A private equity fund discovers, mid-close, that a portfolio company it is about to acquire holds a minority stake in a joint-venture entity whose controlling shareholder appears on OFAC's SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The deal team wants to proceed. The compliance officer wants to stop. The question is not whether a problem exists – it plainly does – but whether there is a lawful path through it, and how fast that path can be cleared.
Divesting a sanctioned interest under OFAC – disposing of a holding in, or a contractual relationship with, a blocked person or entity – is legally possible but requires either a specific licence authorising the transaction or confirmation that a general licence covers it. The 50 percent rule (OFAC's rule treating any entity owned 50 percent or more in the aggregate by blocked persons as itself blocked) extends the analysis to indirect holdings. Acting without the correct authorisation exposes every party to civil and criminal liability under the applicable OFAC programme and, potentially, under parallel UK, EU, and UN regimes.
This page explains how the divestiture analysis works under OFAC, where the regime diverges from OFSI and the EU, what the principal risk flags are, and how Calder & Vance supports cross-border businesses through the process.
What does "divesting a sanctioned interest" mean under OFAC's rules?
Under OFAC, divesting a sanctioned interest means transferring, selling, or otherwise disposing of property in which a blocked person has an interest – and doing so in a way that does not itself constitute a prohibited dealing. The term covers a wide range of structures: selling equity in a company that is directly listed, unwinding a joint venture where a co-venturer has subsequently been designated, transferring a contractual receivable owed by a blocked entity, or liquidating a fund position whose underlying assets include SDN-linked holdings.
The starting point is always the same. Under IEEPA and the programme-specific regulations, a US person – and in many programmes a non-US person touching US-nexus property or the US financial system – is prohibited from engaging in transactions with a blocked person or entity. A divestiture is a transaction. It therefore either requires authorisation or must fall within an existing general licence (a standing authorisation that permits a defined category of transactions without a separate application).
The complexity grows when the interest is held indirectly. Where a blocked person owns 50 percent or more of an intermediate entity, that entity is itself treated as blocked regardless of whether it appears on the SDN List by name. Any disposal of shares in that intermediate entity is therefore a disposal of blocked property. In our experience, this is the single most common trap in acquisition diligence: the named SDN is three tiers up, and no one maps the full chain.
How does the OFAC authorisation analysis work?
The authorisation analysis runs in two stages. First, identify whether any existing general licence covers the divestiture. OFAC publishes programme-specific general licences that authorise defined divestiture-type transactions – for example, wind-down licences giving counterparties a short window to terminate contracts, or specific authorisations for the transfer of interests to non-blocked persons. These instruments are programme-specific: a general licence that exists under one country programme does not carry across to another. Verify the current position before relying on any general licence, because OFAC amends and revokes them without extended notice.
Second, if no general licence applies, the route is a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction). A specific-licence application requires a detailed factual submission: the identity of all parties, the structure of the interest to be divested, the proposed transferee, confirmation that the transferee is not itself a blocked or sanctioned person, the value of the interest, and an explanation of how the transaction serves a licensable policy purpose. OFAC has broad discretion. It may grant, deny, or grant subject to conditions – including conditions about where sale proceeds must be held or how they must flow.
Timeline is not guaranteed by any rule, but OFAC's published processing data – which you should verify against the current position before relying on it – indicates that straightforward specific-licence applications have historically been resolved within several months, while complex or novel requests can take considerably longer. Applicants who submit incomplete or poorly structured packages routinely experience avoidable delays. Is your submission ready to answer every question OFAC is likely to ask?
The position above covers the standard case. Your facts – the counterparty, the goods, the route, the regime in play – change the analysis. For an initial assessment of your exposure and the licensing route available to you, contact Calder & Vance at info@caldervance.com.
Where does OFAC's approach diverge from OFSI and the EU?
The divergence between OFAC, OFSI, and the EU financial-sanctions regimes is significant for any cross-border group – and for a divestiture involving parties or assets in multiple jurisdictions, the differences are not merely academic.
Under OFAC, the 50 percent rule is mechanical: aggregate ownership at or above the threshold triggers blocking regardless of who controls day-to-day operations. Under ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person), OFSI and the EU apply a broader test. A non-listed entity can be caught not only through a 50 percent ownership stake but also through control – defined functionally to include the ability to direct board decisions, veto material transactions, or otherwise exercise dominant influence. The practical implication is that an entity that sits just below the OFAC threshold may still be caught by OFSI and the EU, and a divestiture structure that is authorised under an OFAC licence may still require parallel OFSI and EU authorisations.
Licensing mechanics also diverge. OFSI's licensing process is governed by SAMLA (the Sanctions and Anti-Money Laundering Act 2018) and the relevant thematic regulations. OFSI licences are purpose-specific – the divestiture must fall within a licensable ground. The EU process operates through the competent authority of the relevant member state and is shaped by the Council regulation applicable to the specific programme. Neither OFSI nor the EU Council operates under the same discretionary framework as OFAC, and the grounds for licensing are more closely circumscribed by the instrument.
For businesses operating under multiple regimes simultaneously, the "stricter prohibition governs" principle applies: where one regime imposes a broader prohibition or a narrower licensing ground than another, the more restrictive rule sets the floor. We regularly advise cross-border groups where the OFAC authorisation is obtained first because the US nexus is clearest, but the EU or UK licensing step is the harder and slower one.
What are the principal risk flags in a divestiture transaction?
Risk flags in an OFAC-linked divestiture fall into three categories: structural, procedural, and counterparty.
Structural risks arise from incomplete ownership mapping. The 50 percent rule aggregates holdings across multiple blocked persons, and aggregation operates through every tier of an ownership structure. A divestiture that terminates the direct interest without addressing intermediate entities that are themselves blocked – because blocked persons collectively own them at the threshold – leaves the seller exposed. Where the interest being divested involves a joint venture, every co-venturer and every asset in the venture must be assessed.
Procedural risks arise from timing. A divestiture conducted before the specific licence is received – even one conducted in good faith in the belief that authorisation will follow – is a violation. Sanctions regulations do not contain a good-faith exception for unlicensed transactions. The window between discovering the problem and closing the divestiture must be managed carefully: blocking requirements attach from the moment the relevant person or entity is designated, not from the moment the counterparty becomes aware of the designation. Have you checked the designation date against your transaction timeline?
Counterparty risks arise from the transferee. A divestiture that moves blocked property to another blocked person – whether through inadvertence or inadequate screening – does not cure the underlying exposure. It creates a second violation. The transferee in any OFAC-linked divestiture must be screened against all relevant lists, and the screening must be documented. Screening a legal entity without mapping its ownership chain to identify SDN-linked beneficial owners is insufficient.
Record-keeping risk deserves specific mention. Under OFAC's rules, parties to a transaction involving blocked property are required to maintain records for a defined period. The record-keeping obligation extends to blocked-funds reports and to all correspondence with OFAC in connection with any licence application. Failure to maintain adequate records is itself an aggravating factor in any subsequent enforcement review.
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.
Myth: an OFAC divestiture licence simply allows you to sell and move on
A common misconception among in-house teams approaching a divestiture is that an OFAC specific licence is a simple transaction consent – received, executed, filed. The reality is more exacting.
Licences typically carry conditions. OFAC may require that sale proceeds from a divestiture of blocked property be placed into a blocked account – meaning the proceeds themselves remain blocked and cannot be transferred or used until OFAC authorises a further step. The divestiture licence and the proceeds-release licence are separate applications. A group that plans its divestiture around the assumption that proceeds will flow freely on closing may find itself holding restricted funds with no clear exit timeline.
Licences may also impose reporting obligations. OFAC sometimes requires the licensee to report the completion of the licensed transaction within a defined period, including confirmation of the transferee's identity and the final consideration. These post-completion steps are not administrative formalities; they are licence conditions, and non-compliance can result in the licence being treated as void and the completed transaction being revisited.
In our experience, the groups that manage OFAC divestitures most effectively treat the licence not as a gate to pass through but as an ongoing compliance instrument – one that governs how the transaction executes, how proceeds are handled, and what the post-close reporting obligations are. Structuring the divestiture to satisfy both the underlying prohibition and all licence conditions simultaneously is the work of specialist compliance counsel, not a general M&A review.
How Calder & Vance assists with divesting a sanctioned interest
Our cross-border divestiture engagements begin with a structural ownership analysis: mapping the full interest to be divested, identifying every tier at which a blocked person or entity may be present, and applying the 50 percent rule across all relevant regimes. We then assess whether any existing general licence covers the transaction or whether a specific-licence application is required, and under which programmes.
Where a specific-licence application is needed, we assess eligibility, prepare and submit the licence application, and manage OFAC's queries through to determination. We structure the submission to address OFAC's stated licensing policy for the relevant programme, to document the proposed transferee's non-sanctioned status, and to present the transaction clearly enough that OFAC can act without requesting supplementary information. Incomplete or poorly framed submissions are the primary cause of delay.
Where the divestiture touches OFSI or EU financial-sanctions programmes in parallel, we co-ordinate the multi-regime strategy, advise on the sequence in which applications should be filed, and – where local counsel in the relevant jurisdiction is required for domestic filings – provide the cross-border analytical framework those advisers need.
In a recent matter, a financial services group holding an indirect equity interest in a fund asset discovered, following a mid-cycle SDN designation, that the asset was caught by the 50 percent rule. We mapped the ownership chain, identified the applicable OFAC programme, assessed available general-licence coverage, and prepared and submitted a specific-licence application covering both the equity transfer and the subsequent proceeds release. The matter proceeded to completion within the timeline the client's fund documents required.
Post-close, we advise on the record-keeping and reporting obligations that survive the transaction. Divestiture is not a clean exit from OFAC's jurisdiction; the licence conditions and blocked-account rules continue to apply until OFAC confirms otherwise.
Related practices
- Correspondent banking and de-risking under OFAC – managing OFAC exposure in correspondent and financial-institution relationships
- Joint-venture sanctions structuring under EU law – structuring and reviewing JV arrangements under EU financial-sanctions regulations
- Joint-venture sanctions structuring under OFAC – OFAC-focused review and structuring of joint-venture interests and co-venturer risk
Frequently asked questions: divesting a sanctioned interest under OFAC
How long does divesting a sanctioned interest take under OFAC?
There is no statutory deadline by which OFAC must determine a specific-licence application. Processing times depend on the programme, the complexity of the ownership structure, the completeness of the submission, and current OFAC caseload. Applicants with well-prepared, fully documented applications consistently receive determinations faster than those who submit incomplete packages and then respond to OFAC supplementary questions. Parties with time-sensitive transaction documents should build material licence-processing time into their planning and document the blocking event carefully from the outset.
What are the main risks in divesting a sanctioned interest under OFAC?
The principal risks are: executing the divestiture before the licence is received; transferring blocked property to a party that is itself sanctioned due to inadequate counterparty screening; failing to apply the 50 percent rule across all tiers of the ownership chain; and non-compliance with licence conditions – particularly blocked-account requirements for proceeds and post-close reporting obligations to OFAC. Each carries civil-penalty exposure, and wilful violations can attract criminal liability under the applicable programme. Record-keeping failures are an aggravating factor in enforcement.
Do we need specialist counsel for divesting a sanctioned interest?
General M&A counsel can structure the corporate mechanics of a divestiture. They cannot reliably identify multi-tier SDN exposure, draft a specific-licence application that addresses OFAC's programme-specific licensing policy, manage OFAC's supplementary queries, or advise on parallel OFSI and EU authorisation requirements. In our experience, the transactions that fail to close – or that close and then generate enforcement referrals – are almost always ones where the sanctions analysis was treated as a standard legal sign-off rather than as the determinative issue it is. Specialist compliance counsel is not optional where blocked property is in the chain.
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.