Ship-to-ship transfer risk controls under OFAC: legal support

A commodity trader has a vessel arranged, a cargo ready, and a buyer confirmed. The ship-to-ship transfer is scheduled offshore. Then a compliance review flags a potential connection between the receiving vessel's operator and an OFAC-designated person. The cargo is ready to move, but the transaction cannot proceed until the risk is resolved. Ship-to-ship transfer risk controls under OFAC determine whether that deal closes or collapses – and the window to act is short.

Ship-to-ship transfers present a distinct category of OFAC exposure because the transaction structure – vessel-to-vessel cargo movement, often in international waters, frequently involving multiple counterparties and flag states – creates multiple potential touch points with the US sanctions regime. OFAC's authority under IEEPA and the relevant thematic regulations applies wherever a US person, US-flagged vessel, or US-dollar clearing is involved. The 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) means that a vessel operator or cargo consignee that appears clean on a name screen may still be a blocked entity through ownership. As of January 2026, OFAC's enforcement posture on maritime evasion indicators – including transfers that disable or manipulate AIS (the automatic identification system that tracks vessel position) – remains active and a focus of interagency scrutiny.

This page sets out the legal outcomes a business needs to reach before proceeding with a ship-to-ship transfer, the OFAC analysis and cross-regime comparison that underpins them, the risk flags that counsel look for, and how Calder & Vance supports transactions from initial screening through to deal closure or, where necessary, a licensing application.

What does a clean ship-to-ship transfer look like under OFAC?

A ship-to-ship transfer is clear to proceed under OFAC when no party to the transaction – no vessel owner, operator, manager, flag-state entity, cargo seller, buyer, or financier – is a blocked person, and when no US nexus triggers a prohibited facilitation. Reaching that position requires analysis, not assumption.

The US sanctions regime administered by OFAC operates on both a list-based model and, in certain programmes, a comprehensive or territorial prohibition. For a ship-to-ship transfer, the list-based analysis is the usual starting point: every principal to the transaction must be screened against the SDN List (OFAC's list of Specially Designated Nationals and blocked persons), the Consolidated Sanctions List, and any programme-specific blocked lists. The 50 percent rule extends that obligation to entities that blocked persons own in the aggregate at 50 percent or more – directly or through layers of intermediate holding companies.

A clean screen of the vessel name and the charterer's registered entity is not sufficient. Vessel operators frequently sit within corporate structures. The vessel's registered owner may differ from its technical manager, commercial operator, and bareboat charterer. Each entity in that chain requires its own ownership analysis. In our experience, the gap between a clean name screen and a clean ownership analysis is where most maritime sanctions exposure sits.

The outcome a transaction needs is documented, traceable clearance across all principal counterparties, supported by source records of the ownership review. That documentation also serves a defence function: if OFAC later questions the transaction, the record of the analysis at the time is the foundation of any voluntary self-disclosure or penalty defence.

How does the OFAC ship-to-ship transfer analysis work in practice?

The analysis runs through five identifiable steps, each generating a conclusion that either permits proceeding or requires escalation to counsel for a judgement on risk or a licensing decision.

Step one: identify every party with a US nexus. OFAC jurisdiction attaches to US persons (including US-incorporated entities and their branches wherever located), to conduct within the United States, to US-flagged vessels, and to any transaction that clears in US dollars through a US correspondent bank. A ship-to-ship transfer involving non-US parties and a non-US-flagged vessel may nonetheless have a US nexus through its financing arrangements or its cargo documentation.

Step two: screen all principal counterparties. The screen should cover the vessel's registered owner, the technical manager, the commercial operator, any bareboat or time charterer, the cargo seller and buyer, the insurer, and the port-agent at any call made in connection with the transfer. Each entity is screened by full legal name, known aliases, and unique identifiers such as IMO numbers for vessels. Nationality-level and geography-level indicators may also require review depending on the programme in scope.

Step three: apply the 50 percent rule to any flag. Where a counterparty entity has a shareholder that appears on a sanctions list, or where ownership records are incomplete or deliberately obscured, the 50 percent rule requires an aggregation analysis. Two listed shareholders each holding a minority stake that together reach or exceed the threshold produce the same result as a single majority owner. The rule is mechanical: intention is not an element of the ownership analysis.

Step four: assess the AIS record and transfer mechanics. OFAC's maritime guidance treats AIS manipulation – including gaps in transmission, apparent position falsification, or last-port-of-call misrepresentation – as a significant red flag. A vessel that has recently exhibited AIS anomalies, conducted a transfer at an atypical anchorage, or listed an implausible draught change requires an elevated level of diligence before any counterparty can proceed with confidence. This is a separate inquiry from the entity-level ownership screen.

Step five: confirm the cargo does not engage a separate control. Certain cargo categories – petroleum and petroleum products in particular – are subject to programme-specific prohibitions or conditions that operate independently of entity-level designations. A cargo of crude oil originating from a designated source creates a separate exposure even where the vessel and all parties appear clean at the entity level. Price-cap mechanisms in certain programmes add an additional compliance layer for crude and petroleum products.

Where does OFAC diverge from OFSI and EU maritime sanctions controls?

The cross-border dimension of ship-to-ship transfer compliance is unavoidable. A transaction that has a UK or EU element – an EU-flagged vessel, a UK-incorporated charterer, a European bank in the financing chain – will need to satisfy the requirements of OFSI and the EU Council regulations as well as OFAC.

OFAC's ownership test is mechanical at the 50 percent threshold. OFSI and the EU apply an ownership and control test (the UK and EU standard for whether a non-listed entity is caught through a listed person) that goes beyond a percentage calculation. Under UK rules, a non-listed entity can be caught if it is controlled by a designated person even where that person owns less than fifty percent of the shares. The EU applies a parallel test: the question is whether the listed person exercises decisive influence over the entity, assessed by reference to voting rights, governance rights, and the practical capacity to direct decisions. In our cross-border practice, we regularly advise clients whose counterparty passes the OFAC ownership screen but remains uncertain under the EU or UK control test.

A further divergence concerns the prohibition's scope. OFAC prohibits US persons from engaging in transactions with blocked persons and from facilitating such transactions by non-US persons. The EU asset-freeze extends to making funds or economic resources available directly or indirectly to or for the benefit of listed persons. This indirect benefit formulation is broader than the OFAC facilitation standard in certain respects: an EU-incorporated entity in a transaction chain that confers economic benefit on a listed person may be in breach even where there is no direct dealing.

OFSI's strict-liability penalty regime means that a UK-regulated participant in the transaction carries civil exposure regardless of knowledge or intent. The maximum OFSI monetary penalty is the greater of £1,000,000 or 50 percent of the breach value, as currently in force – verify before reliance. That is a separate exposure from any OFAC penalty that the same transaction might generate. Where both regulators have jurisdiction, the stricter prohibition governs the conduct of any party subject to both.

For transactions involving Swiss, Canadian, or Australian-regulated parties, additional autonomous regimes may also apply. In our experience, mapping all applicable regimes before the transaction signs is substantially more efficient than addressing regime-by-regime exposure after a problem surfaces.

What risk flags should counsel look for in a ship-to-ship transfer?

Ship-to-ship transfers raise a recognised pattern of red flags that OFAC and interagency guidance treats as indicators of potential evasion or sanctions exposure. Identifying these flags at the diligence stage – before the transaction commits – preserves the maximum range of options.

AIS transmission gaps are the most commonly cited indicator. A vessel that goes dark in the period leading up to or during a transfer, that transmits an implausible position, or that reappears with a different destination without explanation warrants direct inquiry. AIS anomalies do not prove a prohibited transaction, but they shift the burden of explanation to the counterparty and, for a party that proceeds without inquiry, they evidence disregard for observable red flags.

The choice of transfer location is a separate indicator. Transfers conducted in international waters near jurisdictions that feature prominently in sanctions programmes, or at anchorages with no commercial logic, attract additional scrutiny. A transfer that takes place in the same geographic location as documented prior evasion activity requires particularly careful analysis.

Vessel documentation inconsistencies – a flag-of-convenience registration that does not match the vessel's commercial history, a recent flag change with no apparent commercial explanation, or a change of technical manager in close proximity to a designated-entity flag – all require resolution before proceeding.

Counterparty opacity is a further flag. A buyer or seller that is reluctant to provide ownership records, that presents an atypically complex corporate structure with no apparent commercial rationale, or that proposes payment routing through an intermediary jurisdiction may be attempting to obscure a connection to a designated person. We have acted for parties that discovered ownership issues of this kind through systematic document requests that a counterparty resisted: the resistance itself became the diligence answer.

Finally, cargo-origin documentation that cannot be traced to a verifiable non-designated source is a standalone risk factor. For petroleum and petroleum products in particular, chain-of-custody documentation from the point of production is an increasingly standard compliance requirement, not an optional addition to the file.

When does a ship-to-ship transfer require a specific licence from OFAC?

A ship-to-ship transfer requires a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) when the transaction, as structured, would otherwise be prohibited because a blocked party is involved, because a comprehensive programme applies to the cargo's origin, or because the transaction falls outside any available general licence (a standing authorisation that permits a defined category of transactions without a separate application).

The threshold question is whether any part of the transaction is prohibited. If the analysis concludes that a blocked entity owns or controls a party to the transaction at or above the relevant threshold, the transaction cannot proceed lawfully unless a licence is obtained or the structure is changed to remove the blocked party. A licence application to OFAC is not a guarantee of authorisation; OFAC exercises discretion and assesses applications against the policy objectives of the relevant programme. Timelines for OFAC licence processing vary by programme complexity and the nature of the request.

Where a general licence covers the relevant conduct – for instance, where a general licence authorises wind-down transactions for a defined period, or permits emergency safety activities – the first step is to confirm that the transaction falls squarely within the terms of that licence. General licences contain conditions, and a transaction that departs from those conditions is not authorised. In our practice, we regularly advise clients on whether a proposed transaction is within the scope of an existing general licence or whether a specific licence application is required.

For a transaction that cannot proceed without a specific licence, the practical sequence is: (1) obtain a complete understanding of all parties and their ownership; (2) confirm the applicable prohibitions; (3) identify the licensing ground relied upon; (4) prepare and submit a well-documented application addressing OFAC's standard review factors; and (5) manage the regulator's queries through to a decision. The quality of the initial submission materially affects the process – an incomplete or ambiguous application extends the timeline and may result in a denial that a better-prepared submission would have avoided.

What common misunderstanding puts deals at risk?

The most consequential misunderstanding we encounter is the belief that the seller's representations and warranties in a sale and purchase agreement remove the buyer's own sanctions exposure. They do not.

A seller's warranty that no sanctioned party is involved in the transaction is a contractual promise, not a legal shield. If the underlying facts are otherwise – if a blocked person in fact owns part of the operator through a chain the seller did not disclose or did not know about – OFAC's jurisdiction attaches to the transaction irrespective of what the contract says. The buyer who relies on that warranty without independent diligence still faces OFAC exposure. The warranty may give the buyer a claim against the seller in arbitration, but it does not provide a defence to a civil penalty.

This is not a theoretical risk. In practice, cargo and vessel transactions are negotiated on tight timelines, and compliance reviews are sometimes deferred in favour of commercial momentum. The result is that parties commit to transactions whose sanctioned-party exposure they have not independently assessed. By the time the problem surfaces – through a bank refusal to clear a payment, through an insurer declining cover, or through a direct inquiry from a regulator – the options for restructuring the transaction or seeking a licence are narrower than they would have been at the diligence stage.

Independent pre-transaction diligence – screening and ownership analysis conducted by or under the supervision of counsel with OFAC expertise – is the control that closes this gap. It is not a duplication of the seller's process; it is a separate obligation that rests with every US-person participant in the transaction.

How does Calder & Vance support ship-to-ship transfer transactions?

We act for multinationals, financial institutions, and exporters on sanctions and export-control matters across the major regimes. For ship-to-ship transfer transactions under OFAC, our work covers the full transaction lifecycle: from initial risk assessment through ownership analysis, cross-regime comparison, licence applications where needed, and enforcement-defence support if a problem has already occurred.

In a recent matter, a commodities trading house with US-dollar payment flows needed to assess a vessel operator's ownership structure before committing to a transfer. The operator's corporate records were held across three jurisdictions and included a nominee-shareholder layer. We screened the counterparty and ownership chain, mapped the full ownership structure, and confirmed that the operator was not owned at the relevant threshold by any designated person. The transaction proceeded with documented clearance.

For the pre-transaction stage, we assess eligibility, test the ownership structure against the 50 percent rule and any applicable control test, identify AIS anomalies and other diligence flags, and produce a written analysis that the client's compliance function can hold on file.

Where a transaction requires a specific licence, we assess eligibility, prepare and submit the licence application, and manage the regulator's queries through to a decision. Where a transaction has already been flagged by a bank or an insurer, we scope the apparent issue, advise on any reporting obligation – including the VSD (voluntary self-disclosure to a regulator) where that is the correct route – and prepare the defence file.

For the cross-regime dimension, we coordinate the US, UK, and EU analysis so that a client's compliance team receives a single, consolidated view of what each applicable regime requires, rather than three separate opinions that may conflict on the operative facts.

The position above covers the standard transaction. Your facts – the counterparty, the vessel's ownership chain, the cargo origin, the financing structure – change the analysis. For an assessment of your exposure under OFAC and the applicable cross-border regimes, contact Calder & Vance at info@caldervance.com.

If a transaction has already been flagged by a bank, an insurer, or a regulator, an early review can preserve options that narrow with time. To discuss the position, write to info@caldervance.com.

Related practices

• AIS anomaly indicators (EU) – identifying and assessing vessel-tracking anomalies under EU maritime sanctions
• Transit and rerouting red flags (EU) – diligence support for re-export and transit transactions raising EU sanctions risk
• Vessel insurance verification (OFSI) – UK financial-sanctions compliance review for vessel insurance and cover confirmation

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@caldervance.com.