A trading company discovers mid-quarter that one of its long-standing counterparties has been added to the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). Open invoices sit unpaid. A shipment is in transit. A joint-venture agreement runs for another eighteen months. Each of those threads represents blocked property – and every day the exposure persists, the legal risk compounds.
Winding down sanctioned exposure under OFAC is a defined legal process governed by the International Emergency Economic Powers Act ("IEEPA") and the relevant OFAC programme regulations. The core task is to stop new value flowing to or from blocked persons, block any remaining property in place, and – where no general authorisation applies – apply for a specific licence to complete necessary close-out steps. As of January 2026, OFAC administers the process through its licensing division and public guidance, but the practical steps are more demanding than most compliance teams anticipate.
This guide sets out the procedure step by step, maps the risk flags that produce enforcement referrals, and explains how the OFAC wind-down position differs from the approaches taken by OFSI and the EU.
Step 1: Identify and block the exposure immediately
The first obligation under OFAC's rules is to block – or "freeze" – any property in which a blocked person has any interest, direct or indirect. This is not discretionary. The moment a nexus to US jurisdiction is established and a sanctioned party is identified, the blocking obligation attaches.
What counts as property is broad. Accounts receivable, contractual rights, advance payments, in-transit goods, and unfunded commitments can all constitute blocked property if a designated party holds any interest in them. In our experience, businesses underestimate the scope of this category. They focus on obvious financial balances and overlook the contractual and logistical threads.
The practical first step is an immediate transaction freeze. No payments out, no deliveries accepted or released, no novations or assignments that shift value. Simultaneously, the business should document the exposure – value, legal form, and the counterparty's position on the SDN List – before memory and records diverge. OFAC's public guidance makes clear that incomplete records at this stage complicate any subsequent licence application or enforcement review.
Step 2: Assess whether a general authorisation covers the wind-down
Not every close-out step requires a specific licence application. OFAC publishes general licences (standing authorisations that permit a defined category of transactions without a separate application) across many of its programmes, and some of those licences expressly authorise wind-down transactions within a defined time window.
The question is whether a relevant general licence exists for the specific programme under which the counterparty is designated, and whether the proposed close-out steps fall within its terms. Two conditions that commonly break the general-licence analysis are: first, the counterparty is designated under a programme that has not issued a wind-down general licence; and second, the proposed transaction goes beyond what the general licence authorises – for example, by including payment of a fee or a bonus above a permitted amount.
Where a general licence applies, the business should document its reliance on it contemporaneously. OFAC's enforcement guidance treats inadequate contemporaneous documentation as an aggravating factor in any subsequent review. Even when you are confident the general licence covers the step, record why. An undocumented reliance decision is, in practice, a half-completed compliance step.
The position above covers the general case. Your facts – the programme, the counterparty's designation basis, the structure of your exposure, and the nature of the close-out steps – determine whether a general licence is available and sufficient.
For businesses with correspondent-banking or financial-institution exposure, the wind-down question intersects directly with de-risking decisions. See our related service on correspondent banking and de-risking under OFAC for the specific considerations that apply to financial-institution relationships.
Step 3: Apply for a specific licence where required
Where no general authorisation covers the proposed steps, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) from OFAC is required before the wind-down transaction can proceed.
OFAC reviews specific-licence applications through its Office of Licensing. The standard review window is described qualitatively in OFAC's public materials as varying by programme and complexity; businesses should plan for a period measured in weeks to months, not days, and should not treat a pending application as a licence to proceed. The application does not suspend the blocking obligation while it is under review.
A well-prepared application addresses: the nature and value of the blocked property; the legal basis of the exposure; the specific steps needed to close out the relationship; why those steps serve a US policy interest or a humanitarian objective compatible with the programme's purpose; and a clear account of the parties involved and their roles. OFAC can ask supplemental questions, and its response to those questions is part of the licensing record. How you respond to a supplemental question can advance or delay the application materially.
In a recent matter, a manufacturing business faced an open purchase-order with a supplier added to the SDN List mid-shipment. We assessed the available general licences under the relevant programme, identified that the in-transit goods leg required a specific licence, prepared and submitted the application with a detailed statement of the business's exposure and the logistical necessity of completing delivery, and managed OFAC's supplemental queries. The matter resolved through the licensing route, without an enforcement referral.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com for a confidential assessment.
Step 4: Report and record-keep under OFAC's rules
OFAC's rules impose reporting obligations alongside the blocking obligation. A US person who blocks property must report the blocking to OFAC within a short statutory window – the deadline is tight and the obligation is strict. Annual reports of blocked property are also required for as long as the property remains blocked.
Record-keeping obligations run in parallel. OFAC requires that businesses retain records of blocked property and related transactions for five years from the date of the transaction or, in the case of a blocked account, five years from the date the property is unblocked. That five-year retention period is the reference point in any enforcement review.
These are not aspirational standards. OFAC's enforcement posture treats failure to report blocked property as a potential violation in its own right, separate from the underlying exposure. We regularly advise clients who have managed the underlying wind-down correctly but face secondary questions because their reporting and record-keeping did not match the procedural standard. The two streams – substantive wind-down and procedural compliance – run together.
Step 5: Manage the cross-border dimension – OFSI, EU, and beyond
A business winding down OFAC exposure rarely faces only one regime. Where the counterparty or the transaction has a UK or EU nexus, OFSI and the EU Council regulations impose parallel obligations – and the tests are not the same.
Under OFAC, the ownership test is mechanical: 50 percent or more aggregate ownership by blocked persons means the entity is itself treated as blocked, regardless of control. OFSI and the EU apply an ownership and control test (the UK and EU basis for extending sanctions to non-listed entities that a listed person owns or controls), which can capture entities below the fifty percent line if a listed person exercises effective control. The practical consequence is that a counterparty that is not on the SDN List and not caught by the OFAC fifty percent rule could still be subject to OFSI or EU restrictions through the control limb.
The divergence runs the other way as well. A company caught by the OFAC fifty percent rule may not be designated under the EU or UK programme – and the wind-down steps authorised by an OFAC general licence may not be authorised by the corresponding EU or UK instrument. Each regime requires its own authorisation analysis. What satisfies one does not automatically satisfy another.
Switzerland (SECO), Canada (GAC), and Australia (DFAT) each maintain autonomous sanctions programmes that can apply to the same counterparty. The UN Consolidated List sits beneath all of them. For a business with operations in several of those jurisdictions, a single counterparty designation can trigger reporting and blocking obligations in five or more legal systems simultaneously.
Our practice regularly addresses wind-down situations that span two or three regimes. Where local-law obligations arise in a jurisdiction outside our direct coverage, we work alongside local counsel in the relevant jurisdiction to ensure the wind-down is coordinated across all applicable regimes.
For the OFSI-specific wind-down procedure, see our companion guide: winding down sanctioned exposure under OFSI. For the Swiss (SECO) position, see winding down sanctioned exposure under SECO.
The risk flags that produce enforcement referrals
OFAC's enforcement posture distinguishes between businesses that identified exposure early, reported promptly, and pursued an orderly wind-down, and those that continued transacting while the designation was in effect. The difference in outcome between those two positions is significant – though outcomes are never guaranteed and depend on all the facts.
The risk flags we see most frequently are:
- Continuing to process payments against open invoices after a designation, on the reasoning that the invoice pre-dates the listing. The listing date, not the invoice date, governs when the blocking obligation attaches.
- Relying on a general licence without verifying that the proposed transaction falls within its exact terms. General licences are programme-specific and transaction-specific; a licence that authorises wind-down for one programme does not extend to another.
- Failing to report blocked property to OFAC within the applicable reporting window, even where the wind-down itself was handled correctly.
- Novating or assigning a blocked contract to a third party without a licence, on the basis that the third party is not itself designated. The assignment is a transfer of value in which a blocked person holds an interest – it requires authorisation.
- Treating a pending specific-licence application as an interim authorisation. It is not.
Is your compliance team checking each of these points against its current exposure? The question is not hypothetical. In our experience, at least one of these patterns appears in most wind-down situations that escalate to an enforcement review.
A common myth: the contract pre-dates the designation, so the obligations are different
A persistent misconception in practice is that a contract entered into before a counterparty was designated is somehow grandfathered or exempt from the blocking obligations that arise on designation. It is not.
OFAC's rules operate at the moment of designation, not at the moment of contracting. From designation onwards, any transaction with the blocked party – including payment under a pre-existing contract – requires authorisation. The age of the contract affects the context of a licence application and the equitable presentation of the business's position, but it does not provide a legal basis to continue transacting. Businesses that rely on this reasoning without checking the applicable programme rules regularly find that what they believed was a tolerated transition period was, in OFAC's view, a period of unlicensed dealing.
A related myth is that small-value transactions below a threshold are automatically permissible. OFAC's blocking rules do not carry a de minimis exception for most programmes. The absence of a regulatory floor on transaction size is one of the features that most surprises businesses new to US sanctions compliance.
Related practices
- Correspondent banking and de-risking under OFAC – financial-institution relationships and the OFAC de-risking framework
- Winding down sanctioned exposure under OFSI – the UK parallel procedure and how it differs from OFAC