Authored by R & D Law Chambers LLP  |  Practice led by Ravish Bhatt, Dual-qualified lawyer (India and England & Wales)  |  Bar Council of Gujarat, Enrolment G/504/2008  |  SRA (non-practising) Registration No. 492 477  |  ADIT, Chartered Institute of Taxation, London Published: 3 September 2026  |  Last reviewed: 3 September 2026

 

This article is written against Indian law as in force in September 2026, including the United Nations (Security Council) Act, 1947, section 51A of the Unlawful Activities (Prevention) Act, 1967, and section 12A of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005. Foreign sanctions regimes are described factually, with attribution to their administering authorities. We advise on Indian law; foreign law is stated for context, not as advice.

 

In short: A foreign sanction, such as a United States OFAC designation, has no direct legal force in India, which enforces only United Nations Security Council measures. Yet it can freeze your Indian account, because the pressure travels not through law but through the US dollar: any dollar payment clears through a US bank that must block it. Law and money take different roads, and it is the money road that reaches you.

 

Index of Topics

1. What sanctions are, and the one distinction that decides everything
2. Does a foreign sanction have legal force in India?
3. Then why did my account get frozen?
4. OFAC, and why it reaches beyond the United States
5. The 50 percent rule: how you get blocked without being listed
6. The dollar as the transmission belt
7. OFSI and the European Union, in brief
8. What Indian law does and does not require of you
9. Where to check, and what to do first

Frequently Asked Questions

How R & D Law Chambers Works on These Matters

 

1. What sanctions are, and the one distinction that decides everything

In short: Sanctions are restrictions imposed by a State or by the United Nations on dealings with named persons, entities or sectors. The distinction that governs everything for an Indian business is between multilateral United Nations measures and autonomous measures of a single State, such as the United States, the United Kingdom or the European Union.

Sanctions come in two kinds, and the difference is not academic. United Nations Security Council sanctions are multilateral: they are agreed by the Security Council and member States are bound, by treaty, to give them effect in their own law. Autonomous sanctions are the unilateral measures of a single jurisdiction, imposed to serve its own foreign policy, of which the best known is the United States programme administered by the Office of Foreign Assets Control, or OFAC. The United Kingdom, through the Office of Financial Sanctions Implementation, and the European Union run their own autonomous programmes on the same model.

The reason to hold this distinction firmly is that only one of the two has any pathway into Indian law. A United Nations measure has a route in; an autonomous foreign measure does not. Every practical question that follows, whether your account can be frozen, what your bank will do, what you are actually obliged to do, turns on which kind of sanction is in play and on the difference between a measure having legal effect and a measure having practical effect.

 

2. Does a foreign sanction have legal force in India?

In short: No. India has no general autonomous sanctions programme of the US, UK or EU type. It implements United Nations Security Council measures and operates its own terrorism and proliferation-financing designations under the UAPA and the WMD Act. A United States, United Kingdom or European Union designation is not, by itself, enforceable as law in India and breaches no Indian legal obligation.

India gives effect to sanctions through the United Nations (Security Council) Act, 1947, which is the statute by which Security Council decisions are implemented domestically. The operative freezing powers sit in two places. Terrorism and terrorist financing are dealt with under section 51A of the Unlawful Activities (Prevention) Act, 1967, which empowers the Central Government to freeze, seize or attach the funds of individuals and entities listed in the Schedule to the relevant order, and to prohibit funds being made available to them. Proliferation financing is dealt with under section 12A of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005.

What matters is what these instruments have in common: each of them domesticates a United Nations listing. The list that an Indian bank or authority is bound to act upon is the United Nations Security Council consolidated list, adopted into the Schedule maintained by the Ministry of Home Affairs and circulated to regulated entities. There is no Indian statute that adopts the OFAC list, the United Kingdom list or the European Union list. So a designation made by a foreign authority, and only by that authority, has no direct legal force in India. It is not an Indian-law disqualification, and non-compliance with it is not, in itself, an offence under Indian law.

 

3. Then why did my account get frozen?

In short: Because the pressure of a foreign sanction reaches India through the banking system, not through the law. An Indian bank that clears United States dollars must protect its access to the US financial system, so it screens against the OFAC list voluntarily and freezes an exposed account, even though no Indian law compels it to.

This is the asymmetry at the heart of the subject, and it is the point most commentary misses. The law and the money travel on entirely different roads. On the legal road, a foreign designation goes nowhere in India, as the previous section shows. On the money road, it can reach an Indian account overnight. The reason is that an Indian bank does not process dollar payments in isolation. To move dollars across borders it relies on a relationship with a bank in the United States, its correspondent, and that United States bank is bound by OFAC. To protect that relationship, which is its gateway to the entire dollar system, the Indian bank screens its own customers against the OFAC list and acts on a match, freezing the account as a matter of its own commercial self-protection, not because an Indian court or regulator has ordered it.

Consider a de-identified example drawn from the finance-company sector in the International Financial Services Centre at GIFT City, and from ship-leasing units in particular. A newly registered unit acquires a vessel and flags it in India, intending to build a leasing business. Its foreign parent is then designated by OFAC. The unit itself is named on no list and has breached no Indian law. Within weeks its Indian bank identifies the connection through routine screening and freezes the account. The unit is solvent and lawful in India, and completely unable to operate. The IFSC-specific dimensions of this, the effect on registration and the change-of-control route out, are dealt with on our GIFT City practice site. The point for present purposes is general: the freeze came from the bank, not from Indian law.

 

4. OFAC, and why it reaches beyond the United States

In short: OFAC administers United States sanctions. Its rules bind US persons directly, and it publishes the Specially Designated Nationals list, whose members are blocked. It reaches non-US parties indirectly, principally through the US dollar and through ownership links, which is why an Indian business with no US presence can still be caught.

OFAC is the United States Treasury office that administers and enforces United States economic sanctions. Its prohibitions bind United States persons directly, meaning US citizens, US companies, anyone in the United States, and US banks. The persons it targets are placed on the Specially Designated Nationals and Blocked Persons list, and their property within US reach is blocked, with US persons prohibited from dealing with them.

An Indian business is not a US person and is not directly bound. The reach is indirect, and it operates through two mechanisms that the next two sections explain: ownership, through what is called the 50 percent rule, by which an unlisted entity is treated as blocked because of who owns it; and currency, through the dollar clearing system, by which a payment is screened and blocked as it passes through a US bank. Understanding these two mechanisms is what tells an Indian board where its real exposure lies, and, equally important, where it does not.

 

5. The 50 percent rule: how you get blocked without being listed

In short: Under OFAC’s published 50 percent rule, any entity owned 50 percent or more, directly or indirectly and in the aggregate, by one or more blocked persons is itself blocked, even though it is named on no list. This is how an Indian company is treated as sanctioned because of its shareholder, not because of anything it has done.

The single most important mechanism for an Indian business to understand is OFAC’s 50 percent rule, because it is the one that catches companies that are on no list and have done nothing. On OFAC’s own guidance, the property and interests in property of an entity that is owned 50 percent or more, directly or indirectly, by one or more blocked persons are considered blocked, regardless of whether that entity itself appears on the Specially Designated Nationals list. The blocking is automatic and derivative: there is no announcement and no separate listing.

Two features make the rule wider than it first appears. First, ownership is aggregated: on OFAC’s guidance, if one blocked person owns 25 percent and another owns a further 25 percent, the entity is blocked, and stakes held under different sanctions programmes are added together. Second, ownership is traced indirectly through chains, so an entity can be blocked because it is owned by another entity that is itself owned by a blocked person. Note the boundary, because it is a genuine limit: the rule speaks to ownership, not control. On OFAC’s guidance, an entity that is controlled by a blocked person, but not owned 50 percent or more, is not automatically blocked, though OFAC may separately designate it. For an Indian company whose majority shareholder is designated, the consequence is stark. The company is treated as blocked by operation of the rule, and every bank that screens against OFAC will treat it accordingly, all without the company ever appearing on a list.

 

6. The dollar as the transmission belt

In short: There is no offshore dollar. Every US dollar payment ultimately clears through a bank in the United States, which screens the parties named in the instruction and must block the payment where any is a blocked person. This is why a dollar leg exposes you to OFAC and an Indian rupee transaction, with no US party, generally does not.

If ownership is the first mechanism, currency is the second, and it is the one that reaches an account that is otherwise entirely Indian. The dollar is not something a bank outside the United States can move on its own. Cross-border dollar payments settle through the United States banking system, so any dollar payment, wherever it starts and wherever it ends, passes at some point through a US correspondent bank. On OFAC’s guidance, that US bank screens the parties named in the payment instruction, and where a party in the chain is, or is known or reasonably suspected to be, a blocked person, the bank must block the funds and report the block, whether it is the originating or an intermediary bank. A bank acting solely as an intermediary, with no direct relationship and no reason to know of a party’s blocked status, is not expected to research non-account parties; but banks screen every named party through automated interdiction systems, so a designated party in the chain is caught in practice.

This is why the currency of a payment is not a matter of mere convenience. A dollar leg pulls the transaction into US jurisdiction and exposes it to the full screening and blocking machinery, even where none of the direct parties is American. A payment made and received in Indian rupees, through the domestic banking system, with no US person and no blocked party in the chain, does not touch a US correspondent bank and is not caught by this machinery. That distinction, between a payment that touches the dollar system and one that does not, is often the practical difference between exposure and safety, and it is the foundation of the lawful responses discussed later in this series.

 

7. OFSI and the European Union, in brief

In short: The United States is not alone. The United Kingdom, through OFSI, and the European Union run their own autonomous sanctions regimes, each with its own lists and its own reach. Like OFAC measures, and unlike United Nations measures, these have no direct legal force in India, but they matter wherever sterling, euro or a UK or EU nexus is involved.

It would be a mistake to treat this as a United States problem alone. The United Kingdom administers its autonomous sanctions through the Office of Financial Sanctions Implementation, part of His Majesty’s Treasury, under the Sanctions and Anti-Money Laundering Act 2018; its designations are consolidated in the UK Sanctions List, published by the Foreign, Commonwealth and Development Office, which replaced OFSI’s own Consolidated List of Asset Freeze Targets on 28 January 2026. The European Union maintains its own regime and consolidated list, binding within the Union. The same logic applies to each: a designation reaches an Indian business practically, through banks and counterparties that must comply to protect their own access to sterling, euro clearing or the relevant market, rather than legally, through any Indian obligation.

The practical implication is to look at the whole currency and counterparty map of a transaction, not only its dollar leg. A payment routed in sterling or euro, or a counterparty with a United Kingdom or European Union nexus, brings the corresponding regime into view. The analytical approach is identical to the OFAC analysis: identify the foreign nexus, identify who is bound by it, and identify how, if at all, it reaches you.

 

8. What Indian law does and does not require of you

In short: Under Indian law you must screen against the United Nations and the UAPA lists that India has adopted, not against OFAC. You are not obliged to enforce foreign autonomous sanctions, and doing so is a commercial choice, not a legal duty. The prudent course is to know your counterparties and to keep a record of the screening you have done.

Because the legal and the practical are so easily confused, it is worth stating plainly what an Indian business is actually obliged to do. Its legal screening duty runs to the lists that Indian law has adopted: the United Nations Security Council consolidated list and the Schedule maintained under section 51A of the Unlawful Activities (Prevention) Act, 1967, which are what a reporting entity is required to screen against and act upon. It is not, as a matter of Indian law, obliged to screen against or enforce the OFAC, United Kingdom or European Union lists. Compliance with those foreign measures, where a business chooses it, is driven by commercial exposure through the dollar or a foreign nexus, not by an Indian legal command.

Two misconceptions are worth correcting because they are so common. The first is that OFAC does not apply in India, so it can be ignored: true as to legal force, dangerous as to practical effect, because the banking system will act on it regardless. The second is that an Indian account cannot be frozen without an Indian order: untrue in practice, because a bank protecting its dollar clearing will freeze on its own initiative. The sensible posture is to screen counterparties against the lists that bind you, to understand where your transactions touch a foreign currency or nexus, and to document the diligence you have carried out, so that your position is demonstrable if a bank or regulator ever asks.

 

9. Where to check, and what to do first

In short: Check the relevant lists directly: the OFAC and United Kingdom and European Union lists for practical exposure, and the United Nations consolidated list and the Indian UAPA and Ministry of Home Affairs lists for your legal obligations. If an account is frozen, establish the precise ground, map where your dealings touch the dollar, and take advice before acting.

The lists are public and should be checked at source rather than through intermediaries. For practical exposure, the OFAC Specially Designated Nationals list, the UK Sanctions List published by the Foreign, Commonwealth and Development Office (which replaced OFSI’s Consolidated List on 28 January 2026), and the European Union consolidated list. For your Indian legal obligations, the United Nations Security Council consolidated list, and the designations under the Unlawful Activities (Prevention) Act, 1967 published through the Ministry of Home Affairs. Screening the right list for the right purpose is the first discipline: the foreign lists tell you where a bank may act against you, the Indian and United Nations lists tell you what you must act upon.

If an account has already been frozen, the orderly first steps are to establish from the bank the precise basis of the freeze and which list entry it rests on, to map which of your dealings actually touch the dollar or a foreign nexus, and to preserve your ability to operate lawfully in Indian rupees where no foreign party is involved. Contesting a designation through the proper channels, and restructuring ownership to move out from under a designated shareholder, are lawful and available responses, and they are the subject of the next article in this series. What no business should do is attempt to disguise or strip the sanctioned connection from a payment, which is itself an offence in the jurisdictions that matter and converts a manageable commercial problem into a serious one.

Sanctions regimes at a glance

Regime	Legal effect in India	How it reaches an Indian business
United Nations	Yes, adopted through the UN (Security Council) Act, 1947 and UAPA section 51A	Directly, as a legal obligation to freeze and not to deal
United States (OFAC)	None directly	Through the US dollar clearing system and the 50 percent ownership rule
United Kingdom (OFSI)	None directly	Through sterling clearing and any United Kingdom nexus
European Union	None directly	Through euro clearing and any European Union nexus

 

Frequently Asked Questions

• Is an OFAC designation legally binding in India?

No. India gives domestic legal effect only to United Nations Security Council measures, through the United Nations (Security Council) Act, 1947, section 51A of the Unlawful Activities (Prevention) Act, 1967, and section 12A of the Weapons of Mass Destruction Act, 2005. An OFAC designation is a unilateral United States measure with no direct legal force in India, though it can have serious practical effect through the banking system.

 

• Can an Indian bank freeze my account because of a foreign sanction, without any Indian order?

Yes, in practice. A bank that clears United States dollars must protect its correspondent relationship with a US bank, which is bound by OFAC. To do so it screens its customers against the OFAC list and can freeze an exposed account on its own initiative, as a matter of commercial self-protection, even though no Indian law requires it.

 

• What is the OFAC 50 percent rule?

It is OFAC guidance under which any entity owned 50 percent or more, directly or indirectly and in the aggregate, by one or more blocked persons is itself treated as blocked, even if it is not named on any list. Ownership stakes of different blocked persons are added together, and ownership is traced through chains. The rule turns on ownership, not control.

 

• Does the currency of a payment affect my sanctions exposure?

Yes, significantly. Every United States dollar payment clears through a US bank that screens the parties named in the payment chain and must block it where any party is a blocked person. A payment made and received in Indian rupees, with no United States party in the chain, does not pass through that machinery, which is why rupee transactions with no foreign nexus generally sit outside OFAC exposure.

 

• Am I legally required to screen against the OFAC list in India?

No. Your Indian legal screening duty runs to the United Nations consolidated list and the designations under the Unlawful Activities (Prevention) Act, 1967. Screening against OFAC, United Kingdom or European Union lists is a commercial precaution driven by your exposure through the dollar or a foreign nexus, not an Indian legal obligation, though it is often prudent.

 

• My account is frozen over a foreign sanction. What should I do first?

Establish from the bank the precise ground and the list entry it rests on, map which of your dealings actually touch the United States dollar or a foreign nexus, and preserve your ability to operate lawfully in Indian rupees where no foreign party is involved. Take advice before acting. Do not attempt to disguise the connection in any payment, which is itself an offence.

 

How R & D Law Chambers Works on These Matters

Sanctions exposure in India is misunderstood in both directions. Some businesses assume a foreign designation binds them as law and over-react; others assume it can be ignored because it has no Indian legal force, and are caught when a bank freezes their account regardless. The value we bring is the distinction this article is built on: separating what a foreign measure does in Indian law, which is little, from what it does through the banking system, which can be immediate, and advising on each separately and accurately.

Because we act on these matters, and not only write about them, we work from where the pressure actually comes from. We identify the precise legal and practical exposure, advise on lawful responses, contesting a designation through proper channels, restructuring ownership, ring-fencing genuine rupee business with no foreign nexus, and represent clients before Indian regulators where a foreign designation has consequences for an Indian licence or account. The aim is always lawful navigation, never circumvention.

Related services:

• Corporate and cross-border advisory
• Foreign investment and acquisitions advisory
• IFSC and GIFT City transaction support

 

This article is for general information on Indian law and does not constitute legal advice. Foreign sanctions regimes are described for context and are not analysed as advice on foreign law. Sanctions positions change frequently; verify the current position and take specific advice before acting. No lawyer-client relationship arises from reading this article.