A freight-forwarder's compliance officer receives a purchase order for industrial sensors destined for a subsidiary in a jurisdiction covered by a broad OFAC sanctions programme. The sensors are US-origin. The buyer insists the transaction is covered by an OFAC licence exception. The officer must decide whether that claim is correct before the shipment leaves the dock. One wrong call – and the exposure is real, immediate, and personal.
Licence-exception eligibility under OFAC is a legal conclusion, not a commercial assumption. OFAC maintains a system of general licences (standing authorisations permitting a defined category of transactions without a separate application) alongside a separate specific-licence process. Whether a transaction fits within a general licence depends on a precise factual and legal test: the transaction must fall squarely within the licence's scope, all conditions must be satisfied simultaneously, and no separate prohibition must override it. As of May 2026, the most frequently mis-applied general licences relate to personal remittances, humanitarian authorisations, and certain official-government transactions.
This guide walks through the eligibility assessment step by step, sets out the critical procedural requirements, identifies the risk flags that trip up well-intentioned compliance teams, and explains where OFAC's approach diverges from the UK and EU equivalents.
Step 1 – Identify the applicable OFAC programme and its prohibitions
Every eligibility analysis begins with the correct OFAC programme. OFAC administers more than thirty distinct sanctions programmes under authorities including IEEPA and TWEA; the general licences available differ programme by programme. A general licence that authorises a transaction under one programme does not automatically apply under another, even where the counterparty is the same.
The first task is therefore to determine which programme or programmes are engaged. This requires screening the transaction against all relevant dimensions: the counterparty and its ownership chain, the goods or services, the jurisdictions of origin, transit, and destination, and the currency of payment. Where US-origin goods or US-person involvement is present, OFAC jurisdiction is triggered regardless of where the transaction physically closes. In our experience, companies that screen only the direct counterparty miss indirect exposure through intermediate payment processors or freight agents who themselves qualify as US persons.
Once the relevant programme is identified, map its core prohibitions. General licences carve out exceptions to those prohibitions. You cannot assess whether an exception applies unless you first know precisely what it is an exception to.
Step 2 – Locate and read the general licence in full
After identifying the programme, locate the relevant general licence and read it as a complete legal instrument. General licences under OFAC are published as part of the programme-specific regulations; they are not guidance documents and they are not aspirational. Each general licence contains a grant paragraph (what is permitted), a scope paragraph (to whom it applies), conditions (what must be true), and exclusions (what it does not cover). All four elements must be checked.
The exclusion paragraph is where general licences most often cut off what the grant seems to allow. A humanitarian authorisation, for example, may permit the export of food and medicine but exclude items with a dual-use classification. An authorisation covering personal transactions may exclude any transaction that benefits a blocked entity, even indirectly. Reading only the grant paragraph and skipping the exclusions is a compliance error we see repeatedly. The grant paragraph tells you what the licence offers; the exclusions tell you whether your transaction actually qualifies.
One practical point: general licences are amended without advance notice. The version on file from a previous transaction may no longer reflect the current text. Verify the current position directly from the OFAC website or the programme regulations before relying on any licence that has not been reviewed recently.
Step 3 – Apply the eligibility test to your specific facts
Eligibility is a factual determination. Once the general licence is read in full, apply its conditions to your specific transaction facts, element by element. This is not a holistic impression; it is a structured checklist. Each condition must be satisfied on the actual facts, not the hoped-for characterisation of them.
The conditions typically address several questions. Who are the parties? Does any party qualify as a blocked person or a government of a sanctioned territory, either directly or through the 50 percent rule (OFAC's rule treating entities owned 50 percent or more in aggregate by one or more blocked persons as themselves blocked)? What is the nature of the goods or services – are they specifically excluded from the licence scope? Is the transaction for the benefit of a restricted person, even if that person is not the direct counterparty? Is a US financial institution involved in a way that creates a separate compliance obligation?
Where ownership questions arise, the analysis must reach every layer of the ownership chain. 50 percent or more aggregate ownership by blocked persons is the threshold at which OFAC treats the entity as blocked even if it does not appear on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). Aggregation across multiple blocked-person shareholders is required. A company owned 35 percent by one SDN and 20 percent by a second SDN is itself treated as blocked. Does your diligence process aggregate across all blocked owners, or does it test each in isolation?
Step 4 – Satisfy and document all conditions precedent
Many general licences are conditional: the transaction is permitted only if specific steps are taken or specific facts are true at the time of the transaction. Conditions may include a restriction on the end-use of goods (the goods may not be re-exported to a third country), a requirement that payment is routed through a non-blocked correspondent bank, a prohibition on providing services to government entities, or a requirement that the exporter retains certain records for a defined period.
Failing a condition does not convert the transaction into a technical breach that can be excused by intent. OFAC's enforcement posture treats a failure to satisfy conditions as a potential violation. The transaction that proceeds on an incomplete general-licence eligibility assessment is a transaction that may subsequently require a VSD (voluntary self-disclosure to a regulator), with the costs and disruption that entails.
Documentation is itself a condition in many programmes. Five years is the record-keeping period that OFAC's regulations typically require; retain all eligibility analyses, end-use representations, and transactional records for at least that period, verify the current requirement in the applicable programme before relying on this figure. In our practice, the businesses most exposed in an enforcement inquiry are those whose compliance files show a transaction was processed but contain no written eligibility analysis.
The position above covers the standard eligibility path. Your facts – the parties involved, the goods' classification, the routing of funds, and the specific programme in play – will change the analysis materially. For a preliminary assessment, contact Calder & Vance at info@caldervance.com.
Step 5 – Assess the cross-border overlay: where OFAC diverges from OFSI and the EU
Transactions that are eligible under an OFAC general licence may simultaneously engage UK OFSI or EU sanctions obligations, and the eligibility tests are not identical. Understanding where they diverge is essential for any cross-border transaction.
OFAC's ownership and control test (the 50 percent rule) is mechanical: ownership of 50 percent or more triggers the block. OFSI and the EU use a broader ownership and control test (the test applied to determine whether a non-listed entity is caught through a listed person's ownership or control). Under OFSI and the EU, control without majority ownership – for example, through board appointment rights, contractual veto powers, or structural dependency – can bring a non-listed entity within scope. A counterparty that passes the OFAC 50 percent test may still be a restricted party under OFSI or EU rules if a designated person exercises effective control.
General licences under OFAC are also different in structure from their UK and EU equivalents. The UK system under OFSI uses general licences and specific licences in a manner broadly analogous to OFAC, but the categories of authorised activity and the conditions differ. The EU has no direct equivalent of a general licence as a freely available authorisation; it uses derogations within Council regulations, which are narrower in scope and require more active assessment by the relevant national competent authority. A transaction authorised under an OFAC general licence therefore does not carry any presumption of authorisation under OFSI or EU rules. The more restrictive prohibition governs.
For businesses operating between the US and the UK or EU, the practical consequence is that two separate eligibility analyses are required. We regularly advise clients who have completed a thorough OFAC analysis and then discovered that the same transaction requires a specific licence from OFSI – or that no EU derogation exists for the proposed activity.
There is a further extraterritorial dimension. The US regime reaches any transaction involving US persons, US-origin goods, US-dollar clearing, or items subject to the EAR (the Export Administration Regulations, administered by BIS). A non-US company that uses a US correspondent bank in payment processing, or that exports items incorporating more than a de minimis US-origin content, may engage OFAC obligations entirely independently of where the company is incorporated. This extraterritorial reach is a common source of unexpected exposure for European exporters. See our guidance on deemed exports and technology under the BIS EAR for the interaction with US export-control rules.
Step 6 – Identify the risk flags that disqualify otherwise eligible transactions
Several categories of risk flag can negate an otherwise complete eligibility analysis. Each warrants explicit attention before the transaction proceeds.
The first is SDN or blocked-party involvement at any tier of the transaction chain. Even where the direct counterparty is clean, a blocked sub-contractor, a blocked shipping company, or a blocked insurance underwriter can bring the transaction within a prohibition that the general licence does not cure. Screening should cover the freight forwarder, the insurer, the correspondent bank, and the vessel – not only the buyer and seller.
The second is mis-characterisation of the transaction type. A transaction structured as a "service" in order to fit within a service-authorisation may in substance involve the transfer of controlled technology, placing it outside the licence's scope. OFAC assesses the substance of a transaction, not only its label. In a recent matter, a technology-sector client characterised an arrangement as a professional-services engagement. On review, the arrangement involved ongoing access to controlled software, which triggered separate BIS licensing requirements alongside the OFAC analysis. The eligibility question was correct but incomplete.
The third risk flag is change in circumstances after the initial eligibility determination. A counterparty that was clean at the time of contracting may be designated before shipment or payment. General-licence eligibility is assessed at the time of the transaction; if new designations arise, the analysis must be refreshed. Contracts of more than a few weeks' duration require periodic re-screening of all parties.
The fourth flag is the interaction between OFAC general licences and US export-control requirements. A transaction may be OFAC-authorised but still require a separate licence under the EAR if the goods have an applicable ECCN (Export Control Classification Number under the US Commerce Control List) and the licence exception under the EAR does not apply. The two regulatory regimes operate in parallel; a green light from one does not produce a green light from the other. If a transaction has already been flagged or a filing has been challenged, an early structured review can preserve options that become more constrained with time. Contact Calder & Vance at info@caldervance.com for a confidential assessment.
Step 7 – Recognise when a specific licence is the correct route
Where no general licence covers the proposed transaction, or where the general licence conditions cannot be satisfied, the alternative is a specific licence (a case-by-case authorisation from OFAC to conduct an otherwise prohibited transaction). The specific-licence route is a legitimate and actively used mechanism. It is not an admission of wrongdoing and it does not create a presumption of violation.
The decision to apply for a specific licence rather than declining a transaction requires an honest assessment of two questions. First, is there a plausible basis for OFAC to grant the authorisation – that is, does the transaction fit within a recognised licensing policy or humanitarian carve-out? Second, is the business able to manage the timeline, which under OFAC can extend to several months depending on programme complexity and case volume?
Specific-licence applications require a detailed written submission setting out the parties, the transaction, the goods or services, the end-use, and the legal basis for authorisation. Incomplete or ambiguous applications invite requests for additional information, which extend the timeline further. Practitioners with experience in the relevant programme can structure an application to address OFAC's likely questions upfront, shortening the process. We have acted for clients across multiple OFAC programmes in preparing and managing specific-licence applications; the quality of the initial submission is the single most controllable variable in the timeline.
A common misconception is that applying for a specific licence signals wrongdoing to OFAC or signals commercially unacceptable risk to counterparties. The opposite is frequently true. Submitting a well-prepared licence application demonstrates that the compliance function is operating properly and that the business is working within the rules. Counterparties in regulated sectors often prefer a properly licenced transaction to an unlicensed one resting on a strained general-licence argument.
When should you involve sanctions counsel?
Four situations call for specialist input rather than in-house analysis alone. First, where the counterparty's ownership structure is complex and the 50 percent aggregation question cannot be resolved from publicly available information. Second, where a general licence has been amended since the last transaction and the position has changed. Third, where the transaction engages two or more regimes simultaneously and a single eligibility analysis does not cover all of them. Fourth, where a compliance concern has already arisen – a blocked-payment alert, a bank refusal, or a regulator query – and the business needs to assess whether a VSD is appropriate. In any of these situations, early advice is materially more valuable than advice sought after the event.
We also advise on the broader export-control interaction. OFAC general-licence eligibility and BIS licence-exception eligibility are separate questions that arise together in many transactions. The next guide in this series addresses the procedural mechanics of OFAC specific-licence applications in detail. For OFSI's equivalent licence-exception rules, see our OFSI licence-exception eligibility guide.
Related practices
- Deemed exports and technology under the BIS EAR – classification, licence requirements, and end-use controls for US-origin technology
- OFAC specific-licence applications: procedure and practice – step-by-step guide to preparing and submitting a specific-licence request
- OFSI licence-exception eligibility – UK financial sanctions general-licence and specific-licence framework compared with OFAC