A mid-sized infrastructure investor held a minority stake in a joint venture operating across three jurisdictions. Routine screening before a refinancing flagged that the ultimate beneficial owner of a co-investor had been designated under the Australian Autonomous Sanctions regime. The question was immediate: did the investor's continued holding in the joint venture amount to a dealing with a sanctioned interest? Could the stake be sold? And which regime governed – Australia's, or the regimes of the other two jurisdictions where the venture operated?
Divesting a sanctioned interest under Australia's autonomous sanctions regime requires more than finding a willing buyer. The transaction itself can constitute a prohibited dealing if it is not structured around the applicable authorisation. DFAT administers the regime, and the obligations apply to Australian persons and entities wherever they are located. Cross-border ownership structures amplify the risk: a divestiture that is clean under one regime may still require a licence or permit under another.
This case comment walks through the situation, the legal questions it raised, the options we considered, and the lessons that apply to similar businesses facing a comparable position under the Australian regime and its major international counterparts.
The situation: a minority stake in a designated ownership chain
The relevant trigger was the identification of a designated person in the indirect ownership chain of a co-investor, not a direct contractual counterparty. The Australian autonomous sanctions regime – administered by DFAT under the relevant legislative instruments – catches dealings with sanctioned persons and with property owned or controlled by them. The investor's minority stake was held through a corporate structure that included that co-investor as a party. Continued participation in the joint venture therefore risked constituting a dealing with an interest in sanctioned property.
The investor's first reaction was that the designation was a problem for the co-investor to manage. That assumption was wrong. Where property is linked to a sanctioned person through ownership or control, all parties with an interest in that property may be exposed, not just the party closest to the designated individual. In our experience, this misreading of where exposure sits is among the most common errors businesses make at the threshold of a sanction-linked divestiture matter.
The immediate practical question was not how to complete the sale, but whether a sale was possible at all without authorisation, and what that authorisation would look like under the Australian regime compared with the regimes active in the other two operating jurisdictions.
How does the Australian autonomous sanctions regime govern a divestiture of this kind?
Australia's autonomous sanctions regime operates through a series of thematic and country-specific regulations made under the relevant enabling legislation. DFAT administers the regime, including the permit system that allows otherwise prohibited transactions to proceed where a statutory criterion is met. The legal basis sits in primary legislation, with obligations on Australian persons and Australian-linked entities; the regime has extraterritorial reach consistent with its enabling Act.
For a divestiture involving sanctioned property or a sanctioned counterparty interest, the key question is whether the act of transferring the interest – not merely holding it – constitutes a dealing that engages the prohibition. Under the Australian regime, the prohibition extends to transactions involving sanctioned property, and a transfer for value can be caught even where the purpose of the transaction is to remove the exposure. This is not a theoretical concern. A rushed sale at a discount to a third party, without first confirming whether a permit is required, can itself constitute the dealing the regime prohibits.
The permit pathway under the Australian regime requires an application to DFAT demonstrating that the proposed transaction meets the relevant statutory criteria. Timelines are not fixed by statute at a precise number of days in the publicly available guidance; in practice, resolution can take several weeks and depends on the complexity of the ownership structure and the clarity of the permit application. This is why early engagement matters: a permit application filed after a binding agreement is signed creates a contingency that the buyer may not accept.
The cross-border dimension complicated the analysis further. The operating jurisdictions included a UK-connected entity and an entity with US-dollar settlement obligations. That brought OFSI and OFAC into the picture alongside DFAT. The position above covers the standard Australian-regime analysis. Your facts – the counterparty structure, the payment currency, the location of assets – will change which regimes apply and in what order they need to be addressed.
For an assessment of your exposure under the Australian sanctions regime or a parallel multi-regime matter, contact Calder & Vance at info@caldervance.com.
The cross-regime dimension: OFAC, OFSI, and the Australian regime in parallel
Where a divestiture involves entities or assets with connections to multiple jurisdictions, the practical rule is that the strictest applicable prohibition governs the transaction, not the most convenient one. In this matter, the three regimes in play each had a different threshold for what triggered a prohibition and a different process for authorisation.
Under OFAC, the analysis turned on whether any entity in the ownership chain was on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons) and whether the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) captured any party to the proposed sale. The 50 percent rule is mechanical: aggregated ownership at or above that threshold makes the entity itself treated as blocked, regardless of how many intermediary layers exist. The proposed buyer was a third-party fund with no listed connections, but the structure of the transaction required confirming that the sale proceeds did not flow, even transiently, through a blocked account.
Under OFSI, the test is not purely mechanical. UK financial sanctions law introduces a ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person), and control can be established by means other than majority shareholding. In this matter, the designated person held a minority stake but exercised contractual veto rights over major decisions of the co-investor. That control dimension meant that even a shareholding below fifty percent may have been sufficient to engage the UK prohibition.
The Australian regime's test is broadly consistent with the ownership-and-control approach rather than the purely mechanical OFAC threshold. Where three regimes apply simultaneously, the transaction structure must satisfy all three. In our cross-border practice, the most dangerous assumption is that passing one regime's test discharges the others. It does not.
A related comparison is instructive: in an earlier matter involving an OFAC-governed divestiture, the structural issues were resolved through a comparable divestiture approach under the US regime. The analysis there differed significantly on the ownership test and the licensing route, illustrating why regime-specific counsel is needed for each layer of a multi-jurisdiction matter.
What options did the investor have, and which risks attached to each?
Three routes were available, each carrying a different risk profile and a different timeline. Setting them out as a decision sequence helped the investor's board weigh the position without relying on legal conclusions they were not qualified to reach.
The first route was to seek a permit from DFAT before agreeing any sale terms. This was the cleanest approach legally. The application would set out the proposed structure, the identity of the buyer, and the basis on which the transaction met the statutory criteria for authorisation. The risk was time: permit applications take a number of weeks in practice, and the investor's counterparties had their own commercial pressures. A parallel assessment of whether equivalent authorisations were required under OFSI and OFAC was built into the same preparation phase so that applications could be filed contemporaneously rather than sequentially.
The second route was to restructure the joint venture arrangement so that the investor's interest was separated from the sanctioned property before any transfer took place. This is sometimes called a carve-out approach. It carries a different risk: the carve-out transaction itself must not constitute a prohibited dealing. In practice, this route requires the same authorisation analysis as a direct sale, with the added complexity of the intermediate restructuring step.
The third route – holding the position and seeking to manage the exposure by suspending distributions and decision-making – was the least attractive. It preserved the prohibited dealing risk indefinitely and created a record of ongoing exposure. It was set aside early in our review.
The investor proceeded with the first route. We assessed eligibility, prepared the permit application, and managed DFAT's queries through the review period. Parallel engagement with OFSI on the control question was conducted concurrently. The matter did not generate a formal enforcement file; the application process was completed before the joint venture's refinancing deadline. No outcome guarantees attach to that summary – each matter turns on its own facts.
The risk flags that nearly derailed the transaction
Three risk flags emerged during the matter that have broad application to similar transactions. None was exotic. Each was the kind of issue that due diligence conducted at pace can miss.
The first was payment routing. The agreed sale structure involved payment in US dollars through a correspondent banking chain. One link in that chain had a relationship with a financial institution that appeared on a DFAT watchlist. It did not appear on the SDN List, but the appearance on DFAT's list was sufficient to require re-routing the payment. A correspondent banking and de-risking review formed part of the pre-completion work to confirm that the payment chain was clean across all three regimes.
The second was a representations and warranties clause in the draft sale agreement that required the seller to warrant it was not a sanctioned person or acting on behalf of one. That warranty, in its draft form, was too broad. A seller divesting a stake precisely because a sanctions issue has arisen cannot make that warranty without qualification. The clause was amended to reflect the permitted nature of the transaction and to include appropriate carve-outs consistent with the permit terms.
The third was timing. An intermediate holding entity in the structure had a filing deadline under Australian corporate law that fell during the permit review period. Missing that deadline would have created a default under the joint venture agreement. The timeline was managed by seeking an extension from the joint venture parties under a force majeure-adjacent clause, framed around regulatory uncertainty rather than financial inability. Have you mapped every contractual trigger date against your expected regulatory timeline?
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact info@caldervance.com to discuss your position.
What is the common misconception businesses hold about this kind of divestiture?
The persistent myth in cross-border divestiture matters is that selling out of a sanctioned position is always permissible because it removes the exposure. It is not. The act of divesting can itself be prohibited. The authorisation requirement does not apply only to acquiring or holding a sanctioned interest; it can apply with equal force to the transfer.
This misconception leads businesses to focus entirely on finding a buyer and agreeing commercial terms before they have confirmed that the sale is legally possible. By the time a signed agreement is on the table, the options have narrowed. The buyer may not wait for a permit. The closing mechanics may have created additional dealing risks. Confidentiality obligations in the sale agreement may restrict the disclosure that the permit application requires.
The correct sequence is: identify the exposure, map the regimes in play, assess whether authorisation is required, file the application before binding commitments are made where possible, and only then negotiate the commercial structure around the regulatory timeline. In our experience advising on cross-border divestiture matters, the businesses that work through that sequence early reach resolution. Those that reverse it – commercial first, regulatory second – create problems that are harder to manage.
A further misconception is that a DFAT designation affects only Australian persons. The regime's extraterritorial application means that a non-Australian entity that is a subsidiary of an Australian parent, or that processes transactions through Australian infrastructure, may also be within scope. The applicable country regime always needs to be checked in full, not just at the layer most visible to the business. For a comparable EU-governed divestiture matter, see our analysis of the JV sanctions structuring matter where the EU control test produced a different but equally demanding result.
What does this mean for a business facing a similar position?
The lesson from this matter is structural rather than transactional. Sanctions exposure in a joint venture or co-investment structure does not announce itself cleanly. It surfaces through screening, through counterparty enquiries, or – in the worst cases – through a regulatory contact that arrives without warning. The question of how to exit is always easier to answer before the exposure has been publicly known for some time.
We regularly advise businesses that have identified a sanctioned interest in a portfolio or a deal structure and need to understand their options before they commit to a course of action. The first engagement is typically a rapid exposure assessment: which regimes apply, what the prohibition covers, whether authorisation is required, and what the realistic timeline is. That assessment shapes the commercial negotiation, not the other way around.
For cross-border structures involving the Australian regime alongside OFAC, OFSI, or EU sanctions obligations, the regime-comparison work is not optional. The rules diverge on ownership thresholds, on the control test, and on the procedural requirements for authorisation. What satisfies DFAT may not satisfy OFSI. What passes the OFAC 50 percent test may still engage the Australian control analysis. The business that assumes convergence will be wrong at the moment it matters most.
To discuss an exposure assessment or a permit application under the Australian regime or across multiple regimes concurrently, contact Calder & Vance at info@caldervance.com.