A British company holds equity in a joint venture. Its partner is designated under UK financial sanctions. The asset is frozen. So is any economic benefit flowing from it. The compliance team asks: can we sell? Must we sell? And if we can, how?
Divesting a sanctioned interest under OFSI requires either a specific licence from OFSI or reliance on a general licence that permits the transaction, and the proceeds must be handled in strict accordance with the licence conditions. As of January 2026, OFSI administers UK financial sanctions under the Sanctions and Anti-Money Laundering Act (SAMLA) and the relevant thematic regulations. No disposal of frozen assets or interest occurs lawfully without authorisation – and getting the structure wrong before application can delay or derail the process entirely.
This guide walks through the legal basis, the authorisation routes, the cross-regime considerations that arise when a divestment touches multiple jurisdictions, the documentation a business must assemble, the risk flags that trip up even experienced teams, and when to involve sanctions counsel.
What is the legal basis for OFSI's control over a sanctioned interest?
OFSI's authority over frozen assets, including equity interests, flows directly from SAMLA and the thematic regulations made under it. When a person is designated under a UK sanctions programme, their assets are frozen and dealing in those assets – or making funds or economic resources available to them – is prohibited without authorisation.
The term economic resources (assets that are not funds but that can be used to obtain funds, goods, or services) is deliberately broad. Equity in a company is an economic resource. So is a contractual right to acquire equity, a shareholder loan, and, in most structures, a right to dividends. The prohibition therefore bites not only on a direct holding in a designated person's name but also on the holding of an entity that is owned or controlled by a designated person.
Ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person) is critical here. Under OFSI, the analysis extends to entities that are owned – meaning more than 50 percent of the shares or voting rights are held by a designated person – and to entities that are controlled by a designated person through other means, including board composition and contractual veto rights. A business selling its own stake in a joint venture controlled by a designated entity is dealing in economic resources of a sanctioned structure, not merely conducting a commercial disposal.
This is where many businesses mis-step. They identify a designated co-shareholder and assume the question is whether they can sell their own shares. The correct question is whether their own shares, or the sale proceeds, would pass through or benefit a structure caught by the prohibition. In our experience, this distinction decides whether a specific licence is necessary or whether the matter can proceed under a general licence.
Step 1 – Identify and map the sanctioned interest before any approach to OFSI
Before filing anything, a business must understand precisely what interest is caught and why. This mapping exercise is the foundation of every subsequent step, and it must be documented.
Start with the ownership chain. Identify each designated person and each entity owned or controlled by a designated person that has any connection to the asset being divested. Map upward (who owns the party you are dealing with?) and downward (what does the counterparty own that the divested proceeds might pass through?). The 50 percent rule – under which entities owned 50 percent or more by designated persons are themselves treated as frozen – applies in overlapping form under OFSI, OFAC, and the EU regime, though the control tests differ in detail.
Then map the transaction structure. What is the proposed mechanism for the divestment? A share sale, a redemption, a court-ordered transfer, a dissolution? Each generates different flows of funds or economic resources. Identify every leg on which a designated person or their controlled entity receives or is relieved of an obligation.
Document the results in a structured memorandum. OFSI expects licence applications to demonstrate that the applicant has done this work. Applications that arrive with vague descriptions of the interest ("we have a minority stake in a company") without the underlying ownership analysis are routinely returned for further information, which extends the timeline materially.
Step 2 – Determine whether a general licence or a specific licence is required
The authorisation route governs the pace and complexity of the divestment. A general licence (a standing authorisation that permits a defined category of transactions without a separate application) is faster but narrower. A specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) is broader in scope but requires a formal application and an OFSI decision.
General licences under OFSI are issued for categories of transaction that OFSI has determined present a sufficiently common and contained need: legal fees, essential maintenance of frozen assets, and in some programmes a wind-down of pre-existing contracts. The question is whether the proposed divestment falls squarely within the terms of an applicable general licence. The terms must be read strictly. An activity that falls partly outside the general licence terms is not covered. In that case, a specific licence is required for the whole transaction.
Specific licence applications require the applicant to identify the applicable licensing ground in the relevant thematic regulations, explain how the facts satisfy that ground, and provide supporting documentation. The most relevant grounds for a divestment are typically: prior obligation (the divestment fulfils a pre-existing legal obligation), extraordinary situation, and, in some programmes, grounds related to the satisfaction of financial claims. OFSI has published guidance on the evidence it expects for each ground. That guidance should be read alongside the regulations themselves.
The position above covers the standard case. Your facts – the counterparty's designation, the structure of the interest, the governing law, and the other regimes in play – change the analysis. For an assessment of your exposure and the appropriate authorisation route, contact Calder & Vance at info@caldervance.com.
Step 3 – Prepare and submit the specific licence application
A well-constructed application reduces the risk of OFSI's information requests, which are the main source of delay. In our cross-border practice, the applications that proceed most efficiently are those that anticipate OFSI's analytical process and answer its questions before they are asked.
The application must include, at minimum: a precise description of the transaction, including the parties and their roles; the proposed use of any proceeds; the ownership and control analysis (the map produced in Step 1); the licensing ground and the legal argument for why the facts satisfy it; any time pressure (completion deadlines, counterparty rights if the transaction does not close); and the documentary evidence for each element.
Evidence commonly includes corporate filings confirming share registers, constitutional documents demonstrating the control analysis, transaction agreements and term sheets, valuations, and any court orders or regulatory directions requiring the disposal. Where the divestment arises from an insolvency or a contractual drag-along right, the instrument creating the obligation should be provided in full with a clear explanation of why the obligation pre-dates the designation or why it qualifies under the relevant licensing ground.
Submit the application through OFSI's formal channel. Keep a complete copy of everything submitted. OFSI does not guarantee a response within a fixed period, but the guidance indicates that applications are processed within a timeframe that OFSI aims to publish and maintain. Where a matter is genuinely urgent – for example, because a completion deadline is imminent – OFSI should be told this explicitly in the application and asked to treat the matter as urgent, with reasons. OFSI may, at its discretion, prioritise cases where delay causes disproportionate harm.
How does the divestment interact with OFAC, EU, and other regimes?
A divestment that is licensed by OFSI is not automatically lawful under every other regime. This is the cross-border dimension that a UK-only analysis misses – and for many transactions it is the dimension that generates the most significant risk.
Consider a UK holding company selling its stake in a joint venture incorporated in an EU member state, with a US-dollar denominated purchase price. Three separate regulatory questions arise. First, OFSI: does the disposal of the UK company's interest require authorisation? Second, the EU: does the designated person's connection to the JV trigger the EU Council regulation of the relevant programme, and if so, does the EU competent authority require a separate authorisation? Third, OFAC: does the transaction involve US persons, US-origin goods, or a US financial institution (for example, through the dollar leg of the payment), triggering OFAC's jurisdiction?
Each regime has its own ownership-and-control test. The OFSI test looks at ownership above 50 percent and non-ownership control. The OFAC 50 percent rule is strictly mathematical on ownership; it does not formally extend to non-ownership control in the same way. The EU position under the relevant Council regulations mirrors the UK test more closely on control but applies through the competent authorities of the member states, which may have issued their own guidance. Where two or more regimes apply and their conditions conflict, the stricter prohibition governs each leg of the transaction within its own jurisdictional scope.
For transactions involving a Swiss, Canadian, or Australian nexus – through incorporated entities, routing banks, or the nationality of the shareholders – the relevant national regime should be assessed separately. In our experience, Singapore's Monetary Authority and the UAE's Executive Office have issued guidance on divestment-equivalent procedures that tracks closely to the OFSI model but with programme-specific variations.
If a transaction has already been flagged across multiple regimes, or if a filing in one jurisdiction has been refused, early multi-regime review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com to discuss a cross-border divestment matter.
What are the key risk flags in a sanctioned-interest divestment?
Several patterns recur in transactions that stall, attract enforcement attention, or produce licences that are later varied or revoked. Recognising them in advance is the core function of pre-transaction diligence.
The first and most significant is pricing. A divestment at below-market value to a third party connected to the designated person – whether by relationship, by subsequent resale, or by an undisclosed arrangement – may constitute a disguised transfer of economic benefit to the designated person. OFSI and other regulators look at whether the transaction serves a legitimate commercial purpose or functions as a mechanism to move value to a sanctioned party. Valuations should be conducted by an independent expert, and the basis and methodology should be documented and retained.
The second is proceeds handling. Even where the divestment is licensed, the disposition of the sale proceeds may itself require authorisation. If any portion of the proceeds is attributable to the designated person's interest – for example, because the designated person holds shares in the same vehicle being sold – those proceeds are frozen assets until dealt with under licence. The licence application should address proceeds explicitly.
The third is the position of intermediaries. Lenders with security over the interest, custodians, transfer agents, and paying banks may each be separately exposed if they facilitate a transaction that is not properly licensed. A business that holds an OFSI licence does not automatically authorise its counterparties or service providers; the licence binds only the parties named in it. Confirm with each relevant party that either the licence covers their role or that they have their own authorisation.
The fourth is post-completion reporting. Many OFSI licences carry conditions requiring the licensee to report the completion of the transaction within a defined period and to provide specified information. Missing a reporting condition is a breach of the licence and can expose the licensee to enforcement action even though the underlying divestment was authorised. Record-keeping obligations under SAMLA require relevant records to be retained for a period specified in the applicable regulations – verify the current requirement before relying on any figure.
A common misconception about OFSI divestment authorisations
Some businesses believe that if they are the seller – not the designated person – they do not need an OFSI licence to proceed. This is incorrect.
The prohibition in UK sanctions law is on dealing in the economic resources of a designated person or their controlled entities. Where the asset being sold is an interest in a structure connected to a designated person, the seller is dealing in those economic resources regardless of who holds the title. The position is analogous to the EU and, with some mechanical differences, to OFAC: the prohibition attaches to the asset and to anyone who deals in it, not only to the designated party.
What a seller can legitimately do – and what a well-structured licence application enables – is proceed with a disposal that ultimately benefits non-sanctioned parties, handles the designated person's share of proceeds in a compliant manner (for example, into a frozen account), and documents the full chain of authorisation. We regularly advise sellers in this position who assumed, incorrectly, that their freedom to sell their own asset was unaffected by their counterparty's designation.
Related practices
- Correspondent banking and de-risking under OFAC – managing correspondent-banking exposure and financial-institution sanctions risk
- Divesting a sanctioned interest under SECO (Switzerland) – equivalent divestment guide for the Swiss sanctions regime