A private equity fund based in London holds a minority stake in a mid-market logistics business. Routine re-screening after an OFAC designation update reveals that a co-investor – one that acquired its interest quietly eighteen months earlier – now appears on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The fund's stake is not itself blocked, but the co-investor's presence changes everything: deal documents, distributions, governance rights, and any future exit all require careful handling before a single step is taken. Divesting a sanctioned interest under OFAC is not a straightforward asset sale. It is a regulated process with a defined legal basis, licensing requirements, and a cross-regime dimension that can implicate OFSI and the EU Council regulations in the same transaction.
Disposing of an ownership interest that is blocked or contaminated under OFAC requires a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) from OFAC before any value transfer can occur. The asset is frozen; it cannot be sold, transferred, or unwound without that authority. The process is governed by IEEPA and the relevant OFAC programme regulations, and the timeline is variable – OFAC's stated processing standard is a guide, not a guarantee. Where UK or EU investors, counterparties, or target entities are involved, OFSI and the EU ownership-and-control tests apply in parallel.
This page sets out the legal basis for the divestment process, the step-by-step procedure, the cross-border dimensions that most commonly create additional exposure, the risk flags that practitioners see most often, and how Calder & Vance assists businesses through each stage.
What legal authority governs divesting a sanctioned interest under OFAC?
OFAC derives its authority to block property and to license transactions from IEEPA – the International Emergency Economic Powers Act – together with the Trading with the Enemy Act where applicable. When OFAC designates a person, all property and interests in property of that person that are in the United States or within US persons' control are immediately blocked. A US person – and, in many programmes, any person subject to US jurisdiction – cannot deal in that property without OFAC's authorisation.
The divestment mechanism is the specific licence. OFAC has the power to authorise a transaction that would otherwise be prohibited, and it regularly does so for divestments when the purpose is to unwind rather than to benefit the designated party. The legal standard OFAC applies is whether the transaction is consistent with US sanctions policy. That standard is not mechanical; it involves a substantive review of the facts, the parties, the deal structure, and the proposed use of proceeds.
One point that surprises many clients: a licence to divest does not mean the proceeds flow to the designated party. Proceeds attributable to the blocked interest are typically required to be placed into a blocked account pending further OFAC authorisation. The divestment licence authorises the unwinding, not the ultimate disposition of value. Understanding this distinction early shapes how you structure the transaction and the downstream licence application.
The position above covers the standard case. Your facts – the programme in play, the nature of the interest, the identity of the counterparties, and the cross-border structure – change the analysis materially.
For an initial assessment of your exposure under OFAC, contact Calder & Vance at info@caldervance.com.
How does the 50 percent rule determine whether an interest is blocked?
Before a divestment can be structured, the threshold question is whether the interest is blocked in the first place – and the answer turns on the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked, even without a separate listing).
OFAC's rule is mechanical. If one or more SDN-listed persons own, in aggregate, 50 percent or more of an entity, that entity is treated as blocked regardless of whether it appears on the SDN List. The rule extends through multiple layers: if a listed person owns 60 percent of a holding company, and that holding company owns 40 percent of an operating subsidiary, the subsidiary is also blocked through the chain. Aggregation across unrelated listed persons is equally counted.
The practical implication for a divestment is that the analysis cannot stop at the first ownership layer. Where an investment sits in a fund structure, a joint venture, or a multi-tier group, the full chain must be mapped before anyone can confirm whether a specific licence is needed for the divestment itself, or whether the issue arises at the level of a single co-investor's stake.
There is also the question of what happens when a listed person owns below the 50 percent threshold but exercises control. OFAC's rule is focused on ownership, not control, in this respect – which differs from the approach taken by OFSI and the EU Council regulations. Under OFSI's ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person), an entity can be caught even where the listed person holds less than 50 percent, if that person effectively controls the entity. When a proposed divestment involves UK-connected assets or a UK-regulated seller, this difference is operationally significant.
What is the step-by-step procedure for obtaining a divestment licence?
The divestment process moves through five distinct phases, and each must be completed in sequence. Skipping or overlapping phases creates procedural risk that OFAC can use as grounds to refuse or delay.
- Confirm the block. Verify that the interest is blocked by mapping the ownership chain against the SDN List and the 50 percent rule. Document the analysis. This step produces the foundation for the licence application.
- Identify the relevant programme. Different OFAC programmes have different licensing policies and, in some cases, standing general licences that may partially address the divestment. A general licence (a standing authorisation that permits a defined category of transactions without a separate application) may already authorise certain steps – but only if the facts fit the general licence's terms precisely.
- Prepare the specific-licence application. The application must set out: the identity and SDN status of the relevant designated party; the nature of the interest to be divested; the proposed buyer and its own sanctions status; the structure of the proposed transaction; the treatment of proceeds; and the reasons the divestment is consistent with OFAC's licensing policy. Supporting documentation typically includes corporate-structure charts, deal terms in draft form, and ownership verification materials.
- Submit to OFAC and manage the review. OFAC's licensing team may issue requests for additional information. These must be answered promptly and completely. The review period varies by programme and by complexity; OFAC publishes a processing target, but timelines in practice depend on the programme, the parties, and OFAC's current workload.
- Execute the divestment within the licence terms. Once issued, the licence will specify the parties authorised, the transaction permitted, the treatment of proceeds, and any reporting obligations. Executing outside the licence's terms – even in a minor respect – can transform a licensed transaction into an apparent violation. Post-execution, a blocked-account arrangement for proceeds typically remains in place until OFAC grants further authority.
In our experience, applications that arrive with a complete, well-organised evidentiary package move through OFAC's review faster than those that require back-and-forth clarification. The time invested at step three is recovered at step four.
How do OFSI and EU rules create a parallel divestment obligation?
Cross-border transactions rarely sit inside a single sanctions regime. A US person with an ownership interest that is blocked under OFAC may be dealing with a UK-regulated entity, a European counterparty, or an asset held through a European holding structure. In that case, the OFSI and EU Council-regulation obligations apply independently and simultaneously.
Under OFSI's rules, a UK person must not deal with funds or economic resources that are owned, held, or controlled by a designated person. The control limb is broader than OFAC's 50 percent ownership test: an entity that a designated person controls – even without majority ownership – is within scope. OFSI issues specific licences for divestments on its own authority, and those licences are not transferable from or substitutable for an OFAC licence. A business that obtains an OFAC licence but fails to seek the parallel OFSI licence may be in breach in the UK while being entirely compliant in the US.
The EU position mirrors OFSI's in important respects – ownership and control are both caught – but the licensing authority sits with the competent authority of each EU member state rather than at a central EU level. This means that a divestment involving assets or parties in multiple EU jurisdictions may require separate applications to separate national authorities, each with its own process and timeline.
There is a further dimension: the EU Blocking Regulation applies to EU persons and may affect how they respond to US sanctions measures in certain circumstances. That regulation does not authorise a breach of EU law; it creates a separate compliance obligation in the EU dimension. Managing the intersection of the two regimes requires legal advice in both.
If a transaction has already been flagged, or an application has been refused, an early multi-regime review can preserve options that narrow with time.
To discuss your position under OFAC and the parallel regimes, contact Calder & Vance at info@caldervance.com.
What are the most common risk flags in a sanctioned-interest divestment?
In our cross-border practice, certain patterns recur across divestment matters. They are worth identifying early, because each one materially affects the licence strategy, the timeline, and the risk of an enforcement referral.
Proceeds risk. The most consistent error is assuming that a divestment licence also authorises the flow of proceeds to the designated party. It does not. Unless OFAC separately authorises the release of blocked proceeds, they remain frozen in a blocked account. A client who structures a deal expecting the designated co-investor to receive its share of the exit price – without a separate licence for that step – has transferred a compliance problem rather than resolving it.
Undisclosed ownership layers. OFAC's 50 percent rule runs through every layer of an ownership chain. We regularly see divestment applications that accurately describe the direct shareholder but fail to account for a listed party two or three layers up. OFAC will find it. The application should map and disclose the full ownership chain, including any interests that sit below the 50 percent threshold but are close to it.
Buyer sanctions status. The proposed buyer in a divestment must itself be free of sanctions exposure. A buyer that is itself a blocked person – or an entity with a listed person in its ownership chain – is not an eligible counterparty regardless of the licence application. Screening the buyer, including its full ownership structure, is a precondition, not a formality.
Programme-specific licensing policy. OFAC applies different licensing policies across its programmes. A divestment that would be routinely licensed under one programme may face a much more restrictive policy under another. Identifying the applicable programme and its current licensing posture early is essential to setting realistic expectations about whether a licence is obtainable at all.
Secondary-sanctions risk. Certain OFAC programmes carry secondary-sanctions risk – the possibility that non-US persons who deal in the relevant property may themselves face OFAC action or correspondent-banking consequences, even without a direct US nexus. A non-US investor contemplating a divestment from a co-investor relationship that is caught by a secondary-sanctions programme should take advice on its own exposure before proceeding.
Timing of the designation. The date on which the relevant party was designated matters. Obligations arise at the moment of designation; any step taken after that date but before the licence is obtained – even a seemingly administrative one, such as sending a notice of exercise of a put option – may constitute a prohibited transaction. The clock starts when OFAC publishes the designation, not when the client discovers it.
A common misconception: can a general licence substitute for the specific-licence process?
A general licence can authorise specific divestment-related steps, but it rarely authorises the full transaction. This is the misconception we encounter most often from clients who have read the relevant programme's general licences without legal guidance.
General licences under OFAC programmes typically authorise a defined and narrow category of transactions – for example, winding down a specific relationship within a short window after a designation, or authorising certain maintenance activities on blocked property. They are not open-ended licences to divest. The conditions attaching to a general licence must be met precisely: the parties, the transaction type, the timing, and sometimes the destination of proceeds are all specified. A transaction that exceeds the scope of the general licence in any material respect is not authorised by it.
In practice, this means that a business should assess the general licences applicable to its programme first, identify whether any steps of the divestment are already covered, and then design the specific-licence application around the remaining steps. The general licence may authorise the notice period or the operational wind-down; it is unlikely to authorise the actual transfer of ownership and the treatment of proceeds.
The myth – that a general licence makes a specific-licence application unnecessary – persists because general licences are publicly available and easy to locate. The analysis of whether the specific facts fall within the scope of that general licence is where the legal work lies. We regularly advise clients who have relied on a general licence in good faith but whose facts do not, on careful reading, fit within the licence's terms.
How Calder & Vance assists with divesting a sanctioned interest
Divesting a sanctioned interest under OFAC requires an integrated approach. The legal, structural, and timing dimensions interact in ways that produce unintended consequences if handled sequentially rather than together. Our role across a divestment matter typically covers the following.
We assess eligibility: mapping the ownership chain, identifying the designated parties, applying the 50 percent rule across every tier, and confirming whether the interest is blocked and under which programme. This assessment also covers secondary-sanctions exposure and the parallel OFSI and EU dimensions where relevant.
We prepare and submit the specific-licence application: drafting the application narrative, assembling the supporting evidence package, preparing the proposed transaction documentation, and presenting the analysis of why the divestment is consistent with OFAC's licensing policy. A well-prepared application reduces the scope for back-and-forth with OFAC's licensing staff.
We manage OFAC's queries and the review process: responding to supplemental information requests, monitoring processing, and advising the client on any developments in the programme's licensing posture during the review period that could affect the application.
We advise on parallel regimes: identifying whether OFSI or EU licensing is also required, liaising with local counsel in the relevant jurisdiction where EU member-state authority is needed, and ensuring that the US licence terms do not inadvertently create a compliance gap in the UK or EU dimension.
We advise on the treatment of proceeds and the blocked-account arrangements: structuring the post-execution steps so that proceeds are correctly handled under the licence terms and so that any further licence application for release of proceeds is positioned correctly.
In a recent matter, a financial institution held a fund interest in a structure where a co-investor's parent was designated under an OFAC programme some time after the fund's closing. The institution faced potential compliance obligations across three jurisdictions. We mapped the ownership chain, confirmed the blocking position, prepared the specific-licence application, co-ordinated the parallel OFSI notification, and advised on the treatment of distributions pending resolution. The application was submitted with a complete evidentiary package and the matter proceeded through the licensing review without supplemental requests.
Related practices
- Correspondent banking and de-risking under OFAC – managing sanctions-driven correspondent banking exposure and de-risking decisions
- Sanctions diligence in cross-border M&A – ownership-chain screening and risk structuring in acquisition and disposal transactions
- OFAC licensing for cross-border transactions – specific and general licence strategy for transactions touching OFAC programmes