OFSI, the EU regime uses a dual test – ownership and control – but the Commission's guidance and the General Court's jurisprudence have addressed the control limb in ways that differ from OFSI's published guidance on the same question.
The practical upshot is that two instruments – one UK, one EU – can apply to the same joint venture simultaneously when the business has operations, assets, or counterparties in both jurisdictions. In that position, the stricter prohibition governs each element of the transaction, and both analyses must be completed independently. There is no shortcut.
How do the ownership tests compare across the two regimes?
OFSI's guidance treats direct and indirect ownership as equivalent: a designated person who owns a chain of intermediary companies can taint the entity at the bottom of the chain, whatever the ownership percentage at the final link. OFSI has not published a fixed numerical floor. By contrast, OFAC's well-known 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) sets a mechanical threshold. Joint-venture counsel sometimes import the OFAC logic into UK and EU analysis – a mistake that can produce a gap in the assessment.
The EU regime similarly applies an aggregation principle: where multiple designated persons each hold a partial stake in the same entity, their interests are aggregated to determine whether, in combination, they reach a level that constitutes ownership. In our experience, the aggregation point is where joint-venture structures most frequently produce unexpected exposure. A joint-venture partner holding, say, a 28-percent stake appears clean in isolation. When a second designated shareholder holds a further 24 percent, the combined position raises a serious question under both the UK and EU regimes.
Where the two regimes begin to diverge is in their treatment of layered ownership. OFSI's guidance addresses the look-through obligation directly and requires that the ownership chain be traced to its ultimate beneficial owners. The EU's approach is broadly consistent but operates through a somewhat different interpretive grid. The applicable Council Regulation and Commission guidance address the look-through obligation, but the precise weight given to intermediate holding structures – and the documentation required to rebut a prima facie ownership concern – differs between the two regimes. A legal opinion that satisfies OFSI may not fully address the EU position, and vice versa.
Where does the control test produce the most significant divergence?
Control – rather than ownership – is where the OFSI and EU analyses diverge most sharply, and where joint-venture structuring decisions carry the greatest legal risk. OFSI's guidance on control is broader than its EU counterpart in one material respect: it captures arrangements where a designated person exercises control through means other than equity, including through contractual rights, veto powers, and board appointment rights. A joint-venture agreement that gives a designated person the right to block a board decision, or to appoint a majority of the supervisory committee, can constitute control under OFSI's reading even where the designated person's equity stake is minimal.
The EU regime also addresses control through non-equity means, but the emphasis in the applicable Council Regulation and the Commission's published guidance falls somewhat more heavily on structural ownership than on contractual governance rights. That said, the EU General Court has moved toward a broader reading of control in a series of annulment judgments, and practitioners before the General Court now argue control questions that would have been treated as purely ownership questions a decade ago. The direction of travel in the EU is toward convergence with the OFSI position, but the gap has not fully closed.
For a joint-venture structure being designed from scratch, the control question is not academic. Veto rights over key operational decisions – distribution of profits, approval of major contracts, appointment of the chief executive – can be sufficient to constitute control under OFSI's guidance. A governance structure that was designed for commercial reasons, with no awareness of the sanctions exposure, can inadvertently cross this line. Have you reviewed the joint-venture agreement against OFSI's control criteria, not just screened the parties against the UK Consolidated List?
The position above addresses the standard case. Your facts – the counterparty's nationality, the jurisdiction of incorporation, the governing law of the joint-venture agreement, the nature of the assets and activities – change the analysis materially.
For a preliminary assessment of how the OFSI and EU control tests apply to your joint-venture structure, contact Calder & Vance at info@caldervance.com.
What are the key risk flags in joint-venture sanctions structuring?
The risk flags in joint-venture sanctions structuring are not always visible at the counterparty-screening stage. Screening tools are designed to surface designated persons. They are not designed to map governance rights, profit-sharing arrangements, or the effect of drag-along and tag-along clauses on effective control. The following patterns are the ones that generate enforcement inquiries and licence applications in our cross-border practice.
- Layered ownership chains. A joint-venture partner that is not itself designated may be majority-owned by a holding company that is, in turn, majority-owned by a designated person. Screening the immediate counterparty produces a false negative. The ownership chain must be traced to the ultimate beneficial owner level.
- Governance veto rights. As noted above, a joint-venture agreement that gives a designated person – even a minority shareholder – the right to block board decisions on material matters may constitute control under OFSI's guidance. This includes approval rights over business plans, budgets, and major contracts.
- Profit-sharing arrangements linked to a designated person. A profit-sharing mechanism that routes distributions to a designated person, even indirectly through an intermediate entity, engages the financial sanctions prohibitions. This applies even where the designated person holds no equity.
- Mid-transaction designation. A partner who is clean at signing may become designated during the life of the joint venture. The joint-venture agreement should address this contingency – termination rights, wind-down procedures, and the licence pathway – before it arises, not after.
- Dual-regime exposure. A joint venture with assets in the UK and operations in one or more EU member states is exposed to both OFSI and the applicable EU regime simultaneously. A licence from OFSI does not authorise activity that would be prohibited under the EU regime, and vice versa. Separate licensing and compliance tracks are required.
In a recent matter, a financial services business was party to a joint-venture agreement in which a minority partner – clean on screening – held veto rights over the appointment of the chief financial officer. A mid-transaction review identified that a designated person held a controlling interest in the minority partner through two intermediate entities. We assessed the ownership and control question under both OFSI and the applicable EU regime, advised on the licence application route, and supported the business in restructuring the governance provisions pending a licence decision. The matter did not result in enforcement action. No outcome of that kind can be promised, but early engagement preserves options.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow significantly with time. Contact Calder & Vance at info@caldervance.com.
How does the licensing route work under OFSI compared with the EU?
Where a joint-venture structure would otherwise be prohibited under OFSI, a specific licence (a case-by-case authorisation from OFSI to conduct an otherwise prohibited transaction or activity) is the principal route to lawful engagement. OFSI issues licences under the grounds set out in the applicable thematic regulations. The grounds vary by sanctions programme. Not every transaction is licensable; the grounds are exhaustively set by the regulations and cannot be extended by agreement between the parties.
The EU licensing regime operates at member-state level. Each member state designates a competent authority – typically a ministry of finance or foreign affairs – that issues licences under the grounds set out in the applicable Council Regulation. This has a practical consequence for multi-jurisdiction joint ventures: a business that requires a licence for activities in the UK and in, say, France and Germany must obtain separate licences from OFSI, from the French competent authority, and from the German competent authority. The licensing grounds under each Council Regulation are common to all EU member states, but the procedural requirements, the documentation expected, and the typical timelines vary substantially between member-state authorities.
In our experience, the most common error at the licensing stage is treating the OFSI application as a template for the EU applications that follow. The grounds may overlap, but the evidentiary standards, the form of the application, and the expectations of the competent authority differ. A well-prepared OFSI application must be adapted – sometimes substantially – for each EU jurisdiction. Failing to do so produces unnecessary delays and, in some cases, outright refusals that could have been avoided with jurisdiction-specific preparation.
OFSI also publishes general licences (standing authorisations that permit a defined category of transactions without a separate application) for certain classes of activity. Practitioners should check whether a relevant general licence is in force before committing to the specific-licence route, as general licences can significantly reduce the time and cost of compliance. The EU regime has an equivalent mechanism at the Council Regulation level, but the scope and availability of general-licence equivalents differs between programmes.
What does the myth of equivalent regimes cost a business?
A persistent misconception in cross-border joint-venture work is that OFSI and the EU regime are, for practical purposes, interchangeable: that compliance with one is effectively compliance with the other, that a licence from one authority covers activity in the other jurisdiction, and that the ownership-and-control analysis can be run once and applied to both. Each part of that belief is incorrect, and acting on it is a source of real enforcement risk.
The regimes have different legal bases, different licensing authorities, different grounds for licensing, different guidance on control, and – crucially – different enforcement postures. OFSI has a statutory power to impose civil monetary penalties for breaches of UK financial sanctions. The applicable EU regime gives enforcement powers to the competent authorities of individual member states, producing material variation in enforcement intensity across the EU. A business that has satisfied itself on the UK position cannot assume that it has addressed the EU question.
The divergence is not merely procedural. On the substance, a joint-venture structure that OFSI considers to fall outside the ownership-and-control test – because the designated person's contractual rights fall below the control threshold in OFSI's guidance – may still be caught under the EU regime if the applicable Council Regulation or Commission guidance applies a different standard. Conversely, a structure that is clearly prohibited under the EU regime may require a more fact-specific analysis under OFSI. The correct approach is to conduct both analyses in full, by practitioners with current experience of each regime, before the structure is agreed.
We regularly advise cross-border businesses that have received a legal opinion on one regime and assumed it covered both. The remediation work – when the gap is identified, sometimes after the joint venture is operational – is more costly, more disruptive, and more exposed than getting the analysis right at the outset.
When should counsel be instructed on joint-venture sanctions structuring?
The right moment to instruct sanctions counsel on a joint-venture structure is before the term sheet is signed. By the time a joint-venture agreement is in advanced negotiation, the governance provisions, the ownership structure, and the profit-sharing arrangements are largely fixed. Renegotiating them in response to a sanctions analysis – or unwinding a structure that has already been implemented – is substantially more expensive and disruptive than designing the structure correctly from the outset.
Counsel should be instructed at the following stages, at a minimum.
- Pre-term sheet. Ownership and control analysis of all proposed partners; identification of any designated-person exposure in the ownership chain; preliminary assessment of the licensing position under OFSI and the applicable EU regime.
- Agreement drafting. Review of governance provisions against the control test; advice on contingency provisions for mid-transaction designation; confirmation of the profit-distribution mechanism against the financial-sanctions prohibitions.
- Post-signing compliance design. Ongoing screening obligations; the record-keeping requirements under the applicable regulations; the reporting obligations to OFSI or the relevant EU competent authority if a sanctions concern arises during the life of the joint venture.
- Trigger events. A new designation; a change in the ownership of a partner; a restructuring of the joint venture itself; an enforcement inquiry or a voluntary self-disclosure (VSD – a voluntary report to a regulator of a potential breach, which can mitigate penalty exposure) obligation.
The reporting and record-keeping obligations that attach to a joint venture with sanctioned-person exposure are a distinct compliance burden that is often underweighted. Both the UK and EU regimes impose obligations on persons who hold funds or economic resources belonging to, or for the benefit of, a designated person. These obligations include reporting requirements to the relevant authority. Failing to meet them – even where the underlying sanctions exposure was identified and managed – is itself a breach.
Related practices
- Correspondent banking and de-risking under OFAC – managing financial-institution sanctions exposure in cross-border payment structures
- M&A sanctions diligence: EU vs SECO – comparative diligence methodology for acquisitions with Swiss and EU sanctions exposure
- M&A sanctions diligence: OFAC vs Canada – diligence structuring for US- and Canadian-regime exposure in cross-border acquisitions