A freight forwarder finalises a shipment of precision components destined for a buyer in a third market. The documentation looks clean. The buyer's name clears a standard screening tool. Then, at the port, the consignment is held: a correspondent bank flags a potential nexus to a jurisdiction covered by OFAC restrictions. The exporter has no licence. The shipment cannot move. Worse, the question of whether it should ever have moved has now become an enforcement question.
Determining whether an export requires a licence under OFAC – and what kind – is a structured analytical process governed by IEEPA and the relevant thematic sanctions regulations administered by the Office of Foreign Assets Control. The process turns on the identity of the end-user, the destination, the nature of the goods, and any applicable general licence (a standing authorisation that permits a defined category of transactions without a separate application). Where no general licence covers the transaction, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) is required before shipment.
This guide walks through that determination step by step, identifies the risk flags that practitioners see most often, and sets out where the OFAC regime diverges from parallel controls under BIS, OFSI, and the EU – because those differences matter when a single shipment crosses multiple regulatory lines.
Step 1: Understand who administers OFAC controls and why they differ from export-control licensing
OFAC administers US economic sanctions under IEEPA, the Trading with the Enemy Act, and related statutes. Its controls are sanctions-based: they prohibit transactions involving designated persons, specified regimes, or defined jurisdictions. This is different from the export-control licensing regime administered by BIS under the EAR (Export Administration Regulations), which turns on the classification of the goods and their destination for national-security, foreign-policy, or non-proliferation reasons.
Why does the distinction matter? Because both can apply to the same shipment at the same time. A component that does not require a BIS export licence to a particular destination may still be prohibited under OFAC if the buyer, the end-user, or an intermediary in the chain is a designated person. In our experience, exporters who focus only on BIS classification miss OFAC exposure entirely – and vice versa. The two regimes must both be cleared before shipment.
OFAC's controls are administered through a combination of list-based prohibitions (the SDN List – OFAC's list of Specially Designated Nationals and blocked persons – and the Consolidated Sanctions List) and programme-specific regulations for defined jurisdictions and sectors. The determination process must address both layers.
The position above covers the structural split. Your specific shipment – the goods, the route, the end-user, the financier – may engage elements of both regimes simultaneously. An early review prevents the kind of hold described above.
To discuss an export-licence determination or to map your transaction against both OFAC and BIS requirements, contact Calder & Vance at info@caldervance.com.
Step 2: Screen the parties – end-user, intermediaries, and the financial chain
The first substantive step in any OFAC export-licence determination is a thorough screen of every party in the transaction: the buyer, the end-user (if different), freight forwarders, banks, insurance providers, and any intermediate consignees. A transaction is prohibited if any of those parties is a Specially Designated National or is otherwise subject to a programme-specific prohibition – regardless of where the goods are physically going.
Screening against the SDN List alone is insufficient. OFAC maintains several list-based programmes, and the relevant Consolidated Sanctions List is broader than the SDN List in isolation. Beyond lists, programme-specific rules prohibit dealing with whole categories of entities in certain sectors, even when they are not individually named. The practical question is: have you screened against all applicable lists and tested the transaction against the sector-based rules of every potentially relevant programme?
Aggregation is the point where screening most often fails. The 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked, whether directly or through intermediate layers) means that a buyer with a clean name can still be a blocked entity if its ownership chain runs through designated persons. Standard screening tools flag direct name matches. They do not automatically map indirect ownership. We regularly advise exporters who have been running name-match screens for years without ever testing the ownership structure behind the buyer.
Screening must also extend to the financial channel. The correspondent bank that holds the transaction – as in the scenario above – may apply its own controls. A transaction that clears OFAC's list-based prohibitions can still fail at the payment stage if the bank's own programme controls or secondary-sanctions exposure triggers a review. That is not a substitute for your own OFAC analysis, but it is a practical signal that the screen needs to be complete at every link in the chain.
Step 3: Identify the applicable OFAC programme and test the jurisdictional nexus
Each OFAC sanctions programme has its own scope, and the applicable regime determines which prohibitions apply and which authorisations are available. Some programmes are comprehensive: they prohibit substantially all trade and financial transactions with a specified jurisdiction or government. Others are targeted: they apply only to designated persons, specific sectors, or defined activities. Identifying the correct programme – or programmes, when more than one may apply – is the second analytical gate.
Jurisdictional nexus matters here. OFAC's jurisdiction extends to US persons wherever located, to transactions that touch the US financial system, to goods of US origin or that contain US-controlled content, and – in certain programmes – to non-US entities that transact in US dollars or use US correspondent banks. The extraterritorial reach of OFAC controls is a consistent source of exposure for non-US exporters who believe they have no US connection: the dollar denomination of a single invoice can be enough.
In cross-border shipments that also involve EU-based or UK-based counterparties, the scope of OFAC's jurisdiction must be compared against what the EU Council regulations and OFSI's regime require. The EU and UK have adopted autonomous sanctions programmes that do not always mirror OFAC's list. A counterparty not on the SDN List may be designated under EU or UK rules. A UK exporter shipping goods that pass through the United States faces both sets of controls simultaneously. Determining which set of prohibitions governs – and whether any exception or licence is available under each – requires a regime-by-regime analysis. Where regimes diverge, the stricter prohibition governs the party subject to it.
Step 4: Test whether a general licence covers the transaction
Once the applicable programme has been identified and the parties cleared or flagged, the next step is to test whether a general licence authorises the transaction without the need for a specific-licence application. General licences are published by OFAC and are available without application; they typically cover humanitarian transactions, certain personal remittances, journalistic activities, legal services, and other defined categories.
General licences are programme-specific. A general licence under one OFAC programme does not carry over to another. Each licence has its own scope, conditions, and limitations, and a transaction that appears to fall within the text of a general licence may still be outside it if a condition is not met. Common conditions include prohibitions on payments to designated persons within the authorised transaction, requirements that goods reach a specified end-user category, and reporting obligations that attach to reliance on the licence.
What happens when a general licence appears to cover the transaction but one element of the deal falls outside its terms? That is a specific-licence question, not a general-licence question. In our experience, the most common error at this stage is partial reliance: an exporter reads a general licence, identifies the category that fits most of the transaction, and proceeds without testing every element of the deal against every condition. The result is a transaction that looks authorised but is not.
The position at Step 4 is the decision point: either the transaction is covered by a general licence (and you document that determination and the conditions you have met), or it is not – and you move to a specific-licence application or to a decision not to proceed.
If a transaction has already been flagged, or if a previous determination now looks uncertain, an early review can preserve options that narrow with time. For a confidential review of a potential exposure, contact us at info@caldervance.com.
Step 5: Apply for a specific licence – the process and what OFAC weighs
Where no general licence applies, a specific-licence application to OFAC is required before the transaction can proceed lawfully. OFAC considers specific-licence applications on a case-by-case basis. The agency weighs the US foreign-policy and national-security objectives underlying the relevant programme against the specific facts of the proposed transaction. There is no automatic entitlement to a specific licence, and no outcome is guaranteed.
A specific-licence application typically sets out the parties to the transaction, the nature of the goods or services, the purpose of the transaction, the end-use controls the applicant proposes to implement, and the basis on which the applicant contends a licence is warranted. OFAC may request additional information, and the review period can extend over a matter of months for complex or sensitive applications. We regularly prepare these applications and manage the agency's queries through to determination.
The application must be accurate. Misrepresentations to OFAC – including omissions of material facts – can give rise to separate enforcement exposure. This is separate from the question of whether the underlying transaction would have been licensable: a materially inaccurate application can result in an enforcement action even where the transaction itself might have been authorised on full facts.
OFAC's specific-licence process is distinct from export-control licensing under BIS. BIS licensing turns on the classification of the good, the destination, the end-use, and the end-user under the Commerce Control List. The two agencies operate independently; a BIS licence does not substitute for an OFAC licence, and an OFAC specific licence does not override BIS licensing requirements. Both must be obtained where both apply.
For comparison: under OFSI in the UK, licence applications for financial sanctions follow a parallel path, with OFSI assessing applications against the licensing grounds set in the relevant thematic regulations under SAMLA. The EU operates a system of national competent authority licensing under the relevant Council Regulation, with each member state's authority administering the process for persons and entities in their jurisdiction. The criteria differ between regimes, and the availability of a licence under one regime does not imply availability under another.
Step 6: Document the determination and maintain the record
A completed determination – whether it concludes that no licence is required, that a general licence applies, or that a specific licence has been obtained – must be documented. OFAC's enforcement guidance places weight on the quality of a firm's compliance records when assessing whether a violation was wilful or reckless, and on whether a firm's remediation is credible. Documentation is the difference between a matter that closes with a cautionary letter and one that proceeds to a penalty determination.
The record should capture: the screening results (including the lists checked, the date, and the tool used), the ownership-chain analysis behind any entity cleared under the 50 percent rule, the general-licence text relied on and the conditions tested, the specific-licence application and OFAC's response if applicable, and the end-use and end-user documentation provided by the buyer. A single consolidated compliance file for each transaction is best practice.
Record-keeping obligations under OFAC are tied to the applicable programme, but a conservative standard across programmes is to retain the full transaction file for a period consistent with the longer of OFAC's own guidance or the applicable statute of limitations for enforcement. Where BIS controls also apply, the EAR imposes its own record-keeping requirement. Export-control record-keeping under the EAR and sanctions record-keeping under OFAC must both be met for the same underlying transaction.
Regular audits of the compliance programme – testing whether the screening logic is current, whether the general-licence library reflects current OFAC guidance, and whether the documentation standard is being applied consistently – are the operational discipline that keeps the determination process sound. In our practice, firms that conduct periodic self-assessments identify gaps before an enforcement trigger surfaces them.
Risk flags: where export-licence determinations most often go wrong
Across the determinations our practice has reviewed, the same patterns of error recur. Identifying them early is the most efficient form of compliance improvement available to an exporter.
The first is name-only screening. Screening that runs only a name against the SDN List – without testing the ownership chain, the jurisdiction, the sector, and the financial channel – misses a significant share of OFAC exposure. This is the single most common structural gap we see.
The second is programme conflation. Exporters handling multiple destinations sometimes apply the rules of one OFAC programme to a transaction governed by a different programme. The prohibitions, exceptions, and available licences differ by programme. A determination that treats all OFAC programmes as interchangeable is not a determination.
The third is stale data. OFAC updates the SDN List and its programme regulations without advance notice. A general licence that applied to a category of transactions last quarter may have been modified or revoked. The determination must be made against the current state of the programme, not the state it was in when the compliance manual was last updated.
The fourth is the cross-border blind spot. An exporter subject to OFAC who is also caught by EU or UK sanctions – perhaps because the goods are routed through a European intermediary, or because the financing runs through a UK bank – needs to clear both regimes. A transaction cleared under OFAC may still be prohibited under the applicable EU Council regulation or under OFSI's rules. AUDIENCE_MYTH: "My goods are not US-origin, so OFAC does not apply to me." In fact, OFAC's jurisdiction extends to any transaction that touches the US financial system and to certain categories of non-US conduct that fall within the extraterritorial reach of specific programmes. Non-US exporters transacting in US dollars or using US correspondent banks are within that reach. The assumption of non-applicability is among the costliest compliance myths we encounter.
A fifth flag applies specifically to technology exports: deemed exports (the release of controlled technology to a foreign national within the United States, treated as an export to that person's home country under the EAR) can generate both a BIS obligation and, in certain circumstances, an OFAC nexus when the foreign national has a connection to a sanctions programme. This intersection is explored further in our service on deemed exports and technology controls under BIS and the EAR.
Cross-regime comparison: OFAC, BIS, OFSI, and the EU
No major cross-border export transaction is governed by a single regime. The table below – expressed in prose rather than a visual grid – sets out the principal points of divergence that affect the licence determination process across the four regimes most commonly engaged in transatlantic trade.
Trigger for a licence requirement. Under OFAC, the trigger is primarily party-based: a designated person in the chain, or a nexus to a sanctioned jurisdiction or sector. Under the EAR (BIS), the trigger is primarily goods-based: the ECCN (Export Control Classification Number under the US Commerce Control List), the destination, and the end-use. Under OFSI and the EU, the trigger is a combination: the financial sanction attaches to the transaction if a designated person is a party; separate export-control licences are required for controlled goods under ECJU and the EU dual-use rules respectively.
Ownership and control tests. Under OFAC, the 50 percent rule is mechanical: aggregate ownership at or above the threshold by blocked persons makes the entity blocked, regardless of who controls it. Under OFSI and the EU, the test extends to ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person's ability to direct its affairs). The control limb can catch entities where the ownership threshold is not met. This is a genuine divergence: the same entity may be blocked for OFSI purposes but not for OFAC purposes, or vice versa.
Licensing authority. OFAC handles both the prohibition and the licence within the same agency. BIS licences are handled by a separate Commerce Department process. In the UK, financial-sanctions licences are granted by OFSI; export-control licences by ECJU – two separate authorities for the same shipment. In the EU, licensing is administered by national competent authorities under the relevant Council Regulation and dual-use rules, and the criteria vary between member states.
Timelines. Specific-licence timelines vary across all regimes depending on the complexity of the application and the sensitivity of the programme. None of the regimes operates a statutory guarantee of a fixed decision window for specific licences in contested or sensitive cases. Exporters should not structure transaction timetables around assumed licence approval timelines without prior engagement with the relevant authority.
For the UK financial-sanctions licensing route under OFSI, see our guide on export-licence determinations under OFSI. For a further comparison of the OFAC determination process with the next stage in this series, see export-licence determinations under OFAC: part 3.
Related practices
- Deemed exports and technology controls under BIS/EAR – classifying technology releases to foreign nationals and managing the BIS licence process.
- Export-licence determinations under OFSI – a step-by-step guide to the UK financial-sanctions licensing route.