OFAC 50 Percent Rule: Entities Owned by Blocked Persons

Sanctions screening does not stop at the names on a list. Under the United States rule commonly called the 50 percent rule, an entity that blocked persons own is itself treated as blocked, even when it never appears on the Specially Designated Nationals (SDN) list. For accountants, advisers and anyone who deals with companies, that makes ownership information a sanctions issue as well as an anti-money laundering one. This guide draws on OFAC's revised guidance of 13 August 2014 and its published FAQs 398 to 402. It follows our overview of the OFAC compliance framework.

The rule in one paragraph

According to OFAC's revised guidance on entities owned by persons whose property and interests in property are blocked, issued on 13 August 2014, an entity that blocked persons own, directly or indirectly, 50 percent or more of, individually or in the aggregate, is itself blocked. Its property is blocked whether or not it is named on the SDN list, and US persons generally cannot deal with it without OFAC authorisation.

Aggregation: stakes are added together

FAQ 399, dated 13 August 2014, explains that stakes held by blocked persons are added together. Its example is two blocked holders with 25 percent each, which makes the entity blocked. OFAC also says interests held by persons blocked under different sanctions programmes are combined. The practical effect is that checking each owner against a 50 percent line on its own can miss a blocked entity.

Indirect ownership and chains of companies

FAQ 401, also dated 13 August 2014, covers indirect ownership. In OFAC's description, indirect ownership runs through intermediate entities that blocked persons own 50 percent or more of, and the FAQ gives examples of how chains and combined stakes are counted. It recommends due diligence on ownership stakes and cross-refers to FAQ 116. This is why a structure chart matters: you cannot judge the rule from the first layer alone.

Ownership is not control

FAQ 398, last updated on 11 August 2020, says the rule speaks only to ownership and not to control, so an entity that a blocked person controls but does not own at the threshold is not automatically blocked. OFAC does, however, advise caution with non-blocked entities in which blocked persons have a significant ownership stake below 50 percent or may control by other means, because such entities may be designated in future or may be the subject of enforcement. OFAC's guidance also notes that some sanctions programmes, such as those on Cuba and Sudan, use a broader standard that covers entities blocked on the basis of control.

FAQ 400 deals with blocked individuals. Transactions with a blocked individual stay prohibited even when that person acts for a non-blocked entity; OFAC's example is a contract signed by a blocked individual.

Divestment

FAQ 402 says an entity falls outside the rule once blocked ownership drops below 50 percent through divestment outside US jurisdiction, while property already blocked stays blocked unless OFAC authorises dealings or removes the relevant blocked persons from the SDN list. It recommends due diligence to confirm a divestment is real and not a sham.

Why this matters for client onboarding

Customer due diligence usually asks who owns and controls a client. Those answers are the raw material for a 50 percent rule check, so the work overlaps with ultimate beneficial ownership checks. The sanctions question is narrower, because it asks whether blocked persons, alone or together, reach the threshold anywhere in the chain.

A simple illustration

The following example is our own illustration, built on the principle in FAQ 399, and is not an OFAC example. Imagine a client company owned 30 percent by one blocked person, 25 percent by a second blocked person and 45 percent by an unlisted investor. Neither blocked person reaches 50 percent alone, but together they hold 55 percent, so on OFAC's aggregation principle the company would be treated as blocked. Now imagine the same company holds 60 percent of a subsidiary. Because the parent would itself be treated as blocked, OFAC's description of indirect ownership means the subsidiary has to be examined too. A check that only compared each name against the SDN list would find neither company.

This is why firms that serve US clients, or handle US dollar payments, often ask for ownership percentages and not just names. For a wider view of where sanctions sit among the other US obligations, see our guide to US AML requirements for CPAs.

Practical steps: our suggestions

These steps are our suggestions, not requirements drawn from OFAC's text. Record the full ownership chain for entity clients, with percentages, rather than only the named beneficial owners. Screen every owner and controller, not just the client. Add up the stakes of anyone who screens as blocked before deciding whether the threshold is met. Re-screen when ownership changes and when lists are updated. Keep a dated record of what you checked, and escalate to a qualified sanctions adviser or counsel if a possible match appears.

What we could not confirm

We did not read the worked examples inside FAQ 401, FAQ 116, or the individual sanctions programme regulations, and we did not review OFAC enforcement actions. We have not confirmed how the rule is applied outside the United States; other jurisdictions, including the UK and EU, have their own ownership and control tests that we do not describe here. The FAQ dates above are those shown on OFAC's FAQ page when we read it, and OFAC can change guidance at any time. This post is general information, not legal advice.