A technology exporter receives a purchase order from a distributor it has supplied for three years. The end-user certificate names a regional logistics company. The goods are dual-use electronics with obvious military applications. The exporter's compliance team asks: do OFAC's military end-use rules apply here, and if so, what exactly must we do before we ship? As of May 2026, that question is more consequential than it was two years ago.
OFAC's military end-use rules apply where a sanctions programme restricts the supply of goods, services, or technology to a foreign military, intelligence, or defence-industrial actor – whether or not that actor appears on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The analysis is not simply a list-check. It requires a programme-by-programme review, an end-use and end-user assessment, and a documented decision before the transaction proceeds.
This guide walks through each step of that analysis: the governing authority, the end-user identification test, the cross-regime comparison with BIS, the documentation standard, the risk flags, and when to involve sanctions counsel.
Step 1: Identify which OFAC programme governs the transaction
The first step in any military end-use analysis is to identify which OFAC programme – or programmes – cover the counterparty, the destination, and the goods or technology in question. Different programmes impose different prohibitions on military-related activity, and some programmes target defence-sector actors specifically, even when those actors are not SDN-listed.
OFAC administers its programmes under authority drawn from IEEPA, TWEA, and related legislation. Each programme is implemented through a set of regulations that specify its scope, its prohibited transaction categories, and any available licences or authorisations. For military end-use purposes, the key question is whether the applicable programme contains a prohibition on supplying goods or services that will be directed to a military end-user in the relevant country or sector.
The answer differs by programme. Some OFAC regimes impose comprehensive prohibitions that capture virtually all transactions with designated countries, including any supply that benefits a state military. Others are entity-based or sector-based: they restrict transactions involving specific listed persons or entities in named sectors – which can include defence or intelligence entities – without imposing a general country-wide ban. A third category combines both approaches.
In our experience, the most common error at this stage is conflating a list-screening result with a programme analysis. A clean screening result – no hits on the SDN List or any sector list – does not resolve whether the relevant programme restricts the proposed transaction. Programme analysis must come first; list-screening is a necessary but not sufficient step.
Before proceeding to end-user analysis, confirm which programme or programmes are in scope, read the relevant regulations (without relying on section numbers), and note whether the programme extends to non-listed entities by virtue of sector, ownership, or activity.
Step 2: Map the end-user and the intended end-use
The second step is to establish who will actually use the goods, technology, or service, and for what purpose. OFAC's military end-use analysis is end-user-specific: the restriction attaches to the intended use and user, not merely to the nominal purchaser or intermediary.
End-user mapping requires looking beyond the immediate counterparty. A distributor, trading house, or logistics provider may be the named buyer, but the goods may flow on to a final recipient that is a military, intelligence, paramilitary, or defence-industrial entity. Where the supply chain is multi-tiered, the analysis must trace the expected destination of the goods.
The minimum information a compliance team should assemble at this stage includes:
- The identity of the immediate counterparty, including ownership and control structure.
- The stated end-user and the end-use certificate or equivalent documentation.
- The goods, technology, or service being supplied, and its technical characteristics relevant to military application.
- The destination country and the applicable OFAC programme or programmes.
- Any contractual or commercial information suggesting onward transfer or re-export.
Where the stated end-use is civilian but the goods have an obvious military application, the compliance assessment must address the diversion risk directly. A logistics company, for example, that is wholly or substantially owned by a state defence ministry raises an end-user concern regardless of the purchase documentation. We regularly advise clients on exactly this pattern: the intermediary appears clean; the owner does not.
One useful internal question: if the goods reached the end-user's apparent counterparty in the defence sector, would that constitute a prohibited transaction under the applicable OFAC programme? If the answer is yes, the presence of a civilian intermediary does not eliminate the risk.
Step 3: Apply the ownership and control test to non-listed entities
The third step is to apply the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) and the broader ownership and control analysis to any entity in the supply chain that is not directly named on a sanctions list.
This step matters in the military end-use context because defence-sector entities are often state-owned or state-controlled. Where a foreign state is itself subject to OFAC sanctions – or where a listed defence ministry or state instrumentality has ownership interests in a supply-chain participant – the 50 percent rule may capture that participant entirely.
Aggregation is the complication most frequently missed. Two or more blocked persons each holding a minority stake in the same entity can together reach or exceed the 50 percent threshold. Screening tools that check only for a single listed person as the majority owner will miss this pattern. The correct approach is to aggregate all blocked-person ownership, whether direct or indirect, and determine whether the combined figure reaches or exceeds the threshold.
Below the 50 percent threshold, the analysis continues. Under OFAC's own guidance, control by a blocked person can also be relevant to whether a transaction is effectively for the benefit of that person. This is not a mechanical test: it requires a judgment about whether the transaction's economic benefit flows, in whole or in material part, to a blocked person through the non-listed entity.
The divergence from the EU and UK positions is worth noting here. Under OFSI's ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person), the control element is explicit and broader: it captures entities over which a designated person has decision-making influence, even without majority ownership. A transaction that passes the OFAC 50 percent test may still be prohibited under OFSI or an EU Council regulation if a listed person controls the counterparty without owning a majority. Cross-border transactions must apply both analyses independently.
Step 4: Compare OFAC's position with the BIS military end-use rules
The fourth step – and the one most frequently omitted by compliance teams focused solely on OFAC – is to run a parallel analysis under the Export Administration Regulations administered by BIS.
OFAC and BIS address military end-use from different statutory angles. OFAC's prohibitions are sanctions-based: they target transactions that benefit persons or countries subject to OFAC programmes. BIS's military end-use and military intelligence end-use rules are export-control-based: they apply to items that are subject to the EAR and are intended for use by or in support of certain military or intelligence end-users in specified countries, regardless of whether those countries or entities are OFAC-listed.
The practical overlap is significant. An exporter of dual-use electronics may face:
- An OFAC prohibition because the end-user is owned or controlled by an SDN-listed defence entity.
- A BIS licence requirement because the item has an ECCN (Export Control Classification Number under the US Commerce Control List) that triggers enhanced review for military end-users.
- A separate BIS restriction under the military end-use and military intelligence end-use controls that applies irrespective of ECCN classification, for items that are EAR99.
The critical point is that a clean OFAC analysis does not satisfy BIS requirements, and vice versa. Both must be completed. In our cross-border practice, we have seen transactions that cleared OFAC review but required a BIS licence that had not been identified, and transactions where the OFAC issue was the only one addressed while the BIS military end-use restriction was overlooked entirely.
For guidance on BIS classification and the deemed-export rules that apply to technology transfers, see our dedicated service page: Deemed export and technology transfer under the BIS/EAR.
The position above covers the standard case. Your facts – the counterparty, the goods, the destination, the applicable programme – change the analysis. For an assessment of your specific exposure under OFAC and BIS, contact Calder & Vance at info@caldervance.com.
Step 5: Check allied and multilateral restrictions
Beyond OFAC and BIS, the fifth step is to check whether any allied-regime restriction applies to the same transaction. This step is not optional for businesses operating under more than one jurisdiction's rules, or for non-US businesses that could be subject to extraterritorial reach.
The United Nations Security Council maintains a Consolidated List of designated persons and entities under resolutions adopted under Chapter VII of the UN Charter. UN designations are binding on all member states, including those that have not adopted independent national-sanctions measures. A transaction with a UN-listed defence entity is prohibited regardless of which national programme you are primarily analysing.
The EU and UK have each adopted sector-specific and entity-specific restrictions that target defence and intelligence-sector actors in certain countries. The EU's Council regulations and the UK's thematic sanctions regulations may prohibit supplies to defence-sector entities that are not captured by OFAC, or may impose additional conditions such as prior authorisation or end-use undertakings. Where the EU or UK regime is stricter, the stricter prohibition governs for entities subject to those jurisdictions.
Switzerland (SECO), Canada (Global Affairs Canada), Australia (DFAT), and the UAE, Singapore, and Japan each maintain sanctions instruments that can apply to military end-user transactions. Singapore and Japan, in particular, have domestic export-control and strategic goods regimes that run parallel to their sanctions measures. A business incorporated or operating in any of these jurisdictions must check the applicable country regime independently, not simply rely on a US or EU analysis.
The cross-border question is: which regime applies to which party to the transaction? An EU-incorporated subsidiary of a US group may simultaneously be subject to US OFAC rules (through the parent's nexus), EU Council regulations (through its own incorporation), and the national regime of the destination country. The most restrictive applicable prohibition prevails.
Step 6: Assemble the documentation and record the decision
The sixth step is to document the analysis and the decision reached at each preceding step. Documentation is not an administrative formality. It is the primary evidence a business can offer in an enforcement proceeding or a regulator's inquiry, and it is the mechanism by which an organisation demonstrates that it applied genuine diligence rather than a mechanical list-check.
A well-constructed military end-use file should contain, at minimum:
- A note identifying the applicable OFAC programme or programmes and the basis for that identification.
- The end-user certificate or equivalent documentation, with a note on its adequacy.
- The ownership and control analysis, including the aggregation calculation where multiple parties hold interests.
- The BIS analysis, including the ECCN classification or the basis for an EAR99 determination, and the military end-use check.
- A record of any allied-regime checks (EU, UK, UN) and their outcome.
- The compliance decision – proceed, decline, or refer for licence – with the authorising officer identified.
- Any licence obtained, or the basis for reliance on a general licence (a standing authorisation that permits a defined category of transactions without a separate application).
Record-keeping obligations vary by regime. Practitioners should verify the current retention requirements under each applicable regime before finalising their records-management policy, as the required periods differ across OFAC, BIS, OFSI, and the EU instruments.
If a transaction has already been flagged, or a filing has been refused, an early review of the documentation can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com for a confidential review.
Step 7: Identify red flags and know when to seek specific authorisation
The seventh step is to assess whether any red-flag indicators require the transaction to be paused pending further enquiry, or escalated to counsel for advice on whether a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) is necessary.
Red-flag indicators in the military end-use context include:
- An end-user or beneficial owner whose name, abbreviation, or translation appears on or closely resembles an entity on an OFAC sector list or the SDN List.
- Goods with a clear military application being purchased by a civilian entity with no obvious operational need for them.
- A request to ship to a freight-forwarding address or a country that is not the stated destination.
- Unusual payment arrangements, requests to omit end-use information from documentation, or instructions to avoid standard export procedures.
- Ownership by a state ministry, state-owned enterprise, or state instrumentality in a country subject to an OFAC programme that targets the defence sector.
- A supply chain involving multiple jurisdictions in sequence where each step individually appears clean but the combined route ends in a restricted destination or entity.
The presence of one red flag does not automatically prohibit the transaction. It requires enhanced due diligence: further enquiry into the end-user's identity, additional documentation from the counterparty, and a deliberate compliance decision that addresses the flag on the record.
Where multiple red flags are present, or where the goods are of significant military sensitivity, the appropriate response is almost always to pause the transaction and seek legal advice before proceeding. A voluntary self-disclosure (VSD) – a proactive disclosure to OFAC or BIS of a potential violation – is available to businesses that identify a problem after the fact, and OFAC's enforcement guidance treats a timely, complete VSD as a significant mitigating factor. But the stronger position is always to identify the issue before the transaction closes.
What should a business do if it discovers, after shipment, that the goods reached a military end-user in a sanctioned programme? The answer depends on the programme, the facts, and the documentation assembled before shipment. Early legal advice is essential. The window for effective action tends to narrow quickly.
Related practices
- Deemed export and technology transfer – BIS/EAR – technology classification, deemed-export controls, and licence exceptions under the EAR.
- Military end-use rules: guide 3 – the next module in this series, covering licensing routes and authorisation options.