A trading company in London closes a supply agreement with a distributor in a third market. The distributor has no name on any sanctions list. But during routine enhanced due diligence, a compliance officer discovers that a designated individual holds a significant minority stake – and that a second designated person controls the board. Neither alone meets an obvious threshold. Together, they may catch the entire counterparty. The transaction freezes. The question that follows is not administrative: it is legal. Does UK law treat that distributor as a sanctioned entity?
Under the UK sanctions regime administered by OFSI (the Office of Financial Sanctions Implementation), a non-listed entity is caught where a designated person owns or controls it within the meaning of the relevant thematic sanctions regulations. The test is broader than a single numeric ownership threshold: it extends to control exercised through voting rights, board appointment, contract, or other means. That breadth is both the source of the regime's reach and the cause of most assessment disputes.
This page explains what ownership and control assessments under OFSI involve, how the test operates in practice, where the UK position diverges from OFAC and EU rules, and how Calder & Vance provides legal support across each stage of the analysis.
What does the OFSI ownership and control test actually require?
The OFSI ownership and control test asks whether a designated person owns or controls a non-listed entity, either directly or indirectly, and the answer depends on the exact formulation in the regulations applicable to the relevant sanctions programme. The UK sanctions regime does not rely solely on a fixed percentage of share ownership. It reaches into entities through multiple pathways.
Ownership in the conventional sense – shares held directly – is the starting point. But the analysis does not stop there. A designated person who holds a majority stake through an intermediate holding company, a trust structure, or a nominee arrangement can still satisfy the test. The intermediate layers do not insulate the underlying entity from the designation's effect.
Control is the more demanding part of the exercise. The regulations contemplate control through voting rights in a shareholder body, the power to appoint or remove a majority of the board, contractual rights that give dominant influence over the entity's decisions, and other means that in practice produce equivalent influence. This is not a bright-line test. It requires a fact-specific evaluation of the governance documents, the shareholder agreement, the articles of association, and the actual behaviour of the parties.
In our experience, the cases that produce genuine uncertainty are rarely the straightforward majority-ownership situations. They are the ones where a designated person holds, say, thirty-five percent of the equity alongside veto rights on strategic decisions, or where a trust beneficiary who is designated receives economic benefit without formal legal ownership. These are the assessments that require legal analysis rather than a checkbox.
How does the OFSI test compare with OFAC and EU positions?
The cross-regime comparison matters for any business with counterparties that may be subject to more than one sanctions authority, and the divergences between OFAC, OFSI, and the EU are material enough to change the outcome on the same set of facts.
OFAC's approach under US sanctions is primarily a percentage-based ownership test: entities owned 50 percent or more in the aggregate by one or more blocked persons are themselves treated as blocked, regardless of whether they appear on the SDN List. The test is mechanical. Intention, management, and day-to-day independence are not relevant to the ownership calculation. Aggregation across multiple blocked holders is required, which catches situations that a single-holder analysis would miss. But outside the ownership calculation, OFAC's control analysis is less expansive than the UK position.
The EU position under Council regulations uses a combined ownership and control test that is closer to the UK approach. An entity owned or controlled by a listed person is caught. The EU analysis also requires examination of indirect ownership chains and of control exercised through means other than formal shareholding. In practice, UK and EU assessments often run in parallel for multinational clients, and the conclusions generally align – but not always, because the specific regulations in each programme can differ in their exact language.
The practical consequence of these divergences is that a business operating between the United States and the United Kingdom may face a situation where a counterparty is blocked under OFAC but not caught by OFSI, or vice versa. A well-formed assessment addresses each regime separately and then maps the combined exposure. We regularly advise clients on exactly this cross-regime mapping, particularly in transactions that involve both US-connected parties and UK-incorporated entities.
There is also a divergence in the treatment of the assessment's legal effect. Under the UK regime, OFSI can provide guidance and, in some circumstances, a formal licence that permits otherwise prohibited activity. Under OFAC, a specific licence serves a comparable function. The routes to obtaining those permissions differ in procedure, timeline, and the evidence they require. Addressing the assessment without simultaneously identifying the licensing route – if one exists – is an incomplete exercise.
What are the most common risk flags in an ownership and control assessment?
Risk flags in an ownership and control assessment arise from gaps in information, from structural features of the counterparty's governance, and from the interaction of the UK regime with other regimes that apply simultaneously.
The single most common information gap is the absence of a complete, verified ownership registry. Many jurisdictions do not maintain publicly accessible registers of beneficial ownership that are current and reliable. Where the counterparty is incorporated in a jurisdiction without effective public disclosure, the assessment depends on documents obtained directly from the counterparty or from local counsel in the relevant jurisdiction. Those documents may be incomplete, may not reflect recent transfers, or may be presented in a way that does not map clearly to the control test as formulated under UK law.
Structural features that raise the risk level include:
- Minority stakes held by designated persons alongside governance rights disproportionate to their economic interest.
- Trustee-held shares where the beneficial ownership chain passes through a designated person.
- Entities incorporated in jurisdictions where nominee shareholding is common and beneficial ownership disclosure is limited.
- Joint-venture arrangements where a designated person's entity holds less than a controlling stake but exercises veto rights under the joint-venture agreement.
- Group structures where the designated person sits above the immediate counterparty in a chain, and control flows through intermediate entities.
The interaction with other regimes is a risk flag that is frequently underestimated. A UK-incorporated business transacting with a counterparty that has US-connected parties in its ownership chain may face OFAC's extraterritorial reach as well as OFSI's domestic regime. US secondary sanctions exposure, applicable to transactions that involve designated persons under certain US programmes even where neither party is a US person, can apply to non-US businesses in a way that sits entirely outside the OFSI analysis. We advise clients to treat the cross-regime dimension as a structural part of the assessment, not an afterthought.
What is the process for conducting a compliant assessment?
A well-structured ownership and control assessment under OFSI follows a defined sequence: establish the legal test applicable to the specific sanctions programme, gather the information needed to apply it, analyse that information against the test, and document the conclusion with the evidence that supports it.
The first step is confirming which UK sanctions programme is in play. The relevant thematic regulations may differ in the precise language of the ownership and control provision, and the analysis must be anchored to the correct instrument. This is not a formality. Different programmes can produce different outcomes on similar facts.
Information gathering is the most operationally demanding part of the process. It typically involves:
- Obtaining the counterparty's current share register or, where that is not publicly available, its certificate of incumbency.
- Reviewing the constitutional documents – articles of association, shareholder agreement, memorandum of association – for provisions that confer control rights.
- Screening all identified owners and controllers against the UK Consolidated List and against any programme-specific lists.
- Tracing indirect ownership through each intermediate layer until either the natural-person level is reached or it is clear that no designated person sits in the chain.
- Identifying any contractual arrangements – supply agreements, management agreements, security interests – that could confer the kind of dominant influence captured by the control limb.
The legal analysis that follows maps what the documents reveal to the test as the regulations formulate it. Where the facts are clear, the conclusion is straightforward and the documentation brief. Where ambiguity exists – a partial ownership chain, missing documents, or governance arrangements that do not map neatly to the regulatory language – the analysis must address each possible interpretation and assign a risk level to each.
Record-keeping is part of the compliance obligation, not an optional extra. OFSI's enforcement approach places weight on whether a business can demonstrate that it took reasonable steps to identify any sanctions exposure. An assessment that is conducted but not documented is nearly as vulnerable to challenge as one that was not conducted at all.
The position above covers the standard case. Your facts – the counterparty's ownership structure, the governing programme, the jurisdiction of incorporation, the commercial relationship – change the analysis. For a legal assessment tailored to your situation, contact Calder & Vance at info@caldervance.com.
When does an ownership assessment require legal advice rather than compliance screening?
Screening tools and compliance teams handle straightforward name-match situations well. The cases that require legal analysis are those where the facts are incomplete or ambiguous, the governance structure is non-standard, the cross-regime picture is unclear, or the conclusion has material commercial consequences.
A transaction that is blocked by a positive assessment can represent a significant commercial loss. A transaction that proceeds on an incorrect assessment – one that fails to identify that a counterparty is caught – exposes the business to OFSI enforcement, which can include civil monetary penalties and referral for criminal prosecution. The risk in either direction is substantial. The decision to proceed or not is a legal judgment, not a compliance process step.
There is a persistent view in some compliance teams that a careful review of public registers and a standard screening tool is sufficient for any counterparty. That view misunderstands the control limb of the test. Control is not discoverable from a public register. It requires reviewing documents that are often not publicly available and applying a legal analysis that requires familiarity with how the test is formulated and how OFSI has applied it in practice.
In a recent matter, a financial institution in the UK was processing payment instructions for a corporate customer whose ultimate beneficial owner included two minority stakeholders. Both were designated under the same UK programme. Individually, neither met the ownership threshold. Aggregated, they did not meet it either – but one held appointment rights over two of five board members, and the other was a party to a management agreement that gave it decision authority over capital expenditure above a defined threshold. The control analysis, not the ownership calculation, determined the outcome. We assessed the position, identified the control issues, and advised on the steps required before the institution could determine whether to proceed.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact our team at info@caldervance.com to discuss where you stand.
How Calder & Vance supports clients through ownership and control assessments
Our sanctions risk and compliance practice provides legal support across every stage of an ownership and control assessment under OFSI, from the initial legal-test identification through to the documented conclusion and, where a licensing route is appropriate, the application to OFSI for a specific licence.
We test the screening logic, map ownership and control through each layer of the counterparty's structure, and produce a documented assessment that meets the standard OFSI expects of a business taking reasonable steps. Where the analysis reveals a potential breach of financial sanctions, we advise on voluntary self-disclosure (VSD – the process of proactively reporting an apparent violation to OFSI before it is discovered through other means) and prepare the penalty defence if one is needed.
For clients who face this question repeatedly – trading houses, banks with large counterparty pools, private-equity firms acquiring targets in higher-risk markets – we design and implement an assessment methodology that can be applied consistently across the portfolio. This includes the template documentation, the escalation protocol for ambiguous cases, and the record-keeping standard that OFSI's enforcement posture requires.
We also advise on the cross-border dimension. Where the same counterparty raises questions under OFAC, the EU Council regulations, or another regime, we provide an integrated assessment rather than separate advice on each regime in isolation. That cross-regime view – covering OFAC and BIS in the United States, OFSI and ECJU in the United Kingdom, and the EU Council regulations – is the foundation of effective sanctions risk management for any business operating across multiple jurisdictions.
Related practices
- UN ownership and control assessments – legal analysis of whether a counterparty is caught under the UN Consolidated List and applicable Security Council programmes.
- Sanctions compliance audit and testing – Australia – independent review of screening and compliance programme performance against Australian autonomous sanctions obligations.
- Payment processing controls – Australia – assessment of payment-channel sanctions controls for businesses processing transactions with Australian sanctions exposure.