A multinational with contracts, equity positions, or credit facilities linked to a sanctioned counterparty faces a question that is deceptively simple to state and genuinely difficult to answer: how do you exit? The commercial pressure is to move quickly. The legal pressure pulls in two directions at once. OFSI and the EU operate on different legal bases, apply different ownership-and-control tests, and offer different licensing routes for wind-down activity. Getting one regime right while inadvertently breaching the other is a risk we see regularly in cross-border practice.
Winding down sanctioned exposure – the structured exit from a contract, credit line, shareholding, or operating relationship that has been caught by a designation – requires separate legal authorisation under each applicable regime. Under OFSI the governing instrument is the UK Sanctions and Anti-Money Laundering Act ("SAMLA") and the relevant thematic regulations; under the EU it is the applicable Council Regulation and Council Decision. Neither regime grants an automatic wind-down right. A specific licence – or reliance on a precisely scoped general licence – is required before any transaction in blocked funds or assets can proceed.
This analysis maps the divergence across the key dimensions: legal authority, ownership and control, the licensing gateway, timelines, reporting obligations, and enforcement posture. It closes with a cross-border decision sequence for a business managing exposure under both regimes simultaneously.
What is the legal basis for wind-down activity under each regime?
The legal basis determines what a licence can authorise and, crucially, what it cannot. Under OFSI, the power to license sits in SAMLA and the relevant thematic sanctions regulations. OFSI may grant a licence for a purpose specified in those regulations; the licensing grounds are enumerated, and wind-down is not a standalone ground in every thematic programme. Under the EU, the applicable Council Regulation sets out the prohibitions and the licensing competence simultaneously, with each Member State's competent authority implementing the Regulation in its own territory.
The practical consequence is regime-specific. A UK business exiting a joint venture with a designated counterparty must identify which OFSI licensing ground applies to its proposed transactions. A parallel EU exposure requires the same analysis against the EU Regulation, often with a different competent authority. The grounds may align, but the procedural requirements differ, and the timelines almost certainly will. In our cross-border practice, we routinely advise businesses that have mapped the UK position carefully but have underestimated the Member State variation on the EU side.
A further divergence concerns scope. OFSI's prohibitions attach to UK persons and to conduct within the United Kingdom. The EU Regulations apply to EU persons and to conduct within the EU, but also – depending on the programme – to conduct outside the EU by EU-incorporated entities. Secondary-sanctions exposure under OFAC adds a third layer: a business with US-dollar clearing or US-person involvement faces concurrent obligations that do not switch off because a UK or EU licence has been obtained. The question "have we covered all three?" is one a compliance team must answer before any wind-down transaction moves.
How do the ownership-and-control tests differ between OFSI and the EU?
Ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person) is the threshold question before wind-down planning can begin. A business first needs to know whether its counterparty is itself subject to the prohibition – and the answer may differ between regimes.
OFSI applies a test that asks whether a designated person owns or controls the entity in question. "Owns" means a direct or indirect holding of more than 50 percent of the shares or voting rights. "Controls" extends beyond numerical ownership: OFSI can treat an entity as controlled by a designated person where that person has the right to appoint or remove a majority of the board, or otherwise directs the affairs of the entity. The control limb is qualitative and requires legal analysis; it is not resolved by running percentage thresholds alone.
The EU position mirrors the general structure but is implemented across Member State competent authorities, and interpretive guidance varies. Both regimes go further than the OFAC mechanical 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) in one important respect: the control test can capture entities with minority designated-person shareholdings if the governance structure effectively places decision-making in designated hands.
For wind-down purposes, this matters because transactions with an entity that is itself subject to the prohibition – even without a direct listing – are caught and require the same licensing gateway as transactions with the listed person. A business that has screened only listed persons and not traced the ownership-and-control chain to second-tier entities is not protected. Have you mapped the full chain, or only the named counterparty?
What does the licensing gateway look like under OFSI compared with the EU?
A specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) is the primary route for wind-down activity under both regimes. Under OFSI, the application is made directly to OFSI's licensing team. Under the EU, the application goes to the competent authority of the Member State in which the applicant is incorporated or the transaction takes place – or both, if the matter spans jurisdictions.
OFSI's process is relatively centralised for UK applicants. The application must identify the applicable licensing ground, the parties, the transactions proposed, the amounts involved, and the duration of the wind-down period. OFSI may grant a licence subject to conditions, including reporting obligations and periodic review. A general licence (a standing authorisation that permits a defined category of transactions without a separate application) may cover certain wind-down activity under specific thematic programmes, but reliance on a general licence requires careful reading: the transaction must fall precisely within the terms, and any deviation requires a specific licence.
The EU equivalent is structurally similar but operationally more fragmented. Competent-authority practice varies across Member States. Some issue reasoned decisions within a relatively short period; others operate at a slower administrative pace. Where a business has operations or counterparty relationships in multiple Member States, parallel applications may be required – there is no EU-level single licensing gateway for the major thematic programmes. In a recent matter, a financial institution with credit exposure in three EU jurisdictions needed to coordinate applications with three different competent authorities simultaneously, each applying the same Regulation but with different procedural requirements and different expectations of the supporting materials.
The position above covers the standard case. Your facts – the counterparty's designation basis, the assets involved, the jurisdictions of the parties, and the specific transactions contemplated – change the analysis materially. For an early assessment of your licensing options under OFSI or the applicable EU regime, contact Calder & Vance at info@caldervance.com.
What are the key risk flags during a wind-down that counsel routinely identify?
The wind-down period is not a compliance-free zone. Transactions that are permitted by the terms of a licence remain subject to reporting conditions, record-keeping requirements, and the risk of inadvertent scope creep. Four risk flags appear consistently across OFSI and EU mandated wind-downs.
First, scope creep in the transaction set. A licence typically enumerates the permitted transactions. Parties under commercial pressure will sometimes add transactions that were not in the original scope – a final payment, a security release, an ancillary service fee. Each addition requires a separate licensing assessment, not an assumption that the existing licence covers it. We regularly advise clients to treat the licence terms as a closed list and to seek a variation rather than proceed on a broad reading.
Second, the treatment of accruals and interest. Where a credit facility or bond is being wound down, accrued interest and fees represent incremental transfers of value to or from a designated person or a controlled entity. OFSI's position on accruals is not the same as the EU competent-authority practice in all jurisdictions. The licence application must address this expressly.
Third, co-obligors and guarantors. A wind-down focused on the primary counterparty may overlook a guarantor that is itself a designated entity, or a co-obligor whose ownership chain connects to the same listed person. Settlement of the primary exposure does not automatically release obligations with designated guarantors.
Fourth, post-licence notification and reporting. Both OFSI and many EU competent authorities impose reporting obligations as a condition of the licence. Missed reports are enforcement triggers. The reporting window is typically short and is set by the licence itself; OFSI's statutory reporting obligation for known or suspected breaches operates separately and runs from the moment of knowledge or suspicion. Both timelines must be tracked concurrently.
How does the wind-down position compare when OFAC exposure is also in play?
The OFAC position sits alongside, and does not yield to, an OFSI or EU licence. A business with US-dollar transactions, US-person employees or directors involved in the wind-down, or US-correspondent-bank clearing cannot treat a UK or EU licence as cross-regime permission. The OFAC analysis is separate and proceeds under IEEPA and the applicable programme regulations.
The divergence in ownership tests creates a specific cross-regime risk. A counterparty that is not caught by OFSI's control test – because the designated person's influence is indirect and falls short of the OFSI control standard – may nonetheless be caught by OFAC's mechanical 50 percent rule if aggregate blocked-person ownership meets the threshold. The OFSI licence for wind-down activity with that counterparty does not resolve the OFAC exposure. The two analyses must run in parallel.
Conversely, a business may hold an OFAC specific licence for wind-down and assume that this covers the UK position. It does not. OFAC and OFSI operate entirely independently. There is no mutual-recognition mechanism. Where a wind-down spans US, UK, and EU obligations, a coordinated licensing strategy – addressing each regime's requirements sequentially or in parallel – is the only reliable approach.
The correspondent banking and de-risking practice at Calder & Vance specifically addresses the interaction between OFAC and OFSI in cross-border financial transactions, including wind-down scenarios involving dollar-clearing exposure.
What are the common misconceptions about wind-down authorisations?
One of the most persistent misconceptions we encounter is that a wind-down is inherently low-risk because the parties' intent is to exit rather than to continue. OFSI and the EU competent authorities do not weight intention in this way. The prohibition attaches to the transaction, not the purpose. An unlicensed transaction that forms part of a wind-down is a breach to the same degree as a transaction that extends the relationship.
A related misconception is that a general licence for wind-down activity, if one exists under the relevant thematic programme, will cover the full breadth of what a commercial wind-down requires. General licences are drafted narrowly. They typically cover specific transaction types, cap the value or duration, and require the parties to meet defined conditions. A financial institution winding down a multi-instrument credit facility is unlikely to find that a single general licence covers all components. Specific licensing for the complex elements is almost always required alongside any general-licence reliance.
A third misconception concerns the de-risking (a financial institution exiting a relationship to avoid sanctions exposure) dynamic. Banks and payment processors sometimes withdraw services from a business on the basis that the business has sanctioned exposure, before the business has had an opportunity to obtain a wind-down licence. This is commercially damaging and may itself require legal management. The regulatory pathway for a licensed wind-down is a legitimate and recognised route; engaging OFSI or the relevant EU competent authority at the outset of a wind-down provides documented evidence of lawful intent that can be presented to correspondent banks and payment providers.
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 review of your position.
What decision sequence should a cross-border business follow to manage wind-down exposure?
The decision sequence for a cross-border wind-down proceeds in a defined order. Skipping a step does not eliminate the obligation it addresses; it merely defers the risk.
Step one is scope definition. Map the full set of contracts, instruments, and relationships that involve the designated person or a controlled entity. This includes direct holdings, indirect interests traced through the ownership-and-control analysis, guarantees, derivatives, and service agreements. The output is a structured inventory against which licences can be scoped.
Step two is regime identification. For each item in the inventory, identify which regimes apply. A single counterparty relationship may engage OFSI, one or more EU competent authorities, and OFAC simultaneously. Each regime requires separate analysis.
Step three is transaction triage. Within the inventory, separate transactions that may be covered by an existing general licence from those that require a specific licence, and from those that are prohibited outright under the applicable programme without any available licensing ground. The last category may require the relationship to remain frozen until the designation is lifted or modified.
Step four is licensing strategy. For each transaction requiring a specific licence, prepare the application with full supporting materials: the ownership-and-control analysis, the transaction description, the parties, the amounts, the proposed timetable, and the exit mechanism. Submit to OFSI and, in parallel, to the relevant EU competent authorities. Coordinate timing where possible.
Step five is operational execution within licence terms. Once licences are granted, establish internal controls to ensure that only transactions within the licence scope are executed. Assign a licence manager, set reporting calendar alerts, and build in a pre-expiry review to assess whether a licence extension is required.
Step six is post-wind-down confirmation. Once the exposure has been exited, notify the relevant authorities as required by the licence conditions, retain all records for the required period, and conduct a lessons-learned review to update the business's screening and due-diligence procedures.
Situation A: a single credit facility with a designated counterparty – OFSI specific licence route, supported by a concurrent OFAC analysis for dollar-clearing elements; indicative timeline depends on the complexity of the application and OFSI's current processing volume, which varies.
Situation B: a cross-border equity holding involving an EU-incorporated subsidiary and a UK-incorporated parent, both with exposure – parallel OFSI and EU competent-authority applications, coordinated to avoid one licence expiring before the other is granted; highest risk of a procedural gap requiring interim protective steps.
Related practices
- Correspondent banking and de-risking (OFAC) – managing OFAC exposure in cross-border financial relationships including wind-down scenarios
- Correspondent banking de-risking matter (OFAC) – illustrative matter: managing a wind-down under OFAC in a correspondent banking context
- Correspondent banking de-risking matter (SECO) – Swiss regime considerations in cross-border de-risking and wind-down
Frequently asked questions: winding down sanctioned exposure – OFSI vs EU
Where do the regimes diverge on winding down sanctioned exposure?
The principal divergences are structural and procedural. OFSI is a single competent authority for the United Kingdom; the EU regime is implemented by Member State competent authorities, creating variation in process and timelines across jurisdictions. The ownership-and-control test is broadly aligned but applied with different guidance and interpretive weight. General-licence coverage differs between programmes. Where a business has exposure under both regimes, parallel licensing is required with no mutual-recognition shortcut. The cross-regime risk is highest where transactions involve both sterling and euro instruments, or where group entities sit in both the UK and the EU.
Which regime is stricter on winding down sanctioned exposure?
Strictness depends on the metric. OFSI's enforcement posture has increased materially in recent years, and the civil penalty regime operates on a strict-liability basis for the primary prohibition. EU competent-authority practice varies by Member State: some apply a vigorous enforcement standard; others have historically been more permissive. For wind-down specifically, the practical bottleneck under the EU is the licensing timeline and competent-authority capacity, which differs across jurisdictions. Under OFSI, the primary constraint is the scope of available licensing grounds, which are programme-specific. Neither regime should be treated as a light-touch alternative to the other.
What should a cross-border business do about winding down sanctioned exposure?
Act early and obtain legal advice before any transaction in the wind-down proceeds. Map the full ownership-and-control chain to identify all entities subject to the prohibition. Identify every applicable regime – OFSI, the relevant EU competent authorities, and OFAC where US-person or US-dollar nexus exists. Prepare licensing applications with complete supporting materials; incomplete applications delay the process. Establish internal controls for licence-scope compliance and reporting. Retain all records for the period required by each regime. A voluntary self-disclosure – or VSD – should be considered promptly if any unlicensed transaction has already taken place during the wind-down period.
About the author
Henry Ashworth advises on UK financial sanctions and export controls, including OFSI licensing and enforcement, and judicial-review challenges to designations. 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.
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.