A private equity firm closes a leveraged buyout. Six months later, one of the portfolio company's minority shareholders is designated under a major sanctions programme. The fund's legal team must now determine: is the portfolio company itself blocked? Can the fund exit its position lawfully? And does the answer change depending on whether the exit route runs through New York, London, Frankfurt, or Singapore? These questions are not hypothetical. They arise regularly, and the answers differ materially by regime.
Divesting a sanctioned interest cross-border requires simultaneous compliance with the rules of every jurisdiction whose sanctions have legal effect over the transaction. As of January 2026, the primary regimes – OFAC in the United States, OFSI in the United Kingdom, the EU Council regulations, and a growing set of autonomous national programmes – each impose distinct tests, licensing requirements, and reporting obligations. A divestiture that is lawful under one regime may be prohibited under another, and the stricter prohibition governs the whole transaction.
This guide works through the divestiture process in five stages: identifying the precise legal problem across each relevant regime, mapping the authorisation requirements, structuring the exit mechanics, managing reporting and record-keeping, and addressing the risk flags that most commonly arise in cross-border unwinding transactions.
Step 1 – Identify the legal problem across every relevant regime
Before a divestiture strategy can be designed, the transaction's legal status must be confirmed under each applicable regime. The first question in any cross-border divestiture of a sanctioned interest (an ownership stake, contractual right, or other economic interest that is blocked or restricted because of a sanctions designation) is not "how do we exit?" but "what exactly is blocked, in which regime, and why?"
Under OFAC, the analysis starts with the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). If a listed person owns 50 percent or more of an entity, directly or indirectly, that entity is itself treated as blocked under the 50 percent rule – regardless of whether it appears on the list. The test is mechanical: aggregation across multiple listed persons counts, and indirect ownership through chains of intermediaries is included.
Under OFSI and the EU Council regulations, the test incorporates not only ownership but also ownership and control (the test for whether a non-listed entity is caught through a listed person's ability to direct or significantly influence its decisions). A listed person owning forty-eight percent of an entity might not trigger the OFAC threshold, but they could exercise control within the meaning of OFSI's guidance or the relevant EU regulation. In our experience, transactions that pass an OFAC ownership screen still require careful analysis under the UK and EU control tests – and the results frequently diverge.
The practical starting point is a legal-status memo that maps each regime's position on the same set of facts: which entity is blocked or restricted, on what legal basis, and whether any general licence (a standing authorisation permitting a defined category of transactions without a separate application) already applies. This document drives every subsequent decision.
Step 2 – Map the authorisation requirements under each applicable regime
Every regime with sanctions effect over the divestiture must either permit the transaction as structured or issue an authorisation before it can proceed. The authorisation landscape in a cross-border divestiture is rarely simple, and the failure to identify a required licence in one jurisdiction can expose all parties to enforcement liability.
Under OFAC, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) is the standard route when no general licence applies. Applications are submitted to OFAC's Licensing Division and must include a detailed statement of facts, the legal basis for the request, and evidence of the transaction's structure. Response times vary considerably; in our practice, straightforward divestiture licences have been processed within a few months, but complex matters involving multiple designated parties or contested ownership chains take substantially longer. Verify the current processing timeframe before relying on a licence for transaction scheduling.
OFSI operates a parallel licensing regime under the UK framework. A specific licence from OFSI is required when the transaction involves UK-nexus activity and no statutory exception applies. OFSI's published guidance identifies the categories of purpose it regards as capable of supporting a licence – including, in certain contexts, divestiture to reduce sanctions exposure – but each application is assessed on its facts. OFSI has statutory grounds to impose conditions on licences and to revoke them.
The EU regime requires authorisation from the competent authority of the relevant member state; there is no single EU-wide licensing window. This means that a divestiture touching entities or assets in multiple EU member states may require co-ordinated applications to more than one authority, each applying the same underlying Council regulation but through its own national procedures and forms. Transaction counsel must identify the competent authority in each relevant state at the outset.
Where a transaction also involves parties in Singapore, Japan, the UAE, or other jurisdictions with their own autonomous sanctions programmes, each applicable country regime must be mapped. Singapore's Monetary Authority applies its own list and licensing framework; Japan's Ministry of Finance and Ministry of Economy, Trade and Industry each administer distinct controls; the UAE has its own Executive Office list and procedural requirements. The cross-regime authorisation matrix for a complex divestiture can be substantial, and identifying all required approvals before filing any single application prevents sequencing errors that delay the entire transaction.
The position above covers the standard case. Your facts – the nationality of the parties, the governing law of the relevant agreements, the currency of the transaction, and the location of assets – change the analysis materially. For a review of the authorisation requirements across the regimes that apply to your divestiture, contact Calder & Vance at info@caldervance.com.
Step 3 – Structure the exit mechanics to comply in every jurisdiction
A compliant divestiture structure must satisfy the most restrictive requirements of every applicable regime simultaneously. This is where cross-border divestiture becomes operationally complex: a structure that resolves the US position may require modification to satisfy OFSI, and a structure that satisfies OFSI may introduce complications under the EU regime or under the governing law of the transaction documents.
The first structural question is the identity of the buyer. Under all major regimes, transferring a blocked interest to another sanctioned person does not cure the sanctions problem; it may constitute an additional violation. The buyer must be screened – including for indirect connections to designated parties – before a transfer structure is finalised. In our cross-border practice, we regularly advise on buyer-side diligence in divestiture transactions where the seller's focus on its own licensing position has led it to underweight the buyer screen.
The second structural question is the treatment of proceeds. Where a transferor or transferee is designated, proceeds of a sale may themselves become blocked property depending on the regime. Under OFAC, blocked property includes proceeds of dealings in blocked property. The licence application – or the general licence relied upon – must specifically address the disposition of proceeds, not only the transfer of the interest itself.
The third structural question is timing and sequencing. Completing the transfer before all required authorisations are in place creates liability. Completing it after the expiry of a regulatory deadline – for instance, a wind-down general licence with a fixed end date – similarly creates liability. A divestiture timetable must map the critical path against the authorisation schedule and build in realistic buffer for regulatory queries.
Escrow arrangements are frequently used in cross-border divestiture to hold proceeds pending regulatory confirmation that the transfer and payment are permitted. The escrow structure itself must be reviewed for sanctions compliance: the escrow agent, the governing law, and the release conditions all affect whether the arrangement is permissible under each applicable regime.
How do OFAC, OFSI, and the EU differ in their treatment of the divestiture itself?
The three major Western regimes share broad structural similarities but differ in ways that directly affect how a divestiture must be structured and documented. Understanding those differences – rather than applying the most familiar regime to all three – is essential to avoiding gaps in compliance.
Under OFAC, the prohibition is absolute for blocked property absent a licence. The licensing process is centralised, and OFAC's analytical focus tends to be on the ownership and control position at the time of the designation and at the time of each transaction. OFAC's extraterritorial reach – applying US sanctions to non-US persons in a range of circumstances including transactions in US dollars – means that a divestiture conducted entirely outside the United States may still require OFAC analysis if the transaction is denominated in US dollars, involves a US financial institution as correspondent, or engages any US-person intermediary.
Under OFSI, the prohibition framework under the relevant UK thematic regulations is broadly similar to OFAC's in effect, but the control test – and OFSI's published guidance on it – give the UK regime a somewhat wider jurisdictional reach over entities that a listed person can direct without majority ownership. OFSI's enforcement posture has developed materially in recent years, with a strengthened penalty regime and published enforcement decisions providing clearer precedent on how OFSI interprets its powers. Whether a divestiture structure satisfies OFSI's requirements is a matter of analysing both the ownership facts and the control facts against OFSI's published criteria.
The EU regime adds a layer of complexity through its derogation mechanism: member states' competent authorities may issue derogations permitting specified transactions that would otherwise be prohibited. The grounds available and the procedural requirements vary by member state, even though the underlying Council regulation is uniform. In our experience, businesses that address the EU position late – after OFAC and OFSI applications have been prepared – face the longest delays, precisely because the EU derogation process is the least familiar to US-trained counsel and the most procedurally varied across jurisdictions.
A further point of divergence concerns the EU Blocking Regulation: EU-incorporated entities may face constraints on complying with certain US secondary-sanctions requirements. The interaction between the Blocking Regulation and a cross-border divestiture driven partly by US sanctions exposure must be assessed at the outset, not as an afterthought. Does your transaction structure require an EU-incorporated entity to act on a US sanctions basis? If so, the Blocking Regulation analysis is mandatory.
Step 4 – Manage reporting, record-keeping, and voluntary self-disclosure
Completing the transfer is not the end of the compliance obligation. Every major regime imposes reporting and record-keeping requirements that continue after the divestiture closes, and the question of whether a breach occurred before or during the process – and whether it should be reported – requires careful, early analysis.
Under OFAC, holders of blocked property are required to report that property to OFAC within a short statutory window following designation or the holder's identification of the blocked status. Failure to report is itself a violation. A business that discovers it holds a blocked interest must understand the reporting obligation before taking any other step. In our cross-border practice, we regularly advise clients on this initial reporting obligation, which is distinct from the licence application and must not be deferred pending the licensing strategy.
OFSI imposes its own reporting obligations under the UK regime. A VSD (voluntary self-disclosure to a regulator) to OFSI is a relevant factor in its enforcement process, and OFSI's published guidance makes clear that early disclosure is treated more favourably than disclosure made only after regulatory scrutiny has commenced. The same principle applies under OFAC's enforcement guidelines: a timely, complete VSD is a significant mitigating factor in the penalty analysis.
Record-keeping obligations apply across all major regimes. Under the UK regime, the applicable period for which records of a licensed transaction must be retained runs to five years from the date of the relevant activity (as currently in force – verify the current position before relying on this). EU obligations vary by member state implementation, but broadly require comparable retention. OFAC's requirements are similarly significant. A divestiture file must be structured from the outset to satisfy all applicable retention obligations, not only the domestic one.
Where a potential breach is identified – for instance, where a position was held in a blocked entity for a period before the licensing position was resolved – the decision on whether to make a VSD is one of the most consequential in the matter. It requires analysis of the likely enforcement posture of the relevant regulator, the strength of available defences, and the mitigating factors the business can document. If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact us at info@caldervance.com.
Step 5 – Identify and address the risk flags specific to cross-regime divestiture
Cross-border divestiture transactions have a distinct risk profile. The following risk flags arise most commonly in our experience advising on sanctioned-interest exit transactions, and each warrants early attention.
Indirect ownership discovery mid-process. Ownership mapping at the outset sometimes reveals, after the licensing process has begun, that the designated party's stake is held through a vehicle that itself has additional listed-person ownership. This can change the legal-status analysis for the entire target entity and require amendment of pending licence applications. Comprehensive ownership mapping to the beneficial level – before any application is filed – prevents this. Our practice specifically addresses the multi-layer ownership question in divestiture mandates.
Currency and correspondent banking exposure. A transaction structured to avoid US-person involvement can still attract US jurisdiction if it is settled in US dollars through a correspondent bank. This is a common source of inadvertent OFAC exposure in cross-border divestiture transactions, and one that our colleagues advising on correspondent-banking matters encounter regularly. The solution is to confirm the settlement currency and the correspondent-banking chain before structuring the exit. See also our related service on correspondent banking and de-risking, which addresses this exposure in detail.
Contractual provisions that operate as a lock. Shareholders' agreements, joint venture arrangements, and loan documentation frequently contain change-of-control provisions, drag-along and tag-along rights, or assignment restrictions that interact with the divestiture structure. A sanctions-driven exit does not override these provisions at private law. The divestiture strategy must address both the sanctions compliance question and the contractual mechanics, and the two workstreams must be co-ordinated rather than run in sequence.
Secondary-sanctions risk in the buyer screen. The buyer in a cross-regime divestiture may itself have exposure under a secondary-sanctions regime – for example, under US secondary sanctions applicable to certain activities even by non-US persons. Completing a transfer of a sanctioned interest to a buyer with material secondary-sanctions exposure can create reputational and legal risk for the seller. The buyer screen in a sanctions-driven divestiture should go beyond a simple list check.
Divergent timelines between regimes. OFAC's licence processing, OFSI's licence review, and EU derogation procedures in multiple member states will rarely conclude simultaneously. Transaction documents must address the possibility that one authorisation arrives before others, and the parties must agree on the conditions that must be satisfied before closing can occur. An unconditional long-stop date without a sanctions-condition carve-out is a structural risk.
What happens when a divestiture transaction closes before all required authorisations have been confirmed? The answer, under every regime, is that both parties may face liability – not only the seller. Confirming the complete authorisation position before completion is not a formality; it is a hard legal requirement.
A common misconception: one licence covers all regimes
The most persistent myth we encounter in cross-border divestiture mandates is that obtaining an OFAC licence resolves the sanctions problem globally. It does not. An OFAC licence authorises US-person involvement and US-nexus activity; it does not extend to UK, EU, or other national prohibitions. A business that holds a position in a designated entity and secures an OFAC licence must still obtain separate authorisation from OFSI, from each relevant EU member state competent authority, and from any other national authority whose sanctions have legal effect over the transaction.
The reverse misconception also exists: that because a transaction has no US-person involvement and is not denominated in US dollars, OFAC is irrelevant. Extraterritorial exposure under US secondary-sanctions regimes can, depending on the designation and the conduct, reach non-US parties. The extraterritorial analysis must be completed even where US-person involvement appears absent.
For more on the EU-specific divestiture process, see our guide to divesting a sanctioned interest under the EU regime. For the position under Japan's autonomous sanctions programme, see our Japan sanctions divestiture guide.
Related practices
- Correspondent banking and de-risking under OFAC – managing US-dollar clearing and correspondent exposure in cross-border transactions.
- Divesting a sanctioned interest under the EU regime – competent-authority derogation, the control test, and EU-Blocking-Regulation interaction.