A multinational with active contracts in a newly sanctioned market receives word that its counterparty has been placed on a designated-persons list. The contracts cannot simply be abandoned. Goods are in transit. Payments are outstanding. Employees are owed wages. Two authorities – OFAC in Washington and Global Affairs Canada in Ottawa – both claim jurisdiction over the group's operations. Each offers a wind-down window. But the windows are not the same, and treating them as if they were is among the most consequential mistakes a cross-border business can make.
Wind-down authorisations permit an otherwise prohibited transaction to be completed or closed out within a defined period following a new designation or programme change. Under OFAC, such authorisations may arise as general licences (published, self-executing permissions) or as specific licences granted on application. Under Canada's autonomous sanctions regime, administered by Global Affairs Canada, wind-down provisions exist but operate through a distinct legal mechanism with different scope, reporting logic, and expiry consequences. The analysis that follows compares the two regimes criterion by criterion, identifies the points of sharpest divergence, and sets out the practical steps a cross-border business should take before either window closes.
This page is structured as follows: the legal basis in each regime; the core wind-down mechanics side by side; ownership and control as a threshold question; scope of permitted activity; procedural requirements and record-keeping; risk flags and common errors; and a practical decision framework for businesses operating across both jurisdictions.
What is the legal basis for wind-down authorisations in each regime?
Under OFAC, the authority to issue general licences (standing permissions for a defined class of transactions, requiring no individual application) and specific licences (case-by-case authorisations granted on application) flows from the underlying executive-order authority, typically the International Emergency Economic Powers Act (IEEPA) or the Trading With the Enemy Act (TWEA), and from OFAC's implementing regulations for each programme. When OFAC designates a new person or expands a programme, it routinely publishes a general licence that permits a short window – often measured in days or weeks – to wind down pre-existing contracts and close out transactions. The precise scope and duration of any given general licence is published simultaneously with, or shortly after, the designation.
Canada's autonomous sanctions regime rests on the Special Economic Measures Act (SEMA) and, for certain thematic programmes, the Justice for Victims of Corrupt Foreign Officials Act. Global Affairs Canada (GAC) administers both. Wind-down provisions under SEMA operate through regulatory carve-outs that are either embedded in the primary amending regulation at the time of designation or published as separate ministerial permits. Unlike OFAC's general-licence machinery, which produces a self-standing, publicly accessible document, the Canadian carve-out may be incorporated as an exemption clause inside the designation regulation itself. This structural difference has immediate practical significance: the Canadian business must read the amending regulation carefully, not merely the press release, to understand the scope of any permitted wind-down activity.
In our cross-border practice, we have seen compliance teams proceed on the assumption that an OFAC general licence covering wind-down activity maps directly onto any concurrent Canadian permission. It does not. The two legal bases are independent. A transaction that OFAC has authorised by general licence may still require a separate Canadian permit, or may be governed by a more restrictive Canadian carve-out, or vice versa. The stricter prohibition governs for each jurisdiction's purposes.
The position above covers the standard case. Your facts – the counterparty, the contract structure, the currency, and the route of payment – change the analysis materially. For an assessment of your exposure under OFAC and the Canadian regime, contact Calder & Vance at info@caldervance.com.
How do the core wind-down mechanics compare?
OFAC wind-down general licences share a recognisable architecture, though the detail varies by programme. They typically identify: the sanctioned person or programme to which the licence applies; the category of transaction that qualifies (ordinarily, performing pre-existing contracts and unwinding financial positions); the permitted counterparties; the wind-down period (the calendar window within which the authorised activity must be completed); and any reporting or notification requirement. Critically, any funds received by a US person in the course of a wind-down that would otherwise be blocked must typically be placed in a blocked account or otherwise handled in accordance with the relevant OFAC rule. The authorisation to complete a transaction is not the same as an authorisation to retain the proceeds.
Canada's wind-down carve-outs follow a similar structural logic but with two differences that practitioners need to understand clearly.
First, the permitted activity under a Canadian carve-out is frequently defined more narrowly by its drafting. Where an OFAC general licence may broadly permit "winding down" a range of contractual obligations, a SEMA exemption clause is often drafted to permit specific enumerated acts only – for example, receiving a payment due under a contract signed before a specified date, or transferring title to goods already shipped. Anything not expressly enumerated is prohibited. A Canadian business that performs a permitted closing act but incidentally takes a step not listed in the carve-out may inadvertently breach SEMA.
Second, the Canadian regime does not have a self-service licensing mechanism equivalent to OFAC's general-licence register. Where an activity is not covered by the regulatory carve-out and a business needs additional time or scope, the avenue is a ministerial permit under SEMA. Obtaining one takes time and requires a demonstrated legal or humanitarian basis. There is no published fee schedule and no statutory decision deadline comparable to US administrative timelines. In our experience, businesses that discover a gap in coverage after the regulatory carve-out has already expired are left in a difficult position. Early identification of that gap is essential.
Does the ownership and control test affect who may use a wind-down authorisation?
Whether an entity is caught by a designation – and therefore needs an authorisation in the first place – depends on the ownership and control test applied by each regime. This threshold question determines who is a "blocked person" or "designated person" against whom wind-down activity must be authorised.
OFAC applies the 50 percent rule: an entity owned 50 percent or more in the aggregate, directly or indirectly, by one or more persons on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons) is itself treated as blocked, even if not separately listed. The test is mechanical. Two SDN-listed persons each holding twenty-six percent of a target aggregate to fifty-two percent; that target is blocked regardless of who manages it.
Canada's SEMA regulations apply a test that incorporates both ownership and control. An entity may be caught if it is owned, held, or controlled by a designated person, even without reaching a specific numeric threshold in all cases. The control limb extends the reach of the regime to entities where a designated person exercises direction or influence over the entity's affairs, a test that is more fact-intensive than OFAC's mechanical threshold and can produce different outcomes on the same fact pattern.
The practical consequence is significant for wind-down planning. A business may find that a counterparty triggers the OFAC 50 percent rule but falls outside Canada's control test – or the reverse. Before concluding that a wind-down authorisation is needed from both authorities, or from only one, the ownership chain must be analysed separately under each regime's test. Applying only one regime's methodology and assuming it produces a universally applicable answer is an error we see regularly in cross-border matters.
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.
What transactions fall within the scope of a wind-down authorisation?
Scope is where the divergence between OFAC and the Canadian regime most frequently causes operational disruption. Understanding what each authorisation actually permits – and what it does not – determines whether a business can execute its exit strategy lawfully.
Under OFAC, a wind-down general licence for a programme-wide designation typically permits US persons, and often non-US persons in specified circumstances, to complete transactions that were legally in place before the designation. This commonly includes: receiving contractual payments owed before the cut-off date; delivering goods already shipped; paying employees and ordinary operational costs during the wind-down period; and settling financial positions. What it does not authorise – absent a separate specific licence – is new business, extensions of credit, or transactions that go beyond completing what was already legally committed.
The Canadian regulatory carve-out generally covers a similar but narrower range. GAC's approach is to list permitted acts by category, and the enumeration matters. Payment for goods delivered is one category. Payment of outstanding invoices for services rendered is another. Each category is construed by reference to the regulation's drafting, not by reference to a background principle of "completing pre-existing obligations." Where the OFAC general licence might be read purposively, the Canadian carve-out is read textually.
Three scope questions arise in almost every cross-border wind-down matter we advise on.
- Does the authorisation cover third-party intermediaries – freight forwarders, correspondent banks, local sub-contractors – who touch the transaction? Under OFAC, the answer depends on whether those parties are themselves US persons or operating within a US-nexus transaction. Under SEMA, the reach depends on whether the intermediary is a "person in Canada" or a Canadian entity abroad.
- Does the authorisation cover the receipt of funds in a currency other than USD? OFAC's rules apply to all transactions involving a US-person nexus or a US-dollar clearing nexus. Canada's rules apply to persons and activities with a Canadian nexus regardless of currency.
- What happens to the proceeds? OFAC is clear that wind-down authorisations do not create an entitlement to retain funds that would otherwise be blocked. Canada's regime is less explicit on this point, but the general principle under SEMA is that dealing in property of a designated person is prohibited absent a specific carve-out or permit.
What are the procedural requirements and record-keeping obligations?
Procedural compliance under each regime is not optional. It is the difference between a lawfully completed wind-down and an apparent violation that invites enforcement scrutiny.
Under OFAC, the procedural requirements for a wind-down general licence typically include operating within the stated time window, limiting activity to the permitted transaction types, ensuring that any funds that would otherwise be blocked are handled correctly, and retaining documentation. OFAC's general record-keeping guidance requires that records be maintained for a period consistent with the applicable programme's rules; in practice this is often five years from the date of the transaction. Businesses that cannot produce records demonstrating that a transaction fell within the scope of a general licence are in a materially weaker position in any subsequent enforcement enquiry, even if the activity was in fact lawful.
Canada's procedural requirements under SEMA carry a distinct reporting dimension. Canadian persons and entities, including financial institutions, are required to report certain dealings with designated persons to GAC under the applicable regime's reporting provisions. A wind-down transaction involving a designated person's property may itself trigger a reporting obligation, separate from the question of whether the transaction is authorised by a carve-out. Failure to report when required is itself a breach of the regime, independent of whether the underlying transaction was lawful.
Two further procedural points deserve attention. First, where a Canadian ministerial permit is obtained to cover a gap in the carve-out, the conditions of the permit are binding. A permit holder that exceeds the permit's scope is not protected by it. Second, under both regimes, the wind-down window is fixed and does not automatically extend if the business encounters operational difficulties. Seeking additional time requires a separate application – a specific licence under OFAC, or a ministerial permit under SEMA – and neither authority is under an obligation to grant it.
For a more detailed review of frozen-account management and the interaction with BIS export-control authorisations, see our analysis of frozen account management under BIS and the EAR.
What are the principal risk flags for cross-border businesses?
Businesses operating across both OFAC and SEMA jurisdiction face a specific set of risk patterns. In our experience, the following are the most common – and the most serious.
Assuming jurisdictional overlap produces a unified permission. The fact that OFAC has published a wind-down general licence does not mean Canada has done the same, and the two instruments may differ in scope, duration, and conditions. Each regime must be assessed independently before any transaction proceeds.
Timing mismatches create a second risk. OFAC general licences for wind-down activity are often published simultaneously with or shortly after the designation, sometimes with a window of only a few days. GAC's amending regulations may follow a different publication schedule. A business that monitors only one authority's output may miss the Canadian window entirely or misread its duration. Have you set up monitoring for both OFAC and GAC designation notices?
Currency and clearing risk is a third area. A Canadian business winding down a contract denominated in US dollars and routed through a US correspondent bank is simultaneously subject to OFAC jurisdiction (because of the USD clearing nexus) and Canadian jurisdiction. Both regimes must permit the transaction. If the US bank receives an OFAC SDN hit on the counterparty and applies its own blocking obligation, the wind-down transaction may be frozen at the clearing stage even if both regimes' authorisations are in place at the business level.
A fourth risk is the de-risking response of financial institutions. A bank that identifies a wind-down transaction involving a designated person may decline to process it even when an applicable authorisation exists, either because its own compliance programme is risk-averse or because it has not reviewed the authorisation. This is not unlawful on the bank's part, but it can make an authorised wind-down practically impossible without advance engagement with the bank.
Fifth, ownership-chain errors. A business that has screened its direct counterparty but not traced the counterparty's ownership chain may discover mid-wind-down that it has been dealing with a blocked entity from the outset. At that point, the apparent wind-down transaction becomes an apparent violation of the primary prohibition, not a wind-down of a pre-existing obligation.
For a detailed comparison of the OFSI and EU approaches to wind-down authorisations – which interact with the OFAC and Canadian positions for groups with UK or European operations – see OFAC vs OFSI: Wind-down authorisations compared and OFSI vs EU: Wind-down authorisations compared.
A common misconception: the wind-down window is automatic and self-policing
One myth recurs across every cross-border wind-down engagement we advise on: that the existence of a general licence or a regulatory carve-out means the business simply needs to move quickly and document what it does. In this view, the wind-down authorisation is a no-fault zone, a period in which normal compliance logic is suspended.
That view is wrong, and acting on it generates enforcement exposure.
A wind-down authorisation is a conditional permission. It is conditional on the transaction falling within the scope of the authorisation, on the counterparty being the person identified in the authorisation, on the activity being completed within the specified window, and – under OFAC – on any blocked funds being handled correctly rather than retained. A business that exceeds any of these conditions is outside the authorisation and is conducting a prohibited transaction, even if it believed it was winding down.
Under Canada's SEMA regime, the conditional nature of the carve-out is even more acute because the carve-out is defined by its precise drafting. There is no background principle of reasonableness that fills in the gaps. If an act is not listed, it is not permitted. A business that performs an unlisted act during the carve-out period cannot argue that the act was consistent with the purpose of the carve-out. The text governs.
The enforcement consequences of exceeding an authorisation under either regime can be significant. Under OFAC, a transaction that falls outside a general licence is treated as an apparent violation, subject to the full range of civil and potentially criminal penalties under the applicable programme. Canada's SEMA provides for serious penalties for breach of the sanctions provisions. In neither case does the good-faith belief that the authorisation covered the transaction automatically constitute a defence, though it is a relevant factor in the enforcement analysis.
A practical decision framework for businesses with cross-border exposure
The following framework reflects the approach our practice takes in cross-border wind-down matters. It is a decision sequence, not a guarantee of outcomes.
Step one: confirm the designation and identify the affected jurisdiction. Before any analysis of wind-down options, confirm that the counterparty is in fact designated under the relevant programme and that the designation triggers obligations in both the OFAC and Canadian spheres. Not every OFAC designation has a corresponding Canadian designation, and vice versa. The analysis starts with the specific lists and the specific programmes that apply.
Step two: identify the applicable authorisation in each jurisdiction simultaneously. For OFAC, this means reviewing the general licence published at or near the time of designation. For Canada, this means reading the amending SEMA regulation and any accompanying ministerial notice. The two documents should be reviewed in parallel, not sequentially.
Step three: map the transaction against the scope of each authorisation. For each act required to complete the wind-down – each payment, delivery, transfer, or communication – determine whether it falls within the permitted category in both regimes. Where a transaction is authorised under one regime but not the other, that transaction cannot proceed without an additional licence or permit.
Step four: identify the time constraint. Note the expiry date of each authorisation. Where the OFAC window and the Canadian window differ, the effective constraint is the earlier of the two. Build the operational timeline backwards from that date.
Step five: assess the financial-institution and payment-route risk. Identify the banks and payment processors that will touch the wind-down transactions. Engage them early. Provide the relevant authorisation documents and a short written explanation of the legal basis. A bank that is not aware of the authorisation may freeze the transaction on its own compliance grounds.
Step six: establish a contemporaneous documentation system. Every decision made during the wind-down should be documented at the time it is made, including the scope analysis, the authorisation relied upon, and the date. Post-hoc documentation carries far less weight in any enforcement review than records made in real time.
Step seven: identify gaps early and apply for additional authorisation promptly. If a required act falls outside both authorisations, assess whether a specific licence from OFAC or a ministerial permit from GAC is available. Neither process is fast. An application filed on the last day of the wind-down window will almost certainly not produce a decision before the window closes.
In a recent matter, a manufacturing group with operations in two jurisdictions identified a three-day gap between its OFAC wind-down window and its Canadian carve-out period. We mapped the group's outstanding contractual obligations, prioritised the acts that could be completed within the tighter OFAC window, and prepared a ministerial permit application to cover the remaining acts under SEMA. The matter was resolved without a gap in lawful coverage. Timing drove every decision.
Related practices
- Frozen account management under BIS and the EAR – managing blocked assets under US export-control authority during a live sanctions event
- OFAC vs OFSI: Wind-down authorisations compared – a criterion-by-criterion comparison for businesses with UK operations
- OFSI vs EU: Wind-down authorisations compared – divergences in the UK and EU wind-down regimes