A law firm receives instructions from a new corporate client. The engagement letter is signed. Then the compliance team runs the client's ultimate beneficial owner through the OFSI Consolidated List (the United Kingdom's register of designated persons subject to financial sanctions). There is a match. The firm cannot receive fees from a blocked source – yet the client has a legitimate legal matter that requires resolution. What happens next?
Under the UK financial-sanctions regime administered by the Office of Financial Sanctions Implementation (OFSI), paying or receiving legal fees connected to a designated person or entity requires a specific licence unless a general licence or other authorisation applies. As of June 2026, OFSI maintains a licensing ground expressly for legal services, but the application process, the scope of what is covered, and the interaction with parallel regimes under OFAC and the EU Council regulations each carry distinct requirements that practitioners and their clients must understand before funds move.
This briefing sets out who administers legal-fees licences under OFSI, what the core prohibition covers, how to apply, where the regime diverges from its US and EU counterparts, and what triggers a referral to counsel.
Who administers OFSI legal-fees licences and what is the legal foundation?
OFSI is an operational unit of His Majesty's Treasury and is the competent authority for granting licences under the UK financial-sanctions regime. Its authority derives from the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA") and the thematic sanctions regulations made under it – each programme covering a distinct geographic or thematic designation list. When a designated person has a legal matter pending, any payment of legal fees connected to that person constitutes dealing with frozen funds unless OFSI grants a licence authorising it.
SAMLA empowers OFSI to grant specific licences on defined grounds. One such ground is the provision of legal services to or for the benefit of a designated person. The licensing ground is deliberately narrow: it covers legal fees and disbursements properly incurred in connection with legal proceedings or the provision of legal advice. It does not extend to general commercial arrangements that happen to involve a legal professional.
Practitioners should note that OFSI's licensing function is entirely separate from the law-enforcement function carried by the National Crime Agency or by HMRC. OFSI can grant or refuse a licence; it does not decide criminal liability. In our practice, clients sometimes conflate these two tracks – believing that obtaining a licence automatically resolves all exposure. It does not. The licence authorises a specific transaction; it does not grant immunity for any past conduct.
What does the prohibition cover – and what falls outside it?
The core prohibition under the relevant thematic regulations is a freeze: a designated person's funds and economic resources cannot be dealt with, made available, or received without authorisation. "Funds" is defined broadly and includes payments by or to a third party where the designated person is the ultimate beneficiary or the payor. Legal fees paid by a designated client to a law firm are caught directly. So are disbursements – court fees, expert witness costs, translation costs – where those are funded from frozen assets.
What falls outside the prohibition? Genuinely independent legal work that does not involve a designated person's funds or resources does not engage the freeze. For example, if a law firm is instructed by a non-designated shareholder to advise on a corporate dispute, and the designated person has no financial interest in the outcome, no licence may be needed. The question is always whether funds attributable to the designated person are being dealt with, made available, or received.
Where does this create practical difficulty? Two scenarios stand out. First, a law firm funded by a non-designated parent company that is itself majority-owned by a designated person may still be dealing in blocked funds, because the ownership and control test (the UK test for whether a non-listed entity is caught through a listed person's ownership or control of it) can extend the prohibition to the parent and, through the parent, to the funding flow. Second, a designated individual who instructs a firm using personal assets nominally held in a family member's name may have a disguised dealing problem – though characterising that as an ownership issue rather than a circumvention one is important for the advice.
The position above covers the standard case. Your specific facts – who holds the funds, how instructions are given, and the underlying legal matter – change the analysis materially. For an initial assessment of your exposure under OFSI, contact Calder & Vance at info@caldervance.com.
How does the OFSI licence application process work in practice?
A specific licence application to OFSI must be made in writing, identifying the designated person, the relevant sanctions programme, the specific transactions to be authorised (fees and disbursements, in defined amounts or to a defined cap), the legal proceedings or matter in question, and the basis on which the applicant asserts the licensing ground is met. OFSI publishes guidance on the information it expects, and applications that omit required information will be returned or will stall.
OFSI aims to process licensing applications within a published target period, though complex or novel applications may take longer. The published guidance notes a ten-business-day target for straightforward applications, though practitioners in our experience consistently observe that applications raising novel points or requiring third-party verification take substantially longer. Planning around that timeline – not the target – is the prudent course.
The licence, once granted, is typically time-limited and transaction-specific. It will specify the parties, the permitted transactions, the amounts, and the reporting obligations. A law firm receiving a licence to accept fees from a designated client cannot use that licence to cover additional matters arising after the licence was granted without an amendment or a fresh application. Scope creep is a common compliance failure: the firm assumes the original licence covers the new instruction; OFSI does not agree.
Reporting is integral to the licence regime. OFSI expects the licence holder to maintain records of all transactions undertaken under the licence and to report to OFSI as required by the licence conditions. A five-year record-keeping obligation applies to financial-sanctions compliance documentation under the relevant regulations, covering correspondence, transaction records, and the licence itself. Firms that cannot produce these records on inspection face enforcement risk independent of the underlying sanctions question.
If a transaction has already been flagged, 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 review.
How does the OFSI legal-fees licensing ground compare with OFAC and EU rules?
The cross-regime comparison matters because many designated persons have multi-jurisdictional connections. A client designated under the UK regime may also appear on OFAC's SDN List (OFAC's list of Specially Designated Nationals and blocked persons) and on the EU Consolidated List. Each regime operates independently; a UK licence does not authorise conduct under US or EU sanctions, and vice versa.
Under OFAC, legal fees to a designated person are addressed through general licences – standing authorisations that permit a defined category of transactions without a separate application – and specific licences. OFAC has historically maintained general licences permitting the receipt of reasonable legal fees in connection with certain categories of matter, though the scope varies by programme and changes over time. The critical point is that OFAC's general-licence route, where available, does not require a case-by-case application in the same way that OFSI's specific-licence model does. That structural difference means a law firm advising a jointly-designated client faces parallel but non-identical processes.
The EU position under the relevant Council regulations follows a member-state competent-authority model: each member state designates a national authority responsible for licensing. The permitted grounds for authorising legal fees are broadly comparable to OFSI's, but the procedural requirements, timelines, and documentation standards differ by member state. A firm acting in a matter with an EU nexus must identify the correct competent authority – which depends on where the relevant funds or economic resources are located – and apply there, separately from any OFSI application.
The cardinal rule across all three regimes is that where they overlap, the stricter prohibition governs each jurisdiction's legal exposure. A UK firm with US correspondent relationships cannot assume that an OFSI licence protects it from OFAC scrutiny. In our cross-border practice, we regularly advise law firms and their clients on the sequencing of applications across regimes, because the order of applications can affect both timing and the consistency of the representations made to each authority.
What are the principal risk flags for law firms accepting instructions from designated clients?
The first and most common risk flag is the gap between screening at onboarding and screening at the point fees are received. A client who was not designated when instructions were received may become designated while the matter is live. Regular rescreening against the OFSI Consolidated List, the SDN List, and the EU Consolidated List is not optional; it is a standard component of a functioning compliance programme. How often do firms actually rescreed mid-matter? In our experience, less often than the risk warrants.
The second risk flag is the source of funds. Legal fees paid from a client account, from a third-party funder, or from an escrow arrangement each raise distinct questions about whether the underlying funds are blocked. A firm that accepts fees from a trust whose beneficiary is a designated person may be dealing with blocked funds even if the trustee is not designated. Mapping the source of funds to the designation status of all relevant parties is a pre-condition to accepting payment.
Third, firms sometimes overlook the fact that the prohibition applies to economic resources, not just funds. If a designated individual provides legal services in kind – for example, instructing in-house counsel employed by a designated entity to assist in the matter – the value transferred may itself engage the prohibition. This is a less common scenario but one that arises in complex corporate litigation involving partially-designated groups.
Fourth, the matter type itself can create risk. Legal proceedings that involve enforcing a judgment against a designated person, or that seek to lift a freezing order obtained in parallel with a sanctions designation, can generate receipts that are themselves blocked. A firm acting for a claimant against a designated defendant should consider how any monetary judgment would be received and whether a separate authorisation is needed for enforcement.
The ownership-and-control question: when is a client's funder itself blocked?
The ownership and control test under UK sanctions regulations extends the freeze to entities owned or controlled by a designated person, even if those entities are not themselves listed. For legal-fees purposes, this means a firm must not only screen its direct client but also assess whether the entity or individual funding the instruction is caught through the ownership or control of a designated person.
The 50 percent ownership threshold is the clearest trigger. An entity owned 50 percent or more, directly or indirectly, by a designated person is itself subject to the asset-freeze. But UK sanctions regulations – unlike the mechanical OFAC rule – also capture entities controlled by a designated person below the ownership threshold. Control can arise through voting rights, board composition, contractual rights, or the ability to direct or influence the entity's activities. That breadth means the analysis is sometimes more demanding for UK matters than for US ones.
In a matter we have handled, a professional-services firm received instructions from a corporate client whose parent was designated after instructions were given. The firm's initial screening had not flagged any issue. It was only on a mid-matter rescreed that the parent's designation was identified. The firm then had to assess whether the parent's ownership exceeded the threshold, apply for an OFSI licence before the next fee instalment was drawn, and manage the client relationship throughout. Early identification of the designation through a live-monitoring tool would have allowed more time to plan the response. The lesson is structural: static onboarding screening is not sufficient for complex or long-running matters.
Enforcement posture and the consequences of unlicensed activity
OFSI's enforcement posture has hardened materially since it acquired the power to impose civil monetary penalties on a strict-liability basis. Under SAMLA, OFSI can impose a civil penalty for a breach of a financial-sanctions prohibition even where the person did not know and had no reasonable cause to suspect the breach. That strict-liability standard makes the adequacy of a firm's screening and licence-management procedures a direct determinant of penalty exposure.
The maximum civil penalty available to OFSI is the higher of £1 million or 50 percent of the estimated value of the breach. Those figures are drawn from OFSI's published enforcement framework and represent the upper bound; OFSI applies an aggravated/mitigated framework in practice, and voluntary self-disclosure is a recognised mitigating factor. A voluntary self-disclosure (VSD) – a proactive report to OFSI of a potential breach before OFSI becomes aware of it – is treated as a significant mitigating factor in penalty assessment. Early disclosure is therefore almost always preferable to waiting for an inquiry.
Criminal liability for the most serious breaches – intentional circumvention, for example – sits with the Crown Prosecution Service and can result in custodial sentences. OFSI refers cases to the CPS where the evidence supports a criminal standard. In our practice, the civil-penalty route is far more commonly engaged for law-firm legal-fees breaches, but criminal risk is not zero, and firms should not assume that the civil track is the only one available to authorities.
One common myth deserves correction here. Many law firms assume that obtaining a retrospective licence – applied for after an unlicensed payment has already been received – will cure the breach. It will not, and OFSI has made this clear in its guidance. A licence authorises future transactions; it cannot authorise a transaction that has already occurred. The appropriate route for a past breach is either a VSD or, where no breach has occurred, a licence application before the next payment. Conflating these two paths can lead to a firm making representations to OFSI that are inconsistent with the underlying facts, which compounds the risk.
Related practices
- Frozen account management under the EAR – managing access to funds in blocked or restricted accounts across US export-control and sanctions regimes.
- Licence amendment and renewal under BIS / EAR – procedural guidance on modifying or renewing existing BIS export licences.
- Further guidance on BIS licence amendments – supplementary analysis on amendment timing, documentation, and regulatory expectations.