Frozen by one's own side: the designated partner and the three regimes

The whole program of this certification assumes that a state takes something from the insured, and that this state is the one hosting it. This course opens another case, commonplace since 2022: the measure that deprives the insured of its asset comes from its own side. The European Union, the United Kingdom or the United States designates a person, and the asset the insured thought it held safely ends up frozen without the host country having done anything. The certification's lessons on sanctions dealt with another object, the indemnity nobody can pay. This one deals with the asset itself, before any indemnity: what becomes of it when it is frozen, and why the political risk policy, almost always, sees nothing.

The first task is to pin down what a freeze is, because the word misleads. Freezing is not taking. The funds and economic resources of a designated person remain its property: they can no longer be transferred, moved or used, and nobody may provide it with new ones. US law speaks of blocked property, and the nuance matters little in practice: in both cases title remains and use disappears. Confiscation, which transfers ownership, is a different act, requiring a court decision or a specific statute, and it remains rare. For an insurer the consequence is immediate. A frozen asset has not changed owner, and no expropriation cover, which addresses deprivation of ownership or control by the host state, is triggered by the freeze itself.

The difficulty is that the freeze does not stop at the named person, and the three regimes do not extend it in the same way. The US regime applies the 50 percent rule: any entity owned, directly or indirectly, 50 percent or more by one or more designated persons, holdings added together, is blocked without appearing on any list, and control without ownership is not enough. The EU regime treats as frozen the funds of an entity owned more than 50 percent or controlled by a designated person, and control is assessed on a body of indicators: the right to appoint management, a shareholders' agreement, decisive influence. The UK regime likewise looks to ownership of more than 50 percent or to control, understood as the ability to have the company's affairs conducted in accordance with the designated person's wishes. The same company can therefore be blocked in Washington and free in Brussels, or the reverse, depending on whether the designated partner owns or controls.

Next comes the question of who is bound, because a freeze binds only those the regime can reach. EU law binds nationals of member states, companies incorporated under their law, and any transaction carried out in whole or in part in the Union. UK law likewise binds UK persons and what happens in the United Kingdom. US law reaches US persons and, through the dollar, almost any payment that passes through a US bank. A European insured that is a partner in a company designated by the United States alone is not bound by the US freeze as a matter of EU law; it nonetheless suffers it as soon as its bank, its insurer or its reinsurer complies with it. This is the mechanics of secondary sanctions, and it produces the same result: the asset becomes unusable well beyond the legal reach of the measure.

Then comes the question the insured asks on day one: does its political risk policy respond? Almost never, for three reasons that compound. The first concerns the triggering event: expropriation and non-transfer covers address acts of the host country's government, and the freeze is an act of another state, often the insured's own. The second concerns exclusions: many wordings expressly exclude losses caused by a measure of the government of the insured's home country, because the insurer cannot guarantee a risk the insured's own state decides. The third is the sanctions clause, which suspends cover to the extent a payment would expose the insurer to a restrictive measure; a payment that would benefit, even indirectly, a frozen company falls squarely under it. A very real loss can therefore fall under no policy at all, which the insured usually discovers at the same moment as the freeze.

What remains is administrative, and it is the work that counts. All three regimes provide for authorizations: published general licenses, which open a defined transaction to everyone and almost always carry an end date, and specific licenses, applied for case by case to the competent national authority in the Union, to OFSI in London, to OFAC in Washington. A non-designated partner can thus apply to receive a dividend declared before the designation, or to keep operating for the time of an orderly exit. One application is needed per applicable regime, and the delays run to weeks or months. Meanwhile the asset loses value in a way the indemnity principle captures poorly: nothing physical has happened, but a buyer will only buy at a discount that prices in the freeze, the length of the licensing process and the risk of a wider designation.

Three steps close this lesson, and the first is taken before any loss. Map the shareholders, directors and beneficial owners of every company one invests in against the three tests, ownership and control, and redo that map with every sanctions package, since lists move faster than shareholders' agreements. Read the policy to know whether it excludes acts of the home country, and whether its sanctions clause suspends or extinguishes cover, since that verb decides what is left once the measure is lifted. Finally, on the day of the designation, date and document the capital structure, the dividends already declared, the license applications and the answers to them. A freeze is lifted one day or it is not, and either way it is this file that will show what the asset was worth and what was lost.