A private-equity sponsor is midway through negotiating a joint-venture agreement with a partner in a third market. Ownership structure, governance rights, and profit-sharing are settled. Then the compliance team surfaces a question nobody anticipated: does the proposed ownership split, combined with the identity of one co-venturer, create a sanctions exposure under the UK regime? The deal cannot close until that question has an answer.
Structuring a joint venture to manage sanctions risk under OFSI (His Majesty's Treasury's Office of Financial Sanctions Implementation, the UK authority responsible for financial sanctions licensing and enforcement) requires a disciplined sequence: ownership and control analysis, counterparty screening across all relevant regimes, governance design, ongoing compliance obligations, and a pre-agreed breach protocol. As of January 2026, OFSI's enforcement posture has hardened and its civil monetary penalty powers now extend to conduct that is not exclusively UK-connected. A JV that looks clean at signing can become exposed within months if the ownership or control position of a co-venturer changes.
This guide walks through the structuring sequence step by step, flags where OFSI's approach diverges from OFAC and the EU, and identifies the risk points that most often surface in cross-border JV transactions.
Step 1 – Understand the legal basis and who OFSI can reach
OFSI derives its authority from the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA") and the thematic sanctions regulations made under it. Those regulations, each tied to a specific geographical or thematic programme, define the prohibitions that apply and the persons they bind.
The territorial reach is broader than many parties to a JV assume. The prohibitions bind UK persons and UK-connected entities regardless of where they operate. A UK-incorporated JV vehicle, a UK-domiciled partner, or a JV transaction routed through a UK bank triggers OFSI's jurisdiction even if the JV's underlying operations are entirely offshore. In our experience, overseas JV partners frequently underestimate how that hook operates in practice. They treat the UK partner as a domestic issue and miss the full jurisdictional reach of SAMLA.
Why does this matter at the structuring stage? Because the choice of JV vehicle – its place of incorporation, its banking arrangements, its governing law – all affect whether OFSI's prohibitions bite and how they operate. Getting that analysis right before the term sheet is signed saves the parties from a much harder renegotiation once heads of terms are agreed.
Step 2 – Apply the ownership and control test to every co-venturer
OFSI's test for whether a non-listed entity is caught by a sanctions designation turns on both ownership and control (the UK test under the relevant thematic regulations for determining whether a person acts on behalf of, or is owned or controlled by, a designated person). This is the foundational analysis for any JV structure.
The ownership limb asks whether a designated person holds, directly or indirectly, more than 50 percent of the shares or voting rights, or the right to appoint or remove a majority of directors. The control limb goes further: it asks whether a designated person exercises, or has the right to exercise, dominant influence over the entity. That second limb is where OFSI's test diverges from OFAC.
OFAC applies a purely mechanical 50 percent ownership test. Under the EAR and OFAC's IEEPA-derived guidance, an entity is blocked when designated persons own it in aggregate at or above that threshold. There is no separate "control" analysis. OFSI and the EU, by contrast, both ask whether control exists independently of formal ownership – a governed entity with only 40 percent held by a designated person may nonetheless be caught if the designation decision documents show that person exercising effective control through contractual rights, veto powers, or board composition.
For a JV, this creates a practical imperative: review not only the percentage stakes of each co-venturer but every governance right in the draft agreement. Veto rights over material decisions, the right to appoint a CEO or CFO, drag-along provisions, and reserved-matter clauses can each become evidence of control in OFSI's analysis. We regularly advise JV parties to audit proposed governance documents specifically for this risk before finalising the shareholder agreement.
The EU regime warrants separate attention for any JV that involves an EU-incorporated vehicle or an EU person as co-venturer. The EU General Court's case law on control has, in some contexts, set a lower threshold for what constitutes effective control than the UK position as developed in OFSI guidance. Where a JV spans the UK and EU simultaneously, the stricter prohibition governs.
Step 3 – Screen all counterparties across the relevant regimes
Screening at the JV formation stage is not a single event. It is a structured process that covers direct parties, their upstream beneficial owners, key personnel, and the jurisdictions through which capital or goods will flow.
The starting points are the OFSI Consolidated List (the UK domestic list of designated persons), the UN Security Council Consolidated List, and – because UK businesses frequently have US banking or financing – the OFAC SDN List (SDN List, OFAC's list of Specially Designated Nationals and blocked persons). A JV partner who is clean on the OFSI list may appear on the EU list or on the US list. Secondary-sanctions risk under OFAC is real for any JV with US-dollar financing, US-person participation, or US-origin goods or technology in the JV's product chain.
Screening quality matters more than screening frequency. The common failure we observe is screening the legal-entity name of the co-venturer and nothing else. The beneficial ownership chain – often disclosed in corporate registry filings, beneficial-ownership registers, or specialist intelligence sources – is where designated persons most commonly sit. A JV's shareholder register showing only a mid-tier holding company tells you little about who owns that company.
For a cross-border JV involving partners from jurisdictions with their own autonomous sanctions regimes – Switzerland (SECO), Canada (Global Affairs Canada), Australia (DFAT), or the UAE – the screening scope must extend to those lists as well. Each of those regimes has its own list of prohibited persons and its own territorial trigger. The practical burden is manageable if it is planned at the outset. It becomes acute if a signing deadline is looming and the analysis has not started.
The position above covers the standard case. Your facts – the identity of the co-venturers, the sector, the goods or services the JV will provide, and the jurisdictions involved – change the analysis substantially. To discuss your specific transaction, contact Calder & Vance at info@caldervance.com.
Step 4 – Design the governance structure to manage ongoing exposure
A JV governance structure that is clean at signing may develop a sanctions dimension during the JV's life – through a change in a co-venturer's ownership or control position, a new designation affecting an existing party, or a change in the JV's counterparty profile in its operations. Governance design should anticipate all three.
The shareholder agreement and constitutional documents should include several standard sanctions provisions. First, a representation and warranty from each party that it is not, and is not owned or controlled by, a designated person. Second, a continuing obligation to notify the other parties promptly on becoming aware of any designation, any ownership or control change that might trigger OFSI's test, or any OFSI inquiry or investigation. Third, a right to suspend distributions or to require a restructuring of the JV if a designation event occurs.
A designation event clause is the mechanism most frequently omitted in JV agreements drafted without specialist sanctions input. Without it, the UK party may find itself trapped: it cannot continue distributing profits to a co-venturer that has become designated, but the JV agreement provides no exit mechanism that is activated by that event. Designing the clause properly requires thought about the OFSI licensing route – would a specific licence authorise continued distributions during a restructuring, and on what conditions?
A specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) from OFSI is the mechanism for permitting a transaction that would otherwise breach a financial-sanctions prohibition. Obtaining one takes time and requires a detailed application. A JV governance structure that expects to rely on a specific licence during a designation event should include realistic timelines in its contingency planning – and should not assume that OFSI will grant one.
Governance should also address the JV's own operational counterparty risk. If the JV itself will contract with customers, suppliers, or financiers in the course of its business, it needs a compliance programme that screens those counterparties on an ongoing basis. That programme is not a one-person task added to an existing role. It requires defined procedures, documented training, and a clear escalation path.
Step 5 – Establish reporting, record-keeping, and breach response obligations
OFSI imposes affirmative reporting obligations on persons who know or have reasonable cause to suspect that they hold, or are dealing with, funds or economic resources owned or controlled by a designated person. The obligation is not triggered only by a confirmed breach. Reasonable suspicion is the threshold. In our experience, JV parties frequently misread this as applying only when they are certain a designated person is involved. That reading is wrong and leaves them exposed.
The JV documentation should make clear which entity bears the reporting obligation for OFSI purposes and in which circumstances. Where the JV vehicle is the UK entity, it is the JV vehicle that must report. Where the UK party is the limited partner or shareholder of an offshore vehicle, the position is more nuanced and depends on how the UK person's interest is structured.
Record-keeping requirements under the relevant regulations require that records of transactions and decisions relevant to compliance are maintained for a defined period. Practitioners advising on OFSI matters note that enforcement reviews frequently extend back several years from the date of the inquiry. A JV that has not maintained documentation of its compliance decisions – the screening results, the ownership analysis, the designation-event assessments – cannot reconstruct that evidence later. The documentation standard should be agreed at the outset and audited periodically.
If a transaction has already been flagged – if OFSI has made an inquiry, if a bank has blocked a JV payment, or if a compliance review has surfaced a potential breach – an early review can preserve options that narrow rapidly with time. For a confidential review of a potential issue, contact Calder & Vance at info@caldervance.com.
Step 6 – Map the secondary-sanctions and multi-regime exposure
OFSI does not operate in isolation. For most cross-border JVs, at least one other major regime is live alongside it.
US secondary-sanctions risk arises for any JV that involves US-dollar clearing, US-person co-venturers, US-origin goods or technology, or a JV vehicle with a US-nexus. OFAC's reach under IEEPA is extraterritorial. A JV between a UK entity and a third-country entity that clears payments in US dollars is exposed to OFAC's jurisdiction for those transactions. Secondary-sanctions exposure – the risk that OFAC will target a non-US person for providing material support to a designated person under a designated-party programme – does not require a US nexus in the traditional sense. It is risk-assessed by OFAC against a broader set of conduct.
The EU regime is the second cross-regime consideration for most UK JVs. Post-2020, UK and EU sanctions lists have diverged: a person may be designated under EU Council regulations but not on the OFSI list, or vice versa. A JV that has EU-person co-venturers, EU-incorporated vehicles in its structure, or EU-regulated bank financing must run the EU list analysis in parallel with OFSI. Where a JV spans both regimes, the stricter prohibition governs any given transaction.
For JVs with operational presence or financing in Asia, Australia, or the Gulf, the relevant autonomous regimes – DFAT (Australia), the Monetary Authority of Singapore, and the UAE Executive Office for Control and Non-Proliferation – each carry their own list and their own jurisdictional triggers. A multi-regime screening and monitoring protocol that is built at the formation stage is considerably cheaper to operate than one retrofitted after a problem surfaces.
For further analysis of the Swiss SECO position as it applies to cross-border JV structures, see our companion guide: JV sanctions structuring under the SECO regime. For the Singapore position, see: JV sanctions structuring – Singapore.
Step 7 – Address the common myths and the risk flags that most often cause problems
A frequent misconception in JV negotiations is that the sanctions analysis is binary: either the deal is prohibited or it is not, and if it is not expressly prohibited the parties can proceed. That is not how OFSI's ownership and control test works, and it is not how enforcement operates in practice.
A designated party may hold only a minority stake in a co-venturer. But if that party also holds contractual rights that amount to dominant influence – a veto over material transactions, board appointment rights, information rights that no other shareholder has – OFSI's control analysis may find the co-venturer caught. In our cross-border practice, we have seen term sheets agreed and shareholder agreements largely negotiated before anyone identified this issue. Unwinding a governance structure at that stage is costly and delays closing.
A second myth is that legal opinions from local counsel in the JV's home jurisdiction are sufficient for the UK sanctions analysis. They are not. A legal opinion on the permissibility of the JV under the local regime tells you nothing about OFSI's position. The UK analysis must be conducted by counsel with direct knowledge of SAMLA and the relevant thematic regulations. Where the JV involves a regulated UK entity – a bank, a payment institution, an investment firm – the Financial Conduct Authority's expectations of that entity's sanctions controls also come into play.
The risk flags that most reliably signal a JV requires immediate specialist review:
- A co-venturer has beneficial owners from or operating in a jurisdiction that is the subject of a comprehensive or significant sectoral sanctions programme under UK, US, or EU rules.
- The JV's sector – energy, defence, financial services, technology – is subject to sectoral restrictions that limit the scope of permissible investment or supply relationships.
- The JV agreement includes deferred payment or profit-share mechanisms that could result in funds being routed to, or economically benefiting, a person not yet identified.
- A co-venturer is a state-owned or state-affiliated entity from a jurisdiction subject to sanctions, even if it is not itself designated.
- Financing is being arranged through a financial institution in a jurisdiction with its own autonomous sanctions regime, creating a second layer of compliance obligation.
Related practices
- Correspondent banking and de-risking (OFAC) – sanctions risk assessment for correspondent and cross-border banking relationships
- JV sanctions structuring – SECO guide – structuring analysis for JVs with Swiss regulatory exposure