OFAC’s 50 Percent Rule

Sanctions compliance is about more than just checking names against a list. While most companies know not to do business with someone listed on the U.S. Treasury’s Specially Designated Nationals and Blocked Persons List (SDN List), what happens when a company isn’t on the list, yet is owned by people who are?

This is where the 50 Percent Rule comes in and where many organizations unknowingly run into risk. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has made it clear: if a blocked person owns 50% or more of an entity, that entity is automatically considered blocked, too. OFAC doesn’t publish a separate list for these entities, which means it is the responsibility of the individual or institution to figure it out.

What Exactly is the 50 Percent Rule?

In simple terms, the 50 Percent Rule says that any entity that is owned 50% or more, directly or indirectly, by one or more blocked persons is itself treated as a blocked entity.

This means:

• You cannot deal with that entity
• Its property and interests in property are blocked by operation of law
• Even if the entity isn’t on the SDN List, it must be treated as if it were

OFAC’s guidance is also clear on cumulative ownership. So, for example, if two SDNs each own 25% of a company, that company is also considered blocked, even though no single SDN owns a majority share.

It doesn’t matter if the name of the company is not itself listed on the SDN List; if the underlying ownership structure meets that 50% threshold, the risks are real and the consequences for getting it wrong can be significant.

This rule often trips up organizations as it requires looking beyond surface-level information. A company might not appear risky at all during a basic screening with no hits on the SDN List, a clean name, and registered in a non-sanctioned country. But if you dig deeper, you might find a sanctioned person sitting quietly in the background with a controlling interest.

This is especially critical in industries with complex ownership chains or high volumes of third-party relationships like banking, logistics, oil and gas, real estate, or any business operating in high-risk jurisdictions.

Engaging with a blocked entity, even unintentionally, can result in enforcement action, fines, reputational damage, and potentially losing access to the U.S. financial system. For global organizations, that’s not a risk you can afford to take.

Ownership vs. Control

One common source of confusion is the difference between ownership and control.

• OFAC’s 50 Percent Rule focuses strictly on ownership. If the total direct or indirect ownership by blocked persons hits 50% or more, the entity is blocked.
• Control, on the other hand, refers to influence even without majority ownership. While OFAC doesn’t consider entities blocked just for being controlled by SDNs, control can still raise red flags from a risk perspective and may be treated more seriously in certain jurisdictions.

Your risk assessment process should consider both ownership and control, even if they’re treated differently from a regulatory standpoint.

Determining who owns what isn’t always easy. Here’s why:

• Opaque corporate structures: Some companies layer ownership through holding companies or nominee shareholders to obscure true ownership.
• Lack of data: In some countries, corporate registries are unreliable, incomplete, or simply not available.
• Frequent changes: Ownership structures can shift quickly. Without ongoing monitoring, you might miss when a sanctioned party increases their stake.
• Indirect ownership: You need to go beyond looking at direct shareholders and look up the entire chain. This often requires enhanced due diligence and more time than many onboarding processes typically allow.

Many enforcement cases in recent years have involved situations where companies failed to uncover indirect or cumulative ownership links to sanctioned individuals. In some cases, the information was discoverable with more digging, and regulators expect companies to make that effort.

Best Practices to Stay Compliant

Here are a few practical strategies institutions can take to manage this risk effectively:

1. Go beyond basic screening: Use due diligence tools that provide ownership data, not just name screening against lists. Free and commercial databases can both be useful, depending on the jurisdictions you’re dealing with.
2. Ask the right questions: During onboarding or vendor due diligence, request disclosure of beneficial owners and any known links to sanctioned individuals or countries. Consider requiring periodic updates.
3. Understand indirect ownership: Institutions should be able to identify layered ownership structures. You may need to map ownership several levels up to get the full picture, especially in higher-risk deals.
4. Monitor changes over time: One-off checks aren’t enough. A non-sanctioned entity today can become blocked tomorrow if a sanctioned person increases their ownership share.
5. Document your decisions: When it’s unclear whether an entity is covered by the rule, document the steps you took, the information you relied on, and the rationale for your conclusion. Regulators appreciate a good-faith compliance effort.

Conclusion

The 50 Percent Rule is one of those sanctions concepts that sounds simple, but in reality, it demands real effort to apply. It’s not enough to avoid dealing with people or companies listed on sanctions lists. You also need to dig into who owns or controls the companies you work with, and make sure none of them are blocked through indirect or cumulative ownership.

Failing to do so can result in serious consequences, even if the violation was unintentional. But with the right approach, including strong due diligence, effective screening tools, and a healthy dose of skepticism, organizations can manage this risk and stay on the right side of compliance.