A Canadian distribution business has operated under a long-standing supply arrangement with a counterparty whose parent company appears, without warning, on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The arrangement must stop. But stopping cleanly – settling invoices, returning goods, closing accounts – requires time. Both OFAC and the Canadian sanctions regime administered by Global Affairs Canada (GAC) address exactly this situation through wind-down authorisations. The rules, however, are not the same. Businesses that treat the two regimes as interchangeable expose themselves to precisely the violations they are trying to avoid.
Wind-down authorisations under OFAC and the Canadian autonomous sanctions regime both permit a defined window of activity to close out a prohibited relationship, but they differ materially in scope, duration, conditions, and reporting obligations. As of June 2026, OFAC's general-licence mechanism for wind-downs is more granular and more procedurally demanding than the Canadian equivalent – and where both regimes apply simultaneously, the stricter prohibition governs each step. Understanding that divergence is not optional for any business operating across the US–Canada corridor.
This analysis sets out the legal basis of each regime, maps the key procedural divergences, identifies the risk flags that practitioners see most often, and explains when specialist counsel should be involved before – not after – a wind-down begins.
What is a wind-down authorisation, and which authority governs it?
A wind-down authorisation is a general licence (a standing authorisation that permits a defined category of transactions without a separate application) or, in some regimes, a specific authority, that allows persons to carry out otherwise-prohibited transactions solely for the purpose of closing out a pre-existing relationship with a newly-sanctioned counterparty. The authorisation is not an exemption from sanctions. It is a time-limited permission to do what the law would otherwise prohibit, under conditions that the issuing authority sets and can revoke.
Under US sanctions law, OFAC administers wind-down general licences under powers derived from IEEPA and the relevant thematic sanctions regulations. OFAC issues them programme by programme; the precise scope varies between programmes, and a licence valid under one programme offers no cover under another. That point alone surprises many businesses operating across multiple counterparty relationships.
Canada's autonomous sanctions regime operates under the Special Economic Measures Act (SEMA) and the associated country- or thematic-specific regulations made under it. GAC administers the regime. Unlike OFAC, GAC does not publish a standing general-licence architecture. Wind-down permissions in Canada typically arise either from a permit issued by the Minister of Foreign Affairs or from a specific exception carved into the applicable regulations. The absence of a published general-licence library is one of the most significant structural differences between the two systems.
When both OFAC and the Canadian regime apply to the same counterparty relationship – a common situation given the deep integration of US and Canadian supply chains – a business must comply with both simultaneously. Where the two regimes impose different conditions on the same activity, the stricter prohibition governs that step. There is no harmonisation agreement that resolves the conflict.
How OFAC structures wind-down general licences: scope and conditions
OFAC wind-down general licences are programme-specific instruments that authorise a defined set of transactions – typically, payment of pre-designation invoices, return of goods, termination of contracts, and closure of correspondent accounts – within a stated period following the relevant designation or programme amendment. The authorisation is self-executing: a business does not apply in advance. It relies on the licence, documents its reliance, and is accountable if it mis-reads the scope.
Several conditions recur across programmes, and missing any one of them voids the protection the licence appears to offer. First, the activity must be genuinely wind-down in nature. New deliveries, new credit extensions, or new services are not permitted even if a pre-existing contractual obligation might be cited as justification. In our experience, the most common error is treating an ongoing obligation as a "pre-existing" one when the commercial relationship had been refreshed or extended after the designation date.
Second, the counterparty who is or will be the blocked person cannot receive a net benefit from the wind-down transaction beyond what they were owed before designation. Settling a pre-designation invoice is within scope. Making a new payment as a goodwill gesture is not. The line between the two can be subtle when interest, penalties, or currency-conversion gains are involved.
Third – and this is where businesses working across the US–Canada corridor are most exposed – OFAC wind-down licences do not override any other legal requirement. If a payment routed through the US financial system requires clearance from a US correspondent bank, that bank is operating under its own OFAC obligations. The wind-down general licence does not compel a US financial institution to process the payment; it only removes the US-person liability for making it.
OFAC's record-keeping requirements apply in full during any wind-down period. A business relying on a general licence must retain the documentation that establishes its eligibility for five years from the date of the transaction. That includes evidence of the pre-designation relationship, the invoices or contracts being closed out, and any correspondence with the counterparty confirming that no new business is being transacted.
The position above covers the standard OFAC case. Your facts – the counterparty's ownership structure, the goods or services involved, the route of any payments, and the specific programme under which the designation was made – change the analysis in ways that a general-licence text cannot anticipate.
For a cross-regime assessment of your wind-down exposure, contact Calder & Vance at info@caldervance.com.
How Canada's regime handles wind-downs: permits, exceptions, and the structural gap
Canada's approach to wind-down authorisations is structurally different from OFAC's, and understanding the difference is essential for any compliance officer managing a dual-jurisdiction wind-down. Where OFAC publishes a granular general-licence architecture that a practitioner can read and apply, GAC's regime relies on a permit system that requires affirmative ministerial action – there is no standing wind-down general licence available to all persons by operation of the regulations alone.
Under SEMA, the Minister of Foreign Affairs may issue a permit authorising any activity that would otherwise be prohibited by the applicable regulations. Permits can be issued to a specific person or to a class of persons. The criteria GAC applies when issuing permits are not codified in the same detail as OFAC's licensing policy statements; the process is less transparent in terms of published precedents. For a business facing a sudden designation affecting a significant supply-chain relationship, that opacity creates real timing risk.
Some of the Canadian country-specific regulations do include standing exceptions – provisions that permit certain categories of transaction without a permit. These exceptions are narrower than OFAC's general-licence texts and are typically limited to humanitarian, diplomatic, or personal-maintenance activities. Commercial wind-downs of supply arrangements are rarely covered by a standing exception. A business that assumes a Canadian exception covers the same ground as a parallel OFAC general licence will often find it does not.
The timing difference compounds the structural one. OFAC wind-down general licences typically come into effect at the same time as or very shortly after the designation that triggers them, because OFAC publishes them as part of the programme architecture. A Canadian permit, by contrast, must be applied for and processed after the need arises. GAC does not publish a standard processing timeline; experience suggests the window can be measured in weeks rather than days for commercially complex situations. A business operating on a tight delivery schedule or facing imminent contract-termination penalties cannot assume the permit will arrive before the deadline.
We regularly advise clients that the Canadian permit application must be prepared and filed at the same time that the business is taking its first wind-down steps under an OFAC general licence. Waiting for OFAC compliance to be confirmed before starting the Canadian process loses days that the Canadian process requires.
Where the regimes diverge most sharply: a criterion-by-criterion comparison
The divergence between OFAC and the Canadian regime is not simply a matter of one being stricter than the other in all respects; the divergences are structural, and they affect different stages of a wind-down differently. A compliance team that maps the two regimes side by side will find at least four axes of material difference.
Availability and self-execution. OFAC wind-down general licences are self-executing: a business reads the text, confirms it qualifies, and acts. Canada requires a permit for commercial wind-downs, which is issued at ministerial discretion after an application. The former creates a compliance-documentation burden; the latter creates a timing and certainty risk that no amount of internal documentation resolves on its own.
Scope of permitted activity. OFAC general licences are drafted with specificity – particular categories of transaction, particular counterparties, particular goods or services – and the text defines the outer edge of permitted activity. Canadian permits are issued on a case-by-case basis, and the permitted scope is set by the permit text itself, which can be tailored narrowly or broadly depending on the facts presented. A business applying for a Canadian permit can therefore, in principle, seek a broader scope than a comparable OFAC licence would allow – but it bears the burden of justifying that scope.
Reporting and record-keeping obligations. OFAC's record-keeping requirement of five years applies automatically to any person relying on a general licence. Canada's SEMA regime also imposes record-keeping obligations, but the specific requirements are set out in the applicable regulations and may differ by programme. In a dual-jurisdiction wind-down, a business must satisfy both sets of requirements concurrently. Where they conflict on format or retention period, the more demanding standard applies to that element.
Residual US-nexus risk under OFAC general licences. A Canadian business that is not itself a US person may nonetheless have OFAC exposure if US persons or US-dollar transactions are involved in the wind-down. OFAC's wind-down general licence may cover the Canadian entity's activity in one respect while a US correspondent bank applies its own reading of the same licence text to decide whether to process the payment. That creates a gap between legal permission and practical execution. The Canadian regime does not generate equivalent secondary-sanctions risk in the same direction, but a Canadian permit does not resolve the US-nexus question.
If a transaction has already been flagged or a wind-down filing has been refused, an early review preserves options that narrow with time. For a confidential assessment of your exposure under both regimes, contact Calder & Vance at info@caldervance.com.
Risk flags practitioners see most often in cross-border wind-downs
Wind-down authorisations are among the most technically demanding general-licence provisions in practice, because they require a business to act quickly while simultaneously managing documentation, counterparty communication, financial-institution relationships, and multi-regime compliance. In our experience across cross-border matters, the following risk patterns arise most frequently.
Designation date uncertainty. OFAC designations become effective at the moment of publication, not at the open of the next business day. A payment sent in transit when the designation is published may be caught even if it was initiated before the business knew of the designation. A Canadian permit application based on a relationship that pre-dates the designation must still identify the precise effective date. Businesses that rely on approximate knowledge of the designation date expose themselves to gap-period violations.
Ownership chain changes after designation. Where a parent is designated, the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) automatically blocks all subsidiaries that meet the threshold. A wind-down of the parent relationship does not automatically cover payments to or from a subsidiary that is itself now blocked. We have acted for businesses that believed their wind-down licence covered a subsidiary transaction – it did not, because the subsidiary's blocking status arose from the parent's designation and required its own analysis.
Misreading the scope of permitted activity. Wind-down general licences typically permit "completing" a transaction but not "extending" it. The line is not always obvious. Renewing a letter of credit that would otherwise expire during the wind-down period is not the same as closing it out. Shipping the final tranche of a partially-completed order may or may not fall within the licence scope depending on whether new export steps are required. Each of these questions requires a fact-specific reading of the licence text, not a general assumption that "winding down" covers any step that reduces the exposure.
Canadian subsidiary or affiliate involvement. A US parent entity managing a wind-down under an OFAC general licence may not have considered that its Canadian subsidiary is simultaneously subject to the Canadian regime and may need its own permit. The Canadian subsidiary is not covered by the US parent's OFAC licence. Conversely, a Canadian permit issued to the Canadian entity does not extend to the US parent's activities. Each legal entity must establish its own compliance basis in each applicable regime.
Financial-institution bottlenecks. Even a technically valid wind-down may fail at the point of payment if the correspondent bank or the payment system operator declines to process the transaction. OFAC guidance on wind-down licences does not compel financial institutions to act; it only removes the legal exposure for the person relying on the licence. Businesses should identify early whether their banking counterparties will process the contemplated payments, and should have contingency arrangements in place before committing to a wind-down timeline.
Applying the analysis: a decision sequence for dual-jurisdiction wind-downs
For a business facing a designation that affects a supply-chain or contractual relationship spanning the US–Canada corridor, a coherent decision sequence reduces the risk of a mid-wind-down violation. The sequence below is not a substitute for advice on specific facts, but it reflects the practical logic that compliance counsel applies at the outset of these matters.
Step one – confirm the designation and effective date. Before any other step, verify the designation directly against the SDN List, confirm the effective date to the hour, and determine whether any subsidiaries or affiliates of the counterparty are also blocked under the 50 percent rule. Do not rely on press reports or third-party screening alerts as the primary source; the official list text governs.
Step two – identify the applicable OFAC programme and the wind-down general licence, if any. Not every OFAC programme includes a wind-down general licence. Where one exists, read the text precisely: permitted activities, permitted parties, duration, and conditions. Confirm whether your entity and your counterparty fall within the scope of the licence as written. A reading that is merely plausible is not sufficient; the reading must be supportable on the face of the text.
Step three – assess the Canadian position simultaneously. Identify whether the Canadian autonomous sanctions regime designates the same counterparty or imposes equivalent prohibitions. Determine whether a standing exception in the applicable regulations covers any part of the contemplated wind-down activity. If not – which is the common case for commercial arrangements – initiate the GAC permit application without waiting for step two to be finalised.
Step four – map the financial flows. For each payment or value transfer contemplated during the wind-down, identify every jurisdiction, every financial institution, and every US-nexus element. A payment that travels through a US correspondent bank attracts OFAC jurisdiction regardless of the nationality of the payer or payee. Confirm in advance that the financial institutions in the chain will process the transactions under the wind-down licence or permit.
Step five – document contemporaneously. Record-keeping obligations under OFAC require five years of retention for documents establishing eligibility for the licence. Documentation should be prepared at the time of each transaction, not reconstructed afterwards. Under the Canadian regime, retain all permit correspondence and supporting materials in accordance with the permit conditions and the applicable regulations.
Step six – evaluate whether a specific OFAC licence is preferable. Where the scope of the wind-down activity does not fit cleanly within any available general licence, a specific licence (a case-by-case authorisation to conduct an otherwise-prohibited transaction) may provide clearer authority. The application process takes time – typically longer than the standard wind-down period – so the assessment must be made at the earliest possible stage.
The myth that the two regimes are "substantially equivalent"
A common view among compliance officers managing cross-border arrangements is that OFAC and the Canadian sanctions regime are "substantially equivalent" in their treatment of wind-down situations, and that compliance with one is a reliable proxy for compliance with the other. That assumption is understandable, given that the two regimes frequently list the same counterparties and pursue broadly similar policy objectives. It is also incorrect in ways that matter operationally.
The equivalence assumption fails at precisely the point where operational decisions are made. OFAC's wind-down general licences are programme-specific; Canada's permit system is case-specific. OFAC record-keeping obligations are triggered automatically; Canadian obligations are triggered by the permit conditions, which vary. OFAC's 50 percent rule is mechanical and objective; the Canadian ownership and control test may differ in application. Where a US-dollar payment is involved, OFAC jurisdiction arises for a reason entirely independent of whether the parties are US persons – and a Canadian permit does not address that US-nexus question at all.
We regularly encounter situations where a business has invested significant effort in establishing its OFAC compliance basis for a wind-down and has then discovered, at the point of payment, that its Canadian subsidiary required a permit it had not sought. The reverse is equally common: a Canadian entity holding a GAC permit that it believed covered its banking activity, only to find that the payment was declined by a US correspondent bank operating under OFAC rules the Canadian permit did not address.
The correct approach is to treat the two regimes as independent compliance obligations that must be satisfied concurrently, not sequentially or by reference to each other. A compliance team that maps the two regimes against the specific facts of the proposed wind-down activity, before any steps are taken, will identify the gaps that create exposure. One that assumes equivalence will discover those gaps only after the wind-down has begun.
Related practices
- Frozen Account Management – BIS / EAR – managing blocked or frozen accounts under US export-control licensing regimes
- OFAC vs Canada: Wind-down Authorisations – Part II – extended analysis of specific-licence applications and post-wind-down reporting obligations
- OFAC vs OFSI: Wind-down Authorisations – comparing US and UK approaches to wind-down general licences across divergent programmes