A trading house in London closes a commodity deal with a buyer in South-East Asia. The purchase price is held in escrow by a London solicitor pending delivery confirmation. Three days before release, the compliance team identifies that one named party to the escrow agreement is the subject of a UK financial sanctions designation. The question is not simply whether the payment is blocked – it is whether the escrow structure itself constitutes a prohibited transaction, and whether the same analysis would hold if the deal had been booked in Sydney instead.
Payment and escrow structuring under OFSI (the Office of Financial Sanctions Implementation, which administers UK financial sanctions) operates under a strict asset-freeze and prohibition regime derived from the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA") and the relevant thematic sanctions regulations. Australia's Autonomous Sanctions regime (administered by DFAT) imposes parallel prohibitions, but the licensing architecture, the designated-person test, and the treatment of third-party intermediaries each diverge in ways that directly affect how a cross-border escrow should be structured and held. As of January 2026, both regimes are active and current; verify the precise designation status of any counterparty before relying on this analysis.
This analysis works through the governing authority of each regime, the precise legal tests for escrow and payment prohibitions, the points of divergence that matter most in practice, the risk flags that counsel encounters most often, and the steps a cross-border business should take before an escrow is executed or funds are released.
Governing authority: how each regime controls payment and escrow transactions
OFSI administers UK financial sanctions under SAMLA and the relevant thematic regulations. The regime prohibits dealing with funds or economic resources owned, held, or controlled by a designated person, and also prohibits making funds or economic resources available – directly or indirectly – to or for the benefit of a designated person. An escrow account is a fund. The solicitor or bank holding it is the intermediary. Both legs of the prohibition are potentially engaged the moment a designated person has any claim over the account balance or any contingent right to its release.
Australia's Autonomous Sanctions regime, administered by the Department of Foreign Affairs and Trade under the Autonomous Sanctions Act 2011 and the associated regulations, prohibits dealing in the assets of a designated person and making assets available to or for the benefit of such a person. The language closely mirrors OFSI and UN Security Council practice. However, the architecture of the regime, the designated-person list, and the licensing gateway differ, and those differences are operational rather than academic.
One critical structural point: the UK regime applies to persons in the United Kingdom and to persons carrying on business in the UK, regardless of where the transaction is booked. The Australian regime applies to Australian citizens, residents, and bodies incorporated in Australia, wherever they are located. Both regimes therefore claim extraterritorial reach in certain circumstances. A transaction structured to route payments through a Sydney-based correspondent bank but ultimately involving UK-incorporated entities may fall under both simultaneously – and the stricter prohibition governs.
What does "dealing" with funds mean in an escrow context?
Under OFSI, "dealing" with funds is defined broadly. It includes acquiring, selling, transferring, converting, disposing of, moving, using, or accessing funds. An escrow agreement that grants a designated person a contractual right to receive funds on a future date or upon satisfaction of a condition creates a contingent entitlement. OFSI's published guidance makes clear that such an entitlement can constitute funds being made "available" to a designated person, even before physical transfer occurs. The designation of a beneficiary mid-term – after the escrow is funded but before release – does not dissolve the problem; it crystallises it.
In our experience, compliance teams at financial institutions underestimate the "indirectly available" limb. A payment structured through an escrow agent who then remits to a designated person's nominee is not insulated by the intermediary step. OFSI's enforcement approach looks through the structure to the ultimate beneficiary of the funds. The question is always: does a designated person ultimately receive an economic benefit?
Australia takes a materially similar approach to the "making available" test. The Autonomous Sanctions regulations prohibit dealing in the assets of a designated person and, separately, making assets available to or for the benefit of such a person. DFAT's published guidance affirms that an indirect transfer – where an intermediary is interposed – does not defeat the prohibition. Both regimes therefore treat the economic substance of an escrow arrangement rather than its formal title structure.
A point of divergence emerges at the margins. OFSI applies the ownership and control test derived from the UN and EU tradition: an entity is treated as "owned or controlled" by a designated person where that person owns it, controls it, or acts on its direction. The analysis can extend to the escrow beneficiary's corporate structure. Australia's regime focuses primarily on the designated person directly, without an identical codified extension to owned-or-controlled entities in the same explicit statutory language – though DFAT's guidance treats similar fact patterns conservatively. Practitioners advising on Australian law should verify the current position before relying on a structural distinction here.
The licensing gateway: where the regimes diverge most sharply
OFSI administers a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) and, for certain programmes, general licences (standing authorisations permitting a defined category of transactions without a separate application). For payment and escrow structuring, the relevant licensing grounds under the applicable UK thematic regulations include provisions for prior obligations, legal fees, basic needs, and – in some regimes – extraordinary circumstances. The application process is handled by OFSI directly. Response times are not guaranteed and vary by programme and complexity, but OFSI's published service standards provide a reference point; verify the current position with OFSI's published guidance.
Australia's licensing equivalent is a permit issued by the Foreign Minister (in practice, by DFAT). The permit system is more narrowly constructed than OFSI's. The grounds for permit issuance under the Autonomous Sanctions Act are set by regulation and do not replicate OFSI's full menu of licensing bases. In particular, the "prior obligation" ground that OFSI makes available in several programmes does not have a direct statutory counterpart in the Australian regime in the same form. A business that has already funded an escrow and then discovers a sanctions issue may find that the Australian permit route is less accommodating than the OFSI licence route for unwinding the position lawfully.
This divergence is practically significant. Where a cross-border escrow is governed by English law but settled through an Australian correspondent, the licensing strategy must address both regimes. The absence of a matching licence or permit on the Australian side does not cure the UK exposure, and vice versa. In our cross-border practice, we regularly advise clients to assess both licensing routes at the outset – before the escrow is funded – rather than after a compliance flag is raised.
The position above covers the standard case. Your facts – the counterparty, the escrow agent's jurisdiction, the goods or services underlying the payment, and the regime in play – change the analysis. For a preliminary review of your structure, contact Calder & Vance at info@caldervance.com.
Ownership, control, and the counterparty chain
Under OFSI, the ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person) determines whether the counterparty to an escrow is itself a blocked entity even if it does not appear on the Consolidated List of Financial Sanctions Targets in the UK. If a designated person owns or controls the escrow beneficiary – or directs its activities – the funds prohibition applies to that beneficiary as if it were itself designated. This test is qualitative as well as quantitative: formal ownership below the majority threshold can still constitute "control" in certain circumstances.
Australia does not have an equivalent statutory codification of the ownership and control extension in the same form as the UK. The Australian regime lists specific designated persons and entities. An entity that is not listed is not, on the face of the legislation, itself subject to the dealing prohibition. However, making assets available "for the benefit of" a designated person can capture situations where a non-listed entity is acting as a conduit. The analysis converges in practice even where the statutory wording differs.
Why does this matter for an escrow? Because the escrow beneficiary's shareholder register, trust structure, or beneficial ownership can determine whether the payment is prohibited without any of the named parties appearing on either regime's published list. A clean name-screen of the signatory parties is not sufficient. Screening must extend to the ownership chain behind the beneficiary and, where trust structures are involved, to the underlying beneficiaries of those trusts. We regularly advise financial institutions and trading companies on exactly this mapping exercise as part of sanctions due diligence (the structured process of screening counterparties and their ownership chains to surface sanction-related risk before a transaction is completed).
Risk flags and common structuring errors
Several risk patterns appear repeatedly in payment and escrow arrangements involving OFSI and Australian sanctions exposure.
First, the timing of designation. A counterparty or beneficiary may be undesignated when the escrow agreement is signed but designated before funds are released. OFSI requires the funds to be frozen at the moment of designation, regardless of pre-existing contractual obligations. The prior-obligation licensing ground does not provide automatic relief; an application is required. The same dynamic applies under the Australian regime, though the permit ground differs in scope.
Second, multi-currency accounts. An escrow denominated in US dollars routed through a US correspondent bank also engages OFAC prohibitions. A business that obtains an OFSI licence for a UK-law-governed escrow but has not addressed the OFAC position for the USD leg of the transaction has not resolved its exposure. The cross-regime interaction here is real and frequent. Our team also works alongside specialists on the OFAC dimension where the currency or the bank creates a US nexus.
Third, the escrow agent's own obligations. The solicitor, bank, or trust company holding the escrow owes independent sanctions compliance obligations. Under OFSI, a financial institution holding a designated person's funds must freeze them and is required to report the matter to OFSI. The escrow agent cannot simply follow the escrow agreement's release mechanics if sanctions obligations intervene. Under the Australian regime, a corresponding reporting obligation applies. Where the escrow agent is itself regulated in a third jurisdiction, that jurisdiction's rules also come into play.
Fourth, deferred payment structures. A contract that provides for payment in instalments, or where the purchase price is partly held pending a performance warranty, creates recurring exposure windows. Each payment event must be screened afresh against the then-current designated person list. A one-time screen at contract execution is not sufficient for a multi-payment structure.
If a transaction has already been flagged, or a payment has been frozen pending a compliance review, an early assessment can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com for a confidential review.
How do OFSI and Australia treat reporting obligations differently?
OFSI imposes a mandatory reporting obligation on persons who know or reasonably suspect that they are holding funds or economic resources belonging to a designated person. This obligation applies to relevant firms (regulated financial institutions and other prescribed persons) under the applicable thematic regulations. The report must be made to OFSI. Failure to report is itself an offence. The reporting window under the UK regime is not qualified by materiality; a suspicion is sufficient to trigger the duty.
Australia imposes a broadly equivalent obligation: a person who holds assets belonging to a designated person must report that fact to DFAT. The obligation applies to Australian persons and bodies, wherever located. The timing and format of the report are set by the applicable instrument; verify the current requirements with DFAT's published guidance before relying on any summary here.
The practical divergence lies in what happens after the report. Under OFSI, the frozen funds remain in place until a licence is granted or the designation is lifted. OFSI can and does engage with licence applicants during the freeze period. Under the Australian regime, the frozen position is maintained pending a permit decision. The pathways for managing the freeze differ, and the applicable timelines are not identical across the two regimes.
A cross-border business operating under both regimes should therefore build a dual-reporting protocol into its escrow documentation and its compliance procedures. The escrow agreement itself should include representations about sanctions status, trigger points for notification to the escrow agent, and a clear mechanism for freezing and holding funds pending regulatory clearance. A voluntary self-disclosure (VSD) – a proactive disclosure to the regulator of a potential sanctions breach before the regulator identifies it independently – may also be warranted in certain circumstances. The decision to file a VSD is a legal strategy question, not a compliance-process question, and it requires careful analysis of each regime's enforcement posture and the specific facts.
Divergence points that affect transaction structuring decisions
Having mapped the two regimes in parallel, several structural divergences are worth isolating for practitioners advising on cross-border escrow arrangements.
The OFSI licensing menu is broader. OFSI's published licensing grounds cover a wider set of transactional categories than Australia's permit system as currently constructed. Where a business has a genuine prior obligation – a signed contract, a funded escrow – the UK licensing route may offer a more direct path to lawful completion than the Australian permit route. This asymmetry should inform jurisdictional decisions about where to book the escrow and which law governs the agreement.
The ownership and control extension is more explicitly codified under UK law. OFSI's test for treating non-listed entities as designated captures both formal ownership and factual control. The Australian regime's "for the benefit of" test reaches similar outcomes but via a different doctrinal route. In a contested case – where the counterparty disputes that it is caught by sanctions – the legal argument will differ materially between the two regimes.
Australia's designated-persons list is maintained separately from the UK Consolidated List. A counterparty designated under Australian law may not be designated under UK law, and vice versa. Both lists must be screened. Both regimes also incorporate UN Security Council designations by reference, so entities on the UN Consolidated List (the Security Council's master list of designated individuals and entities) are typically captured under both without a separate domestic listing decision.
The enforcement posture of each regime also differs in emphasis. OFSI has developed a published civil monetary penalty framework and has issued public enforcement notices. DFAT's enforcement approach under the Autonomous Sanctions regime is less visible in terms of public penalty notices, though criminal liability for breach is available under Australian law. Practitioners advising on the relative exposure of each regime should review the current published guidance of each authority, as the enforcement environment changes.
In a recent matter, a financial services business sought to structure a deferred purchase-price payment into an escrow governed by English law. The payment timeline overlapped with a designation event affecting one of the underlying shareholders of the vendor. We assessed the ownership chain, mapped the OFSI and Australian nexus points, prepared the OFSI licence application, and advised on the reporting obligations to DFAT. The matter was resolved through a combination of a specific licence and a restructured payment schedule that removed the designated person's contingent claim over the escrow balance. No amount was specified as the outcome; the point is that early advice before funds are released changes the range of available options.
When to involve sanctions lawyer or compliance counsel
Sanctions counsel should be engaged before the escrow agreement is signed, not after a compliance flag is raised. The reason is structural: the escrow's terms – who holds, on what conditions, in whose name, under which governing law – determine the sanctions analysis. Once the agreement is executed and funded, options for restructuring are limited. What was a design question becomes a remediation question, with all the urgency and cost that implies.
Counsel is specifically needed in the following situations. Where any party to the transaction, any shareholder in the chain, or any escrow beneficiary is a national or resident of a jurisdiction subject to comprehensive sanctions, the analysis requires a complete ownership mapping exercise before a compliance sign-off can be given. Where the transaction involves USD, a US correspondent bank, or a US-incorporated entity anywhere in the chain, the OFAC position must be assessed independently of OFSI and the Australian position. Where the escrow is to be held by a financial institution that is itself subject to regulatory sanctions obligations, that institution's own compliance requirements may be stricter than what the parties require under the escrow agreement. And where the designation of a counterparty occurs mid-transaction, the immediate question is whether to freeze, how to report, and whether a licence application is viable – all of which are time-sensitive decisions.
Does your current escrow documentation include a sanctions representation from the beneficiary? Does it include a mechanism for freezing on notice and a protocol for notifying the escrow agent of a designation event? If not, those gaps should be addressed before the next transaction closes.
Related practices
- Correspondent Banking and De-risking (OFAC) – managing sanctions-driven de-risking in correspondent and cross-border banking relationships
- Sanctions Representations and Warranties: EU vs SECO – comparative analysis of sanctions rep and warranty drafting under EU and Swiss SECO regimes
- Sanctions Representations and Warranties: OFAC vs Canada – comparing the contractual risk allocation under OFAC and Canadian GAC sanctions programmes