A listed counterparty surfaces mid-negotiation on a joint venture. The target entity is not itself on any sanctions list – but its anchor shareholder is. The deal team wants to know: can the joint venture proceed? Who in the UK holds enforcement authority? And if the structure cannot proceed as drafted, what changes are required? These are not hypothetical questions. As of January 2026, OFSI administers an expanding set of designation lists and its enforcement posture has hardened considerably. Getting the structure wrong at the outset is considerably more costly than getting it right before signing.
Joint-venture sanctions structuring under OFSI is governed by the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA") and the relevant thematic regulations made under it. OFSI – the Office of Financial Sanctions Implementation, part of HM Treasury – administers UK financial sanctions and applies an ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person) to determine whether a proposed joint-venture vehicle or its counterparties are effectively prohibited. The test is not purely mechanical; control as well as ownership can extend the prohibition to entities that hold no designation in their own name.
This briefing sets out who administers the regime, how the ownership and control analysis works in the joint-venture context, where the UK position diverges from OFAC and EU rules, and what steps a cross-border business should take before committing to a joint-venture structure.
Who administers joint-venture sanctions under OFSI?
OFSI is the competent authority for UK financial sanctions, operating under the authority of HM Treasury and the relevant thematic regulations made under SAMLA. It maintains the UK sanctions list, issues licences, supervises compliance, and refers enforcement cases to HM Treasury for civil monetary penalties or to law-enforcement authorities for criminal prosecution.
For a joint-venture transaction, the critical administrative question is whether OFSI's designation lists and the applicable thematic regulations are engaged. UK financial sanctions prohibit, amongst other things, making funds or economic resources available – directly or indirectly – to or for the benefit of a designated person. A joint-venture structure that channels value to a designated participant, or that creates an entity substantially controlled by one, engages that prohibition regardless of whether the joint-venture vehicle itself carries a designation.
OFSI does not approve joint-venture structures in advance by way of a general clearing mechanism. Businesses must analyse the position themselves, obtain specific licensing where required, and maintain records that demonstrate their reasoning. In our experience, the most common error at this stage is treating the absence of a direct designation as a clean bill of health, without running the ownership and control analysis that would reveal indirect exposure.
The position above covers the standard governance structure. Your specific joint-venture facts – the identity of the participants, the nature of the contributions, the governing-law choices, and the routes through which funds will flow – will alter the analysis materially.
For a preliminary review of how the OFSI regime applies to your proposed transaction, contact Calder & Vance at info@caldervance.com.
What is the OFSI ownership and control test in a joint-venture context?
OFSI applies an ownership and control test derived from SAMLA and the relevant regulations: a non-designated entity is treated as subject to the prohibitions when a designated person owns it or controls it, or when a designated person is in a position to direct or influence its activities. Ownership and control are assessed as alternatives, not conjunctives.
In the joint-venture context, this produces several distinct risk patterns that practitioners must consider before any structure is finalised.
- Majority ownership by a designated participant. Where a designated person holds a majority stake in the joint-venture vehicle, the vehicle itself is treated as caught by the prohibition. This is the clearest case.
- Minority ownership with de facto control. A designated minority partner who controls the board, holds veto rights over material decisions, or directs the vehicle's day-to-day management may bring the vehicle within the prohibition even without majority ownership. Contractual governance arrangements – reserved matters, veto clauses, appointment rights – are therefore material to the sanctions analysis, not merely to the commercial deal.
- Indirect ownership chains. Where the designated person's interest is held through intermediate entities, OFSI looks through the chain. A joint-venture partner that is itself majority-owned by a designated person is treated as within the prohibition regardless of its own unlisted status.
- Benefit without formal ownership. Arrangements under which a designated person receives an economic benefit from the joint venture – profit distributions, service fees, IP royalties – without holding a formal equity stake can engage the "for the benefit of" limb of the prohibition.
The OFSI test differs in important respects from OFAC's approach. OFAC applies the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked): the threshold is 50 percent or more aggregate ownership, and the test is mechanical. Control as such is not an independent OFAC trigger in the same way. OFSI's control limb means that a designated person's influence over governance can engage the UK prohibition even where their ownership stake sits below any formal threshold. Practitioners advising on cross-border joint ventures must map both tests and apply the stricter prohibition that governs the relevant transaction leg.
What prohibitions apply to joint ventures under the relevant UK regulations?
The financial sanctions prohibitions most directly engaged by a joint-venture structure are: making funds available to a designated person; making economic resources available to a designated person; and engaging in activities that circumvent those prohibitions. The thematic regulations under SAMLA specify which designated persons' assets are subject to which prohibitions, and the scope varies across the different UK sanctions programmes.
In the joint-venture context, the following transaction types carry heightened risk of engaging these prohibitions.
- Capital contributions to a joint-venture vehicle in which a designated person holds an interest.
- Loan or credit facilities extended to the joint-venture vehicle where funds could benefit a designated participant.
- Management fees, service charges, or IP licences payable to a participant whose ownership or control is exercised by or for the benefit of a designated person.
- Exit mechanics – drag-along rights, put options, compulsory transfer provisions – that would require a non-designated party to acquire an interest from or transfer value to a designated person on specified terms.
- Guarantees or security arrangements over the joint-venture vehicle's assets where those assets could, on realisation, generate value for a designated person.
What distinguishes the UK prohibitions from those of some other regimes is that the "making available" prohibition is broad. It captures indirect as well as direct transfers. A business that structures a joint venture to ensure that no direct payment ever reaches a designated person may still engage the prohibition if the overall arrangement generates economic benefit to that person through the vehicle.
We regularly advise joint-venture parties who have focused exclusively on direct payment flows and have not mapped the indirect benefit routes. The gap between those two analyses is where enforcement risk concentrates.
How does the OFSI position compare with OFAC and EU rules?
Cross-border joint ventures almost always engage more than one sanctions regime, and the interaction between OFSI, OFAC, and the EU rules produces practical divergence that must be resolved before the structure is fixed.
Three areas of divergence are particularly material in practice.
The control test. OFSI and the EU both apply an ownership and control test, meaning that governance rights – board control, veto rights, management authority – can extend the prohibition to entities with no majority-designated ownership. OFAC's rule is primarily ownership-based: the 50 percent rule focuses on aggregate beneficial ownership and does not independently treat control as an equivalent trigger. A joint-venture vehicle might pass the OFAC mechanical test while failing the OFSI and EU control analysis, or vice versa. For a joint venture with US participants or US-dollar-denominated cash flows, both analyses must be run in parallel.
Designation overlap and divergence. Not every person designated under OFAC's programmes appears on the UK sanctions list, and vice versa. A counterparty may be a UK-designated person without being an OFAC-designated person. The joint-venture parties must therefore screen against each relevant list, not only the list of the jurisdiction in which they are incorporated or where the vehicle will be domiciled. The general principle that the stricter prohibition governs is the prudent starting point for cross-border structures.
Licensing routes and timelines. Where the structure engages a UK prohibition and a specific licence is required, the application is made to OFSI. The EU licensing process operates through the competent authority of the relevant member state. OFAC's licensing function sits with its licensing division. The three processes run on different procedural tracks and different typical timelines. A business hoping to close a joint venture on a fixed commercial timetable must factor in the licensing lead time for each jurisdiction in which the prohibition is engaged.
The EU Blocking Regulation adds a further complication for EU-based joint-venture participants. It prohibits compliance with certain named US secondary-sanctions measures and requires those subject to it to notify the European Commission of potential exposure. The interaction between that obligation and the need for OFAC compliance in a multi-party joint venture requires careful analysis.
If a transaction has already been flagged internally, or a filing has been refused, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com for a confidential assessment.
What licensing route applies when a joint-venture structure requires authorisation?
Where a proposed joint-venture structure would otherwise engage a UK financial-sanctions prohibition, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) from OFSI is the primary route to lawful completion. OFSI does not issue general licences applicable across all programmes; each programme has its own licences, and the scope of available licensing grounds varies by thematic regime.
The licensing application to OFSI requires the applicant to identify: the specific prohibitions engaged; the licensing ground relied upon; the parties to the transaction; the structure of the joint venture; and supporting documentation demonstrating that the licence ground is satisfied. OFSI may ask supplementary questions and may require undertakings before issuing the licence.
A critical point for joint-venture timetabling: a licence is not guaranteed, and the processing period should be built into the deal timeline from the outset. Signing a joint-venture agreement on a condition precedent that OFSI will issue a licence, without understanding whether the licensing ground is clearly satisfied, creates a material closing risk.
Licensing is not always available. Some grounds are programme-specific and may not exist under the relevant thematic regulations. Where no licensing ground is available, the structure must be amended to remove the prohibited element – whether that means replacing a designated participant, restructuring the ownership chain, or amending the economic terms so that the prohibited benefit is eliminated. We have acted for parties who reached that conclusion only after heads of terms were signed, when restructuring options were narrower and more costly.
OFSI's enforcement guidance sets out its approach to serious financial sanctions breaches and its penalty methodology. The guidance makes clear that OFSI takes into account whether the breach was deliberate, reckless, or negligent, and whether the relevant party cooperated and implemented remediation measures. Voluntary disclosure, while not a guarantee of any particular outcome, is a factor that OFSI expressly considers.
What are the principal risk flags in joint-venture sanctions structuring?
In our cross-border practice, several patterns recur in joint-venture matters that later attract regulatory scrutiny or require material restructuring. Identifying these early is the most effective form of risk management.
- Inadequate screening of the full ownership chain. Screening only the named joint-venture parties and not the persons who own or control them is the single most common source of missed exposure. A clean name on the top line of a cap table provides no assurance if the person two levels above is designated.
- Governance provisions that confer control on a potentially designated person. Reserved matters, unanimous consent requirements, and appointment rights in a joint-venture agreement can be the mechanism by which a designated minority partner controls the vehicle. These provisions are drafted by commercial lawyers focused on the deal; the sanctions analysis of their effect is often not run until the matter escalates.
- Exit provisions that create prohibited transactions on a future trigger. A drag-along right that would require a non-designated party to transfer its interest to a designated person, or a put option exercisable against a designated person, may be unenforceable or may constitute a prohibited transaction when it is triggered. Exit mechanics must be stress-tested against the sanctions position at the time of drafting, not only at closing.
- Multi-regime exposure where only one regime was analysed. A joint-venture vehicle incorporated in one jurisdiction and receiving US-dollar-denominated distributions has potential OFAC exposure regardless of where its participants are located. Running only the OFSI analysis for a UK-incorporated vehicle with cross-border cash flows is insufficient.
- Failure to build a licensing lead time into the timetable. Treating a licence as an administrative formality that can be obtained quickly after signing is a structuring error. If a licence is required, the timetable must allow for the application, the processing period, and any supplementary queries from OFSI.
- Inadequate documentation of the sanctions analysis. OFSI's enforcement posture requires that businesses be able to demonstrate the basis on which they concluded that a transaction was lawful. An undocumented conclusion – even if correct at the time – provides no protection in a subsequent review. Record-keeping is not optional.
A secondary risk flag that we regularly encounter is overreliance on standard due-diligence questionnaire responses from joint-venture partners. A counterparty's self-certification that it has no sanctions issues is not a substitute for independent screening and ownership analysis. The obligation to conduct that analysis sits with each party to the joint venture.
When should a joint-venture party instruct sanctions counsel?
The correct point to involve sanctions counsel in a joint-venture matter is before heads of terms are signed. By that stage, the ownership structure, the economic terms, the governance arrangements, and the cash-flow route are sufficiently defined to run a meaningful sanctions analysis. Structural changes are easiest – and cheapest – at that point.
Several specific triggers should prompt immediate instruction.
- Any joint-venture participant – or a person in the participant's ownership chain – that is incorporated in, or has material operations in, a jurisdiction subject to comprehensive or thematic UK sanctions.
- A screening result that produces a possible match against any party to the transaction, even where the match is uncertain or is being investigated.
- A proposed counterparty that has previously been the subject of sanctions enforcement action, or that operates in a sector subject to heightened sanctions risk under the applicable programme.
- A joint-venture structure in which the governance arrangements (board representation, veto rights, management authority) would vest significant influence in a participant whose background has not been fully investigated.
- A multi-jurisdiction transaction in which OFAC, OFSI, and EU sanctions rules may all be engaged simultaneously.
- Any situation in which a party to the proposed joint venture has already entered into a commitment – whether a binding term sheet, a letter of intent, or a pre-closing arrangement – and has not yet run a sanctions analysis.
A common misconception is that the sanctions analysis can be delegated entirely to a commercial due-diligence adviser or an AML-focused team. Sanctions structuring is a distinct discipline. It requires analysis of the specific prohibitions in the relevant thematic regulations, the ownership and control test under OFSI guidance, the interaction with other regimes, and – where required – the licensing options. It is not the same exercise as general corporate due diligence or AML customer screening.
Related practices
- Correspondent banking and de-risking under OFAC – cross-border screening, correspondent exposure, and de-risking decisions under the US sanctions regime.
- Joint-venture sanctions structuring under OFSI: further analysis – extended analysis of programme-specific licensing grounds and enforcement trends.
- M&A sanctions diligence under BIS and the EAR – export-control classification, Entity List exposure, and deal-structure implications in M&A transactions.