A cross-border acquisition closes. Six months later, a member of the target's ownership structure appears on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The buyer's counsel turns to the purchase agreement. The sanctions representations and warranties are there – but were they drafted against OFAC's tests, OFSI's tests, or both? The answer determines who bears the loss.
Sanctions representations and warranties in cross-border transaction documents must track the ownership, control, and prohibition tests of every regime that touches the parties. Under OFAC, the mechanical 50 percent rule governs indirect blocking; under OFSI and the EU, a broader ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person) analysis applies. A warranty drafted against only one regime leaves the other regime's exposure unaddressed.
As of January 2026, both the US and UK regimes have tightened enforcement posture, and transaction counsel are under growing pressure to produce warranties that are enforceable across jurisdictions. This analysis sets out how the two regimes diverge, where the drafting gaps open, and what a cross-border practice must do to close them.
What do sanctions representations and warranties actually cover?
Sanctions representations and warranties are contractual statements – typically made at signing and repeated at closing – that each party, its affiliates, and its beneficial owners are not designated, blocked, or subject to applicable sanctions prohibitions, and that the transaction itself does not breach any applicable sanctions regime. They are standard in M&A, trade finance, correspondent banking, and joint venture documentation involving parties from multiple jurisdictions.
The commercial logic is straightforward. A buyer or lender accepting a sanctions warranty is seeking assurance that the counterparty, the target, and the assets are free from the restrictions that would prevent completion, trigger a reporting obligation, or produce a penalties exposure. What varies sharply across the major regimes is the scope of that assurance and the standard of care to which the warrantor is held.
Under OFAC, the warranty must address both direct designation and the operation of the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked). Under OFSI, the equivalent obligation extends to entities in which a designated person holds an ownership or control interest, even below the 50 percent threshold where control can be demonstrated on other grounds. The EU regime mirrors OFSI's approach. A warranty that runs only to "not appearing on any list" catches neither the OFAC aggregation question nor the OFSI control analysis.
In our cross-border practice, we see this problem most frequently in agreements drafted by counsel who know one regime well but not the other. The warranty passes legal review in one jurisdiction and creates a silent gap in the other.
How does the OFAC ownership test shape the warranty obligation?
The OFAC test is binary and mechanical: if blocked persons own, individually or in the aggregate, 50 percent or more of an entity – directly or through intermediate layers – that entity is itself treated as blocked, regardless of whether it appears on any published list. The warranty obligation under OFAC therefore requires the warrantor to confirm not merely listed status but aggregate ownership through the entire beneficial-ownership chain.
Aggregation is where drafting most frequently fails. Two blocked persons each holding 30 percent of a target company together reach the 50 percent threshold. A warranty that represents "no party is on an OFAC list" leaves this exposure entirely open. The warrantor should instead represent that no blocked person or SDN, individually or in the aggregate with other blocked persons, owns 50 percent or more of any warranting entity, directly or indirectly.
The extraterritorial reach of OFAC amplifies this obligation for non-US parties. OFAC's jurisdiction under IEEPA extends to US persons worldwide, to transactions in US dollars that clear through US correspondent banks, and to conduct that causes a US person to violate OFAC prohibitions. A European seller in a European transaction may be a warranting party for OFAC purposes if the deal involves US-currency settlement or a US-person buyer. Have you mapped every touchpoint that brings OFAC jurisdiction into the deal?
The governing instrument for the OFAC analysis is the relevant Executive Order or statute administered under IEEPA, applied through OFAC's regulatory framework and its published guidance on the 50 percent rule. There is no single codified statute that states the 50 percent threshold; it derives from OFAC's interpretive guidance, which is treated by US courts and regulators as authoritative. This means it can change without formal rulemaking – a point worth addressing in the survival and update mechanisms of the warranty itself.
How does the OFSI ownership and control test differ?
OFSI's standard for indirect designation capture goes beyond OFAC's mechanical threshold. Under the Sanctions and Anti-Money Laundering Act and the relevant thematic sanctions regulations, an entity is caught by financial-sanctions prohibitions where a designated person "owns or controls" it. Ownership at 50 percent or more is one route. But control can also be established through other means: board appointment rights, contractual veto powers, economic arrangements that give a designated person effective direction of the entity's affairs.
This is a materially wider standard. A designated person holding 40 percent of a company and controlling three of five board seats may well control that company under OFSI's analysis, even though OFAC's 50 percent rule would not capture the entity on ownership grounds alone. A warranty drafted to OFAC's mechanical threshold would not cover this position under OFSI.
The practical consequence for transaction counsel is significant. The OFSI-compliant warranty must represent not only that no designated person holds 50 percent or more, but also that no designated person exercises control through any means over any warranting entity. That representation requires the warrantor to have conducted – and to be able to evidence – a control analysis, not merely a share-register check.
OFSI can impose a civil monetary penalty for breach of financial-sanctions obligations. As of the position currently in force, OFSI has the power to impose civil penalties and has published enforcement guidance setting out the factors it weighs. Verify the current penalty basis before relying on it for drafting purposes; the statutory ceiling has been subject to revision. The reputational consequence of an OFSI enforcement action – which OFSI may publicise – is a separate and sometimes greater concern for regulated financial institutions.
We regularly advise on the gap between the OFAC and OFSI tests in transaction documents. That gap is not merely technical. It decides whether a warranty is a genuine risk transfer or a drafting gesture.
Where do OFAC and OFSI diverge on secondary sanctions risk in warranty drafting?
Secondary-sanctions risk sits outside the direct prohibition framework but inside the practical perimeter of any well-drafted warranty. OFAC maintains the authority under certain sanctions programmes to designate non-US persons for conduct that would not be prohibited under primary sanctions – transacting with certain designated entities, for example, even outside US jurisdiction. The risk is real for European and Asian counterparties that have significant US-currency or US-correspondent-bank exposure.
OFSI has no equivalent secondary-sanctions architecture. UK financial sanctions apply to persons and transactions within UK jurisdiction, to UK persons abroad, and to UK-incorporated entities. There is no OFSI equivalent of an OFAC-style secondary designation for dealing with a non-UK-sanctioned entity.
For the warranty drafter, this divergence creates an asymmetry. The OFAC-facing party needs a warranty that addresses secondary-sanctions exposure – that neither party nor any affiliate has engaged in conduct that would trigger a secondary designation. The OFSI-facing party needs no such warranty; OFSI's prohibitions are jurisdictional, not secondary in character. A single combined warranty that treats both regimes identically will either over-represent or under-represent the position under one of them.
The EU adds a further layer. The EU's autonomous sanctions regime, operated through Council regulations, applies to persons and entities subject to EU jurisdiction and to certain activities connected to EU territory. The EU also maintains the EU Blocking Regulation, which in certain circumstances prohibits EU persons from complying with specific extraterritorial sanctions. Where OFAC secondary sanctions and the EU Blocking Regulation point in opposite directions, the warrantor faces a genuine conflict of laws – and the warranty should acknowledge rather than paper over that conflict.
For a detailed treatment of how OFSI and the EU regimes interact in warranty drafting, see our companion analysis: sanctions representations and warranties – OFSI vs EU compared.
The position above covers the structural divergence between the regimes. Your transaction – the sector, the deal structure, the currencies, the beneficial-ownership chain – changes the analysis materially. For a review of the sanctions warranties in a live transaction, contact Calder & Vance at info@caldervance.com.
What are the common drafting failures in cross-border sanctions warranties?
The most consequential drafting failures are not technical errors. They are structural omissions that result from mapping one regime onto a multi-regime transaction. Four patterns recur in our practice.
First, the list-only warranty. The warrantor represents that it does not appear on any sanctions list. This covers direct designation but misses entirely the OFAC 50 percent rule and the OFSI control analysis. It provides essentially no protection against the scenarios regulators and counterparties most care about.
Second, the threshold-only warranty. The warrantor represents that no blocked or designated person owns 50 percent or more of any group entity. This tracks OFAC but leaves the OFSI control analysis uncovered. It will not catch a designated person who controls the entity through rights other than ownership.
Third, the jurisdiction-blind warranty. The warrantor represents compliance with "applicable sanctions" without specifying the regimes in scope. This creates interpretive ambiguity at the point of breach. Does "applicable" mean all regimes with any nexus to the deal, or only the regimes applicable to the warrantor's jurisdiction? In a dispute, this ambiguity benefits neither party.
Fourth, the static warranty. The warrantor represents the position at signing and closing but provides no covenant as to ongoing compliance during the life of the transaction or agreement. Sanctions lists are updated continuously. An entity that was clean at signing may be designated before closing. Without an update mechanism or a bring-down obligation, the buyer or lender has no contractual right to re-examine the position.
Remedies provisions are equally important. A warranty breach that triggers an OFAC blocking obligation will typically make the transaction legally impossible to complete or maintain. The agreement must address this squarely – whether through a condition precedent, a termination right, an escrow mechanism, or a regulatory approval carve-out – rather than relying on a general material-adverse-change clause that may not cover a regulatory development.
In a recent matter, a financial-services business entering a joint venture with a partner in a third market discovered during our due-diligence review that one upstream shareholder sat within three percentage points of the OFAC 50 percent threshold when holdings across related parties were aggregated. The warranty as originally drafted would not have caught this position. We restructured the ownership representation, added an aggregation clause, and introduced a notification covenant for material changes to the beneficial-ownership structure. The matter proceeded without a breach risk.
How should a business conduct the diligence underlying a sanctions warranty?
A warranty is only as reliable as the diligence behind it. Stating that no designated person owns or controls a warranting entity is a meaningful representation only if the warrantor has actually traced the ownership and control chain to a point where that can be confirmed. Diligence standards differ across regimes – and the standard of care expected by a regulator will typically be higher than the standard at which a counterparty might accept the warranty at face value.
Under OFAC guidance, a compliance programme should be risk-based and proportionate to the transaction's sanctions exposure. For a straightforward commercial sale with no identified risk factors, a screening of direct counterparties against the SDN List and other OFAC lists may be proportionate. For a transaction involving complex ownership structures, a high-risk sector, or exposure to a programme with significant secondary-sanctions risk, a deeper beneficial-ownership analysis – typically to the level of ultimate natural-person control – is expected.
OFSI's enforcement guidance similarly expects firms to take reasonable steps to determine the ownership and control position of counterparties, not merely to screen names. Where a firm takes no steps beyond automated list screening and subsequently finds itself holding assets for a sanctioned person through the control route, OFSI is unlikely to treat the list-check as a complete answer.
The UN Consolidated List adds a third verification layer. For transactions with any multinational dimension, parties should confirm the position against the UN list in addition to the relevant national or regional lists. The UN list may differ from any national implementation of it, and an entity or individual appearing on the UN list may trigger obligations under multiple national regimes simultaneously.
Operationally, the diligence process should be documented before the warranty is given. The record should show what databases were checked, on what date, at what ownership threshold, and with what result. That record is the evidential foundation for a voluntary self-disclosure or a penalty defence if the position later changes. We have acted for clients where the diligence record – not merely the warranty – decided the outcome of an enforcement enquiry.
For supply chain and goods-related transactions where export-control questions intersect with the sanctions analysis, the diligence obligation expands further. See our analysis on supply chain mapping under the EAR and EU dual-use rules for the parallel obligations under those regimes.
If a transaction has already been flagged, or a warranty breach is suspected, an early review preserves options that narrow with time. For a confidential assessment, write to Calder & Vance at info@caldervance.com.
When does the myth that a standard warranty provides adequate cover apply?
A persistent assumption in cross-border transaction practice is that a standard sanctions warranty drawn from a firm's precedent library – or copied from a market-standard financing agreement – provides adequate protection across all relevant regimes. It does not, for several structural reasons.
Standard-form warranties are typically drafted against the primary regime of the drafting jurisdiction. An English-law agreement drafted by UK counsel will often reflect the OFSI ownership test but may not capture OFAC's 50 percent rule in its aggregation dimension. A New York-law agreement will typically track OFAC guidance but may not address the OFSI or EU control analysis. Neither will reliably address secondary-sanctions risk for all parties.
Market practice moves. What was a standard sanctions warranty in a leveraged finance agreement three years ago may not reflect the current enforcement expectations of OFAC or OFSI. Both regulators have expanded their enforcement guidance and clarified their expectations of financial institutions and transaction counterparties in recent years. A precedent that has not been reviewed against the current guidance of both regulators may carry gaps that were not gaps at the time it was first used.
The myth extends to the scope of the warrantor. Standard warranties are typically given by the primary contracting parties. They may not extend to subsidiaries, joint-venture vehicles, intermediate holding entities, or special-purpose vehicles through which the transaction is structured. Regulators do not observe that limitation. If an intermediate entity is caught by an OFAC or OFSI prohibition, the transaction is affected whether or not that entity gave a warranty.
The corrective is not a longer warranty – it is a better-targeted one. The warranty should identify the regimes in scope by name, define the ownership and control standard for each, extend to all entities in the relevant group or beneficial-ownership chain, include a notification covenant, and be supported by documented diligence. That is a drafting exercise, not merely a precedent exercise.
How Calder & Vance assists on sanctions warranties in cross-border transactions
Calder & Vance provides targeted advisory support at each stage of the sanctions-warranty process in cross-border transactions. Our team screens the counterparty and ownership chain, surfaces secondary-sanctions risk, and structures the transaction representations to address the specific regimes in play. We assess the diligence standard that OFAC and OFSI would apply to the transaction, prepare the ownership analysis underlying the warranty, and review the remedies and termination provisions for regulatory consistency.
Where a transaction crosses US and UK sanctions perimeters simultaneously – as most significant cross-border deals now do – our team covers both regimes from a single instruction. We do not hand the US analysis to a referral and the UK analysis to another firm; we produce an integrated assessment. For transactions involving EU parties, we work with local counsel in the relevant jurisdiction on EU-specific points while maintaining ownership of the cross-regime analysis.
For correspondent banking and de-risking contexts where sanctions warranty obligations intersect with anti-money-laundering and financial-crime compliance, see our service on correspondent banking and de-risking under OFAC.
We advise at the drafting stage, at the diligence stage, and at the post-closing stage where a breach is suspected or a list update creates a question about the continuing accuracy of a warranty. Our practice spans the major sanctioning regimes, and our entry points are fixed-fee so that the cost of a warranty review is known before instruction.
In our experience, the businesses that avoid warranty-breach exposure in a sanctions context are not those with the longest warranties. They are those whose warranties are precisely calibrated to the regimes in scope and supported by diligence that can withstand regulatory scrutiny.
Related practices
- Correspondent banking and de-risking – OFAC – sanctions diligence and compliance for financial institutions managing correspondent relationships
- Sanctions representations and warranties – OFSI vs EU – how OFSI and EU warranty obligations compare in practice
- Supply chain mapping – BIS EAR vs EU dual-use – export-control diligence obligations in cross-border supply chains