A financial institution identifies blocked assets held in the name of a designated individual. The individual's legal team needs immediate access to funds to mount a defence. The assets are frozen. Can counsel be paid at all – and if so, how?
OFAC administers a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) process that permits payment of reasonable legal fees and related expenses from blocked funds in defined circumstances. The mechanism exists across most OFAC-administered programmes, but the conditions, documentation standards, and timelines are programme-specific. Parallel regimes in the UK and EU operate differently, and those differences matter when the designated person or their assets have cross-border connections.
This page explains how legal-fees licences under OFAC work, how to approach the application, where the cross-regime complications arise, and how Calder & Vance prepares and submits these applications on behalf of counsel, clients, and financial institutions.
What is a legal-fees licence and when is one required?
A legal-fees licence is a specific authorisation issued by OFAC permitting payment of attorneys' fees and litigation-related costs from assets that would otherwise be frozen under a sanctions programme. Without such a licence, transferring funds from a blocked account – even to pay for legal representation – constitutes a prohibited transaction under the applicable OFAC regulations.
The requirement arises wherever a designated person or entity holds assets in US jurisdiction, or where a US person is involved in the payment chain. That includes accounts held at US financial institutions, assets held by US intermediaries, and – through the extraterritorial reach of certain OFAC programmes – transactions that touch the US financial system at any point.
The trigger is straightforward: a blocked person needs legal representation and the only available funds are frozen. The legal question, however, is not straightforward. Which programme applies? Does a general licence (a standing authorisation that permits a defined category of transactions without a separate application) cover this payment, or is a specific licence application necessary? What supporting materials does OFAC require? Is there a concurrent UK or EU issue that could frustrate payment even if OFAC approves it?
In our experience, the gap between knowing a licence exists and successfully obtaining one is where clients and their counsel face the most difficulty. Getting the application right the first time matters because delays extend the period in which a designated person cannot fund their defence.
How the OFAC legal-fees licence process works
An application for a legal-fees licence is submitted to OFAC's Licensing Division and must contain enough factual and legal detail for OFAC to assess whether the proposed payment is consistent with the policy objectives of the relevant programme. The process is not a rubber stamp.
The application must identify the blocked person, describe the nature of the legal matter for which fees are sought, specify the amount or the formula for calculating the amount, identify the financial institution holding the blocked assets, and explain how the proposed payment structure prevents any benefit reaching a third party that is itself a sanctions target.
OFAC reviews the application under IEEPA or the relevant programme authority. It will consider whether any of the funds at issue are also subject to a forfeiture or asset-freeze order in another proceeding, and whether the proposed payee – the law firm – has any connections that raise concern under the applicable screening standards.
The position above covers the standard case. Your facts – the counterparty, the goods, the route, the regime in play – change the analysis. If you are at the application stage and need to submit quickly, contact Calder & Vance at info@caldervance.com.
One point practitioners note repeatedly: OFAC general licences in some programmes already authorise payment of certain legal fees up to a defined threshold without a separate application. Whether a general licence covers your situation – and how its conditions are properly read – requires careful programme-specific analysis before you file a specific licence application unnecessarily. In our practice, we check this first, because an unnecessary specific licence application consumes time and resource on both sides.
What documentation does OFAC require?
OFAC's evidentiary expectations for a legal-fees licence application are more demanding than those for many other specific licence requests. The agency must satisfy itself that the payment serves a legitimate legal purpose, that the fee is reasonable, and that the transaction structure does not provide material support to the sanctions programme's intended targets.
A well-prepared application will typically include the following categories of material.
- Identification documents for the designated person and, where relevant, co-applicants
- A description of the underlying legal matter and the jurisdiction in which it is proceeding
- An engagement letter or fee agreement from the law firm to be paid
- A statement of the amount sought, or a reasoned estimate if the matter is ongoing
- Details of the financial institution holding the blocked assets and the proposed payment mechanism
- Representations regarding the absence of sanctions-prohibited third-party beneficiaries in the payment chain
- Confirmation that the firm to be paid has conducted its own screening of the applicant and its principals
OFAC may request supplemental information following initial review. A prompt, complete response to any such request is critical to maintaining the timeline. Applications that arrive incomplete, or that generate multiple rounds of supplemental requests, can extend the process considerably.
Documentation standards also matter to the financial institution holding the funds. Banks and custodians operating as intermediaries in the payment will expect to see the licence itself and may impose their own internal review requirements before releasing funds. Anticipating those requirements at the drafting stage avoids a second delay after the licence is granted.
How does the OFAC position compare with OFSI and the EU?
Cross-border situations arise regularly: a designated individual may hold assets in multiple jurisdictions, face proceedings in more than one country, or instruct legal teams in the UK and the EU as well as in the United States. When that is the case, the licensing analysis must run in parallel across the relevant regimes – and the regimes do not align neatly.
Under OFSI (the UK's Office of Financial Sanctions Implementation), a specific licence for legal fees is also available, but the statutory authority is SAMLA – the Sanctions and Anti-Money Laundering Act – and the licensing policy reflects UK Government priorities, which may differ from OFAC's position on the same individual. The ownership and control test under UK sanctions is not identical to the OFAC 50 percent or more threshold: OFSI's test includes a control element that can capture entities where ownership alone would not trigger a freeze. This means the pool of blocked assets in the UK may be defined differently from the pool in the US, with direct consequences for which funds can be accessed under which licence.
The EU position is governed by the relevant Council Regulation. EU member states administer the licensing function nationally, though the policy framework is set at EU level. Timing and documentation requirements vary by member state competent authority. Where an individual or their assets are subject to both OFAC and EU designations, a licence from one authority does not satisfy the obligations under the other: separate applications are required, and a divergence in outcome is possible.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact us at info@caldervance.com for a confidential review.
The broader structural point is this: when the same person or asset pool is subject to multiple programmes in multiple jurisdictions, the most restrictive prohibition governs. A legal-fees licence from OFAC does not authorise a UK-regulated bank to release UK-held funds. Practitioners must map the full jurisdictional picture before advising on what is possible.
Risk flags and common mistakes in legal-fees licence applications
The most common failure point in legal-fees licence applications is an inadequate analysis of whether a general licence already covers the proposed payment. Filing a specific licence application for a transaction that falls within an existing general licence wastes time. The inverse error – assuming a general licence applies when the conditions are not met – can result in an unlicensed prohibited transaction, with potential enforcement consequences.
A second category of risk arises from the payment recipient. The law firm to be paid must itself pass screening under OFAC standards. If a partner or principal of the firm appears on a sanctions list, or if the firm operates in a jurisdiction that raises secondary-sanctions concerns, the application will face additional scrutiny. Counsel intending to act for a designated person should conduct their own OFAC screening before accepting engagement, not as an afterthought at the application stage.
Third: the structure of the payment matters. OFAC will examine whether the transaction is structured in a way that channels value to a sanctioned party other than the applicant. Fee arrangements that involve kickbacks, referral fees payable to connected parties, or contingency elements that could enrich a third party require careful structuring advice before the application is filed.
A fourth risk is timeline mismanagement. OFAC licensing timelines are not statutory in the way that court deadlines are. Processing times vary by programme and by the completeness of the application. A business or legal team that has allowed a hearing or filing deadline to approach without an approved licence in hand may find itself facing the court without funded counsel. We regularly advise on the realistic timeline at the outset, so that alternative contingency arrangements can be made if needed.
Finally: secondary-sanctions risk. For designated persons who are nationals or residents of third countries, US secondary-sanctions programmes may expose their non-US counsel to risk if those counsel have sufficient nexus to the US financial system. The question of whether non-US lawyers need OFAC clearance before being paid from blocked accounts is fact-specific and requires advice before the instruction is accepted.
A common misconception about legal-fees licences
A recurring assumption among clients is that the existence of a right to legal representation necessarily means that OFAC must approve a legal-fees licence quickly, or that the constitutional dimension of the right to counsel overrides the sanctions programme's prohibitions on a fast-track basis. That assumption is incorrect in practice.
OFAC reviews legal-fees applications under the same policy framework as any other specific licence request. The right-to-counsel considerations are a factor OFAC weighs, but they do not suspend the application process or guarantee approval in any particular timeframe. OFAC may also approve a licence for an amount it considers reasonable, which may be less than the amount requested. In our cross-border practice, we have seen situations where an initial approval covered partial fees and the balance required a supplemental application – a sequence that can significantly delay access to full representation.
The practical implication is that legal-fees licence applications should be filed as early as possible after the designation or the asset freeze, not at the point when funds are urgently needed. Early filing preserves optionality; late filing narrows it. Do you have a plan in place for funding representation if designation occurs suddenly? Building that plan before it is needed is a material risk-management step for any business with US-sanctions exposure.
How Calder & Vance supports legal-fees licence applications
Our work on legal-fees licences under OFAC covers the full cycle from application design to post-grant compliance. We act for designated individuals, for the law firms they instruct, and for the financial institutions that hold blocked assets and need to understand their obligations when a licence arrives.
We assess eligibility, prepare and submit the licence application, and manage OFAC's queries through to a determination. Where a general licence covers the proposed payment, we document that analysis so the financial institution has a clear record for its own compliance purposes. Where a specific licence is required, we structure the application to address the documentation expectations set out above, including the screening representations and the payment-mechanism description.
In a recent matter, a financial institution holding blocked assets for a designated individual received a legal-fees licence application prepared by the individual's counsel. The institution was uncertain whether the licence as drafted authorised the specific payment mechanism proposed by counsel. We reviewed the licence terms, advised the institution on the scope of the authorisation, and helped structure the release in a way that was consistent with both the licence and the institution's own compliance obligations. The matter was resolved without a formal enforcement referral.
Where the designated person holds assets in both the US and the UK or EU, we coordinate the analysis across regimes: running the OFAC application in parallel with the OFSI or member-state licensing process, identifying the cross-regime divergences, and managing the sequencing so that a licence in one jurisdiction does not create a false sense of clearance in another.
For clients who are law firms considering whether to accept an instruction from a designated person, we conduct the upfront OFAC screening and programme analysis, advise on whether counsel's own exposure to the US financial system requires a licence before fees can be received, and prepare the representations required in the licence application.
Related practices
- Frozen account management (BIS/EAR) – managing access to frozen accounts under US export-control rules
- Licence amendment and renewal (BIS/EAR) – amending and renewing existing export licences to reflect changed circumstances
- Licence amendment and renewal (BIS/EAR) – extended guidance – extended guidance on the amendment and renewal process for complex BIS licences