A cross-border deal closes. Six months later, OFSI opens an investigation into a counterparty in the transaction chain. The buyer's legal team turns to the share purchase agreement. The sanctions representations and warranties are vague, untested, and – as written – do not allocate the risk. That is the moment when a generic clause becomes a serious liability.
Sanctions representations and warranties under OFSI legal support means drafting, reviewing, and negotiating contractual provisions that allocate the risk of OFSI-regulated sanctions exposure in cross-border transactions. The governing authority is the Office of Financial Sanctions Implementation, operating under the Sanctions and Anti-Money Laundering Act ("SAMLA") and the relevant thematic UK sanctions regulations. Effective clauses go beyond standard boilerplate: they map to the specific prohibitions, the ownership and control test (the UK test for whether a non-listed entity is caught through a listed person), and the enforcement posture OFSI applies at the time of signing.
This page explains how the service works, what competent OFSI-focused sanctions representations and warranties contain, how they differ from their OFAC and EU equivalents, and when to involve specialist sanctions counsel rather than relying on general M&A drafting.
What sanctions representations and warranties under OFSI actually cover
An OFSI-compliant sanctions representation covers more than a statement that neither party is designated. It addresses the full range of prohibitions that OFSI enforces: asset freezes, the making available of funds or economic resources, and – where relevant – trade and financial sanctions obligations under the applicable country regime.
The core representation typically asserts that, as at the date of the agreement, neither the representing party nor any entity it owns or controls, and no individual or entity whose instructions it acts on, is a Designated Person (a person listed under a UK financial sanctions regime). Equally important is the warranty that no transaction contemplated by the agreement will, without a licence, breach any prohibition imposed by OFSI or the relevant Council of the European Union regulation that the UK retained or subsequently replicated post-Brexit.
A secondary layer addresses ownership and control. Because OFSI's rules can catch companies that are owned or controlled by a designated person – even if those companies are not themselves listed – the warranty must cover the entire ownership chain, not only the direct counterparty. In our experience, general corporate solicitors frequently miss this layer. They draft the representation against the counterparty entity and its immediate shareholders, and stop there. That is where the gap lives.
The position above covers the standard case. Your facts – the identity of the counterparty, the sector, the jurisdictions touched, and the specific OFSI thematic programme in play – change the analysis entirely. For a confidential assessment of how to structure the sanctions representations and warranties in your transaction, contact Calder & Vance at info@caldervance.com.
The legal basis: SAMLA, the thematic regulations, and OFSI's enforcement posture
The legal foundation for every OFSI sanctions representation and warranty is SAMLA, which empowers the UK Government to impose financial sanctions by statutory instrument, and the thematic regulations made under it. Each thematic programme – covering distinct country and subject-matter regimes – imposes its own prohibitions and its own definition of who is a designated person. The representations in your agreement must be calibrated to the specific programme or programmes that apply to the parties and the transaction.
OFSI enforces financial sanctions in the United Kingdom. It is part of HM Treasury. Since the Policing, Crime, Sentencing and Courts Act 2022 amended SAMLA, OFSI may impose a monetary penalty on a civil basis where it is satisfied to a balance of probabilities that a person has breached a financial-sanctions prohibition and did not have a valid licence. The civil standard – balance of probabilities – is lower than the criminal standard. It means that a transaction party does not need to have known it was in breach; in certain circumstances, a lack of reasonable precautions is sufficient.
That enforcement posture is directly relevant to how OFSI-related warranties should be framed. A warranty that simply states "we are not designated" does not speak to whether the counterparty has taken reasonable steps to verify the ownership chain or whether the funds involved have a sanctions-clean provenance. In our cross-border practice, we draft warranties that go further: they commit the representing party to the due diligence standard that OFSI's own guidance treats as relevant mitigation.
How does the OFSI ownership and control test differ from OFAC and the EU?
The OFSI ownership and control test is one of the most practically significant divergences between the major sanctions regimes, and it matters directly to how sanctions representations and warranties are drafted in multi-regime transactions.
Under OFAC, the test is largely mechanical: a non-listed entity is treated as blocked if designated persons own it at 50 percent or more in the aggregate. Control is a secondary consideration, applied mainly where the ownership chain is opaque. Under OFSI, the ownership threshold is similarly set at 50 percent, but OFSI also applies a control test. An entity can be caught by the prohibitions if a designated person controls it by other means – through board composition, contractual rights, or dominant influence – even where the ownership stake sits below 50 percent.
The EU position under the relevant Council regulations broadly mirrors the OFSI control test, though the analysis of what constitutes control can differ at the margin. For a transaction that engages both UK and EU sanctions regimes, the divergence between OFAC's mechanical ownership rule and the broader OFSI/EU control analysis means that a single generic representation will not cover the field. A counterparty might clear the OFAC threshold test and still be caught under OFSI on a control analysis.
This is precisely the kind of cross-regime gap that specialist sanctions counsel must identify at the drafting stage. A representation framed around the OFAC test – the most familiar to US-trained lawyers – will leave an OFSI gap if it does not include a control limb. Have you reviewed whether the representations in your current form documents address OFSI's ownership and control test as a distinct standard?
If a transaction has already reached the negotiation stage and the representations have not been reviewed against the OFSI control test, an early review can preserve options that narrow with time. Contact our team at info@caldervance.com.
What a well-drafted sanctions representation and warranty clause contains
A well-drafted OFSI sanctions representation addresses six distinct matters, and a corresponding warranty extends them forward in time from signing to completion. The six matters are: designated-person status of the party; ownership and control by a designated person; the provenance of funds; compliance with applicable financial-sanctions obligations; no pending regulatory inquiry by OFSI or a foreign equivalent; and, in transactional contexts, no breach arising from the transaction itself.
Each of those heads carries drafting choices. On designated-person status, the representation must specify which lists it covers – the UK Consolidated List, the UN Consolidated List, and, depending on the parties' nexus, the EU consolidated list and OFAC's SDN List (OFAC's list of Specially Designated Nationals and blocked persons). Covering only one list is a common and frequently costly shortcut.
On funds provenance, particularly in private-equity, real-estate, and structured-finance transactions, the representation needs to go beyond the immediate counterparty. Knowing-your-investor provisions and beneficial-ownership warranties often need to sit alongside the sanctions representation to give it practical teeth.
On pending regulatory inquiries, the representation should address not only formal OFSI enforcement proceedings but also voluntary disclosures that have been made or that the representing party has reason to believe it is obliged to make. OFSI encourages voluntary self-disclosure (VSD – a self-report to OFSI of a potential breach before the regulator is aware of it), and a regime that treats a VSD as a mitigating factor does not thereby remove the disclosure obligation or the transactional risk that an outstanding disclosure creates.
The warranties – forward-looking undertakings – carry their own risks. A warranty that the party will remain sanctions-clean through completion is only as reliable as the ongoing monitoring behind it. We advise parties giving such warranties to couple them with an obligation to notify promptly on any change in circumstances, and to cap the warranty period to a defined interval tied to completion.
Risk flags: when standard drafting is not adequate
Most cross-border transactions use precedent representations drawn from standard form M&A documents. Those precedents were drafted for general corporate transactions, not for the specific prohibition structures of OFSI's thematic sanctions regulations. They are a starting point, not a finished product.
The following situations require bespoke review:
- The counterparty has shareholders, investors, or beneficial owners in jurisdictions subject to any UK thematic sanctions programme – whether the applicable country regime involves asset freezes, financial prohibitions, or both.
- The target company or its subsidiaries have business operations in, or contracts with, entities from, a jurisdiction subject to sanctions measures under OFSI, the EU, or OFAC.
- The transaction involves a sector with elevated OFSI risk – financial services, energy, shipping, technology, or defence.
- The transaction chain involves a trust, fund, or special-purpose vehicle where the ultimate beneficial owners are not directly disclosed at the level of the immediate counterparty.
- Financing for the transaction involves a financial institution that applies its own sanctions screening, creating a second and potentially divergent standard alongside the contractual representations.
- The transaction spans multiple jurisdictions, creating the possibility that a representation framed around OFSI does not satisfy the requirements of a financing bank applying OFAC or EU standards.
A common myth is that if a counterparty passes a commercial screening tool – one of the automated platforms used by compliance teams – the sanctions representations and warranties are formalities. That is not correct. Screening tools identify listed persons against known data. They do not analyse control structures, assess the provenance of funds, or evaluate whether an unlisted entity is effectively controlled by a designated person. The representations serve a different and complementary function: they allocate risk, create a contractual remedy, and generate the due-diligence record that OFSI treats as relevant mitigation in an enforcement inquiry.
How our service works: from brief to signed agreement
Our service for sanctions representations and warranties under OFSI follows a defined sequence. We assess the transaction structure, identify the OFSI thematic programmes in play, and compare the exposure across the applicable regimes – UK, EU, and, where relevant, OFAC or other jurisdictions in scope. We then draft or review the representations and warranties, identify gaps against the OFSI control test and the specific prohibitions, and produce a marked-up version with commentary.
Where the counterparty is in a higher-risk jurisdiction or sector, we advise on the supporting due diligence – ownership-chain mapping, beneficial-owner enquiries, and the use of representations as one layer of a broader sanctions-risk-management structure. We work with local counsel in the relevant jurisdiction where the counterparty's ownership structure engages a non-UK regime.
In a recent matter, a financial-services business engaged us to review the sanctions representations in a series of agreements with counterparties across multiple jurisdictions. The standard-form representations in the precedent documents made no reference to the OFSI control test and addressed only direct ownership. We identified three counterparties whose ownership structures required enhanced representations and one counterparty for whom the standard form was inadequate under both OFSI and the relevant EU regime. The transaction was restructured accordingly and completed with representations acceptable to the financing institution's compliance function. We make no representation about outcomes in any matter; each transaction turns on its own facts.
For transactions involving a financing bank applying its own sanctions policy, we also advise on aligning the contractual representations with the bank's standard form to avoid a position where two different representations – one in the underlying agreement, one in the facility agreement – create inconsistency that neither party has considered.
Related practices
- Correspondent banking and de-risking under OFAC – managing OFAC-driven de-risking risk in financial institution relationships across jurisdictions.
- Sanctions representations and warranties under SECO – structuring Swiss-law sanctions representations for cross-border M&A and finance transactions.
- Supply chain mapping under Australia's autonomous sanctions regime – identifying and managing sanctions exposure in complex cross-border supply chains.