A UK-designated company or individual receives a claim or criminal charge. Their legal advisers – counsel, solicitors, experts – need to be paid. Every pound in the client's UK accounts is frozen. Can those funds be released to cover legal costs? The answer, under OFSI's financial-sanctions regime, is yes – but only through a specific licence, applied for correctly, with supporting evidence that meets a high evidentiary bar.
Legal-fees licences under OFSI allow a designated person's frozen assets to be released to pay reasonable legal costs. The power sits in the relevant thematic sanctions regulations made under the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA"). OFSI exercises a broad discretion: it assesses reasonableness, proportionality, and whether granting a licence is consistent with the objectives of the sanctions programme. There is no automatic entitlement, and the licence does not guarantee that any particular sum will be released.
This guide walks through each stage of the process – from the threshold question of whether a licence is needed at all, through the evidence package, to the decision and beyond. It also compares the OFSI position with the approach taken by OFAC in the United States and the EU Council, so that cross-border advisers understand where the regimes diverge and where they align.
Step 1: Is a legal-fees licence actually required?
The first question is whether a licence is needed at all. Not every payment to a lawyer by or on behalf of a designated person requires one.
A licence is required when the payer is a designated person and the funds to be used are frozen assets held in a UK account, or when a UK-nexus transaction is otherwise caught by the financial prohibition. Practically, that means you need a licence if the designated person's own accounts are the source of the payment. You do not necessarily need one if a third party – a family member or a company that is not itself designated – pays from its own unaffected funds. The important caveat: that third party must not be acting as a conduit for the designated person's assets. Using an intermediary to route frozen funds is not a permissible workaround; it falls squarely within the prohibitions that OFSI enforces.
The ownership and control analysis (the UK test for whether a non-listed entity is caught through a listed person's holdings) matters here too. If the entity funding legal costs is itself controlled by the designated person, its funds may be caught. The test under the relevant UK regulations asks both about ownership – typically at 50 percent or more – and about control through other means. Mapping the ownership and control structure before any payment is made is essential.
In our experience, the most expensive errors happen at this preliminary stage. Firms assume that because the designated person has not been named on a corporate bank account, that account is free. It may not be. Before moving any funds, a thorough screening of the full ownership and control chain is the necessary first step.
Step 2: Identify the correct licensing ground and gather the evidence
OFSI's power to grant a legal-fees licence derives from the relevant thematic sanctions regulations, which typically include an express licensing ground for basic legal costs. The ground is usually framed in terms of "reasonable" legal costs. What is reasonable is a question OFSI answers by reference to the nature of the proceedings, the complexity of the matter, the applicable market rates, and the proportionality of the fees sought relative to the issues at stake.
The evidence package that supports the application must address each of those elements directly. A bare request for a sum of money, accompanied only by an invoice, will almost certainly be returned or refused. OFSI expects:
- A clear description of the legal proceedings or advice for which the costs are sought.
- A breakdown of the fees by fee-earner grade, hourly rate, and anticipated work.
- An explanation of why those rates are reasonable for the complexity of the matter in the relevant market.
- Where the proceedings involve a UK court or tribunal, confirmation of that procedural context.
- A statement from the legal adviser confirming that they will receive the funds directly and will apply them only to the stated costs.
- Any previous correspondence with OFSI relevant to the designated person's situation.
Applications should be made on OFSI's prescribed form and submitted through the official OFSI portal. Submissions by other means risk processing delays and may not be accepted as complete.
One practical issue arises frequently. Designated persons sometimes approach multiple sets of legal advisers before one agrees to act – or before one is in a position to prepare the application. The application to OFSI is itself legal work that needs to be funded. OFSI has indicated a willingness to consider licence applications that cover the costs of preparing the licence application, but this is not guaranteed, and the evidence standards apply equally to that portion of the fees.
Step 3: Submit the application and manage OFSI's review
OFSI does not operate on a fixed statutory timetable for licence decisions of this type. Processing times vary with the complexity of the case and OFSI's caseload. We regularly advise clients to plan for a period of weeks to months, not days, and to make interim funding arrangements wherever possible – for example, retaining counsel on a more limited brief initially.
During the review OFSI may raise queries. It may ask for further evidence of the fee rates, for clarification of the proceedings, or for information about whether the designated person has other sources of funds. It is important to respond promptly. Delays in providing further information extend the timeline directly.
OFSI may also consult other government departments. Where the designation relates to a programme with a foreign-policy dimension, advice from the relevant department may be sought before a decision is made. This consultation can add time, and practitioners should factor it into any case-management plan.
The licence, if granted, will be time-limited and will specify the maximum amount that may be released, the purpose, and the payee. It is almost always issued to the legal adviser as the named recipient rather than to the designated person directly. The legal adviser then draws funds against the licence in accordance with its terms.
What if OFSI refuses – or imposes conditions you cannot meet?
A refusal by OFSI to grant a legal-fees licence is a decision that can be challenged. The primary route is an internal review by OFSI, under the procedure established in SAMLA. If the internal review does not produce a satisfactory outcome, the designated person can seek judicial review of the decision in the High Court.
The judicial-review ground most commonly relied upon is that the refusal or the conditions imposed are disproportionate to the legitimate aim of the sanctions programme. The right to a fair trial and the right of access to legal advice – protected under the Human Rights Act and the common law – are highly relevant to that proportionality argument. Courts have treated an effective impediment to legal representation as a serious matter, and OFSI is aware of this.
In practice, a well-prepared licence application that addresses OFSI's concerns before they arise is far more effective than a challenge after a refusal. If there is an issue with the quantum of fees, it is better to negotiate that in advance – providing additional comparables, adjusting the scope of the brief, or phasing the licence over time – than to receive a flat refusal and then pursue review proceedings.
Conditions attached to a licence can also create operational difficulties. A licence capped at a level below what is needed to fund an adequate defence is itself a constraint that may require a further application or a review challenge. We have acted in matters where the initial licence covered only a portion of the anticipated costs, and where a phased series of applications proved to be the most effective approach.
How does OFSI compare with OFAC and the EU on legal-fees licensing?
All three of the major Western sanctions regimes provide a route for paying legal fees from frozen assets, but the mechanics differ in ways that matter to cross-border clients.
Under OFAC, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) is the standard route. OFAC's regulations under IEEPA provide for legal fees in certain contexts, but the standard of reasonableness that applies – and the procedural requirements – reflect OFAC's own licensing practice. Importantly, OFAC publishes guidance on fee rates it considers reasonable for certain categories of work, and applicants who exceed those guidelines face specific questions. OFAC also uses general licences (standing authorisations permitting a defined category of transactions without a separate application) to cover certain legal-services payments under particular programmes, but the scope of those general licences varies by programme and may not cover all proceedings.
The EU position is set by the relevant Council regulations. EU sanctions regulations contain an express provision permitting the release of frozen funds for legal costs. The authorising authority is the competent national authority of the member state in which the funds are held – which means that where a designated person has frozen assets in multiple EU member states, separate authorisations may be required in each. There is no single EU-level licensing authority for this purpose. The standards applied – reasonableness of fees, nature of proceedings – are broadly similar to OFSI's, but the process and the evidentiary expectations differ between member states. Practitioners advising on EU matters note that some national authorities are considerably more procedurally demanding than others.
The cross-border implication for a designated person with frozen assets in the UK, an EU member state, and the United States is that three separate licensing processes – each with its own regulator, its own standards, and its own timeline – may need to run in parallel. Coordinating those applications, and ensuring that the funds released in each jurisdiction are applied consistently with each licence's terms, requires careful programme management. The rule that applies across all three regimes is straightforward: where the regimes impose divergent requirements, the stricter prohibition governs the conduct of any person subject to it.
Risk flags and when to involve counsel
Several patterns consistently produce problems in legal-fees licence applications. Being alert to them early reduces the likelihood of a refused or delayed application.
The fee quantum is above market. If the hourly rates or the anticipated total fees are above what OFSI considers typical for the complexity of the matter, that is the single most common source of delay or refusal. Preparing a market comparables analysis at the outset – before the application is submitted – is almost always worth doing.
The proceedings are not clearly identified. A licence application must tie the fees to specific, identified legal proceedings or a clearly described advisory scope. An application framed as a general provision for "ongoing legal advice" is unlikely to succeed.
The payee structure is not clean. The licence must name a specific legal adviser or firm as the direct recipient. Where the designated person's legal team involves multiple firms, counsel, and experts, the application needs to identify each payee and each payee's share. OFSI will not issue a licence to a designated person for onward distribution.
The application is made too late. Legal advisers facing insolvency proceedings, asset-recovery actions, or criminal charges need to move quickly. A delayed licence application means delayed legal representation. In our practice, we recommend making the application as soon as the need for legal fees from frozen assets is identified – not after proceedings have commenced and timelines are pressing.
There is a common misconception that a licence application for legal fees is a formality. It is not. OFSI applies genuine scrutiny to the reasonableness of the fees and to whether releasing the funds is consistent with the objectives of the sanctions programme. The application is a regulatory submission, and it should be prepared with the same care as any other regulatory filing.
The interaction with broader compliance obligations
A designated person engaging legal advisers does not operate in a compliance vacuum. The legal advisers themselves have obligations.
Regulated legal professionals in the UK are subject to financial-sanctions obligations independent of any client-specific analysis. Before accepting instructions from a designated person, a firm must confirm that it is not itself committing a breach of the sanctions rules. Receiving funds from a designated person's frozen account without a licence is itself a violation – it does not matter that the payment is for legal services. This is why the licence must be in place, and the funds must flow through the named payee mechanism in the licence, before any payment is made.
Record-keeping obligations apply to both the designated person and the legal adviser. The licence terms will typically require records to be kept of all transactions under the licence, and OFSI has the power to request those records. Maintaining a clear audit trail of every amount released under the licence, and how it was applied, is a basic compliance requirement.
The interaction with anti-money-laundering controls is also relevant. Legal advisers conducting the due diligence required under AML rules will identify the designated status and may have reporting obligations. The existence of a valid OFSI licence does not disapply AML obligations. The two regulatory regimes run concurrently, and both must be satisfied.
If a transaction flagged in the screening process turns out to involve funds that were released without a licence – or under a licence whose conditions were not met – the consequences for the legal adviser can be significant. OFSI's enforcement posture has hardened in recent years, and the regulator has indicated a willingness to pursue enforcement action against professional advisers as well as their clients.
For cross-border matters where the designated person also has assets in other jurisdictions, the legal advisers must confirm that their local equivalents have addressed the equivalent licensing requirements in each relevant jurisdiction. Co-ordinating that analysis across multiple regimes is a practical and recurring challenge for counsel advising on complex designations.
Related practices
- Frozen account management under BIS/EAR – managing access to frozen assets under US export-control and sanctions rules
- Legal-fees licences under OFSI: advanced issues – phased applications, conditions, and review routes in complex designation cases