A designated company's directors call their lawyer the morning a designation lands. The instruction is straightforward: defend the challenge, unfreeze the accounts, keep the business alive. The lawyer's question is equally straightforward: who pays the fees? That question – deceptively simple in a domestic context – sits at the intersection of two materially different licensing regimes the moment the client, the lawyer, or the relevant assets span the Atlantic.
Under OFAC, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) for legal fees paid from blocked funds is available but subject to a defined monetary cap that has been in force for some years, a reporting obligation, and a prohibition on transferring fees back to a blocked person. The EU regime takes a structurally different approach: member-state competent authorities issue authorisations without a single Union-wide cap, and the conditions – including what counts as reasonable remuneration – vary across jurisdictions. As of May 2026, neither regime guarantees authorisation, and both impose conditions that practitioners must satisfy before funds move.
This analysis maps the key divergences across six dimensions – legal basis, scope, the cap and reasonableness tests, procedure, cross-border complications, and risk flags – so that compliance counsel and instructed lawyers can plan the engagement before the first invoice falls due.
What is the legal basis for each regime's approach to legal-fees licences?
Legal-fees licences under OFAC rest on a standing general-licence mechanism embedded in the relevant programme regulations. The instrument authorising payment of legal fees from blocked funds is programme-specific: it exists in a number of the major OFAC programmes but not universally, and its terms differ between programmes. The authority flows from IEEPA and, where applicable, TWEA. OFAC administers the mechanism and publishes the applicable conditions in its programme regulations and, where relevant, in supplementary guidance. The critical point is that OFAC's general-licence approach means that, in programmes where the instrument exists, a lawyer may receive fees without a separate application – provided the conditions, including the cap, are met. Where the general licence does not exist or the matter falls outside its terms, a specific-licence application to OFAC is required.
The EU operates through a different constitutional structure. Sanctions under the EU regime are imposed by Council Regulation and Council Decision. The right to use frozen funds for legal representation is recognised as a fundamental right, and the relevant Council Regulations consistently include a derogation permitting member-state competent authorities to authorise the release of frozen funds to cover legal fees and incidental expenses. The authorisation is issued by the competent authority of the member state in which the frozen assets are held. There is no single EU-wide licence or general-licence instrument equivalent to OFAC's standing text. Every authorisation is specific, issued at national level, and – in our experience – processed according to local procedure and timeline.
The divergence at the level of legal basis matters practically. Under OFAC, a US lawyer advising a blocked client may be able to proceed immediately under a general licence, logging the fees and staying within the cap, without any regulatory filing before the work begins. Under the EU regime, the instructed lawyer and client must obtain a specific authorisation before funds are released. That sequencing difference – work now, report later (OFAC general licence) versus authorise first, work second (EU specific authorisation) – creates a material timing gap that affects cash-flow, client care, and the scope of work that can be undertaken before the authorisation issues.
How do the cap and reasonableness tests compare?
OFAC imposes a defined monetary cap on fees payable under the general-licence mechanism in most major programmes; the figure is programme-specific and should be verified against the current programme regulations before reliance. The cap applies per month in some programmes and as a total ceiling in others. Fees above the cap require a specific licence. The reporting obligation that accompanies the general licence requires the lawyer to provide OFAC with details of fees received within a defined period – in our experience, a short statutory window following each payment. OFAC's public guidance makes clear that the lawyer must not provide blocked persons with a prohibited service in connection with the representation, and that fees must not be transferred back to a blocked person.
The EU regime does not impose a single monetary cap. Instead, each member-state competent authority assesses whether the proposed fees are reasonable and proportionate. In practice, this means that the competent authority – a national treasury or finance ministry in most cases – will scrutinise the fee agreement, the scope of work, and the hourly rates proposed. What constitutes reasonable remuneration in a major capital is assessed by a national authority that may have limited visibility of market rates in that jurisdiction. We regularly advise on the preparation of fee-justification materials for submission to competent authorities, because an inadequately documented fee structure is among the most common causes of delay. The absence of a hard cap does not mean unconstrained fees: it means the scrutiny is qualitative rather than quantitative, and the analysis is conducted by a national authority under local administrative law.
A practical implication follows. A client facing simultaneous designations under both OFAC and EU programmes – a pattern that is increasingly common following coordinated transatlantic designations – will face two parallel processes with two different tests. The OFAC process may resolve faster if the general licence applies, but it will constrain the total fee that can be drawn without a further application. The EU process may permit a higher total but will require an upfront authorisation with a qualitative justification that takes time to prepare and to process.
Is the firm managing an engagement across both regimes simultaneously? The answer determines whether the compliance team is running one licensing process or two – with different timelines, different evidential standards, and different conditions attached to the payment once authorised.
What does the procedure look like under each regime?
Under OFAC's general-licence approach, the operational sequence is: confirm the applicable programme; locate the general-licence provision; verify that the proposed fees fall within the cap and that no blocking condition prevents the payment; receive the fees; and file the required report with OFAC within the specified window. Where the general licence does not apply, the lawyer submits a specific-licence application to OFAC, setting out the scope of the representation, the proposed fee structure, and the reason why the legal work is necessary. OFAC reviews the application against the statutory standard and its internal licensing policy. There is no publicly stated binding timeline for specific-licence determinations under most programmes, though OFAC's published guidance describes an average review period; the actual elapsed time varies significantly with workload and programme sensitivity.
Under the EU regime, the sequence is: identify the member state whose competent authority has jurisdiction (typically the state in which the frozen assets are held or in which the lawyer's fees will be paid); prepare an application that sets out the proposed scope of work, the fee arrangement, and any supporting evidence of reasonableness; submit to the competent authority; await authorisation; and then release funds. The competent authority may ask for supplementary information, which resets the clock. In our experience, the elapsed time for EU legal-fees authorisations varies widely across member states – from a matter of weeks in some jurisdictions to several months in others. That variability means that instructed counsel must factor the authorisation timeline into the engagement plan from day one, and must advise the client that substantive work may need to be staged to align with the authorisation schedule.
One structural difference matters here. Under OFAC, the general licence (where applicable) permits fees to be received before any regulatory approval, subject to the cap and the subsequent reporting. The EU requires prior authorisation before funds move. A lawyer commencing substantive work under OFAC rules before the general licence conditions are verified, or commencing work in an EU jurisdiction before the authorisation issues, faces materially different risks. The OFAC risk is breach of the cap or the reporting condition. The EU risk is an unlicensed release of frozen funds – which engages a much more serious prohibition. The former is a compliance failure; the latter is potentially a criminal matter under the laws of the relevant member state.
The position above covers the standard case. Your facts – the counterparty, the frozen account, the member state of the competent authority, and the programme in play – change the analysis significantly.
For a review of the specific licensing requirements applicable to your engagement, contact Calder & Vance at info@caldervance.com.
Where does the cross-border complication arise in practice?
Cross-border matters are the norm rather than the exception in serious designation cases. A client designated simultaneously under OFAC and EU programmes will have assets frozen in multiple jurisdictions. The instructed legal team may include US counsel, EU counsel, and – for internationally active clients – counsel in other jurisdictions where assets are held. Each set of lawyers needs to be paid. Each payment needs to be lawful. That means mapping not one licensing regime but several, with differing conditions attached to each.
The secondary-sanctions dimension adds a further layer. A non-US lawyer receiving payment from a US-sanctioned person, even under a valid EU authorisation, may have a US nexus that triggers OFAC's jurisdiction. OFAC asserts jurisdiction over transactions that have a US nexus – US-dollar clearing, US financial-institution involvement, or a US-person intermediary. A fee payment processed through the US dollar clearing system, even between two non-US parties, passes through a US correspondent bank and is within OFAC's reach. In our cross-border practice, we regularly advise instructed counsel to map the currency and clearing route of any proposed fee payment before it is made, because a fee arrangement that is lawful under the relevant EU authorisation may still require OFAC compliance if the clearing route touches the United States.
The UK regime adds a third axis. OFSI – the Office of Financial Sanctions Implementation – administers UK financial sanctions under SAMLA and the relevant thematic regulations. OFSI's approach to legal-fees licences is broadly comparable in structure to the EU member-state approach: a specific licence is required before frozen funds are released to pay legal fees. The test is whether the payment is for reasonable legal costs. OFSI processes applications and may grant a licence with conditions. A practitioner advising a client with assets frozen in the US, the EU, and the UK is managing three parallel licensing processes simultaneously. The timelines may not align. The conditions attached to each authorisation may differ. And a payment that satisfies all three regimes must be structured so that it does not inadvertently breach any one of them through its mechanics.
If a transaction has already been structured and a lawyer has already received fees that may not have been covered by an applicable licence, an early review can preserve options that narrow with time.
For a confidential assessment of cross-border fee licensing exposure, contact Calder & Vance at info@caldervance.com.
What are the common risk flags for counsel and compliance teams?
The most common error in legal-fees licence management is assuming that a general licence under OFAC covers all fees for all programmes, without verifying that the specific programme regulation contains the relevant provision and that the proposed fees fall within the applicable cap. Several major OFAC programmes do not contain a general licence for legal fees; in those programmes, a specific licence is required for any payment from blocked funds, and proceeding without one is a sanctions violation. We have acted for law firms and their insurers in situations where this assumption was made and fees were received outside the permitted mechanism. The risk to the instructed lawyer is direct: receipt of blocked funds without a licence is a primary violation, not merely an administrative shortcoming.
A second risk flag is the reporting failure. Even where the general licence applies and fees are within the cap, the obligation to report payments to OFAC within the required window is binding. Missed reporting is itself a breach. In our experience, reporting obligations are more often overlooked than the cap itself, partly because the cap is prominent in the programme text and the reporting deadline is buried in supplementary guidance. Compliance counsel should calendar the reporting deadline at the point of engagement, not after the first invoice.
Under the EU regime, the most frequent source of difficulty is the preparation of the fee-justification package for submission to the competent authority. An application that does not adequately document the reasonableness of the proposed fees – the scope of work, the seniority of the team, the market rates – will be queried, and the query period extends the timeline. In some member states, the competent authority has limited familiarity with complex cross-border litigation or sanctions advisory matters, and the justification must therefore be pitched at a level of detail that addresses questions the authority might not know to ask. This is not a criticism of the authorities; it is a structural feature of a system that asks national-level bodies to assess fees in specialist cross-border practice areas.
A third risk flag is the post-authorisation condition. Both OFAC general licences and EU authorisations typically attach conditions: restrictions on the use of fees, prohibitions on onward transfer to blocked persons, and in some cases restrictions on the services that may be rendered. A law firm that receives fees under a legal-fees licence and then provides a related service that falls outside the authorised scope – for example, structuring advice rather than purely defensive litigation – may find that the licence did not in fact cover the work performed. The scope of the authorisation must be mapped to the scope of the engagement before any work begins.
The divergence in enforcement posture: a comparison worth understanding
OFAC's enforcement posture on legal-fees licences has been consistent. Violations of the cap or reporting conditions are treated as apparent violations subject to the standard enforcement analysis: the apparent violation is assessed against the factors set out in OFAC's enforcement guidelines, including aggravating and mitigating factors. A voluntary self-disclosure (VSD – a proactive report of an apparent violation to OFAC before enforcement contact) is treated as a significant mitigating factor. A law firm that discovers it has received fees in excess of the cap, and that discloses promptly, is in a materially better position than one that is discovered through an OFAC inquiry. The penalty range for non-egregious, self-disclosed violations is substantially lower than for violations identified through enforcement action.
The EU enforcement posture differs structurally because enforcement is conducted at member-state level. The Council Regulation imposes the obligation; each member state criminalises or otherwise penalises breach through its domestic law. The result is that the severity of a legal-fees-licence violation – receiving fees without an authorisation, or in excess of the authorised amount – depends on the law of the member state in question. In some member states, this is a criminal offence carrying imprisonment as well as financial penalties. In others, the administrative penalty regime is the primary enforcement mechanism. A law firm advising a client with frozen assets across multiple EU member states must assess the enforcement risk under the law of each relevant state, not merely under the Council Regulation in the abstract.
The comparison is instructive. Under OFAC, there is one enforcement authority, one penalty regime, and a developed published guidance on how violations are assessed. Under the EU, there are as many enforcement authorities and penalty regimes as there are member states with jurisdiction. The OFAC regime is in that sense more predictable – the rules are hard but knowable. The EU regime is more variable – the rules are in the Regulation, but their practical application in enforcement is a matter of member-state law, which requires local analysis.
A common misconception about legal-fees licences and designation challenges
A persistent misconception in this area is that a designation challenge – an annulment action before the EU General Court, a judicial review in the UK, or a petition to OFAC – is itself sufficient to unlock legal fees without further licensing steps. The logic runs: the designation is under challenge; therefore funds should be available to fund that challenge; therefore no licence is needed. This is incorrect.
The designation remains in force until it is annulled or revoked. While it remains in force, the prohibitions attach. The fact that proceedings have been commenced does not suspend the designation or the freezing obligation. The lawyer instructed to bring the challenge still needs a valid authorisation to receive fees from the client's frozen assets. The pending legal proceedings may be relevant to the competent authority's assessment of the application – a pending annulment action is a strong indicator that the legal fees are for legitimate defensive purposes – but they do not substitute for the authorisation itself.
In our practice, this misconception is most common in urgent matters, where the designation is recent and the client and instructed counsel are focused on the merits of the challenge rather than the licensing mechanics. The two must be managed in parallel. An authorisation that is not in place before fees are drawn is a compliance failure, regardless of the ultimate outcome of the challenge.
Related practices
- Frozen account management under BIS and the EAR – managing access to restricted assets in US export-control matters
- Legal-fees licences: OFSI versus Australia – comparison of UK and Australian approaches to authorising legal representation
- Legal-fees licences: OFSI analysis, further considerations – deeper treatment of OFSI procedure and conditions