An overview for family offices, trustees, and global private clients navigating the rising threat of sanctions exposure.
Frozen assets and designation risk are no longer the exclusive concern of political actors or sanctioned state interests. In an era of expansive sanctions regimes, private clients, particularly those with international structures, cross-border holdings, or complex associations are increasingly exposed to sudden enforcement, frozen accounts, and reputational fallout.
This blog offers an overview of how asset freezes occur, the legal mechanisms available to challenge or mitigate them, and why pro-active, jurisdiction-sensitive structuring is the only real defence. Drawing on UK, US, and EU regimes, and supported by real case studies, we offer a practical roadmap for private clients and their advisers to build sanctions resilience into their wealth planning.
Section 1: Understanding Sanctions Designations and Exposure Risk
1.1 What Is a Sanctions Designation?
A designation occurs when an individual or entity is listed under a national or international sanctions regime, such as those enforced by UK’s Office of Financial Sanctions Implementation, US’ Treasury’s Office of Foreign Assets Control (“OFSI”), or the EU’s Common Foreign and Security Policy listings (“CFSP”). Once designated, they may be subject to:
- Asset freezes: All funds or economic resources under their control become blocked.
- Transaction prohibitions: Others (including banks, trustees, and professionals) are forbidden from dealing with them or their assets.
- Reputational risk: Institutions may “de-risk” even indirectly connected parties.
1.2 Types of Exposure
Sanctions exposure can take several forms, each carrying legal and commercial risk, for instance:
- Direct Designation: When an individual or an entity are specifically named under a sanctions regime.
- Indirect Exposure: Association or proximity to designated parties, especially via ownership or control that triggers enforcement.
- Secondary Sanctions (primarily in the US): Targets non-US persons for doing business with sanctioned individuals.
Section 2: How Assets Get Frozen — Legal Mechanisms and Triggers
2.1 Legal Authority to Freeze
Sanctions enforcement is legally binding and immediate. Once designated any person or institution with knowledge of the designation must freeze assets under their control. Thus, it becomes a criminal offence to deal with those assets without a licence, as embodied under the following laws:
- UK: Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”)
- US: International Emergency Economic Powers Act (“IEEPA”)
- EU: Council Regulations under CFSP mandate
2.2 Ownership and Control Tests
Sanctions do not apply only to the individuals or entities explicitly named. Designations can extend beyond named individuals to companies, trusts, and other structures through certain ownership and control tests.
These tests vary by jurisdiction, but they aim to prevent sanctioned individuals from operating through intermediaries or proxies.
- OFAC’s “50 Percent Rule”: If a sanctioned person owns 50% or more (alone or jointly) of an entity, that entity is also treated as sanctioned, even if not named on any official list. This rule is strictly quantitative and leaves no room for discretion or analysis of actual influence.
- OFSI’s Control Standard: An entity may be considered sanctioned if a designated person has the power to direct or influence its activities, even if they hold less than 50% ownership. This includes formal means (like voting rights or board appointments) and informal influence (such as veto power or significant sway over decision-making).
- EU: The EU adopts a hybrid approach, combining elements of both the quantitative and the qualitative ownership/control criteria. It considers whether a designated person owns more than 50% of an entity or otherwise exercises control, directly or indirectly.
2.3 How Financial Institutions Respond
Banks and fiduciaries use automated screening tools, often relying on compliance databases such as World-Check, Dow Jones, LexisNexis to detect sanctions exposure.
The below constitute common triggers for freezing action:
- Positive matches with sanctions lists;
- Suspicious association with sanctioned jurisdictions or advisers;
- Flags from politically exposed person (“PEP”) databases; and
- Exposure revealed through public leaks (e.g. Panama Papers, Pandora Papers).
When a match is confirmed, assets are frozen immediately to comply with sanctions obligations and regulators are notified without delay.
Accounts linked to the designated individual or entity are either closed or heavily restricted, and professionals that are involved, such as trustees, lawyers, or advisers must stop providing services unless a licence is obtained from the relevant authority.
Section 3: Consequences of Frozen Assets for Private Clients
Once assets are frozen, the consequences escalate quickly and affect nearly every aspect of a client’s financial and legal affairs:
- No access to funds: All payments, investments, and administrative expenses must cease.
- Counterparty risk: Banks, vendors, employees, even family risk criminal liability for transacting.
- Litigation paralysis: Frozen clients often cannot fund defence or initiate new proceedings, leaving them exposed and unable to assert their rights.
- Reputational damage: Public listing and media coverage can irreversibly harm credibility and future banking access.
- Adviser exposure: Trustees, lawyers, and bankers may come under regulatory scrutiny and face reputational risk simply by association.
In some instances, entire family offices have been shut down, unable to operate due to immobilised assets and provider disengagement.
Conclusion: Designation Risk Is Structural, Not Just Situational
In today’s geopolitical climate, sanctions exposure is not a remote or hypothetical concern – it is a live legal risk. It affects not only individuals on sanctions lists, but also their entire professional, reputational, and fiduciary ecosystem.
Private clients, family offices, trustees, and advisers must therefore treat designation risk as a structural consideration, one that should be embedded into governance frameworks, investment planning, and succession architecture.
The most effective defence is therefore an advance design, independent oversight, and legal distance for all those at risk. If you are wondering whether your assets are exposed, then you are already too close.
At Linkilaw Solicitors, we support HNWIs and family offices around the world by conducting tailored sanctions exposure audits, restructuring trusts and corporate entities for long-term regulatory resilience, and providing ongoing legal monitoring of cross-border risk. If you would like to future-proof your wealth against the risk of designation, please reach out to us and we would be pleased to offer you a consultation with one of our sanctions’ specialists.
