A trading company operating between Asia and Australia finalises an escrow arrangement for a multi-year supply contract. The escrow agent is a Singapore-incorporated trustee. The underlying goods flow through a freight forwarder in the UAE. Before funds are released, a compliance review flags a beneficial owner on the Australian Autonomous Sanctions list. The deal is paused. The questions that follow – can the escrow hold funds? Must they be frozen? Does the Australian regime apply to the Singapore trustee? – are not hypothetical. As of January 2026, Australia's autonomous sanctions regime, administered by the Department of Foreign Affairs and Trade, continues to expand in scope, and the payment structures that were unremarkable twelve months ago may now carry material exposure.
Payment and escrow structuring under Australia's Autonomous Sanctions regime requires a business to screen all transaction parties – counterparty, escrow agent, beneficial owners, and intermediary banks – against the Australian Sanctions List maintained by DFAT, to identify any prohibition triggered by the Autonomous Sanctions Act and the relevant thematic regulations, and to determine whether a permit is required before funds can be received, held, or released. The regime's extraterritorial reach means that non-Australian entities can be caught when Australian persons or financial institutions are in the payment chain.
This guide sets out the governing authority, the compliance steps in sequence, the cross-regime considerations that most commonly arise in cross-border B2B payment structures, and the risk flags that indicate when to involve experienced sanctions counsel.
Step 1: Understand the governing authority and legal basis
Australia's financial-sanctions regime rests on the Autonomous Sanctions Act and the Autonomous Sanctions Regulations, both administered by DFAT. The Act provides the power to impose targeted financial sanctions and travel bans by reference to thematic and country-specific sanctions programs adopted by Ministerial instrument. DFAT maintains and publishes the Australian Sanctions List, which is the operative screening database for any payment or escrow arrangement involving Australia-connected parties.
The statutory prohibitions are directed at "dealing with" sanctioned assets and at making assets available to designated persons or entities. In the payment context, those prohibitions bite at the moment funds are transferred to, or held for, a listed party – and they also apply when a non-listed entity is controlled by a listed person in a way that brings the asset within the definition of sanctioned property. The relevant thematic regulations specify, for each program, what conduct is caught and what authorisations DFAT may grant.
One important structural point: Australia's regime does not use the same automatic aggregation rule that OFAC applies in the United States. Under OFAC, the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) operates as a bright line. Under Australia's regime, the ownership-and-control analysis is conducted against the language of the relevant thematic instrument and DFAT's published guidance. The practical result is similar – a controlled entity may be treated as a sanctioned entity – but the analysis requires a closer reading of the specific program text. We regularly advise clients who assume that an OFAC-style threshold automatically determines Australian exposure. It does not, and the difference matters when structuring escrow release conditions.
Step 2: Screen all transaction parties and the full ownership chain
The second step is a systematic screen of every party that touches the payment or escrow structure. That means the buyer, seller, escrow agent, escrow beneficiary, trustee, any nominated bank, and the material beneficial owners of each corporate party. A screen that covers only the headline counterparty and misses a thirty-percent beneficial owner holding a coordinated position with another listed shareholder is a screen that fails its purpose.
DFAT publishes the Australian Sanctions List as a searchable online database and in downloadable form. The list should be checked at the point of onboarding, at the point of each material payment instruction, and before any escrow release – because the list changes between those events. A listing can occur at any point in the life of a contract, and a release instruction issued the week after a listing may be a prohibited dealing even if the original escrow was set up before the designation was made.
In our cross-border practice, the parties that attract the most compliance risk in a payment structure are rarely the headline counterparty. They are the escrow agent's correspondent bank, the freight forwarder who presents the bill of lading that triggers the payment condition, and the intermediate holding company that owns the seller but whose ultimate beneficial owner sits on a sanctions list maintained by a different regime. That last scenario raises the question of multi-regime alignment, which is the subject of Step 4.
Practical check at this stage:
- Have you screened against the Australian Sanctions List – not only the UN Consolidated List or the OFAC SDN List (OFAC's list of Specially Designated Nationals and blocked persons)?
- Have you extended the screen to beneficial owners at the level indicated by your risk assessment, and not only to the immediate corporate party?
- Is the escrow agent or trustee itself an Australian entity, or does it hold Australian correspondent banking relationships that bring it within the regime's reach?
Step 3: Assess whether a permit is required before funds move
Where a screen produces a positive match – or a near-match that cannot be resolved on available information – the business must assess whether continuing with the payment or releasing escrow funds requires a permit from DFAT. Australia's Autonomous Sanctions regime provides for ministerial authorisation of transactions that would otherwise be prohibited. The permit process is specific to the relevant thematic program, and the criteria for grant differ across programs.
A permit does not automatically follow from an application. DFAT will assess the purpose of the transaction, the identity of the ultimate beneficiary, and whether the relevant program's objectives are consistent with granting the authorisation. The process takes time. In our experience, businesses that approach DFAT for a permit without a clear factual record – the ownership structure, the purpose of the payment, the nature of the goods or services – face significantly longer resolution times than those who present a complete and well-documented application at the outset.
During the period of a permit application, the legal position of funds already held in escrow must be carefully managed. If the escrow arrangement constitutes a "dealing" with assets that are frozen or attributable to a sanctioned person, the escrow agent itself may require authorisation to hold those funds pending resolution. This is a point that escrow documentation frequently neglects. The escrow agreement should address the obligation to seek authorisation, the mechanism for notifying the parties, and the allocation of costs and risk if a permit is refused.
The position above covers the standard case. Your facts – the counterparty, the escrow structure, the governing law, the payment route – change the analysis. For an early assessment of whether your transaction requires a DFAT permit, contact Calder & Vance at info@caldervance.com.
Step 4: Map cross-regime exposure – where Australia is not the only regime in play
A payment or escrow structure that involves Australian parties rarely operates under Australian law alone. This is the point where tofu-stage compliance guides most often fail their readers: they treat the Australian regime as self-contained when, in a typical cross-border B2B structure, OFAC, OFSI, the EU Council regulations, and the MAS framework in Singapore may all impose overlapping obligations on different parties in the same chain.
Consider a straightforward escrow: an Australian buyer, a Singapore escrow agent, a payment routed through a US dollar correspondent bank in New York. The correspondent bank is an American financial institution. It is subject to OFAC jurisdiction. If the underlying transaction is one that OFAC would prohibit – because a party is on the SDN List, or because the transaction involves a US-sanctioned program – the correspondent bank will block the payment before the Australian permit question even arises. The Australian permit is irrelevant if the payment cannot clear New York. Cross-border structures require that the compliance analysis be run in parallel across every regime with jurisdiction over any party or payment leg.
The EU position adds another dimension. Where one of the payment parties is incorporated or operating in the EU, the relevant Council Regulation imposes an ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person) analysis. EU courts – particularly the EU General Court – have developed a body of case law on what "control" means in practice, and that case law may determine whether an EU party can participate in the escrow at all. The EU Blocking Regulation adds a further layer for transactions caught by certain US secondary-sanctions programs, creating potential conflicts of obligations that require careful structuring advice.
What does this mean for structuring? It means that an escrow designed solely around DFAT's permit requirements may still be unworkable if the correspondent banking chain, the escrow agent's home jurisdiction, or the governing law creates obligations under a different regime that conflict with the Australian permit. The structuring work is multi-regime, and the compliance opinion must address each leg of the chain.
If a transaction has already been flagged by a correspondent bank, or an escrow release has been refused pending compliance review, an early multi-regime analysis can preserve options that narrow with time. Contact us at info@caldervance.com.
Step 5: Address record-keeping, reporting, and ongoing monitoring obligations
Australian sanctions law imposes reporting obligations on persons who hold or deal with frozen assets or who have information about a potential sanctions breach. Compliance with those obligations is not optional, and failure to report known or suspected dealings with sanctioned assets can itself constitute a breach. The relevant thematic regulations specify the reporting mechanism – the obligation runs to DFAT and, in some contexts, to the Australian Transaction Reports and Analysis Centre (AUSTRAC) where the AML/CTF overlay applies.
Record-keeping for a payment or escrow structure should cover the screening undertaken, the results of the screen, the basis on which the business concluded the transaction was permissible, any permit applied for and the outcome, and all correspondence with DFAT. Sanctions and export-control rules change frequently; a record that documents the compliance analysis at the time of the transaction is the business's best protection in any later enforcement review.
Ongoing monitoring is particularly important in longer-term escrow arrangements. A two-year escrow for a major infrastructure project is not screened once and then forgotten. The Australian Sanctions List changes. Beneficial ownership structures change. The business must build a monitoring schedule into the escrow administration, with clear protocols for what happens when a mid-term listing event occurs – who notifies whom, how the escrow agent is instructed, and what the fallback position is if release conditions cannot be satisfied.
Step 6: Identify risk flags that indicate when to involve sanctions counsel
Most payment and escrow compliance work can be handled by a well-trained in-house team operating a tested screening programme. Some situations fall outside that perimeter. The following are the risk flags that, in our experience, indicate that external sanctions counsel should be involved before the payment or escrow is structured – not after a problem has arisen.
- A beneficial owner at any level has a name that generates a possible match on the Australian Sanctions List, or on any list maintained by a regime with jurisdiction over another party in the chain. A possible match is not a confirmed designation, but it triggers an obligation to resolve it before funds move.
- The counterparty is incorporated in a jurisdiction that is itself the subject of a thematic Australian sanctions program, even if the immediate counterparty is not individually designated.
- The payment route involves a correspondent bank that has previously declined or flagged transactions with similar profiles. That is a signal that the bank's own compliance team has identified an exposure that your analysis may not yet have captured.
- The escrow is governed by the law of a jurisdiction different from the domicile of the escrow agent, the counterparty, or the paying bank. Multi-regime conflicts of law create ambiguity about which authority's permit or authorisation governs.
- The goods or services underlying the escrow are dual-use items, technology, or software that may also require export-control licensing under the EAR (the US Export Administration Regulations administered by BIS) or the Australian Defence Export Controls regime.
- A party to the structure has recently undergone a change of ownership or control, and the new beneficial owner has not been fully screened.
The common thread across those flags is uncertainty – about who ultimately benefits, about which regime governs, about whether the deal as structured can clear every payment leg. Uncertainty is not a reason to walk away from a transaction. It is a reason to obtain a structured compliance opinion before committing to payment and escrow terms that cannot be easily unwound.
How the Australian regime compares to OFAC, OFSI, and the EU
Understanding where Australia sits relative to the other major regimes helps a cross-border business calibrate its compliance effort. The comparison is practical, not political: each regime has different enforcement postures, different ownership and control tests, and different permit processes. A business that calibrates only to OFAC – the most extensively published regime – may under-comply with Australia and over-engineer protections that DFAT's framework does not require.
OFAC applies its 50 percent rule mechanically across all programs. Australia does not have a codified equivalent, though the analysis under the relevant thematic regulations will often reach a similar result for entities that are demonstrably controlled by a designated person. The practical difference is that the Australian analysis requires engagement with the specific program instrument, not just an ownership-percentage calculation.
OFSI – the UK's Office of Financial Sanctions Implementation – applies an ownership and control test under SAMLA that is closer to the EU model than to OFAC's. OFSI has published guidance on what "control" means in the UK context, and that guidance includes indicators such as board composition, veto rights, and contractual control, not merely share ownership. A UK party in an escrow structure must apply that test to the same counterparty that an Australian party is assessing under DFAT's framework. The two analyses should be run in parallel; they may reach different conclusions on the same facts.
The EU General Court has developed a detailed body of case law on the standard of evidence required for a listing and on the right to effective judicial protection. EU-designated persons have a delisting route through annulment proceedings that is procedurally distinct from Australia's process. In practice, that means that a company facing coordinated EU and Australian designations – a situation that arises in thematic programs where the regimes have adopted aligned lists – must manage two separate legal processes simultaneously, with different procedural rules and different timelines.
For businesses operating between Australia and Canada, the Canadian autonomous-sanctions regime administered by Global Affairs Canada provides another point of comparison. Canada's regime uses statutory definitions and permit processes that differ from DFAT's, and the legal basis for secondary-sanctions exposure is structured differently. See our guide to payment and escrow structuring under Canada for a regime-specific analysis.
Common misconception: "If we are not Australian, the regime does not apply to us"
The most pervasive myth we encounter from clients new to Australia's sanctions regime is that the Autonomous Sanctions Act is relevant only to Australian-incorporated companies or Australian citizens. That is incorrect. The regime applies to conduct by Australian persons and entities wherever they are located, and it applies to conduct within Australia's territory regardless of the actor's nationality. An escrow agent that holds funds in an Australian account, or a bank with an Australian branch that processes a payment instruction, is within the regime's reach even if its parent company is incorporated elsewhere.
The practical implication for structuring is significant. A deal team that removes the Australian-incorporated entity from the payment chain and routes through a non-Australian holding company may still have Australian exposure if the funds pass through an Australian bank account, if the escrow is governed by Australian law, or if the beneficiary is an Australian person. The question of whether the Australian regime applies is answered by the facts of the transaction, not by the jurisdiction of incorporation of the immediate parties.
In our practice, we have acted for non-Australian businesses that received an informal inquiry from DFAT regarding a payment that had cleared an Australian correspondent bank. The businesses had not treated the transaction as one with Australian sanctions exposure. The payment route told a different story. Early structuring advice – about which leg of the chain brings Australian law into play – is considerably less costly than a post-payment compliance review.
Related practices
- Correspondent banking and de-risking (OFAC) – managing OFAC exposure in US dollar payment chains and correspondent relationships
- Payment and escrow structuring under BIS / EAR – US export-control considerations for transactions involving dual-use goods or technology
- Payment and escrow structuring under Canada – parallel guide for cross-border transactions with Canadian sanctions exposure