A private equity fund acquires a minority stake in a logistics company. Two years later, OFAC designates one of the company's majority shareholders. Overnight, the fund's interest becomes entangled with a blocked person. Continuing to hold the stake may itself constitute a prohibited transaction. The divestiture clock starts immediately – and it does not pause while the fund's lawyers read the regulations.
Divesting a sanctioned interest under OFAC requires a clear sequence: identify whether the interest is itself blocked or merely tainted, determine whether a specific licence is needed before sale, execute the divestiture in a manner that does not transfer value to a blocked person, and document every step to the standard OFAC expects. As of January 2026, OFAC's licensing and compliance expectations for these transactions have grown more exacting, and parallel obligations under OFSI, EU Council regulations, and other regimes will apply to any business with a non-US nexus.
This guide walks through each stage of the process, explains where the major sanctions regimes diverge, and identifies the risk points that most frequently derail an otherwise well-intentioned exit.
Step 1 – Establish what you actually hold and whether it is blocked
Before any divestiture plan can be formed, the holder must confirm precisely what the interest is and whether the 50 percent rule (OFAC's rule treating entities owned 50 percent or more in the aggregate by blocked persons as themselves blocked) has converted a formerly clean asset into blocked property. That determination shapes every subsequent decision.
The analysis begins with the ownership structure on the date of designation, not the date of acquisition. If a blocked person acquired shares after your initial purchase, you may be holding an interest in a now-blocked entity even though it was clean when you bought in. In our experience, holders who act quickly on the day of a designation often underestimate how far back the ownership chain must be traced. Aggregation matters: two blocked persons each holding twenty-five percent reach the threshold together.
The interest itself may be blocked property if the entity is caught by the 50 percent rule. If it is, a US person cannot deal in it – including selling it – without a specific licence from OFAC. Holding and selling are separate acts; both may require authorisation. That distinction is not always understood at the outset, and treating the divestiture as obviously permissible is one of the most common early errors we encounter.
Under OFSI's ownership and control test and under EU Council regulations, the analysis is broader: control, even below fifty percent, can catch an entity. A UK or EU-connected holder may therefore face obligations under their own regime simultaneously with any OFAC determination. Map all applicable regimes before forming a divestiture plan.
Step 2 – Determine whether you need an OFAC specific licence to sell
If the interest is blocked property, a specific licence (a case-by-case authorisation from OFAC to conduct an otherwise prohibited transaction) is required before the divestiture can proceed. No general licence (a standing authorisation covering a defined category of transactions without a separate application) routinely covers the sale of a blocked equity interest; check whether any relevant general licence is in force and whether its terms extend to your situation, but do not assume one applies.
The licensing application to OFAC must identify the parties, the asset, the proposed buyer, the proposed consideration, and the proposed mechanics for ensuring that proceeds do not flow to the blocked person or entity. OFAC will scrutinise the buyer as carefully as the seller. A sale to a buyer who is affiliated with, or who would re-transfer value to, the blocked person will not receive a licence – and attempting such a structure raises serious legal risk entirely separate from the sanctions question.
Processing timelines are not fixed by regulation and vary materially by programme and complexity. In our cross-border practice, straightforward divestiture licences have resolved in a matter of months; more complex matters, particularly those involving layered ownership or multiple designated persons, take considerably longer. Build the application period into any commercial timeline and resist locking in a sale contract before the licence is in hand.
The position above covers the standard case. Your facts – the designation programme, the ownership structure, the identity of the proposed buyer, and any concurrent obligations under OFSI or EU regulations – change the analysis significantly. For a preliminary assessment of your licensing position, contact Calder & Vance at info@caldervance.com.
Step 3 – Structure the transaction so that no value reaches the blocked person
Receiving a licence to divest does not remove the requirement to structure the transaction so that proceeds do not flow, directly or indirectly, to the blocked person. This is the structural centre of the exercise, and it is where technically lawful transactions most commonly generate compliance failures.
OFAC's licence will specify the permitted mechanics. Where the entity is partially owned by a non-blocked majority, the blocked interest may be acquired by remaining shareholders, bought out by a third-party buyer approved in the licence, or transferred to a blocked account – depending on the licence terms. Proceeds attributable to the blocked person's notional interest must be handled in accordance with the licence conditions, which typically require that value be blocked rather than paid out.
Several structural questions arise routinely. Who sets the sale price, and how is it verified as arm's-length? How is the consideration allocated between blocked and non-blocked components where the entity has mixed ownership? What representations and warranties does the buyer require, and can they be given without creating additional sanctions exposure? These questions are not merely commercial; they are compliance questions, and the answers will be reviewed by OFAC if a matter is later examined.
A mid-size manufacturing business we recently advised faced exactly this issue. A co-investor was designated under an applicable programme, converting the fund's holding in a joint-venture entity into entangled property. We assessed the licensing requirement, prepared the specific-licence application, and managed the structural negotiations to ensure that consideration attributable to the designated co-investor's share was blocked rather than paid through – preserving the exit for the non-designated parties without creating a secondary violation.
Step 4 – Address reporting, record-keeping, and disclosure obligations
Once an interest is blocked or a divestiture is completed under licence, OFAC imposes reporting and record-keeping obligations that continue well after the commercial transaction closes. Compliance counsel should treat these as a parallel workstream, not an afterthought.
Blocked property must be reported to OFAC within a short statutory window – within 10 business days of the blocking and then annually thereafter while the property remains blocked. Failure to report is itself a potential violation, separate from any underlying designation exposure. In our experience, this obligation is frequently overlooked by businesses focused on the divestiture mechanics, particularly where the designation is unexpected and the compliance team is managing a simultaneous commercial crisis.
Record-keeping requirements apply to the full transaction: the ownership analysis, the licence application and OFAC's response, the structural documents, the payment flows, and any representations made to OFAC in the licence process. Five years is the applicable record-keeping period under the relevant OFAC regulations, and those records must be retrievable if OFAC later reviews the matter.
OFSI in the UK and the relevant EU implementing authority each impose their own reporting requirements where a UK or EU nexus exists. These do not mirror OFAC's timing or content requirements precisely. A multinational holding the same interest through multiple group entities may face simultaneous reporting obligations under three or more regimes. Coordinate across all applicable regimes before the first report is filed; inconsistencies between regulators are difficult to explain.
If a transaction has already been flagged, or a filing has been missed, an early review can preserve options that narrow with time. Contact us at info@caldervance.com to discuss your position.
Step 5 – Consider a voluntary self-disclosure where a violation may have occurred
A business that discovers it held or transacted in a blocked interest without authorisation – even briefly, even unknowingly – faces a decision about whether to make a VSD (voluntary self-disclosure to OFAC of an apparent violation) before the agency identifies the issue independently. That decision requires careful legal analysis.
OFAC treats VSD as a significant mitigating factor in civil penalty assessments. The mitigation is meaningful: OFAC's enforcement framework provides for a substantial reduction in the base civil penalty where a VSD is made, the disclosure is timely, and the conduct is not wilful or reckless. However, a VSD that is incomplete, inconsistent with the facts, or filed without a thorough prior investigation can create additional problems. The decision to disclose, and the content of the disclosure, must be managed as a legal matter.
Is voluntary self-disclosure always the right answer? Not automatically. Where the apparent violation is genuinely minor, non-willful, and unlikely to be identified by OFAC through its own intelligence, experienced practitioners may reach a different conclusion. Where the violation is material or involves a high-risk programme, disclosure is far more likely to be the correct course. The calculation is fact-specific and should not be made without experienced OFAC counsel.
OFSI has a separate and mandatory disclosure regime for certain categories of breach. EU member-state competent authorities each have their own enforcement approaches. Again, the multi-regime picture is never identical to the OFAC-only analysis; treat each applicable regime on its own terms while coordinating to avoid inconsistency.
How does the OFAC divestiture process compare with OFSI and EU approaches?
The OFAC divestiture process is broadly analogous to the OFSI and EU approaches in its structure – licence, controlled exit, proceeds management – but the three regimes diverge in ways that directly affect cross-border holders.
OFAC's ownership test is mechanical: 50 percent or more by blocked persons triggers automatic blockage of the entity, regardless of control. OFSI and the EU apply an ownership-or-control test, meaning that a holding below fifty percent can still catch the entity if a designated person exercises effective control. A cross-border holder may therefore face a UK or EU licensing requirement for an entity that OFAC does not consider blocked. The reverse is also possible: an entity blocked under OFAC may not be blocked under OFSI or EU rules if the ownership threshold is not met and no control is exercised.
The licensing authorities differ. OFAC issues licences centrally. OFSI issues licences in the UK on a case-by-case basis under SAMLA and the relevant thematic regulations. In the EU, licensing is a member-state function; the competent authority depends on where the holder is established or where the transaction takes place. For a group with entities in London, Frankfurt, and New York, three licensing processes may run in parallel, each with its own form, timeline, and evidentiary standard.
Reporting requirements also diverge in timing and content. What satisfies OFAC may not satisfy OFSI. What OFSI requires may not map cleanly onto the forms used by a given EU member-state authority. Co-ordinating the disclosures so that they are consistent and complete across all regimes is a specialist task. For a detailed comparison of the OFSI divestiture process, see our guide at Divesting a Sanctioned Interest under OFSI. For the Swiss SECO position, see Divesting a Sanctioned Interest under SECO.
Secondary sanctions add a further layer for non-US holders. Even where a business has no direct OFAC jurisdiction, certain programmes carry the risk that dealing with a blocked person or entity – including through a divestiture structured without OFAC licence – could expose the non-US entity to secondary-designation risk. The cross-border picture must be assessed whole.
Common mistakes and the myth of the automatic exit
The most persistent myth in this area is that divestiture is inherently permissible. Practitioners hear it regularly: "We are selling, not buying – surely that is fine." It is not automatically fine. Selling an interest that is blocked property is itself a prohibited dealing unless OFAC has authorised it. The logic that an exit removes the problem misses the statutory structure entirely.
Other recurring errors include the following.
- Treating the 50 percent rule as applying only to direct ownership, and missing aggregated holdings across multiple blocked persons.
- Assuming that a general licence covers the divestiture without confirming that the licence's terms actually extend to the specific programme and transaction type.
- Structuring the consideration so that the blocked person ultimately receives the value attributable to their interest, either directly or through an intermediary – a structural violation that negates the purpose of the divestiture entirely.
- Filing the OFAC report of blocked property late, or not at all, because the compliance team was focused on the commercial exit.
- Managing the OFAC and OFSI processes independently, producing inconsistent representations to two regulators.
- Underestimating the record-keeping obligation and discarding transactional documents before the five-year period expires.
We regularly advise clients who have encountered one or more of these issues mid-transaction. The earlier the intervention, the broader the range of remedial options available.
Related practices
- Correspondent banking and de-risking under OFAC – managing OFAC exposure in banking relationships and cross-border payment flows.
- Divesting a sanctioned interest under OFSI – a parallel guide to the UK OFSI divestiture process and how it compares with OFAC.