A mid-sized UK industrial group signs a joint-venture term sheet with a partner in a third market. The partner's ultimate beneficial owner has not appeared on any screened list. Two months later, a restructuring in the parent group results in a listed person acquiring a significant stake in the venture itself. The UK business is now potentially holding an interest in a restricted entity – and the question of whether that triggers an asset-freeze obligation under OFSI falls to the compliance team to answer. Fast.
Joint-venture sanctions structuring under OFSI rules is governed by the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA") and the thematic financial sanctions regulations made under it. The key tests are ownership and control (the UK rule treating non-listed entities as caught where a designated person owns or controls them) and the prohibition on making funds or economic resources available to, or for the benefit of, a designated person. Getting the structure right at the outset – and re-examining it when the ownership picture shifts – is the essential discipline for any cross-border joint venture with UK participants.
This briefing sets out the governing authority, the core prohibitions, the ownership and control test as it applies in joint-venture structures, the procedure for obtaining a licence where a transaction is caught, the enforcement posture, how the OFSI position compares with OFAC and the EU, and the risk flags that should prompt early engagement with counsel. As of January 2026, the OFSI regime is one of the most actively enforced UK financial-sanctions regimes, and joint-venture structures present a distinctive set of exposure questions.
Who administers OFSI and what is the legal basis?
The Office of Financial Sanctions Implementation – OFSI – is the UK Treasury authority responsible for administering and enforcing financial sanctions in the United Kingdom. It sits within HM Treasury. Its mandate is set by SAMLA, which empowers ministers to impose financial sanctions by statutory instrument. The individual thematic regimes – covering specific country programmes and horizontal programmes such as global human-rights or anti-corruption measures – are made as standalone instruments under SAMLA and published on the OFSI website alongside consolidated lists of designated persons.
OFSI's functions include maintaining the UK Consolidated List, issuing general licences (standing authorisations permitting defined categories of transaction without a separate application) and specific licences (case-by-case authorisations for transactions that would otherwise be prohibited), publishing monetary-penalty decisions, and providing compliance guidance. It is also responsible for receiving mandatory reports of knowledge or suspicion that a counterparty is a designated person. The ECJU – Export Control Joint Unit – handles export licensing separately; financial sanctions and export controls are distinct regimes with distinct procedures, though joint ventures often engage both.
For a business structuring a joint venture with a UK participant, OFSI is the primary contact for licensing and for reporting obligations. Where the joint venture also involves goods or technology subject to export controls, ECJU must be assessed separately.
What does OFSI prohibit, and how does this apply to joint ventures?
The core financial-sanctions prohibition under OFSI is the rule against making funds or economic resources available, directly or indirectly, to or for the benefit of a designated person. A joint-venture structure can engage this prohibition in several ways, none of which requires a direct payment to a listed individual.
Consider the routes by which a venture can be caught. First, if a designated person holds an interest in the joint-venture vehicle – even a minority interest – distributions, management fees, or debt service paid to the vehicle may constitute making funds available for the benefit of that person. Second, if the counterparty to the joint venture is itself captured by the ownership and control test (discussed below), any payment to it is caught. Third, advisory fees, technical-assistance arrangements, or service contracts within the venture structure can constitute economic resources being made available. In our experience, the third category is the one most often overlooked in early structuring discussions.
The prohibition extends to UK persons wherever they are located. A UK company operating through a foreign subsidiary is still a UK person for this purpose. The extraterritorial reach is not unlimited – OFSI does not claim the same global sweep as OFAC's secondary-sanctions architecture – but the "UK person" definition is broad enough to catch the scenario of a British parent whose foreign subsidiary participates in the venture.
Does this mean every joint venture with any connection to a restricted country is automatically prohibited? No. The licensing regime exists precisely to authorise specific transactions that serve legitimate purposes. But unlicensed activity that is caught by the prohibitions carries civil and criminal consequences.
The ownership and control test: when is the joint-venture vehicle itself caught?
The ownership and control test is the mechanism by which a non-listed entity is treated as subject to the same prohibitions as a listed person, because a designated person owns or controls it. Under UK financial sanctions, this test is set by the relevant thematic regulations and OFSI's guidance; it is not a single statutory bright line in the way OFAC's 50 percent rule operates.
OFAC applies a purely arithmetical test: an entity owned 50 percent or more in the aggregate by one or more blocked persons is itself blocked, regardless of control or management arrangements. OFSI and the EU apply a test that encompasses both ownership at that threshold and a broader control criterion. A designated person may control an entity – and cause it to be treated as restricted – through contractual rights, veto powers, board appointment rights, or other mechanisms that fall short of majority ownership. This is the critical divergence for joint-venture structuring.
In practice, this means that a 40 percent stake held by a designated person, combined with a right to appoint the majority of directors or a veto over material commercial decisions, could bring the joint-venture entity within the OFSI and EU prohibitions even though it would not be captured under OFAC's mechanical ownership rule. Cross-border joint ventures often involve precisely these types of governance arrangements – drag-along rights, deadlock-breaking mechanisms, and reserved-matter vetoes – which must each be assessed against the control test.
We regularly advise on joint ventures where the ownership picture is clear but the governance arrangements introduce control exposure that the initial screening did not identify. The control analysis is not a one-time exercise: it must be revisited whenever the governance documents are amended or when the ownership of any participant changes.
How does OFSI licensing work for a caught joint-venture transaction?
Where a joint-venture transaction is caught by OFSI prohibitions, the route to lawful completion is an OFSI-specific licence. A specific licence from OFSI authorises a particular transaction or category of transactions that would otherwise be prohibited. The licence is issued by OFSI under powers in the applicable thematic regulations.
OFSI maintains a set of published licensing grounds – broadly covering humanitarian activity, legal fees, pre-existing contractual obligations, wind-down of prior positions, and certain court-ordered payments, among others. Not all joint-venture transactions will fit a published ground. Where the applicable ground is not obvious, a well-prepared application must demonstrate that the transaction fits within the relevant criterion and must address the risk that any benefit flowing through the structure reaches the designated person only to the extent authorised.
The application must be made directly to OFSI. There is no fixed statutory deadline for OFSI's response, though OFSI's published guidance indicates that it aims to respond to licensing applications within a defined period; verify the current processing timelines before planning a deal timetable around them. In our practice, applications that are well-documented and clearly framed against a specific licensing ground are processed more efficiently than those that require OFSI to re-characterise the transaction.
General licences – standing permissions published by OFSI for specific categories of activity – should always be checked before making a specific-licence application. If a general licence covers the transaction, no further authorisation is required, and relying on it correctly is itself a compliance matter. If the general licence covers only part of the transaction, a specific licence may be required for the remainder.
The position under EU sanctions differs. EU Council regulations permit member states to authorise transactions through their own competent authorities, and the licensing grounds in EU instruments may differ from OFSI's. A joint venture that requires both UK and EU licensing must therefore pursue parallel applications and cannot assume that an OFSI licence resolves the EU position.
If a transaction has already been flagged as potentially caught, or a proposed structure has raised questions during due diligence, an early assessment of the licensing position can preserve options that become more constrained as the transaction progresses.
Reporting obligations and record-keeping in a joint-venture context
A person who holds or controls funds or economic resources belonging to a designated person, or who has information about a person they know or suspect to be a designated person, is subject to mandatory reporting obligations to OFSI. In a joint-venture context, this can arise in several ways: where a co-venturer is later designated, where diligence on a third-party investor reveals a suspected connection to a designated person, or where a payment is received that is suspected to originate from a restricted source.
The reporting obligation applies to all persons in the UK and to UK persons wherever they are located. A compliance programme for a cross-border joint venture should identify who within the venture structure holds responsibility for OFSI reporting, given that the obligation is personal rather than resting solely on the lead corporate entity.
Record-keeping is also a live obligation. Best practice – and the expectation of a well-designed compliance programme – is to retain all screening records, ownership analyses, board papers addressing sanctions questions, and licence correspondence for a sustained period. Although the prompt does not permit citing a specific figure without registry support, practitioners should confirm the retention period applicable to their specific regulatory position and build it into the venture's governance framework.
OFSI's enforcement guidance addresses the quality of compliance programmes in assessing whether a breach warrants a formal penalty. A venture that can demonstrate documented, systematic screening – including re-screening at defined intervals – is in a materially stronger position than one that conducted only initial diligence at signing.
Enforcement posture and penalty exposure
OFSI has civil monetary-penalty powers, and the penalties that have been published are significant. OFSI can impose a civil monetary penalty for breach of financial-sanctions obligations without requiring a criminal conviction. Criminal penalties – including custodial sentences – are available for deliberate or knowing breach.
The enforcement posture has tightened materially in recent years. OFSI has published an increasing number of penalty decisions, and its enforcement guidance makes clear that the size and sophistication of the person in breach are relevant to the penalty level. A multinational group is held to a higher standard of systems and controls than a small business. Joint ventures, by their nature, often involve businesses that are sophisticated in their main commercial field but that have not invested in sanctions compliance infrastructure proportionate to the cross-border risks they carry.
OFSI's guidance indicates that a VSD – voluntary self-disclosure of an apparent breach – is a mitigating factor in penalty assessments. The decision to make a VSD is a legal judgement that depends on the specific facts, the strength of the evidence, and the likely scope of any investigation. It is not automatically the right step: it involves disclosing information to the regulator and committing the person to a particular characterisation of the facts. Experienced counsel should be involved before a VSD is submitted.
Compared with OFAC, OFSI's penalty framework is different in structure. OFAC can in principle impose very large civil penalties, calculated by reference to the value of each unlicensed transaction. OFSI's framework is set by SAMLA and the relevant thematic regulations. The applicable penalty caps and calculation bases differ between regimes; verify the current position in each applicable regime before assessing worst-case exposure.
Cross-regime considerations: OFSI, OFAC, and the EU in a joint-venture structure
Cross-border joint ventures rarely engage only one sanctions regime. A UK-incorporated venture with US participants – or with dollar-denominated payments – is likely to engage OFAC as well as OFSI. A venture with EU participants, or with goods moving through EU member states, may engage the relevant EU Council regulations. The stricter prohibition governs: where OFAC prohibits a transaction that OFSI would licence, the OFAC position must be respected by US persons in the venture, and vice versa.
The practical implication is that joint-venture structuring advice must map all the regimes engaged by the specific facts: the nationalities and locations of the participants, the currency and route of payments, the nature of the goods or services, the destination of any exports, and the jurisdictions in which the venture vehicle is incorporated and operates. A single-regime analysis is rarely sufficient for a cross-border joint venture.
For ventures with exposure to the EU regime, our analysis of the EU framework and the relevant Council regulations – including the ownership and control test as applied by EU competent authorities – is set out separately at M&A sanctions diligence under EU regulations. For ventures where BIS export controls or OFAC secondary-sanctions exposure is the primary concern, our guide to M&A sanctions diligence under BIS and the EAR sets out the applicable tests and procedure.
A word on secondary sanctions: OFSI does not operate a secondary-sanctions architecture comparable to OFAC's. The risk of secondary-sanctions exposure – the risk that a non-US business loses access to the US financial system because of its dealings with a sanctioned party – arises from the US regime, not from OFSI. But for a UK joint venture with US dollar exposure or a US institutional investor, that secondary-sanctions risk is a parallel concern that must be managed alongside the direct OFSI obligations.
Risk flags and when to involve counsel
Several patterns in joint-venture structures are reliably associated with elevated OFSI exposure. Recognising them early – before the term sheet is final and the governance documents are signed – is where diligence creates real value.
- Opaque ultimate beneficial ownership. Where the counterparty cannot or will not disclose its full ownership chain, screening cannot be completed. The absence of information is itself a risk flag, not a neutral position.
- Reserved-matter vetoes for a minority participant. Even a small stake, if combined with a veto over material decisions, may constitute control under the OFSI and EU tests. Governance documents must be reviewed against the control criterion, not only the ownership threshold.
- Third-country holding structures. Joint-venture vehicles incorporated in jurisdictions with limited transparency – or where beneficial ownership registers are not publicly accessible – make ongoing monitoring harder and increase the risk that a change in the ownership picture is not detected promptly.
- Services flowing to the venture rather than equity contributions. Technical assistance, management consulting, and IP licences within the venture structure are economic resources. They are subject to the prohibitions just as capital contributions are. This is a common point of misunderstanding.
- Change-of-control and pre-emption mechanics. A drag-along or tag-along right, or a right of first refusal, can result in a UK person inadvertently acquiring an interest in a restricted entity if a trigger event occurs and the right is exercised without fresh sanctions analysis.
In our experience, the ventures that run into difficulty are not those where the counterparty is obviously listed. They are the ones where a designation occurs after signing, where a parent-level restructuring changes the beneficial ownership picture, or where a governance right that seemed routine proves to create control exposure on closer analysis. The time to address all of these is in the structuring phase, with counsel who can assess both the ownership and control analysis and the cross-regime position.
For businesses managing correspondent-banking relationships or financial-institution de-risking questions alongside a joint-venture structure, the intersection of OFSI and correspondent-banking obligations is addressed in our service page on correspondent banking and de-risking.
Common misconceptions about OFSI and joint-venture structures
One pervasive misconception is that OFSI prohibitions apply only to the direct transaction between a UK person and a designated individual – that once the direct payment is structured away, the exposure disappears. This is incorrect. The prohibition on making funds or economic resources available "for the benefit of" a designated person is not limited to direct transactions. A payment to the joint-venture vehicle that enriches a designated co-venturer is caught, even if the UK party never transfers money directly to that individual. Indirect benefit is expressly within the prohibition's scope.
A second misconception is that because the joint venture is incorporated outside the UK, UK sanctions do not apply to it. UK financial sanctions apply to UK persons wherever they are located. A UK parent company is a UK person; its activities in relation to the foreign joint vehicle remain subject to OFSI. The place of incorporation of the vehicle does not determine the reach of the UK regime in respect of the UK participant.
A third misconception – particularly relevant where both UK and US participants are involved – is that an OFSI licence resolves the OFAC position, or vice versa. The two regimes are legally distinct. A licence from one authority does not authorise a breach of the other's rules. Parallel analysis and, where necessary, parallel licensing are required.
Related practices:
- Correspondent banking and de-risking (OFAC) – managing financial-institution sanctions exposure in cross-border payment flows
- M&A sanctions diligence under BIS and the EAR – export-control and OFAC analysis for cross-border deals
- M&A sanctions diligence under EU regulations – EU Council-regulation analysis and competent-authority licensing for transactions