A private-equity firm closes an acquisition and, weeks later, discovers that a minority shareholder in the target sits on OFAC's Specially Designated Nationals and Blocked Persons list (the SDN List – OFAC's master list of parties whose assets are frozen and with whom US-connected parties may not deal). The fund is based in Europe. Its lenders are US banks. The target operates across three jurisdictions. What happens now? Can the fund exit its interest? Must it? How long does it have to act?
Divesting a sanctioned interest under OFAC rules is not a voluntary commercial decision. Where US-jurisdiction rules apply, a blocked interest must be frozen in place. Any transfer, sale, or disposal without OFAC authorisation is itself a prohibited transaction. The governing authority is the US Treasury's Office of Foreign Assets Control, acting under the International Emergency Economic Powers Act (IEEPA) and the relevant programme-specific rules. The central question – whether a specific licence is required to complete a divestiture – depends on the programme, the asset type, and who the counterparties are.
This briefing covers the scope of OFAC's divestiture rules, the blocking and licensing mechanics, the ownership aggregation tests that determine whether an interest is caught, the cross-border dimensions that bring EU and UK rules into the same transaction, enforcement risk, and when to involve counsel.
Who administers divesting a sanctioned interest under OFAC, and what is the legal basis?
OFAC administers US sanctions – including the rules that govern what a person may or may not do with a blocked or otherwise restricted interest – under authority delegated by the President through IEEPA, the Trading with the Enemy Act (TWEA), and programme-specific executive orders. OFAC issues programme regulations, general licences, specific licences, and guidance documents that together define the permissible scope of conduct.
The US sanctions regime is notable for its extraterritorial reach. Its prohibitions bind US persons wherever they are located, US-incorporated entities and their foreign branches, and any transaction that touches US financial infrastructure – including US-dollar clearing. A European fund with a US bank as its financing agent, or a fund whose general partner is a US national, is very likely within OFAC's jurisdictional grasp. In our cross-border practice, we regularly see parties underestimate the jurisdictional scope before a divestiture closes.
The legal consequence of holding a blocked asset is immediate and automatic. The asset does not become the property of the US government. It is frozen. The holder must maintain it, cannot transfer it, and cannot receive value from it without OFAC authorisation. That obligation attaches upon the triggering event – typically the designation of the relevant party, or the acquisition of an interest where a designated person is already an owner.
As of January 2026, OFAC administers more than thirty active sanctions programmes, ranging from country-wide comprehensive programmes to narrowly targeted thematic lists. The divestiture rules differ in detail across those programmes. A broad programme may prohibit nearly all transactions involving the relevant country's economy; a thematic programme may permit many ordinary business transactions while blocking only those involving the listed person's specific assets.
What does OFAC prohibit in relation to divesting a sanctioned interest?
OFAC prohibits any transfer, payment, export, withdrawal, or other dealing in a blocked interest that is not authorised by a general or specific licence. That prohibition runs in both directions: a US person cannot sell the interest to a third party without authorisation, and a buyer – if also a US person or otherwise within OFAC's reach – cannot purchase it.
The prohibition catches more than outright sales. Distributions to a blocked owner, the exercise of drag-along or tag-along rights that would transfer value to a designated party, and even certain administrative acts that vary the economic terms of a blocked holding can each constitute a prohibited dealing. What counts is not the label attached to the transaction but whether it involves a blocked person's property or an interest in it.
The 50 percent rule (OFAC's rule that treats any entity owned 50 percent or more in the aggregate by one or more blocked persons as itself blocked, even if the entity is not listed by name) extends the prohibition to the entity level. If the target company is majority-owned by SDN-listed persons, the company's assets are blocked, the company's equity interests are blocked, and a purchaser who acquires them without authorisation is dealing in blocked property. Aggregation of multiple listed shareholders is required: two listed persons each holding thirty percent reach the threshold together.
There is a further dimension that cross-border transactions regularly raise. Ownership at or above the threshold through layered intermediate companies still triggers the rule. OFAC looks through the chain. A listed person's indirect fifty-percent stake in a second-tier subsidiary renders that subsidiary's assets blocked, regardless of whether any intermediate company is itself listed. Mapping the full structure – not just the first tier – is the only safe approach.
A point that regularly causes confusion: the prohibition on dealings also applies to the divestiture itself, even when a commercial party genuinely wants to exit a position it did not know was blocked when it entered. The intention to exit is not a defence. OFAC's rules are strict-liability in the sense that good faith does not authorise a transaction that is otherwise prohibited. Authorisation must be obtained before the disposal proceeds.
When is a general licence available, and when must a specific licence be obtained?
A general licence (a standing OFAC authorisation that permits a defined category of transactions without the need for a separate application) may, in some programmes, authorise a divestiture in whole or in part. General licences vary by programme. Some programmes contain a general licence for divestiture of certain equity interests acquired before a designation date. Others contain no divestiture general licence at all, requiring a specific-licence application for any disposal.
A specific licence (a case-by-case OFAC authorisation) is the route when no general licence applies or when the transaction falls outside the scope of an available general licence. The application is submitted to OFAC and must explain the transaction structure, the identity of all parties, the nature of the blocked interest, and the grounds for authorisation. OFAC will assess whether the proposed divestiture serves the purposes of the relevant sanctions programme or is otherwise consistent with US national security and foreign policy objectives.
The position above covers the standard case. Your facts – the programme in play, the ownership chain, the nationality of the parties, and the structure of the proposed disposal – change the analysis materially. Applications that present incomplete ownership data or do not address the aggregation question clearly are routinely delayed.
For an initial assessment of whether a general licence covers your situation or a specific-licence application is required, contact Calder & Vance at info@caldervance.com.
How does the 50 percent rule apply across layered ownership structures?
The 50 percent rule applies at every level of the ownership chain. OFAC aggregates the stakes held by all SDN-listed persons in any one entity, whether those holdings are direct or run through one or more intermediaries. The rule is not limited to direct shareholding. An entity is blocked if listed persons hold fifty percent or more of it in the aggregate, regardless of the number of layers.
Consider a structure where a listed person holds all of an offshore holding company, which in turn holds forty-nine percent of an operating company. The holding company is blocked by the direct application of the rule to the listed person's hundred-percent stake. The operating company is then separately analysed: the blocked holding company's forty-nine percent holding is attributed to the listed person for aggregation purposes. If the listed person also holds two percent of the operating company directly, the aggregate is fifty-one percent, and the operating company is itself blocked.
In our experience, structures with nominee arrangements, family trusts, or cascading holding vehicles in intermediate jurisdictions are where this analysis becomes most demanding. A firm cannot safely rely on a counterparty's self-certification without independent verification of the ownership chain. This is particularly acute in M&A contexts, where the target's ownership may have changed in the period between signing and closing.
Does your screening tool aggregate indirect holdings across all layers, or only the first? This is the question your compliance function should be able to answer before any transaction is approved.
Cross-border dimensions: where EU and UK obligations intersect with OFAC
An OFAC-governed divestiture rarely sits in a purely US legal environment. Most cross-border transactions trigger parallel obligations under the EU Council regulations, the UK Sanctions and Anti-Money Laundering Act (SAMLA) as implemented by programme-specific regulations, or both. The EU and UK ownership tests follow the same fifty-percent threshold but also include a separate ownership and control test (the EU and UK rule that a non-listed entity may be caught if a designated person effectively controls it, even below the fifty-percent ownership level). OFAC's rule is purely quantitative; the EU and UK add a qualitative control dimension.
That divergence has direct consequences for a divestiture. A transaction that OFAC would authorise – perhaps through a general licence – may still require a separate specific licence or authorisation from the UK Office of Financial Sanctions Implementation (OFSI) or the relevant EU member-state authority. Where a licensed divestiture involves a buyer who is a UK or EU entity, the buyer's own legal obligations under SAMLA or the relevant Council regulation must be satisfied independently.
Secondary-sanctions risk also enters at this stage. Certain US programmes – notably those involving sectors subject to secondary-sanctions authority – can reach non-US parties who facilitate transactions with designated persons, even where those parties have no primary US nexus. A European buyer in a divestiture may face US secondary-sanctions exposure even if the buyer itself is not a US person and the target is not a US company. That risk warrants separate assessment before a counterparty agrees terms.
Switzerland (through SECO ordinances), Canada (through the Special Economic Measures Act), and Australia (through the autonomous sanctions regime) each maintain their own designation lists and their own restrictions on dealings with blocked assets. A divestiture that spans multiple jurisdictions – as M&A transactions routinely do – requires a mapped view of each regime's requirements, not just OFAC's. In our cross-border practice, we regularly advise on structures where four or more regimes are engaged simultaneously.
If a transaction has already been flagged, or a licence application has been refused, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com.
How is divesting a sanctioned interest enforced under OFAC?
OFAC enforces its divestiture prohibitions through civil and criminal mechanisms. Civil penalties can reach very significant amounts, determined by reference to the apparent violation's gravity, the sophistication of the party, the harm to the sanctions programme's objectives, and mitigating factors including remediation and cooperation. Criminal prosecution, referral to the Department of Justice, applies in cases of wilful violation.
A voluntary self-disclosure (VSD – a proactive report of an apparent violation to OFAC before the regulator discovers it independently) is recognised in OFAC's enforcement guidelines as a significant mitigating factor. A well-prepared VSD, accompanied by a thorough internal investigation, a root-cause analysis, and a remediation plan, typically produces a substantially reduced civil penalty or a no-action outcome in less serious cases. The timing and content of a VSD are matters of judgement; a poorly framed disclosure can define the enforcement narrative against the disclosing party.
OFAC's enforcement posture distinguishes between egregious and non-egregious cases. Egregious factors include a wilful violation, senior management involvement, a pattern of conduct, and failure to maintain or observe a compliance programme. For a party that holds a blocked interest through inadvertence – an acquisition that predated a designation, or a structure where the blocking event was not identified in due diligence – the record of cooperation and the quality of remediation carry significant weight.
Record-keeping requirements accompany any dealing with blocked or restricted property. OFAC's rules require that records of blocked transactions be maintained for defined periods and be available for inspection. A firm that holds a blocked interest – even pending authorisation of a divestiture – must be able to demonstrate the value of the blocked property at the time it was blocked, the steps taken to preserve it, and any reporting made to OFAC. Failure to maintain adequate records is itself an enforcement risk.
Risk flags and common mistakes in sanctioned-interest divestitures
Several patterns arise repeatedly in sanctioned-interest divestitures. Each represents a point where the analysis breaks down and the risk of an unauthorised transaction increases.
- Assuming a general licence covers the transaction without reading its scope. General licences contain conditions, temporal limits, and carve-outs. A transaction that partially meets the licence description but fails one condition is not authorised.
- Relying on counterparty representations about ownership without independent verification. The fifty-percent rule attaches to the objective fact of ownership, not to representations. A buyer who receives a blocked asset on the basis of a seller's incorrect ownership certificate is still in receipt of blocked property.
- Treating the divestiture as solely a commercial matter. Deal teams and investment professionals who frame the exit as a routine M&A transaction, without involving sanctions counsel, miss the authorisation requirement. The sanctions prohibition precedes any commercial obligation to sell.
- Failing to analyse secondary-sanctions risk for the proposed buyer. A non-US buyer in a divestiture may face its own exposure under secondary-sanctions authority. That exposure must be assessed before terms are agreed.
- Missing the parallel EU, UK, or other regime obligations. OFAC authorisation does not satisfy EU, UK, or Swiss requirements. Each regime's licencing route is separate.
- Late disclosure of an inadvertent breach. The window during which a VSD produces maximum mitigating benefit is not unlimited. Delay in raising the issue with counsel reduces the options available.
A myth we encounter regularly in this area: "If the transaction is structured between two non-US entities in a third country, OFAC cannot reach it." This misreads the jurisdictional scope of US sanctions. Transactions that involve US-dollar clearing, US financial institutions as intermediaries, or US persons in any role – including a US-national fund manager – are within OFAC's reach regardless of where the contracting parties are incorporated. The reach of secondary-sanctions authority expands the exposure further still. Territorial thinking about US sanctions is a compliance liability.
Related practices
- Correspondent banking and de-risking under OFAC – managing sanctions exposure in cross-border financial flows
- Divesting a sanctioned interest under OFAC (further analysis) – extended treatment of licensing routes and programme-specific considerations
- Divesting a sanctioned interest under OFSI – the parallel UK regime obligations and licensing process