A multinational headquartered in the United States agrees terms on a joint venture with a promising emerging-market partner. The heads of agreement are signed. The legal teams begin negotiating the shareholders' agreement. Then the compliance team runs the partner through OFAC screening. A result comes back. Now the transaction is on hold, and everyone – the lawyers, the board, and the commercial team – needs to understand what the OFAC rules actually require before the deal can move forward at all.
Joint-venture sanctions structuring under OFAC means designing the ownership, governance, profit-sharing, and exit terms of a joint venture so that no US person participates in conduct that OFAC prohibits, and so that no blocked entity acquires rights in the venture by operation of the 50 percent rule (OFAC's rule that any entity owned 50 percent or more in the aggregate by blocked persons is itself treated as blocked). The Office of Foreign Assets Control, operating under authority granted by IEEPA and related statutes, enforces these prohibitions on a strict-liability basis – meaning intent is not required for a violation to occur.
As of January 2026, the OFAC landscape for joint ventures continues to evolve as the Office updates its guidance and adds new designations. This briefing sets out the governing authority, the core prohibitions, the ownership and control analysis, the procedure a cross-border team should follow, the risk flags that most frequently derail deals, the enforcement posture, and the points at which legal counsel should be in the room.
Who governs joint-venture sanctions structuring under OFAC, and what is the legal basis?
OFAC administers US economic sanctions under authority granted by IEEPA, the Trading with the Enemy Act, and a series of programme-specific statutes. Each programme is implemented through a set of thematic regulations – for example, the regulations governing the relevant country or thematic programme – and supplemented by general licences, specific-licence guidance, and frequently-asked-questions documents that carry significant interpretive weight. In the joint-venture context, the key question is always which programme's regulations govern: programmes differ materially in their scope, their licensing regimes, and the extraterritorial reach they assert.
The SDN List (OFAC's list of Specially Designated Nationals and blocked persons) is the central reference. A joint-venture counterparty that appears on the SDN List cannot transact with a US person under any circumstances absent an OFAC licence. But the SDN List is not the only reference: OFAC also administers sectoral or non-SDN lists under specific programmes, and entities not appearing on any list may still be blocked by the 50 percent rule. In our experience, counterparty screening that stops at the SDN List is the single most common gap in joint-venture due diligence.
The governing authority is therefore a combination of the IEEPA-based executive order establishing the programme, the implementing regulations, and OFAC's published guidance. No court ruling or agency order outside that stack has formal authority, though enforcement decisions and OFAC's statements of reasons provide interpretive context.
What does OFAC prohibit in a joint-venture structure?
OFAC's prohibitions in the joint-venture context fall into four practical categories: dealing with blocked persons, facilitating prohibited transactions, importing or exporting to or from sanctioned destinations, and – in certain programmes – investment into a sanctioned economy or sector.
The dealing prohibition catches the broadest range of JV conduct. A US person – a concept that includes US citizens, permanent residents, US-incorporated entities, and any person while physically located in the United States – may not engage in any transaction with a blocked party. In a JV, that prohibition reaches equity subscriptions, loan advances, royalty payments, management services agreements, and board-seat arrangements. It also reaches distributions of profit if the blocked party holds an economic interest in the vehicle.
The facilitation prohibition extends the reach beyond direct dealing. A US person may not approve, finance, facilitate, or guarantee a transaction that the US person could not undertake directly. This means that a US parent company that approves a JV term sheet through which a non-US subsidiary transacts with a blocked party is itself potentially in violation. Have you mapped the approval chains in your JV governance documents against the facilitation rule?
Sectoral restrictions under specific programmes add a further layer. Certain programmes restrict the provision of goods, services, or technology to particular sectors of a sanctioned economy even where the counterparty is not on any list. A JV whose purpose touches one of those sectors – energy infrastructure, finance, defence-related services – requires a separate sector-by-sector analysis that goes beyond basic SDN screening.
The investment prohibition is the dimension most frequently overlooked in early-stage structuring. Certain executive orders prohibit new investment in specific economies or sectors regardless of whether any individual counterparty is listed. A JV that constitutes "new investment" within the meaning of the applicable order triggers the prohibition at the point of commitment, not at the point of disbursement. What constitutes new investment – and whether the conversion of an existing commercial contract into equity participation counts – requires careful construction of the programme-specific regulations.
How does the 50 percent rule apply to a joint-venture vehicle?
The 50 percent rule operates mechanically: any entity that blocked persons own, individually or in the aggregate, at a threshold of 50 percent or more is itself treated as blocked, whether or not it appears on any list. In a JV, this means the vehicle itself – the operating company, the holding company, or both – must be tested against the rule.
Aggregation is where structuring decisions have the most impact. Two blocked persons each holding 24 percent of the JV vehicle are, individually, below the threshold. Together, their combined holding of 48 percent is also below the threshold – but only barely. A small secondary transfer, a tag-along right exercised at closing, or a earn-out mechanism that crystallises into equity could push the aggregate over 50 percent and render the vehicle blocked. In our practice, we model the pre- and post-closing cap table under both the current ownership structure and all reasonably foreseeable future states before sign-off is given.
The rule does not require that the blocked persons hold a particular class of share. Economic rights, voting rights, and bare membership interests are all ownership for this purpose. Option rights require separate analysis: OFAC has stated that an unexercised option does not itself constitute ownership, but practitioners must assess whether the economics of the arrangement effectively transfer ownership in substance.
Indirect chains are equally within scope. If a blocked person owns 60 percent of an intermediate holding company, which in turn holds a 40 percent stake in the JV vehicle, the blocked person's effective indirect ownership of the JV vehicle must be calculated and aggregated with any direct holdings. In our experience, chains of three or more intermediate entities are common in emerging-market investment structures, and each layer requires verification before the analysis is complete.
The position under OFSI and the EU is meaningfully different. Under OFSI (the UK's Office of Financial Sanctions Implementation) and the EU Council regulations, the test extends to ownership and control – meaning that a non-listed entity may be caught not only through aggregate ownership of 50 percent or more, but also through a listed person's ability to direct or influence it through other means, such as board appointment rights or veto powers. A JV structured so that a designated party holds a 40 percent stake with a contractual right to appoint the majority of the board could be caught under UK or EU rules even if it would not be blocked under OFAC's mechanical ownership test. Cross-border joint ventures must therefore be tested against both regimes simultaneously.
What is the screening and structuring procedure for a JV transaction?
A well-ordered JV sanctions review proceeds in six stages, each of which produces a documented output that can be presented to a regulator, an insurer, or a counterparty's legal team if challenged later.
Stage 1: Programme identification. Identify every OFAC programme that could apply to the transaction. Relevance is determined by the nationality and location of the counterparty, the sector of the JV's business, the ultimate beneficial owners, and the intended countries of operation. A JV operating across multiple jurisdictions may engage several programmes simultaneously.
Stage 2: Counterparty and ownership screening. Screen all direct counterparties, all persons in the ownership chain up to the ultimate beneficial owner, and all proposed board members and key managers against the SDN List, the relevant non-SDN lists, and the OFAC 50 percent rule. This is not a one-time exercise: screening should be repeated at each material stage of the transaction and at closing.
Stage 3: Programme-specific prohibitions analysis. Having identified the applicable programme or programmes, assess the full suite of prohibitions – dealing, facilitation, investment, and any sector-specific restrictions. The investment-prohibition analysis must address the "new investment" question explicitly, with reference to the relevant executive order and OFAC guidance.
Stage 4: Structuring options. Where the analysis identifies a prohibition, consider whether a lawful structuring alternative is available. Common alternatives include: adjusting the equity split so that no blocked or sanctioned person crosses the 50 percent threshold (noting that this requires careful analysis of the control test in parallel regimes); excluding the JV from sanctioned sectors or geographies; interposing a non-US entity (subject to facilitation-rule analysis); or applying for a specific licence. None of these options is categorically available; each depends on the facts of the individual transaction.
Stage 5: Contractual risk allocation. Where exposure cannot be eliminated, it must be allocated. Sanctions representations and warranties, compliance covenants, sanctions-triggered termination rights, and closing conditions tied to OFAC clearance are all standard instruments in cross-border JV documentation. The drafting must be precise: an overly broad sanctions clause can create a right to terminate that a counterparty exercises opportunistically; an overly narrow clause leaves the US party exposed.
Stage 6: Ongoing monitoring. OFAC designations occur without advance notice. A counterparty, an intermediate holding company, or an ultimate beneficial owner may be designated after the JV closes. The governance documents should therefore include an ongoing compliance obligation, a mechanism for reporting sanctions-related developments, and – where necessary – a right to wind down or restructure the JV if a blocking event occurs post-closing.
The position under BIS and the Export Administration Regulations adds a further procedural strand for JVs involving technology transfer or the export of controlled goods. The ECCN classification of any technology contributed to the JV vehicle, and the Export Control Classification Number assessment of goods to be manufactured or supplied, must be addressed as part of the structuring exercise. A JV that inadvertently creates an unlicensed deemed-export – the deemed transfer of controlled technology to a foreign national present in the United States – can trigger BIS exposure even before any cross-border movement of goods occurs.
What are the primary risk flags in joint-venture sanctions structuring?
Certain fact patterns recur in JV transactions that attract OFAC scrutiny or result in enforcement referrals. Awareness of them allows a compliance team to apply heightened analysis before the issue becomes live.
The first is ultimate beneficial ownership that is opaque or subject to frequent restructuring. Where a counterparty cannot demonstrate a clear and stable UBO chain, the 50 percent rule analysis cannot be completed with confidence. OFAC has made clear that wilful blindness to ownership structures is treated as constructive knowledge of the blocked status of an entity.
The second is geographic operations in or near sanctioned jurisdictions. A JV whose operating footprint includes territory that falls within or adjacent to a comprehensively sanctioned jurisdiction – even if the counterparty itself is clean – risks generating transactions that are prohibited. Payments routed through correspondent banks in sanctioned territories, goods shipped through sanctioned ports, and services delivered to end-users in sanctioned countries all become the JV's exposure.
The third is the "clean" intermediary structure. A JV that uses a non-US, non-listed intermediate entity to conduct activity that a US person could not conduct directly is exactly what the facilitation rule was designed to catch. The test is not whether the US person is the direct contracting party; it is whether the US person has approved, funded, or enabled the prohibited transaction in any way.
The fourth is sector-specific exposure created by the JV's activities even where its counterparties are not listed. Certain programmes designate entire sectors rather than individual persons. A JV entering the energy sector of a comprehensively sanctioned economy, or providing financial services to an entity that is part of a sanctioned financial system, may be prohibited at the sectoral level regardless of counterparty status.
The fifth is the post-closing designation. OFAC designations occur without warning and without grandfathering for existing contractual positions absent a specific wind-down licence. A JV that does not include a designated-person event of default, a wind-down mechanism, and a reporting obligation leaves the US partner without a clear exit path if a co-venturer or key customer is designated after closing.
In a recent matter, a trading business entered a JV with a distribution partner in a market adjacent to a comprehensively sanctioned jurisdiction. The JV's distribution agreements covered customers across several neighbouring countries. After closing, one customer was designated. We worked with the client to map the JV's existing contractual exposure, advise on the applicable wind-down period under the general licences in force, and restructure the JV's governance to include automatic compliance triggers. The matter was resolved without an enforcement referral.
The position above covers the standard JV fact pattern. Your specific situation – the counterparty's ownership structure, the sector of the JV's business, the countries of operation, and the licensing regime in play – changes the analysis materially.
For an initial review of your JV structure, contact Calder & Vance at info@caldervance.com.
How is joint-venture sanctions structuring enforced under OFAC, and what does a violation look like in practice?
OFAC enforces its prohibitions through civil penalties assessed under the relevant programme-specific statutory authority. Civil penalties can be assessed on a strict-liability basis: OFAC does not need to prove that a violation was wilful or even negligent. The base penalty is calculated per transaction and per day of a continuing violation, and OFAC publishes its enforcement actions, meaning that a civil settlement or penalty decision becomes publicly available.
The key variable in the penalty calculation – and in OFAC's decision whether to resolve a matter through a cautionary letter, a no-action finding, a settlement, or a formal penalty – is the set of general factors that OFAC's enforcement guidelines specify. These include the egregiousness of the conduct, whether the violation was voluntarily disclosed, the size and sophistication of the party, the existence of a sanctions compliance programme, and whether the violation resulted in harm to the underlying sanctions objective. Each factor can move the outcome significantly.
Voluntary self-disclosure (a VSD – a proactive report to OFAC of an apparent violation before the Office discovers it through other means) is a significant factor in OFAC's enforcement response. A timely and complete VSD, filed with a thorough internal investigation report and a credible remediation plan, typically results in a substantially reduced penalty or a non-public resolution. The timing of a VSD is therefore a strategic question that counsel should address at the earliest stage of internal investigation.
For a JV, the enforcement exposure is not limited to the US party. A non-US party that has facilitated a violation by a US person, or that has itself transacted with a blocked party in circumstances where OFAC's secondary-sanctions risk is engaged, may face consequences under the applicable country regime's sanctions rules or reputational harm arising from the OFAC enforcement action. Secondary-sanctions risk – the risk that OFAC takes action against a non-US person for conduct involving a sanctioned jurisdiction – is a feature of certain OFAC programmes and must be assessed as part of the cross-border analysis.
Record-keeping obligations run alongside the substantive prohibitions. Businesses are required to maintain records of licensed transactions and of OFAC-related due diligence for a defined period. While the specific record-keeping window applicable to a given programme should be confirmed against the current regulations, multi-year retention is the operative standard and supports an effective VSD or enforcement defence if a question arises later.
If a transaction has already been flagged, a filing has been refused, or a potential apparent violation has been identified internally, an early review by sanctions counsel can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com.
How does the OFAC regime for JVs compare with OFSI and EU rules?
Cross-border joint ventures almost always engage more than one sanctions regime simultaneously. A JV between a US entity and a UK entity operating in a third market is simultaneously subject to OFAC, OFSI, and – if any EU nexus exists – the relevant EU Council regulation. Understanding the divergences is not academic: a structure that is OFAC-clean may be caught by the EU control test, or a licence that OFAC grants may not have a counterpart under OFSI's licensing regime.
The ownership threshold is formally identical across the three regimes: 50 percent or more aggregate ownership by a designated person triggers the blocking or asset-freeze obligation. The critical divergence is on control. Under OFAC, a non-listed entity that is owned below the 50 percent threshold is not itself blocked, even if a designated person exercises factual control through other means. Under OFSI and the EU, a non-listed entity can be caught if a designated person holds it directly or indirectly or otherwise controls it – and "control" in the UK and EU sense includes board appointment rights, veto rights over significant decisions, and other mechanisms that allow the designated person to determine the entity's conduct.
A JV in which a designated party holds 40 percent of the shares but has the right to appoint the chair and to veto the business plan is blocked under UK and EU rules even if it is not blocked under OFAC. In that structure, the UK party cannot provide services to the JV vehicle, and the EU party cannot transfer funds into it. The OFAC analysis and the OFSI/EU analysis must therefore be run in parallel, and the more restrictive prohibition governs the effective position of the whole structure.
Licensing divergence is a second practical problem. OFAC's licensing procedure allows a US party to apply for a specific licence to conduct an otherwise prohibited transaction. OFSI has a parallel licensing regime, and the EU Council has competence to authorise otherwise prohibited transactions in certain circumstances. But the criteria differ, the timelines differ, and a licence from one regime does not authorise conduct under another. A JV transaction that requires licences from both OFAC and OFSI – for example, because both a US entity and a UK entity are parties and the transaction is prohibited under both regimes – requires parallel applications, which must be carefully coordinated to avoid inconsistency.
For businesses that operate under both OFAC and OFSI simultaneously, our related briefing on JV sanctions structuring under OFSI sets out the UK regime's ownership and control tests in detail and addresses the interaction with the OFAC position.
When should a cross-border JV team involve sanctions counsel?
The single most damaging pattern in JV sanctions work is late instruction. Sanctions counsel instructed after a term sheet is signed, or – worse – after a shareholders' agreement is executed, faces a much narrower set of options. Structural remedies that would have been straightforward at the heads-of-agreement stage become commercially sensitive renegotiations. Licence applications that would have been routine become urgent and unpredictable. Counterparties that were flexible on ownership percentages become intractable once equity stakes are committed.
Counsel should be involved at four minimum intervention points:
- At the outset of commercial negotiations, before any term is committed to paper – to identify whether any component of the proposed structure is prohibited or requires a licence.
- Before the heads of agreement or term sheet are signed – to confirm that the proposed ownership structure, governance terms, and profit-sharing arrangements do not create a blocking event or a facilitation-rule problem.
- During legal due diligence – to carry out the full counterparty and UBO screening and to advise on the 50 percent rule analysis, the control test under parallel regimes, and any sector-specific restrictions.
- At the documentation stage – to draft or review the sanctions representations, warranties, covenants, and termination provisions in the JV agreement.
A fifth intervention point arises post-closing: monitoring for new OFAC designations that affect the JV's counterparty base, and advising on the response if a designation event occurs. We regularly advise JV parties on their obligations and options when a co-venturer, customer, or supplier is designated after the venture is operating.
One common myth in JV transactions is that a non-US vehicle insulates a US party from OFAC exposure. It does not. The facilitation rule means that a US parent's approval of a non-US subsidiary's transactions with a blocked party is itself a prohibited facilitation. The relevant question is not the nationality of the contracting entity; it is whether a US person has been involved in the transaction in any capacity. Structure that is intended to place the US person at arm's length from a prohibited transaction will be evaluated by OFAC on substance, not form.
Related practices
- Correspondent banking and de-risking under OFAC – how financial institutions manage sanctions exposure in correspondent relationships and JV banking arrangements.
- Joint-venture sanctions structuring under OFAC: advanced topics – deeper analysis of specific-licence applications, post-closing designation events, and multi-programme JV structures.
Frequently asked questions on joint-venture sanctions structuring under OFAC
Who administers joint-venture sanctions structuring under OFAC?
OFAC – the Office of Foreign Assets Control within the US Department of the Treasury – administers US economic sanctions, including the prohibitions that apply to joint ventures. OFAC operates under authority derived from IEEPA, the Trading with the Enemy Act, and programme-specific statutes. It publishes the SDN List, issues general and specific licences, and enforces prohibitions through civil and, in coordination with the Department of Justice, criminal proceedings. In the JV context, OFAC's guidance on ownership, control, and the 50 percent rule is the primary interpretive reference.
What does OFAC prohibit in relation to joint-venture sanctions structuring?
OFAC prohibits US persons from engaging in any transaction with a blocked party, from facilitating such a transaction by a non-US person, and – under certain programmes – from making new investments in a sanctioned economy or sector. In a joint venture, these prohibitions extend to equity subscriptions, loan advances, management fees, profit distributions, and governance rights conferred on a blocked co-venturer. The 50 percent rule further prohibits transacting with a non-listed entity if blocked persons own it at an aggregate threshold of 50 percent or more, whether directly or through intermediate holding structures.
How is joint-venture sanctions structuring enforced under OFAC?
OFAC enforces its prohibitions on a strict-liability basis through civil penalties, the quantum of which is determined by programme-specific statutory caps and OFAC's published enforcement factors. Key factors include egregiousness, the existence of a prior compliance programme, and whether a voluntary self-disclosure was made. OFAC publishes civil settlement agreements and penalty notices, creating reputational as well as financial consequences. For JVs, secondary-sanctions risk means that non-US parties may also face consequences under other applicable regimes if an OFAC violation is established.
About the author
J. M. Aldridge advises multinationals and financial institutions on US sanctions and export controls, with a focus on OFAC licensing, secondary-sanctions risk, and BIS classification. Calder & Vance – International Sanctions & Export Control Counsel.
About Calder & Vance
Calder & Vance is an independent international sanctions and export-control boutique. We advise multinationals, financial institutions, exporters, and individuals on the major regimes – OFAC and BIS in the United States, OFSI and ECJU in the United Kingdom, the EU Council regulations and the EU General Court, the United Nations Consolidated List, and the regimes of Switzerland, Canada, Australia, the UAE, Singapore, and Japan. Our work is limited to lawful compliance, licensing, delisting, enforcement defence, and due diligence. To discuss a matter, contact info@caldervance.com.
Disclaimer: This material is general information, not legal advice, and is not a substitute for advice on your specific facts. Sanctions and export-control rules change frequently and differ by regime; verify the current position before relying on anything stated here. Calder & Vance does not advise on circumventing or evading sanctions. For advice on your situation, contact info@caldervance.com.