A UK-incorporated joint venture is days from signing. Due diligence on the overseas partner has surfaced a shareholder whose name appears on a designation list. The deal team wants to press ahead. The question is not whether the transaction feels permissible – it is whether it is permissible under OFSI's rules, and what restructuring or authorisation is required before completion.
Joint-venture sanctions structuring under OFSI requires a precise analysis of the ownership and control test (the UK test for whether a non-listed entity is caught through a listed person's stake or influence), the applicable prohibitions in the relevant thematic UK sanctions regulations, and whether a specific or general licence is available. As of February 2026, OFSI administers the UK financial sanctions regime under the Sanctions and Anti-Money Laundering Act ("SAMLA") and can impose civil monetary penalties for breaches, including those arising from inadequately structured joint-venture arrangements.
This page explains how OFSI's ownership and control analysis applies to joint ventures, where it diverges from OFAC and the EU position, what structural steps reduce exposure, and how Calder & Vance assists transaction teams working under time pressure.
What does OFSI's ownership and control test mean for a joint venture?
OFSI treats a joint-venture vehicle as potentially caught by financial sanctions prohibitions when a designated person owns or controls it, directly or indirectly – and control is broader than ownership alone. Under the relevant thematic UK sanctions regulations made under SAMLA, the prohibited categories extend to making funds or economic resources available to, or for the benefit of, a designated person. A joint-venture structure that channels economic benefit to a designated participant can engage those prohibitions regardless of the formal equity percentage.
Ownership is the starting point. Where a designated person holds a majority stake in the JV vehicle, the prohibition analysis is relatively straightforward. The difficulty arises with minority positions. OFSI's guidance confirms that control – the capacity to direct or influence decisions on the disposal of funds or resources – is a separate and additional ground of capture. A designated person holding, say, a thirty-percent interest but carrying veto rights over distributions, asset disposals, or key governance decisions may well control the vehicle for OFSI purposes.
This is a material divergence from OFAC's position. Under OFAC, the 50 percent rule (OFAC's rule treating entities owned 50 percent or more, in the aggregate, by blocked persons as themselves blocked) sets a mechanical threshold. Intention and control arrangements are irrelevant to the OFAC ownership test. OFSI's control limb introduces a qualitative element that demands a fact-specific review of the JV agreement, the shareholder agreement, and any side letters or comfort letters that affect governance.
In our experience, transaction teams familiar with OFAC screening frequently underestimate this control element when they turn to a UK-law joint venture. The equity cap is not the end of the analysis. It is where the analysis starts.
How does the prohibition analysis work in practice?
The first step is to identify the designated person and the relevant UK sanctions programme. OFSI administers several distinct thematic programmes, each with its own prohibitions. The category of designated person – whether listed for financial sanctions, investment restrictions, or both – determines which prohibitions are engaged and in what combination.
Once the designation is confirmed, the next question is whether the JV vehicle, its assets, or the contemplated transactions fall within the prohibited categories. A JV that holds UK-sited assets, uses a UK bank account, makes distributions routed through the UK financial system, or involves a UK person in its management will almost certainly engage OFSI's jurisdiction even if the vehicle itself is incorporated offshore.
The UK person definition under SAMLA is broad. It captures UK nationals and residents, entities incorporated or constituted in the UK, and persons acting in the UK. A UK-law governed JV agreement, or a JV board that meets in London, is sufficient to engage the UK person limb. For a cross-border transaction involving partners from multiple jurisdictions, this reach is rarely mapped fully at the commercial due-diligence stage.
The position above covers the standard analysis. Your facts – the sector, the counterparty's domicile, the route through which funds flow, and the designation category – will each modify the analysis. For a preliminary view on whether OFSI's prohibitions are engaged on your specific structure, contact Calder & Vance at info@caldervance.com.
How does OFSI's approach compare with OFAC and the EU?
Each major sanctions regime applies a distinct legal test to joint-venture vehicles, and the tests can produce different outcomes on identical facts. Understanding where they converge and where they diverge is essential for any cross-border JV with partners from multiple jurisdictions.
OFAC applies the 50 percent rule mechanically. Two blocked persons each holding twenty-six percent of a JV aggregated reach the threshold; the entity is treated as blocked. Control arrangements and governance rights are not independently operative under OFAC's ownership test, although separately OFAC does consider whether a blocked person exercises control in its guidance on complex structures. The result is a rule that is more predictable but potentially narrower in its application than OFSI's.
The EU regime under the relevant Council regulations applies a combined ownership and control standard that is conceptually close to OFSI's but is administered by the competent authorities of the relevant member states rather than a single central authority. This creates divergent administrative practice across the EU. A structure cleared by one member state's authority does not automatically receive clearance in another. For a JV with operations across multiple EU member states, this creates a layered advisory problem.
Where the JV involves US-connected parties, goods, or financial flows, secondary-sanctions risk under OFAC's extraterritorial reach also becomes relevant. OFAC has consistently asserted that non-US persons who engage in significant transactions with OFAC-designated persons may themselves become subject to designation. A JV that avoids a direct OFSI breach but involves transactions of significant value with a designated person could expose the non-US partner to secondary-sanctions risk.
In our cross-border practice, we regularly advise on structures that must satisfy OFSI, OFAC, and the EU position simultaneously. The practical starting point is to identify the strictest prohibition that applies to the specific facts and to test the proposed structure against that prohibition first. Where regimes diverge, the stricter prohibition governs the ultimate structural choice.
What structural steps reduce joint-venture sanctions exposure under OFSI?
Structural steps can reduce or eliminate OFSI exposure, but only where the redesigned arrangement genuinely removes the designated person's ownership or control – not where it merely obscures it. OFSI has made clear in its enforcement guidance that arrangements designed to defeat the ownership and control test through artificial restructuring are themselves a compliance risk and may engage anti-avoidance provisions.
The legitimate structural approaches include the following.
- Equity restructuring: adjusting the designated person's interest to remove ownership and, in parallel, amending governance documents to remove any control element. This requires a careful review of all instruments that could give rise to control, including loan agreements, call options, anti-dilution protections, and tag-along rights.
- Ring-fencing: structuring the JV so that assets, distributions, and economic flows that could benefit the designated person are separated from the components of the vehicle in which the UK or EU person participates. This is fact-dependent and requires legal opinion on whether the ring-fence is effective under the applicable prohibitions.
- Licence application: where restructuring is not commercially viable, a specific licence (a case-by-case authorisation from OFSI to conduct an otherwise prohibited transaction) may permit the transaction to proceed. OFSI has published grounds on which licences may be granted, including on grounds of prior obligation, basic needs, and extraordinary situations.
- General licence review: a general licence (a standing authorisation that permits a defined category of transactions without a separate application) may already permit certain elements of the transaction. General licences under the UK regime should be reviewed before a specific licence application is prepared, as they can shorten the process materially.
Each of these approaches carries its own timeline and risk profile. Equity restructuring, if it requires third-party consents or regulatory filings in the JV's jurisdiction of incorporation, may take weeks or months. A specific licence application to OFSI typically takes longer than deal teams anticipate. Working in parallel on the restructuring and the licence application, where both are feasible, is the approach we recommend to protect the deal timeline.
What are the main risk flags in joint-venture sanctions structuring?
Risk flags in JV sanctions structuring cluster around three recurring patterns that we identify in almost every cross-border matter of this type.
The first is incomplete ownership-chain mapping. The designated person is frequently not the direct JV partner but a majority shareholder of the partner, or a beneficial owner whose name does not appear on the face of the transaction documents. Screening only the direct counterparty misses this entirely. The ownership chain must be traced to the ultimate beneficial owner level, and the control analysis must then be applied at each layer.
The second is reliance on stale screening. A counterparty that was clean at the point of commercial due diligence may be designated by the time the transaction closes. OFSI and the other major sanctions authorities can add names to their consolidated lists at any point, including overnight before a completion meeting. Continuous monitoring between signing and completion is not optional – it is a basic element of the compliance process for any transaction with a multi-month timeline.
The third is the assumption that an offshore structure avoids UK sanctions. As noted above, OFSI's jurisdiction turns on UK person nexus, not on the place of incorporation of the JV vehicle. A JV governed by English law, serviced by a UK bank, or managed by a UK director is within scope. In our experience, the offshore-equals-exempt assumption is the single most common misconception we encounter in JV structuring mandates.
A fourth, less common but material, risk flag is the interaction between financial-sanctions prohibitions and UK export-control rules administered by the ECJU. Where the JV involves the transfer, manufacture, or use of dual-use goods or technology, the licensing analysis under the export-control regime runs in parallel with the OFSI analysis and may impose additional conditions on the structure or the licence application.
If a transaction has already been flagged by your bank, or a filing has been refused, an early review preserves options that narrow with time. Contact us at info@caldervance.com for a confidential review.
How does the OFSI licence process work for a joint-venture transaction?
An OFSI specific licence for a joint-venture transaction is a written authorisation that permits an otherwise prohibited act to be carried out, within defined conditions and for a defined period. It is not a general clearance of the transaction; it authorises the specific acts described in the application and no more.
The application must be made directly to OFSI and must set out the identity of the parties, the nature of the transaction, the sanctions nexus, the grounds on which a licence is sought, and supporting evidence for each ground. OFSI publishes a set of licensing grounds in its guidance. Not all grounds apply to all types of transaction; a JV structuring matter will typically engage the prior obligation, extraordinary situation, or – in some cases – trade or humanitarian grounds, depending on the sector and the nature of the JV.
OFSI does not publish a fixed processing time for specific licence applications. In our experience before OFSI, processing times depend on the complexity of the matter, the completeness of the application, and the volume of applications OFSI is handling at the relevant time. Applications that are incomplete, that do not identify the correct licensing ground, or that do not provide the supporting evidence OFSI needs to assess the ground will be returned or delayed.
There is a right of review where OFSI refuses a licence application, and further avenues may be available by way of judicial review before the High Court. In our practice we have advised on both the primary application and the review stage.
The interaction between the UK licence and any equivalent authorisation required under OFAC or the EU regime is a further consideration. Obtaining an OFSI licence does not automatically remove the need for an OFAC specific licence where a US person or US-origin funds are involved, and the reverse is equally true. The multi-regime licence sequencing is an area where specialist advice at the outset avoids material delay later.
How Calder & Vance assists on joint-venture sanctions structuring under OFSI
We act for transaction teams, boards, and general counsel on OFSI joint-venture mandates from the early due-diligence stage through to completion. Our work in this practice covers the following.
- Ownership and control analysis: tracing the beneficial ownership chain to the ultimate level, applying OFSI's ownership and control test to the JV structure, and producing a written opinion on whether financial-sanctions prohibitions are engaged.
- Structural review and redesign: identifying the structural amendments needed to remove ownership or control by a designated person, reviewing all transaction documents for provisions that could give rise to control, and advising on the sequence and timing of amendments.
- Licence eligibility and application: assessing which OFSI licensing grounds are available, preparing and submitting the specific licence application, and managing OFSI's queries through to decision.
- Multi-regime coordination: advising on the parallel OFAC and EU position, identifying where the UK and US or EU tests diverge, and coordinating with local counsel in the relevant jurisdiction where non-UK legal proceedings or regulatory filings are required.
- Continuous monitoring: establishing a monitoring protocol between signing and completion to detect any change in the sanctions status of the parties or their beneficial owners.
- Export-control interface: where the JV involves dual-use goods or technology, advising on the interaction between the OFSI analysis and the ECJU licensing regime.
In a recent matter, a European financial institution was a minority partner in a JV vehicle that had a significant shareholder subsequently designated under a UK thematic programme. We mapped the full ownership and control position, identified that the designated person's veto rights over distributions engaged the control limb of the UK test, and prepared a specific licence application to OFSI based on the prior obligation ground. We managed the application through to decision and advised on the consequential amendments to the JV agreement required as a condition of the licence.
We regularly advise boards and in-house teams who have received a hit during screening and need to understand quickly whether the transaction can proceed, and on what terms. The analysis is fact-specific and time-sensitive. Engaging specialist counsel at the point the hit is identified – not after the deal team has attempted to manage it internally – consistently produces better outcomes.
Related practices
- Correspondent banking and de-risking under OFAC – sanctions analysis for correspondent relationships and financial-institution exposure
- Joint-venture sanctions structuring under Singapore's regime – comparative structuring advice for Asia-Pacific JV transactions
- M&A sanctions diligence under the EU regime – ownership, control, and prohibition analysis for EU-regime transactions