A company receives a designation notice. Its general counsel's first call is to a sanctions lawyer. But the attorney's retainer sits in a blocked account – or the client itself is a designated entity, and every payment is potentially prohibited. Can legal representation even begin? The answer is yes, but the path runs through a specific OFAC authorisation known as a legal-fees licence.
Legal-fees licences under OFAC rules permit otherwise-prohibited transfers of funds to pay lawyers representing designated persons or entities. The authority derives from IEEPA and the relevant programme regulations. OFAC administers a standing general licence (a standing authorisation that permits a defined category of transactions without a separate application) covering legal fees in most active programmes, subject to a $500 per hour fee cap and an aggregate monthly ceiling that varies by programme – figures that OFAC publishes in its programme-specific regulations and confirms as currently in force; verify the current position before relying on them.
This briefing explains how the general-licence mechanism works, where it does not apply, how to obtain a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) when the general licence is insufficient, what the cross-border position looks like under OFSI and the EU, and what compliance steps lawyers and clients must take before accepting or making any payment.
Who administers legal-fees licences, and on what legal basis?
OFAC – the Office of Foreign Assets Control, a bureau of the US Department of the Treasury – administers all sanctions-related licences, including those covering legal fees. Its authority rests on IEEPA, the International Emergency Economic Powers Act, and in older programmes on TWEA, the Trading with the Enemy Act. OFAC issues both general licences embedded in programme-specific regulations and specific licences granted after a case-by-case review.
The legal-fees general licence exists in almost every major OFAC programme. It reflects a constitutional and policy balance: sanctioned individuals and entities retain the right to obtain legal counsel, but that right must operate within the prohibitions that the sanctions programme imposes. OFAC resolves this tension by pre-authorising fee payments up to defined caps, while requiring lawyers and clients to follow strict reporting and record-keeping obligations. Where those caps are insufficient – for example, in complex litigation or multi-jurisdiction delisting matters – a specific licence is the route.
The position above covers the standard case. Your facts – the programme in play, the fee structure, the currency, the routing bank – change the analysis considerably.
For a confidential review of how the legal-fees rules apply to your situation, contact Calder & Vance at info@caldervance.com.
What does the general licence cover – and what does it exclude?
The general licence in most OFAC programmes authorises US persons to receive and process payments of legal fees and costs from or on behalf of a designated client, provided the fees and costs do not exceed defined programme caps and the lawyer files a required report with OFAC within a short window after each payment.
In our experience, practitioners regularly underestimate how many steps fall outside the general licence even when the core fee payment is permitted. The following transactions typically require separate authorisation:
- Payments that exceed the hourly or monthly cap – even by a small margin
- Disbursements to third-party experts, local counsel in the relevant jurisdiction, or translators retained on behalf of the designated client
- Advances and retainers held in trust before work is performed, if the trust account holds blocked funds
- Fee payments routing through a third-country correspondent bank that is itself subject to a restriction
- Payment of legal costs awarded by a court in favour of a designated party
The caps themselves vary between programmes. Where one programme permits a higher monthly aggregate than another, a lawyer handling a matter spanning two programmes must apply the stricter of the two ceilings. That stricter-prohibition principle runs across the US regime and, as discussed below, across the major non-US regimes as well.
Does the general licence also cover legal advice on sanctions compliance – as opposed to representation in a designation challenge? OFAC's published guidance addresses this point: advice to a designated person on how to achieve compliance is generally covered; advice that could facilitate prohibited activity is not.
The reporting requirement: what lawyers must file and when
The reporting obligation is the element most frequently overlooked, and OFAC treats a failure to report as a separate compliance violation. Under the general licence, a lawyer who accepts a fee payment from or for a designated client must file a report with OFAC within a short statutory window – currently 10 business days of receiving the funds, as specified in the programme regulations, though the window differs slightly between programmes and should be verified before reliance.
The report must state the amount received, the identity of the payer, the identity of the designated client, and the programme under which the payment is being licensed. OFAC's programme regulations set out the required content; legal practitioners should use the most current version of the reporting template for the specific programme, as formats change when regulations are amended.
Record-keeping runs parallel to reporting. OFAC requires that records supporting each payment and each report be retained for five years from the date of the transaction. This includes the engagement letter, each invoice, each payment confirmation, and each filed report. A lawyer who destroys files earlier than that – even through a routine document-destruction policy – faces a compliance exposure independent of any underlying fee question.
In a recent matter, a law firm advising a client in an enforcement proceeding missed the reporting window because the firm's accounts team processed the payment before the sanctions team had confirmed the applicable deadline. We assisted in preparing a voluntary self-disclosure package. The matter was resolved, but the avoidable delay added both cost and regulatory scrutiny to an already complex engagement.
When is a specific licence needed – and how does the application work?
A specific licence is required whenever the payment falls outside the general licence – most commonly because the fees exceed the programme cap, the retainer structure is non-standard, or the matter involves a programme that has no general licence provision for legal fees. Specific licences are also used when a lawyer wants certainty before accepting a mandate, rather than relying on a general licence interpretation that OFAC has not publicly confirmed for that programme's fact pattern.
The application process runs through OFAC's licensing division. The required content typically includes:
- A detailed description of the legal matter and the services to be provided
- An explanation of why the general licence does not cover the requested payment
- The identity of the applicant, the designated client, and the payer
- The fee structure and anticipated total cost
- Any supporting evidence of financial need or urgency
Processing times under OFAC vary. We regularly advise clients that the realistic window for a routine specific licence application in a well-resourced programme is several months; complex matters or novel fact patterns can take longer. Where urgency is genuine – for example, where a bail hearing or a court deadline is imminent – OFAC does accept requests for expedited review, but the standard for expedited treatment is demanding. Building the case for urgency is part of the licence preparation, not an afterthought.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Write to info@caldervance.com for an assessment.
How do OFSI and the EU approach legal-fees licences – and where do they diverge from OFAC?
Legal-fees licences under OFSI (the UK's Office of Financial Sanctions Implementation) and the EU sanctions regulations follow the same policy logic as OFAC's general-licence mechanism but diverge significantly in structure and mechanics. Any lawyer or client operating across jurisdictions must apply all three regimes in parallel – and where they conflict, the stricter prohibition governs.
Under OFSI, there is no self-executing general licence equivalent for legal fees. A UK-nexus payment to represent a designated person requires an OFSI licence (a formal authorisation granted by OFSI under SAMLA, the Sanctions and Anti-Money Laundering Act). The application is made to OFSI on prescribed forms, must articulate the licensing ground (typically "extraordinary situation" or a purpose specifically provided for in the relevant thematic regulations), and is subject to OFSI's own processing and publication policies. OFSI has published guidance on legal-fees licensing; Henry Ashworth's analysis is available at our companion briefing on OFSI legal-fees licences.
The EU position under the relevant Council Regulations is similar in structure to the OFSI model. Each Member State competent authority handles applications for its own territory; there is no pan-EU licence. A law firm advising a designated client on a cross-border EU matter may need separate licences from each relevant national authority, in addition to OFSI authorisation for the UK leg and OFAC authorisation for any US-nexus activity.
Three specific points of divergence are worth noting for cross-border matters:
- No fee cap: neither OFSI nor the EU regime imposes the specific hourly cap that features in OFAC general licences. The UK and EU tests focus on whether the fees are "reasonable" for the services rendered.
- Ownership and control: unlike the OFAC 50 percent rule (treating entities owned 50 percent or more by blocked persons as themselves blocked), OFSI and the EU apply a combined ownership and control test that can reach companies even below the 50 percent threshold. This changes who counts as a "designated client" for legal-fees licensing purposes.
- Currency routing: a payment in sterling routed to a US-based law firm passes through both the UK and US regimes. Both licences must be in place before the funds move.
Our practice regularly advises on OFAC/OFSI and OFAC/EU parallel licensing. The sequencing of those applications – and which authority to approach first – is itself a strategic question.
Common mistakes and risk flags for lawyers and clients
The most frequent error we see is an assumption that a retainer is safe once the lawyer has identified the applicable general licence. General licences are not blank cheques; they are conditional authorisations that lapse if any condition is breached. The following risk flags should be reviewed before accepting any payment from or for a designated person:
- The cap question: do the projected total fees fit within the monthly aggregate cap for the relevant programme? If the matter is litigation-intensive, the answer may change quarter by quarter.
- The payer's status: is the payer itself a designated person or an entity caught by the 50 percent rule? A payment from an undesignated family member of a designated individual may still be traced back to blocked funds.
- Third-party payments: does the matter require retaining experts, local counsel in the relevant jurisdiction, or forensic accountants? Each of those payments is a separate transaction that must independently qualify for authorisation.
- Programme overlap: if the client is designated under more than one programme – which is common for complex enforcement matters – the stricter cap and the stricter reporting deadline apply across the board.
- The blocking of trust-account funds: if a designated client has already paid funds into a trust account and is subsequently designated, those funds may themselves become blocked. The mechanics of how a trust account is treated under the applicable programme deserve specific legal analysis before any withdrawal.
Is your firm's intake procedure screening for programme-specific caps and reporting deadlines – or just for designation status? In our experience, most lateral-hire compliance failures arise from the former gap, not the latter.
How OFAC enforces the legal-fees regime
OFAC's enforcement of the legal-fees rules operates through the same civil-penalty mechanism as all other sanctions violations. A payment made in excess of the cap, without a specific licence, is an apparent violation. A failure to file the required report within the applicable window is a separate apparent violation. Both are assessed under OFAC's enforcement guidelines, which weigh aggravating and mitigating factors including voluntary self-disclosure, the strength of the compliance programme, and the nature of the harm.
A VSD (voluntary self-disclosure to a regulator) is consistently treated by OFAC as a significant mitigating factor. Where a firm identifies a reporting failure or an over-cap payment, the decision between VSD and non-disclosure is consequential and should be made with legal advice – not by the accounts or compliance team alone. OFAC has published its enforcement guidelines openly; they describe VSD as capable of substantially reducing a base penalty.
Enforcement risk in the legal-fees context is asymmetric. The law firm itself is a US person and is directly subject to OFAC's civil jurisdiction. A penalty can be levied on the firm, not just on the designated client. That exposure makes the intake analysis at the start of any engagement with a designated client commercially and legally material – not a back-office formality.
For more on managing US Government licensing and compliance requirements across concurrent proceedings, see our service briefing on frozen account management and BIS/EAR licensing and our related analysis at legal-fees licensing under OFAC: advanced considerations.
A note on a common misconception: "the designation ends the relationship"
A persistent belief among both clients and advisers is that a designation by OFAC automatically terminates any ongoing legal engagement and prevents any future one. This is not correct. The legal-fees licence mechanism was designed precisely to preserve access to counsel after a designation. The designation freezes assets and prohibits most transactions; it does not extinguish the right to legal representation, and OFAC's regulations actively provide a route to pay for it.
What the designation does is change the compliance architecture around the engagement. Every payment must be licensed. Every fee must be reported. Every disbursement must be independently analysed. The administrative burden is real, but it is manageable with the right procedures in place from the outset. We have acted for lawyers seeking to maintain their representation of a designated client and for the clients themselves seeking to ensure their counsel could continue. The critical step is early assessment, not resignation.
Related practices
- Frozen account management and BIS/EAR licensing – managing blocked funds and obtaining BIS export-control licences in parallel proceedings
- Legal-fees licensing under OFSI – the UK equivalent regime and how it diverges from the OFAC model