A cross-border acquisition closes. Six months later, the buyer's compliance team discovers that a subsidiary of the target group was, at the date of signing, indirectly controlled by a person subject to UK financial sanctions. The seller gave a standard warranty that no counterparty was a designated person (an individual or entity named under UK sanctions legislation). The warranty was wrong. Who bears the loss – and what should the contract have said?
Sanctions representations and warranties under OFSI – the Office of Financial Sanctions Implementation, which administers UK financial sanctions – are contractual provisions that allocate the legal and financial risk that a party, its affiliates, or its counterparties are subject to UK sanctions prohibitions. As of January 2026, OFSI operates under the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA") and the relevant thematic sanctions regulations; a breach of the underlying prohibition can attract a civil penalty of up to the greater of £1 million or 50 percent of the estimated value of the breach. Drafting these provisions correctly is therefore not a formality – it is a material risk-allocation decision.
This guide sets out the governing regime, the drafting anatomy, the cross-regime differences that affect multi-jurisdiction deals, the risk flags that practitioners most commonly encounter, and the point at which specialist counsel should be instructed.
What is the legal foundation for sanctions reps and warranties under OFSI?
OFSI derives its authority from SAMLA and the suite of thematic regulations made under it – covering, among others, financial sanctions relating to Russia, Iran, Belarus, Myanmar, and a range of counter-terrorism and human-rights programmes. The core prohibition is simple: a UK person must not deal with the funds or economic resources of a designated person, or make funds available to one, directly or indirectly.
That phrase "directly or indirectly" is the engine of the warranty obligation. It means that a counterparty that is not itself designated may still be caught if a designated person owns or controls it. Under UK rules, the ownership-and-control test looks beyond the mechanical 50 percent threshold that OFAC applies. OFSI will assess whether a designated person holds a majority interest, has the right to appoint or remove a majority of the board, or otherwise exercises significant influence or control. That broader test means the factual inquiry behind a warranty is materially deeper than a simple list-screening exercise.
For practitioners advising on cross-border transactions, the starting point is therefore always: which regime governs the parties, and does the transaction also engage OFAC, EU Council regulations, or the UN Consolidated List? Where US persons or US-dollar clearing are involved, the OFAC 50 percent rule (the rule under which OFAC treats an entity owned 50 percent or more in aggregate by blocked persons as itself blocked) runs in parallel. That parallel exposure shapes how broadly the warranty representations should be cast.
The position above covers the standard case. Your facts – the counterparty, the structure of the target group, the currencies involved, the regime in play – change the analysis materially.
For an assessment of your exposure under OFSI and related regimes, contact Calder & Vance at info@caldervance.com.
How should sanctions reps and warranties be drafted step by step?
A well-constructed sanctions representation and warranty block follows a logical sequence: define the population of persons it covers; state the substantive prohibitions it addresses; qualify it to the level of knowledge the warranting party can honestly support; and carve out matters that are the subject of separate disclosure.
Step 1 – Define the covered persons. The representation should cover the warranting party itself, its subsidiaries, its directors and senior officers, and – in higher-risk transactions – its material beneficial owners. The depth of the population depends on the risk profile: a straightforward acquisition of a UK trading company warrants a narrower population than a joint venture in an emerging market with complex ownership.
Step 2 – State the substantive limbs. A comprehensive OFSI-facing representation typically addresses three things: (a) that no covered person is a designated person under any applicable UK sanctions regulation; (b) that no covered person is owned or controlled by a designated person within the meaning of SAMLA and the relevant thematic regulations; and (c) that no covered person has, in a defined look-back period, received funds or economic resources that were subject to a UK sanctions prohibition. The third limb is often resisted by sellers but is material for compliance-conscious buyers.
Step 3 – Calibrate the knowledge qualifier. In our experience, the most contested negotiation point is the knowledge qualifier. A seller who has conducted thorough due diligence before signing can often accept a representation to the best of its knowledge and belief after reasonable enquiry. A seller who has not done that work will push for actual knowledge only. Buyers should be alert to the difference: an actual-knowledge qualifier means the representation fails only if the seller knew the facts; a reasonable-enquiry standard allocates the cost of not looking.
Step 4 – Address the look-back period. The representation should be clearly stated as at the signing date and, in most deals, repeated as at closing. Where a representation is repeated at closing, a bring-down condition should be linked to it. If conditions to closing include a sanctions certificate, that certificate must be consistent with the warranty language – inconsistency creates an ambiguity that neither party wants to litigate.
Step 5 – Draft the covenant package alongside the warranty. A representation speaks to a historical or current state of facts. A covenant is a forward-looking obligation. In deals with a long period between signing and closing, or with earn-out structures, buyers regularly require a covenant that the seller will (i) notify the buyer promptly if any covered person becomes designated between signing and closing, and (ii) not take any action that would cause the buyer to breach UK sanctions post-closing. That covenant is sometimes the more valuable protection.
Step 6 – Scope the disclosure exercise. The warranty is only as useful as the disclosure process that backs it. Sellers should search the UK Consolidated List (the list of designated persons published by OFSI) at each relevant date. They should also check the ownership and control chain against that list, using the ownership-and-control test rather than a direct-name match only. Where the seller cannot give a clean representation, targeted disclosure of the specific risk – together with a warranty carve-out for the disclosed matter – is preferable to a general qualifier that obscures rather than allocates risk.
What are the cross-regime differences that affect multi-jurisdiction deals?
In a transaction that touches more than one major sanctions regime, the reps-and-warranties block must be calibrated to the regime with the broadest reach. That is not always OFSI.
The divergence that matters most in practice is between the UK ownership-and-control test and the OFAC 50 percent rule. Under OFAC, the question is arithmetical: does a blocked person, alone or in the aggregate with other blocked persons, hold 50 percent or more? Under OFSI – and similarly under EU Council regulations – the question extends to control, which is a qualitative judgment. An entity might be below the 50 percent ownership threshold and still be caught by the OFSI control test if the designated person has effective authority over its commercial decisions. Where the same transaction is reviewed under both regimes, the broader OFSI and EU test sets the higher standard, and the warranty should reflect that.
A second divergence concerns the treatment of frozen assets held outside the UK. Where a transaction involves an entity incorporated in a jurisdiction that maintains its own sanctions list – Switzerland (administered by SECO), Canada (GAC), Australia (DFAT), Singapore, Japan, or the UAE – the buyer may need jurisdiction-specific representations in addition to the OFSI block. In our cross-border practice, we routinely advise on layered warranty packages where each layer addresses a distinct regime. Failing to address a non-OFSI regime in the warranty does not extinguish the underlying legal exposure; it simply leaves it unallocated.
A third point is the EU Blocking Regulation dimension. For EU-incorporated parties or transactions that flow through EU-clearing infrastructure, the EU Blocking Regulation prohibits compliance with certain third-country sanctions. A warranty that is drafted only to the OFSI standard may create an internal conflict for an EU-incorporated seller who cannot also warrant compliance with conflicting US measures. That tension should be addressed explicitly in the governing-law and warranty-scope provisions.
If a transaction has already been flagged as presenting a potential sanctions issue, or if a filing has been refused, an early review can preserve options that narrow with time.
To discuss a cross-border warranties matter, write to Calder & Vance at info@caldervance.com.
What are the risk flags that most commonly arise in OFSI-facing transactions?
Risk flags do not always present themselves clearly. The most serious situations we see are not transactions where the ownership chain shows a direct designation. They are transactions where a complex intermediate structure, a recently acquired subsidiary, or a nominee-held shareholding obscures a connection to a designated person that competent due diligence would have surfaced.
The following patterns merit heightened scrutiny in any OFSI-facing transaction:
- Ownership chains involving jurisdictions where ultimate beneficial ownership registers are incomplete or unreliable.
- Target groups that have undergone recent restructuring, particularly where shares were transferred between affiliates in the period before signing.
- Groups with minority shareholders whose identity has not been verified to the warranting party's direct knowledge.
- Transactions in sectors with elevated OFSI enforcement focus – financial services, energy, shipping, and real estate are consistent enforcement priorities.
- Counterparties with nominees, bearer structures, or discretionary trust arrangements that require look-through analysis before a clean warranty can be given.
- Earn-out or deferred consideration structures where a payment obligation might crystallise after a counterparty's status changes.
A specific risk that arises in M&A is the timing gap between signing and closing. A party that is clean at signing may become designated during the interim period. OFSI's enforcement guidance confirms that the prohibition applies at the moment funds or economic resources are made available. This means a closing payment made after a designation occurs – even days after – can constitute a breach, regardless of the warranty position at signing. The bring-down mechanism and the pre-closing notification covenant are therefore not optional protections; they are fundamental.
Another risk that is frequently underestimated concerns trade finance. In a letter-of-credit transaction, multiple institutions touch the same payment stream. Each has its own OFSI compliance obligation. A buyer who has obtained a warranties package from the seller does not thereby extinguish the obligation of its bank to screen the transaction. The two tracks – contractual warranties between the parties and the bank's independent compliance obligation – run separately. A buyer who assumes that a clean warranty from the seller means the transaction is cleared from a banking perspective will, in our experience, be surprised.
Is a common myth about OFSI warranties worth correcting?
A widely held assumption is that an OFSI-facing warranty is satisfied if the warranting party has screened the counterparty's name against the UK Consolidated List and found no match. That assumption is incorrect, and it is the single most consequential drafting gap we see in practice.
Name-screening against the list is the beginning of the analysis, not the end. The OFSI ownership-and-control test requires the warranting party to look through the target's corporate structure to identify whether any person who owns or controls the target is designated – even if the target itself is not. A name match that returns a "clear" result on the target entity tells the buyer nothing about whether a 30 percent shareholder of the target's parent is on the OFSI list. In a complex group, that inquiry can run several layers deep.
A related misconception is that a representation given "to the best of the seller's knowledge" limits the seller's exposure to matters the seller subjectively knew about. Courts in England and Wales have interpreted similar provisions to include matters that ought to have been discovered on a reasonable inquiry. The practical effect is that a seller who did not conduct a proper ownership-and-control search may have difficulty relying on a knowledge qualifier that was intended to be a protection. The safest course – for both parties – is to specify, in the definition of "knowledge", the precise steps that were taken and to make the warranty consistent with the scope of the due diligence actually conducted.
When should specialist sanctions counsel be involved?
The involvement of a sanctions lawyer – a practitioner specialising in the legal and operational requirements of the UK, US, EU, and other major sanctions regimes – should be considered at the outset of any transaction with the following features, not as a late-stage review step.
Involve specialist compliance counsel where:
- The target group includes subsidiaries, affiliates, or joint-venture partners in jurisdictions subject to active thematic sanctions programmes.
- Any party to the transaction is a financial institution that itself carries a direct OFSI compliance obligation – banks, payment firms, and insurers fall squarely into this category.
- The deal involves deferred or contingent consideration that could involve making funds available to a party whose status may change between signing and final settlement.
- The buyer requires a clean warranty as a condition precedent to closing, but the seller has not yet conducted an ownership-and-control analysis to the standard necessary to give one.
- One or more parties to the transaction are incorporated in a jurisdiction other than the UK, and the applicable regimes create conflicting obligations.
- A potential designation or an OFSI inquiry has already been identified, or there is a live investigation into a connected party.
In our experience, the cost of correcting a mis-drafted or incomplete warranty package after closing is substantially higher than the cost of getting it right at the drafting stage. OFSI's enforcement posture has hardened: the civil penalty regime introduced by the Policing, Crime, Sentencing and Courts Act 2022 removed the requirement for the regulator to prove knowledge or reasonable cause to suspect, allowing civil penalties on a strict-liability basis for the most serious breaches. That change makes the accuracy of a warranty – and the due diligence backing it – more consequential than at any previous point in OFSI's history.
We regularly advise on cross-border deals where OFSI requirements intersect with OFAC, the EU regime, and the programmes of other jurisdictions. Early involvement allows us to assess eligibility, prepare and structure the warranty package, and manage the due diligence programme to the standard that a bring-down at closing requires.
Related practices
- Correspondent banking and de-risking under OFAC – advising financial institutions on sanctions-driven relationship decisions and correspondent-banking risk.
- Sanctions representations and warranties under SECO – comparative guide for transactions engaging Swiss sanctions administered by SECO.
- Sanctions representations and warranties under Singapore rules – cross-border warranty guidance for transactions in the Singapore regulatory perimeter.