A joint-venture partner in a cross-border structure is added to the UK's sanctions list. Overnight, the non-listed co-investor finds itself holding an interest alongside a designated person. The question is not abstract: continuing to hold that interest may itself constitute a breach. Acting without authorisation may be equally dangerous. So what does OFSI actually require – and how does a business divest lawfully?
Divesting a sanctioned interest under OFSI rules means transferring or otherwise disposing of an ownership stake in circumstances where a co-holder or the asset itself is caught by UK financial sanctions. Under the Sanctions and Anti-Money Laundering Act and the relevant thematic sanctions regulations, any dealing with funds or economic resources owned or controlled by a designated person requires either a specific licence or a clearly applicable general licence. There is no automatic right to exit.
This briefing sets out the governing authority, the ownership-and-control test, the licensing route, how OFSI's position compares with OFAC and EU equivalents, the risk flags practitioners see most often, and when to involve counsel.
Who administers OFSI's sanctions regime and what is its legal basis?
OFSI – the Office of Financial Sanctions Implementation, a unit of HM Treasury – administers UK financial sanctions and is the authority a business must engage when divesting a sanctioned interest. Its legal basis is the Sanctions and Anti-Money Laundering Act (SAMLA), which gave the United Kingdom its autonomous sanctions power after withdrawal from the EU. Under SAMLA, the Treasury may designate individuals and entities and impose asset freezes; the thematic regulations made under SAMLA translate those powers into the specific prohibitions a business encounters in practice.
OFSI publishes a Consolidated List of designated persons. It also publishes guidance on financial sanctions, on the licensing process, and on enforcement. That guidance does not have the force of law, but OFSI treats compliance with it as relevant when it assesses penalty cases. In our experience, businesses that engage early with the guidance – and document that engagement – are materially better placed in any subsequent enforcement review.
One point that matters for cross-border structures: UK sanctions bind UK persons, UK-incorporated entities, and any conduct taking place wholly or partly in the United Kingdom. A foreign subsidiary of a UK parent may therefore be in scope even if the immediate asset is held abroad. The territorial reach of SAMLA is not identical to that of OFAC or the EU Council regulations, and the difference can affect how a multi-jurisdictional divestment is structured. We address that divergence below.
What does OFSI prohibit in relation to divesting a sanctioned interest?
OFSI prohibits any dealing in funds or economic resources owned, held, or controlled by a designated person, and any act that makes funds or economic resources available to or for the benefit of a designated person, unless a licence or other authorisation applies. A divestment – the transfer of an interest from a holder to a buyer – is a dealing in economic resources. That means it is caught unless it is licensed.
The prohibition is two-directional. The seller cannot transfer the interest to a buyer without a licence if the designated person has an interest in what is being transferred. The buyer cannot receive that interest without one either. A clean-exit structure that moves assets out of a sanctioned structure for value still requires the transaction itself to be authorised. This is the point where businesses most commonly misread their position: they assume that exiting the relationship is inherently permissible. It is not.
What counts as "economic resources" is deliberately broad. It includes any assets of value – real property, shares, partnership interests, contractual rights with economic substance, and certain IP-related interests. If the asset being divested has value, OFSI will likely treat it as economic resources. The fact that the divesting party is not itself designated is immaterial to whether the prohibition bites.
There is a further dimension that practitioners must not overlook. The prohibition on making funds or economic resources available applies not only to direct transfers but to indirect benefit. If the divestment proceeds flow to a designated person – even through multiple layers – that may constitute a prohibited act. Structuring the consideration and the flow of proceeds is therefore a substantive legal question, not merely a commercial one.
How does the ownership-and-control test work under OFSI?
OFSI's ownership-and-control test determines whether a non-designated entity is treated as if it were designated – and therefore whether the prohibitions apply to an asset held through or alongside that entity. Unlike OFAC's purely mechanical rule, the OFSI test includes a control limb that can catch structures even where no single designated person holds a majority stake.
Under the UK test, a designated person "owns or controls" an entity if they hold, directly or indirectly, more than 50 percent of the shares or voting rights, or have the right to appoint or remove a majority of the board. That is broadly comparable to the EU position. However, the UK test also extends to cases where a designated person otherwise exercises control over the management of the entity. This is a facts-and-circumstances analysis, not a bright-line threshold.
Compare this with OFAC's 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked). OFAC's test is aggregate ownership and is mechanical: if the numbers reach the line, the entity is blocked regardless of day-to-day control. OFSI and the EU go further by asking whether control is exercised in practice, even below the ownership threshold. In our experience, the control limb catches structures that pass OFAC's test cleanly – and businesses operating in both regimes simultaneously must apply the stricter analysis.
For a divestment, this matters in two ways. First, it determines whether the asset being divested is itself caught. Second, it determines whether any acquiring entity could itself be caught after the transfer – which affects buyer diligence and deal structure. A sale of a minority stake to a buyer that is majority-owned by a designated person is not a clean exit under OFSI, regardless of the commercial intent.
What is the OFSI licensing process for a divestment?
To divest a sanctioned interest lawfully, a business will in most cases need a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) from OFSI, unless a general licence (a standing authorisation that permits a defined category of transactions without a separate application) already covers the transaction. General licences for divestment situations exist in some thematic regimes but are regime-specific; their availability must be confirmed against the applicable thematic regulations before any step is taken.
The specific licence application is submitted to OFSI. It must identify the designated person, describe the asset and the proposed transaction, explain the licensing ground being relied on, and set out why the transaction is in scope. OFSI publishes licensing grounds in its guidance; for divestments, the most commonly relevant grounds are "prior obligations" and "extraordinary situations." A business that can show it entered the investment before designation and has a genuine need to exit for commercial or regulatory reasons will typically have the stronger application.
OFSI does not publish a fixed statutory turnaround for specific-licence applications, but in practice the review period varies considerably. Time-sensitive transactions should be flagged to OFSI at the earliest opportunity; in some cases, OFSI will engage informally on whether a proposed approach is likely to be licensable before a formal application is submitted. Do not assume that filing the application pauses your obligations: until a licence is granted, the prohibition remains in force.
Documentation matters disproportionately in OFSI licence applications. The authority reviews whether the applicant has identified all relevant parties, traced the ownership chain, and addressed the flow of consideration. An incomplete application is returned, not approved provisionally. A structured, evidence-led submission consistently produces faster outcomes than a narrative one. For a cross-border divestment that also touches OFAC or EU-regulated parties, each authority needs its own application – there is no joint-licensing route.
The position above covers the standard licensing scenario. Your facts – the counterparty, the asset type, the timing relative to designation, and the regimes in play – change the analysis materially.
For an initial assessment of whether your divestment can proceed and which licensing ground applies, contact Calder & Vance at info@caldervance.com.
How does the OFSI position compare with OFAC and EU equivalents?
A business managing a divestment that touches US counterparties, EU-regulated entities, or assets in multiple jurisdictions cannot treat the OFSI analysis as sufficient on its own. The three regimes – OFAC, OFSI, and the EU – share a common structural logic but diverge on tests, timelines, and licensing routes in ways that decide the deal.
On the ownership test: OFAC uses aggregate ownership at 50 percent or more as the trigger, applied mechanically across the full ownership chain. OFSI and the EU both apply an ownership threshold and a control test. The EU position under the relevant Council regulation is broadly comparable to OFSI's, but the definitions are not identical, and the EU's treatment of indirect control through contractual arrangements can differ from OFSI's. Where a structure is caught under OFSI's control limb but not under OFAC's ownership rule, a business operating in both regimes must still treat the asset as blocked for UK-law purposes.
On licensing: OFAC operates a licensing system through which the Treasury's OFAC division issues specific and general licences. EU licensing is decentralised – applications go to the competent authority of the relevant member state, not to the Council. A multi-regime divestment therefore involves parallel applications to OFSI, OFAC, and one or more EU member state authorities. Each has its own form, its own criteria, and its own timeline. Coordinating those applications is a substantive project, not an administrative one.
On enforcement posture: OFSI gained civil monetary penalty powers and the ability to impose penalties on a strict-liability basis. OFAC has long operated with significant civil and criminal penalty authority. The EU's enforcement is member-state-led and therefore variable. From a practical risk standpoint, all three regimes are capable of imposing material penalties for unlicensed transactions – including divestments that proceed without authorisation.
One point that applies across all three: if a transaction is prohibited under any one of the applicable regimes, the stricter prohibition governs. A business that obtains an OFSI licence but not an OFAC authorisation has not resolved its US exposure. The licences must align before any step is taken.
For clients managing exposure under the Swiss SECO regime alongside OFSI, the analysis is addressed separately: Divesting a sanctioned interest under SECO: explained. For joint-venture structures involving US-connected parties, the OFAC position is addressed at JV sanctions structuring under OFAC: explained.
What are the most common risk flags in an OFSI divestment?
Practitioners advising on OFSI matters identify a consistent set of failure points in divestment situations. Understanding them early reduces the risk of an unlicensed transaction occurring and improves the quality of any licence application that follows.
The first is delay in identification. A designation may be announced with little operational warning. Businesses that do not monitor the OFSI Consolidated List in near-real time discover the designation after steps have already been taken – correspondence sent, payments made, governance meetings attended. Each of those post-designation acts may itself require licensing. We regularly advise businesses on the scope of potential prior breaches as a precondition to structuring the divestment itself.
The second is incomplete ownership mapping. A divestment application that traces only the direct counterparty and misses a designated person sitting at a higher or lower layer will be inadequate. OFSI will ask about the full chain. Preparing that analysis before the application – and being prepared to update it if the structure changes during the process – is essential.
The third is consideration flow. Where the divestment involves a payment to a party that is, or may be, connected to a designated person, the payment itself is a potential prohibited act. The structure of the consideration – escrow arrangements, instalment payments, retention mechanisms – must be reviewed for sanctions compliance before the commercial terms are agreed.
The fourth is parallel-regime exposure. A business that obtains an OFSI licence but has not assessed its OFAC or EU exposure, or that has US-person employees or dollar-denominated accounts in the structure, is not protected. The OFSI licence addresses UK law only.
The fifth is voluntary self-disclosure. If steps have been taken that may constitute a breach – even inadvertently – OFSI's enforcement guidance treats a timely VSD (voluntary self-disclosure to a regulator) as a significant mitigating factor. The window for an effective VSD is not indefinite. If a breach may have occurred, the decision on disclosure should be taken with counsel urgently.
If a transaction has already been flagged, or if steps have been taken that may require reporting, an early review can preserve options that narrow with time. Contact us at info@caldervance.com for a confidential assessment.
How is a divestment under OFSI enforced and what are the consequences of a breach?
OFSI enforces financial sanctions through civil monetary penalties, monetary penalties imposed for the benefit of the Crown, and referrals to law enforcement for criminal proceedings where the conduct is sufficiently serious. The civil penalty regime operates on a strict-liability basis: a breach does not require proof of intent, though knowledge and reasonable cause to suspect are factors relevant to whether a penalty is imposed and at what level.
OFSI publishes enforcement guidance that sets out how it approaches penalty assessments. The guidance identifies aggravating factors – including continuing the breach after becoming aware of it, non-cooperation with OFSI's review, and failure to disclose – and mitigating factors, including early and voluntary self-disclosure, effective compliance arrangements prior to the breach, and co-operation with any investigation. OFSI has indicated that its monetary penalty cap is set by reference to a multiple of the value of the breach or a fixed statutory maximum, whichever is higher; the precise figures are in OFSI's published guidance and should be verified against the current version before relying on them.
A divestment that proceeds without a licence – even one undertaken in good faith on a misreading of the licensing grounds – constitutes a breach if the transaction was in fact prohibited. The most common enforcement scenario we see is not a deliberate circumvention attempt: it is a business that concluded, without legal review, that exiting a sanctioned structure was inherently lawful. That conclusion is not correct.
OFSI also has powers to request information and documents from regulated persons. Businesses that receive an OFSI information request in the context of a divestment should treat that as a significant regulatory event and seek counsel before responding. The scope of the request, the manner of response, and the timing of any disclosures can all affect how the matter is resolved.
Related practices
- Correspondent banking and de-risking under OFAC – sanctions risk management for financial institutions in cross-border payment relationships.
- Divesting a sanctioned interest under SECO – the Swiss regime's ownership test, licensing route, and cross-regime interaction.