A distributor in Western Europe has operated under a long-term supply agreement with a counterparty in a jurisdiction now subject to comprehensive OFAC sanctions. The new measures take effect in thirty days. The distributor must decide whether it can lawfully close out open invoices, complete shipments already in transit, return goods, and terminate the contract without itself committing a sanctions violation. The answer depends on whether a wind-down authorisation applies – and on exactly what that authorisation does and does not permit.
Wind-down authorisations under OFAC are time-limited permissions – issued either as general licences (standing authorisations for a defined category of transactions) or as specific licences (case-by-case authorisations for a named party) – that allow businesses to complete, terminate, or unwind pre-existing contractual arrangements with a newly sanctioned counterparty without violating the underlying sanctions prohibition. They are issued under IEEPA or TWEA, administered by the Office of Foreign Assets Control, and typically attach strict conditions on permitted payments, record-keeping, and the final deadline for completing the authorised activity.
This briefing covers the governing authority, the structure of wind-down permissions, the ownership and control tests that determine who is covered, the cross-regime comparison with OFSI and the EU, the reporting and record-keeping obligations, common risk flags, and when to involve sanctions counsel.
What authority governs wind-down authorisations under OFAC?
OFAC administers wind-down authorisations under the authority conferred by IEEPA and, for older programmes, TWEA. Both statutes authorise the President to block transactions and to issue licences permitting otherwise prohibited activity; OFAC exercises that licensing power on a day-to-day basis. The specific prohibitions that a wind-down authorisation lifts are set out in the relevant programme regulations – the instrument package that OFAC publishes when it designates a new target or implements a new sanctions programme. Wind-down authorisations are one of the most operationally important tools OFAC provides, precisely because comprehensive designations routinely catch businesses mid-contract.
General licences for wind-down are published in the Federal Register and on OFAC's website at the time of, or shortly after, a major designation or programme expansion. They are self-executing: a business that meets the stated conditions may rely on the licence without making a separate application to OFAC. Specific licences, by contrast, require an application addressed to OFAC's Licensing Division. In our experience, the choice between relying on a general licence and applying for a specific licence is one of the first and most consequential decisions a business must make after a designation event.
As of mid-2026, OFAC maintains dozens of active sanctions programmes, each with its own regulatory package. Wind-down permissions differ between programmes in duration, permitted payment channels, and the categories of contracts they cover. There is no single universal OFAC wind-down rule: practitioners must consult the programme-specific general licences and OFAC's published guidance for each matter.
What transactions does a wind-down authorisation typically permit?
A wind-down authorisation typically permits transactions that are ordinarily incident and necessary to the completion or orderly termination of a pre-existing contract – but the scope is always defined by the text of the relevant licence, not by a general principle.
Commonly permitted activities include the completion of goods already manufactured or in transit on the effective date of the designation, the payment of outstanding invoices for goods or services delivered before that date, the receipt of payment for goods or services already provided, the return of goods to the counterparty, and the termination of services contracts including the payment of contractual termination fees. Wind-down permissions do not, as a rule, permit new orders, new deliveries, new extensions of credit, or the provision of any service that was not already underway at the time of the designation.
The permitted payment mechanics are equally important. OFAC's general licences for wind-down frequently specify the currency in which payments may be made and the financial institutions through which they may be routed. A payment routed through a blocked financial institution – even a payment that falls within the substantive scope of the wind-down authorisation – will violate the sanctions prohibition applicable to that institution. This is a common source of secondary violation in wind-down transactions, and it is one we address routinely in our practice.
What triggers the deadline? The operative date is ordinarily the date stated in the general licence itself, which is measured from the designation date. Many OFAC wind-down general licences set a period of thirty, sixty, or ninety calendar days from the programme effective date, though the precise window varies and must be verified against the current text of the relevant licence. No business should assume that the window applicable to one programme applies to another.
The position above covers the standard case. Your facts – the goods, the payment route, the financial institutions involved, and the specific OFAC programme in play – change the analysis. For a tailored assessment of which authorisations apply to your arrangements, contact Calder & Vance at info@caldervance.com.
How does the 50 percent rule interact with wind-down authorisations?
The 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked, even if those entities do not appear on the SDN List by name) applies to the counterparties in a wind-down transaction, not just to parties that were explicitly designated. This intersection creates significant operational complexity.
Suppose a supplier has a long-term contract with Company A, which is not itself listed. On the designation date, a blocked person is found to own fifty-two percent of Company A. Company A is therefore blocked by operation of the 50 percent rule from that date. Can the supplier use a wind-down licence to close out the relationship? The answer depends on the text of the relevant general licence. Many OFAC wind-down general licences are drafted to extend coverage to persons whose property is blocked solely because of the 50 percent rule – but not all do so expressly, and any ambiguity must be resolved by reviewing the licence text carefully or seeking specific guidance.
Aggregation matters here as it does in all 50 percent rule analysis. If two blocked persons each hold twenty-five percent of an entity, the aggregate is fifty percent; the entity is blocked. A business relying on a wind-down licence should map the full ownership chain of its counterparty – not just the top-level shareholder structure – before concluding that the authorisation covers the relationship.
The ownership and control test (the UK and EU approach that extends the prohibition to entities owned or controlled by a designated person) diverges from the OFAC mechanical ownership test in one important respect: control, which is a functional rather than purely arithmetic question. We return to this divergence in the cross-regime section below. For now, the operational point is that a business with concurrent OFAC, OFSI, and EU obligations must run three separate analyses before concluding that a wind-down transaction is lawful under all applicable regimes.
How do OFSI and EU wind-down permissions compare with the OFAC approach?
OFSI (the Office of Financial Sanctions Implementation, which administers UK financial sanctions) and the EU Council both issue wind-down-type permissions, but their structure, duration, and scope differ materially from the OFAC approach.
Under the UK regime, OFSI issues general licences for wind-down on a programme-by-programme basis. OFSI general licences are published on the UK government's website and are self-executing for parties that meet the stated conditions. The UK regime uses an ownership and control test rather than a purely mechanical ownership threshold: an entity may be subject to a financial-sanctions prohibition if it is owned or controlled by a designated person, even if no single blocked person holds fifty percent or more. A wind-down licence that covers "designated persons and entities owned or controlled by them" under the UK regime may therefore catch a different population of counterparties than the analogous OFAC general licence. The divergence is not merely academic; it has direct consequences for which transactions can proceed and under which licence.
The EU operates through Council regulations, which may include an authorisation mechanism for wind-down transactions. EU member states' competent authorities administer licence applications within the framework set by the relevant Council regulation. Unlike OFAC general licences, which are uniform across the United States, EU wind-down authorisations may differ in detail between member states because each competent authority applies the framework with a degree of national discretion. A business with counterparties in multiple EU member states may need to engage with more than one competent authority.
A critical divergence concerns the "stricter prohibition governs" principle. When OFAC, OFSI, and EU sanctions apply concurrently to the same transaction, the most restrictive prohibition governs. A wind-down authorisation from OFAC does not waive the OFSI or EU prohibition; each must be satisfied independently. In our cross-border practice, we regularly advise clients who have obtained an OFAC wind-down general licence only to discover that a concurrent OFSI or EU prohibition makes the same transaction unlawful without a separate UK or EU licence.
For businesses subject to secondary-sanctions risk – particularly non-US entities that handle US-dollar transactions, US-origin goods, or US persons – the OFAC analysis does not stop at the primary prohibition. Secondary sanctions exposure may arise even where the direct transaction is between two non-US parties, if the transaction involves a US nexus or falls within an OFAC programme that carries secondary-sanctions consequences. Wind-down general licences under such programmes should be reviewed for any statement on secondary-sanctions coverage, which is not always explicit.
If a transaction has already been flagged – by a correspondent bank, a screening alert, or an OFSI query – an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com to discuss your position.
What are the reporting and record-keeping requirements for wind-down transactions?
Wind-down authorisations under OFAC are not unconditional. They routinely impose reporting and record-keeping obligations that are as operationally important as the substantive permission itself.
Record-keeping is a standard condition. OFAC's general licences typically require parties relying on a wind-down authorisation to retain all records relating to the transaction for a defined period. Practitioners should treat a period of five years as the baseline, though the precise requirement is stated in each licence and in the programme regulations. Records that must be maintained ordinarily include the contract, all correspondence with the counterparty, payment records, shipping documentation, and any communications with financial intermediaries. The record-keeping obligation persists after the transaction is complete and after the licence expires.
Reporting requirements vary more by programme. Some OFAC wind-down general licences require the filing of a periodic report with OFAC's Licensing Division, summarising the transactions conducted under the authorisation. Others are silent on reporting, in which case the applicable programme regulations and OFAC's general guidance on record-keeping apply. Where a specific licence is granted, OFAC's standard licence conditions almost always include a reporting obligation, and the timelines for those reports are stated in the licence itself.
A point practitioners often raise: what happens if a business realises, after completing a wind-down transaction, that it inadvertently exceeded the scope of the general licence? The relevant tool is a VSD (voluntary self-disclosure to OFAC). OFAC's enforcement guidelines treat a timely and complete VSD as a significant mitigating factor in any penalty determination. The practical implication is that a business should document, at the time of each wind-down transaction, its legal basis for relying on the general licence, the steps it took to verify the counterparty's ownership and control, and the nature and value of the transactions conducted. That documentation is the foundation of any VSD if the analysis later proves incorrect.
UK and EU regimes impose comparable record-keeping obligations, though the specific duration and format differ. OFSI's enforcement guidance addresses record-keeping for licensed transactions, and EU regulations state their own requirements. A multi-regime wind-down transaction requires a record-keeping programme that satisfies each applicable regime simultaneously.
What are the principal risk flags in wind-down transactions?
Wind-down transactions carry a distinct risk profile. The authorisation exists precisely because the underlying activity is otherwise prohibited; any misstep in relying on it converts a lawful wind-down into a sanctions violation.
The most common risk flag is scope creep: conducting activity that goes beyond what the general licence expressly permits. New orders placed after the designation date, extensions of credit that were not in place before designation, and service renewals that restart rather than terminate the relationship all fall outside the typical wind-down permission. In our experience, the pressure to maintain a commercial relationship – or to accommodate a counterparty's request for just one more shipment – produces exactly this type of overstep.
Payment routing is the second major risk area. A payment under a wind-down authorisation that passes through a blocked financial institution violates the prohibition applicable to that institution, regardless of the wind-down licence. Identifying clean payment channels is therefore a mandatory step in structuring any wind-down payment, not an afterthought.
The ownership chain is the third. A counterparty that was clean at the time of contract signature may have become captured by the 50 percent rule through a post-designation change in ownership. Equally, a pre-designation ownership chain that was never fully mapped may reveal a blocked-person interest that was always there but was not identified. The wind-down period is not the time to assume the counterparty analysis done at contract signing still holds.
One myth warrants correction here: that a wind-down general licence automatically covers all transactions with the newly sanctioned counterparty, and that no further analysis is needed once the licence is identified. This is incorrect. Every wind-down general licence has stated conditions, a defined scope, and a hard deadline. Failing to satisfy any one of those elements means the authorisation does not apply, and the transaction is a potential violation. The licence is the starting point of the analysis, not the end.
Finally, the interaction between the wind-down period and any concurrent export-control obligations should not be overlooked. Under the EAR (the Export Administration Regulations administered by BIS), goods subject to US export controls may require a separate export licence or may be subject to an end-use restriction that the OFAC wind-down licence does not address. A shipment lawfully authorised under an OFAC wind-down general licence may still require an export licence under the EAR, or may be prohibited if the item appears on a BIS restricted list. These regimes run in parallel and must be checked independently.
How does Calder & Vance assist with wind-down authorisations?
Calder & Vance advises businesses at each stage of the wind-down process – from the moment of a designation event through to the completion of permitted transactions, the satisfaction of reporting obligations, and, where necessary, the preparation of a voluntary self-disclosure.
We assess eligibility, prepare and submit specific licence applications where a general licence does not cover the position, and manage OFAC's queries through the review process. For general licences, we review the text of the applicable authorisation, map the counterparty's ownership and control chain against the 50 percent rule, confirm that the proposed payment route is clean, and advise on the record-keeping documentation required.
Where the same transaction is subject to OFSI and EU sanctions alongside the OFAC programme, we run the cross-regime analysis. We engage local counsel in the relevant jurisdiction for member-state-specific EU licence applications and for OFSI matters that require in-country representation. The practical benefit of a coordinated multi-regime review is that the business receives a single, consolidated position rather than three parallel opinions that it must reconcile itself.
In a recent matter, a manufacturing business with long-term contracts in a newly designated jurisdiction identified three separate general licences that potentially applied to its wind-down transactions. We reviewed each licence, determined which best covered the specific contracts, mapped the counterparty ownership chain, structured the payment route to avoid blocked financial institutions, and prepared the record-keeping framework. The wind-down transactions were completed within the licence window, and a VSD was not required.
For an assessment of your exposure under OFAC's wind-down authorisation regime, contact Calder & Vance at info@caldervance.com.
Related practices
- Frozen account management under BIS / EAR – structuring compliant access to assets subject to US export-control restrictions
- Wind-down authorisations under OFAC: further analysis – extended treatment of programme-specific wind-down conditions and cross-regime divergence
Frequently asked questions about wind-down authorisations under OFAC
Who administers wind-down authorisations under OFAC?
Wind-down authorisations are administered by the Office of Foreign Assets Control (OFAC), a bureau of the US Department of the Treasury. OFAC issues general licences – self-executing authorisations for defined categories of wind-down activity – and processes applications for specific licences where a general licence does not cover a particular transaction. The relevant legal basis is IEEPA or, for older programmes, TWEA. Each sanctions programme carries its own wind-down authorisation framework, and the applicable licence must be identified on a programme-by-programme basis.
What does OFAC prohibit in relation to wind-down authorisations?
Outside the scope of a valid wind-down authorisation, OFAC prohibits all transactions with a newly sanctioned counterparty that are otherwise blocked under the relevant programme regulations. Wind-down authorisations do not waive these prohibitions generally: they create a defined, time-limited exception for permitted closing-out activity. Transactions that exceed the scope of the authorisation – new orders, extended credit, routing payments through blocked financial institutions – remain prohibited and may constitute violations, including apparent violations that OFAC may pursue through its civil-enforcement process.
How is wind-down authorisations enforced under OFAC?
OFAC enforces its sanctions, including violations arising from wind-down transactions conducted outside the scope of an applicable authorisation, through civil and criminal mechanisms. Civil penalties can be significant; OFAC's enforcement guidelines describe a range of base penalty amounts, adjusted for aggravating and mitigating factors including timely VSD (voluntary self-disclosure). A complete and timely VSD is treated as a significant mitigating factor. OFAC also issues cautionary letters and no-action letters for lesser violations. Concurrent criminal exposure – particularly for wilful violations – is handled by the Department of Justice.
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.