A payments firm based in London discovers that it is holding funds attributable to a counterparty whose parent company appears on OFAC's SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The funds are frozen. The firm's compliance team asks two questions simultaneously: what does OFAC require, and what does OFSI require? The answers differ – and acting on one set of rules while ignoring the other can produce a second violation before the first is resolved.
Releasing blocked funds under OFAC requires either a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) or an applicable general licence (a standing authorisation that permits a defined category of transactions without a separate application). Under OFSI, the test is formally distinct: a licence must be obtained from the UK Treasury's Office of Financial Sanctions Implementation, and the criteria diverge from OFAC's in ways that produce different outcomes on the same set of facts. As of May 2026, both regimes are actively enforced, and the gap between them catches cross-border businesses that plan for one jurisdiction only.
This analysis maps the procedure under each regime, identifies where they diverge, and flags the practical steps a business holding blocked funds should take before acting.
What legal authority governs the release of blocked funds under OFAC?
OFAC's authority to block funds and to authorise their release derives from IEEPA and, in certain programmes, from TWEA. The blocking obligation attaches automatically at the moment a firm identifies that property is owned or controlled by a person on the SDN List, or by an entity that blocked persons own 50 percent or more in the aggregate – the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked, whether or not the entity is separately listed).
Once funds are blocked, the holding institution must report to OFAC. The reporting window is short. The firm must also keep the funds in a segregated, interest-bearing account. These are not optional steps pending a licence application; they are immediate obligations that run in parallel with any release process.
A general licence can authorise release without a separate application if the relevant programme's general licence covers the transaction. In our experience, firms frequently overlook applicable general licences because they focus on the SDN hit rather than on the programme rules that govern it. When no general licence applies, a specific-licence application to OFAC is required. OFAC processes applications across all programmes; timing varies materially by programme and by the complexity of the facts presented, and no timeline is guaranteed.
The position above covers the standard case. Your facts – the counterparty, the nature of the funds, the ownership chain, and the programme in play – change the analysis materially.
To discuss a specific licence application or to assess whether a general licence covers your position, contact Calder & Vance at info@caldervance.com.
How does OFSI's licensing regime differ on the same question?
OFSI administers UK financial sanctions under the Sanctions and Anti-Money Laundering Act ("SAMLA") and the relevant thematic regulations; its licensing function is formally separate from OFAC's and applies independently to UK-nexus transactions and UK-established firms. A firm holding funds in the UK that are attributable to a designated person must apply to OFSI for a licence to release them – OFAC authorisation does not extend to UK obligations.
The grounds on which OFSI grants licences differ from OFAC's criteria. OFSI operates a closed list of licensing grounds set out in the applicable thematic regulations. The most relevant to fund-release scenarios are the "basic needs" ground, the "legal fees" ground, and the "prior obligations" ground. An applicant must satisfy one of these statutory grounds; OFSI does not have the same open-ended discretion that OFAC applies when weighing the foreign-policy and national-security merits of a specific-licence request.
Timing under OFSI is also distinct. OFSI's published target processing times for standard applications differ from OFAC's, and complex or contested applications run longer. Neither authority publishes a binding decision deadline for licensing matters. In practice, an applicant who submits an incomplete file extends the process by weeks.
There is a further structural difference. OFSI does not operate a regime-wide equivalent of OFAC's general-licence architecture. Certain UK instruments include specific authorisations that function similarly, but the coverage is narrower. A business that is accustomed to checking for a general licence as the first step under OFAC must understand that the equivalent OFSI analysis is a different exercise against a different instrument.
We regularly advise clients whose funds are simultaneously blocked under both regimes. The more restrictive obligation governs what the business can do in practice: authorisation by one authority does not override the prohibition imposed by the other.
Where does the ownership and control test diverge between the two regimes?
The ownership test under OFAC is mechanical: the 50 percent rule applies in the aggregate, across all blocked persons holding an interest, and there is no separate control limb. If blocked persons own 50 percent or more, the entity is treated as blocked regardless of who exercises day-to-day management.
OFSI and the EU apply an ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person). "Control" extends the reach beyond the mathematical threshold. A listed person who owns less than 50 percent may still control an entity through voting arrangements, board rights, or contractual provisions. Under OFSI, that entity can be treated as owned or controlled by the listed person, and its funds are therefore subject to the financial-sanctions prohibition.
Why does this matter for fund release? A business holding funds that belong to a company just below the OFAC 50 percent threshold may nonetheless be holding blocked funds under OFSI if the ownership structure includes a control element. The reverse also occurs: an entity caught by OFAC's aggregate rule may not be caught by OFSI if the ownership is below the 50 percent line and the control limb is not satisfied.
In our cross-border practice, this divergence is among the most frequent sources of misanalysis. A firm that runs its ownership-chain work against one regime's test and applies the conclusion to both is taking a risk it has not measured. The correct approach is to run the analysis under each regime separately, using the precise test that regime applies.
For a detailed comparison of how OFSI and the EU ownership-and-control tests interact on fund-release questions, see our analysis at release of blocked funds – OFSI vs EU.
What is the procedure for applying for release, and what can go wrong?
The application process under both regimes follows a common structure: identify the legal basis, assemble the supporting evidence, submit to the relevant authority, and manage queries during the review period. The substance and the risk points, however, differ at each stage.
Under OFAC, the specific-licence application must identify the applicable programme, the legal basis for the requested authorisation, and the parties involved. OFAC may issue a "return without action" if the submission is incomplete or if the basis stated does not support the relief requested. A returned application does not preserve any deadline that may have been running. Firms sometimes conflate an informal query to OFAC with a licence application; they are not the same and do not produce the same legal protections.
Under OFSI, the application must satisfy a statutory licensing ground. A common error is framing an application as a hardship case when the correct ground is "prior obligations" – the factual narrative and the documentary evidence required differ between grounds. OFSI can refuse, licence with conditions, or revoke a licence it has already granted if circumstances change. Firms holding funds under a conditional licence need to monitor compliance with each condition or risk losing the authorisation mid-process.
Record-keeping obligations run throughout. Under both regimes, firms are required to maintain documentation of the blocking, the reporting, the licence application, and any communications with the regulator. The applicable record-keeping period under the relevant instruments should be confirmed against the current rules; as a general indicator, periods of several years are typical in financial-sanctions regimes. Verify the current requirement before relying on any specific figure.
The interaction with anti-money-laundering obligations adds a further layer. Holding and reporting blocked funds does not suspend the suspicious-activity reporting obligations that run in parallel under the applicable AML regime. In our experience, firms that treat the sanctions stream and the AML stream as separate workflows miss filings that both require.
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 assessment.
How does secondary-sanctions risk affect the release decision?
Secondary-sanctions risk is the exposure a non-US person faces when it engages in activity that, while not itself a violation of US law, is the type of conduct that OFAC has designated as triggering secondary-sanctions consequences under a particular programme. For fund-release decisions, this is directly relevant when the counterparty's designation falls under a programme that carries a secondary-sanctions architecture.
A UK or EU firm releasing funds in circumstances where OFAC would consider the release a prohibited activity – for example, where a specific licence has been refused or not yet obtained – risks secondary-sanctions exposure even if it holds an OFSI licence. The OFSI licence governs UK obligations; it has no bearing on how OFAC characterises the same transaction under the US programme.
This asymmetry produces a practical constraint. A business that obtains OFSI authorisation first, then acts on it before OFAC has issued a corresponding specific licence, may find that OFAC treats the release as an apparent violation of the US sanctions programme. The safer sequence is to obtain both authorisations before releasing funds, even if that extends the timeline.
In a recent matter, a financial institution holding funds under a dual OFAC/OFSI block obtained OFSI licensing relatively quickly on a prior-obligations ground. The OFAC application, filed in parallel, remained open. We advised the institution to hold the funds pending OFAC's decision rather than release on the strength of the OFSI licence alone. That sequencing avoided a potential OFAC enforcement exposure that would have cost materially more than the delay. The outcome is described without guarantee; facts vary and each matter is assessed on its own.
See also our guidance on frozen account management under BIS and the EAR for the export-control dimension of funds held against a dual-use goods transaction.
What common mistakes do firms make when blocked funds are identified?
The most consequential mistake is delay. Both OFAC and OFSI impose reporting obligations that run from the moment blocked property is identified. Acting as if the reporting window starts from the licence application, rather than from identification, is an error that generates a separate compliance failure.
A second persistent error is assuming that the designated person's consent to the release resolves the legal question. It does not. The prohibition runs against the holding institution, not merely against the designated person. An instruction from the designated counterparty to transfer funds is itself a direction from a blocked party, and acting on it without a licence is a violation regardless of whether the designated party frames it as cooperation.
Third, firms regularly treat screening as a point-in-time exercise. A counterparty not on the SDN List when funds were received may be designated while the funds are in transit or held. Continuous monitoring – not a single entry check – is the standard the regimes expect. OFSI's enforcement guidance and OFAC's enforcement methodology both treat inadequate screening as an aggravating factor in penalty determinations.
Fourth, businesses with operations in multiple jurisdictions sometimes treat a group-level compliance determination as sufficient for each subsidiary. Each entity holding funds must assess its own nexus to the applicable regime. A US-parent determination under OFAC does not discharge the UK subsidiary's OFSI obligations, and vice versa.
A fifth error – and one we address directly because it is sometimes presented as a compliance question – is structuring the ownership chain or the payment route to circumvent the 50 percent rule or to make blocked funds appear unblocked. That is not a compliance strategy. It is evasion. Calder & Vance does not advise on circumventing or evading sanctions.
What should a cross-border business do when it identifies blocked funds?
The immediate obligations are to block the funds, segregate them in an appropriate account, and report to the relevant authority within the applicable window. Do not release, return, or transfer the funds pending either a general licence review or a specific-licence application. Document every step, including the date and time of identification and the basis for the blocking decision.
The next step is to determine which regimes apply. The analysis depends on the nationality and location of the holding institution, the currency of the funds, the nature of the transaction, and the programme under which the designation was made. A firm with UK operations holding US-dollar funds attributable to a person designated under a US programme may face concurrent OFAC and OFSI obligations. Each must be assessed separately.
The ownership-chain review should be run under each regime's test. Under OFAC, apply the 50 percent rule in the aggregate. Under OFSI and the EU, apply the ownership-and-control test, which requires an assessment of factual control as well as mathematical ownership. Where the chains diverge in their conclusion, the stricter result governs for the jurisdiction that produced it.
A voluntary self-disclosure, or VSD (voluntary self-disclosure to a regulator), to OFAC or to OFSI may be appropriate if the analysis reveals that the firm held funds without blocking them at the required moment. Both authorities treat prompt voluntary disclosure as a mitigating factor in penalty determinations. The decision to disclose, and how to structure a VSD, requires legal advice on the specific facts; a disclosure filed without that analysis can inadvertently expand the scope of the apparent violation.
We have acted for businesses across the financial services, energy, and trading sectors in exactly this type of situation – from the initial triage through to licence grant or enforcement defence. The earlier counsel is involved, the more options remain open.
Related practices
- Frozen account management – BIS and EAR – managing export-control holds on accounts linked to dual-use transactions
- Release of blocked funds: OFSI vs EU – how the UK and EU licensing regimes diverge on the same fact pattern
Frequently asked questions: release of blocked funds under OFAC and OFSI
- Where do the regimes diverge on release of blocked funds?
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OFAC and OFSI diverge in three principal areas. First, the ownership test: OFAC applies the aggregate 50 percent rule mechanically; OFSI also applies a control limb that can catch entities below that threshold. Second, the licensing grounds: OFSI operates a closed statutory list, while OFAC's specific-licence process applies a broader foreign-policy and national-security weighing exercise. Third, the role of general licences: OFAC's general-licence architecture is more developed and regime-wide; OFSI's equivalent authorisations are narrower in scope. A transaction that qualifies for release under one regime may not qualify under the other, and both must be cleared before funds move.
- Which regime is stricter on release of blocked funds?
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Neither regime is uniformly stricter; the answer depends on the fact pattern. OFAC's aggregate ownership test is broader in some configurations – it captures entities below the control threshold that OFSI might not catch. OFSI's closed licensing grounds are more restrictive in others – a release that OFAC would authorise on foreign-policy grounds may not satisfy any OFSI statutory ground. The operative principle for cross-border compliance is that the stricter prohibition governs within the jurisdiction that applies it. A cross-border business must satisfy both independently; it cannot choose the more permissive regime.
- What should a cross-border business do about release of blocked funds?
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The immediate steps are to block the funds, segregate them, and report to the relevant authority within the applicable window. Then determine which regimes apply to your specific facts – jurisdiction, currency, programme, and entity structure all matter. Run the ownership-chain analysis under each regime's distinct test. Identify whether a general licence already covers the release before filing a specific-licence application. File in parallel under each applicable regime rather than sequentially, and do not release funds until both (or all applicable) authorisations are in hand. If an apparent violation has already occurred, assess whether a voluntary self-disclosure is appropriate. Involve sanctions counsel at the earliest possible stage.
About the author
J. M. Aldridge advises multinationals and financial institutions on US sanctions and export controls, with a focus on OFAC licensing, secondary-sanctions risk, and BIS classification. Calder & Vance – International Sanctions & Export Control Counsel.
About Calder & Vance
Calder & Vance is an independent international sanctions and export-control boutique. We advise multinationals, financial institutions, exporters, and individuals on the major regimes – OFAC and BIS in the United States, OFSI and ECJU in the United Kingdom, the EU Council regulations and the EU General Court, the United Nations Consolidated List, and the regimes of Switzerland, Canada, Australia, the UAE, Singapore, and Japan. Our work is limited to lawful compliance, licensing, delisting, enforcement defence, and due diligence. To discuss a matter, contact info@caldervance.com.
For a confidential assessment of your position under OFAC, OFSI, or both regimes, contact Calder & Vance at info@caldervance.com.
For further analysis of how OFSI and the EU licensing regimes compare on blocked-funds release, see our second OFSI vs EU analysis.
Disclaimer: This material is general information, not legal advice, and is not a substitute for advice on your specific facts. Sanctions and export-control rules change frequently and differ by regime; verify the current position before relying on anything stated here. Calder & Vance does not advise on circumventing or evading sanctions. For advice on your situation, contact info@caldervance.com.