Sanctions Ownership Rule (50 Percent Rule)

The sanctions ownership rule is the principle that sanctions on a person extend to companies that the person owns, even if those companies do not appear on a sanctions list. In the United States, the Office of Foreign Assets Control (OFAC) applies the 50 Percent Rule: any entity owned 50 per cent or more, directly or indirectly, individually or in aggregate, by one or more blocked persons is itself treated as blocked. The European Union and the United Kingdom apply related tests based on ownership of more than 50 per cent or on control.

The rule closes an obvious gap in list-based sanctions: without it, a sanctioned person could simply trade through a newly formed company. It makes ownership analysis a core part of sanctions screening, so banks, payment firms and businesses must look beyond names to the beneficial ownership of their counterparties.

Imagine a club bans a troublemaker. If the troublemaker could get in simply by wearing a badge that said "Smith Ltd", the ban would be pointless. So the club's rule says that anyone acting for a company mostly owned by the troublemaker is banned too.

Sanctions work the same way. When a government blocks a person or company, it also blocks the businesses they own, wholly or mostly, even if those businesses are never named. Banks and companies must therefore look into who owns their customers and suppliers, not only check names against a list.

OFAC's guidance, revised in 2014 to make clear that holdings are aggregated, sets out the main features:

• Aggregation. Ownership by different blocked persons is added together. If one specially designated national owns 30 per cent of a company and another owns 25 per cent, the company is 55 per cent owned by blocked persons and is blocked.
• Indirect ownership. A blocked entity's holdings count in full down the chain. If the blocked company in that example owns 60 per cent of a subsidiary, the subsidiary is blocked too.
• Ownership, not control. The rule is triggered by ownership. An entity that a blocked person controls without owning 50 per cent is not automatically blocked, although OFAC warns that dealings with such entities carry risk and it may designate them separately.
• Effect. US persons must block the property and interests in property of such an entity and may not deal with it unless authorised by a licence.

Indirect ownership through an entity that is not itself blocked is calculated proportionally. If a blocked person owns 40 per cent of Company A and Company A owns all of Company B, the blocked person's indirect interest in Company B is 0.40 × 100 per cent = 40 per cent, so Company B is not blocked by ownership alone.

EU economic sanctions regulations on asset freezes prohibit making funds or economic resources available, directly or indirectly, to listed persons. The Council's guidance on implementation treats an entity as owned by a listed person if that person holds more than 50 per cent of its proprietary rights, and as controlled if the person can, for example, appoint a majority of its board or exercise a dominant influence. Funds made available to an owned or controlled entity are presumed to be made available to the listed person, unless that presumption is rebutted. The United Kingdom's Office of Financial Sanctions Implementation applies a similar ownership-and-control test, and the meaning of control in UK sanctions law has been the subject of court decisions and government clarification. Because the thresholds and the role of control differ, an entity can be caught in one jurisdiction but not another.

Firms cannot rely on screening names against the SDN list and other sanctions lists alone. They collect ownership information during Know Your Business checks, use corporate registries and commercial data that flag entities owned by sanctioned persons, and recalculate exposure when ownership changes or new designations occur. Complex chains, trusts, nominee owners, shell companies and recent transfers of shares deserve particular scrutiny, as they are common methods of sanctions evasion. Where ownership cannot be established, firms often treat the entity as high risk or decline the business.

Accurate ownership data is often unavailable, especially for private companies in high-risk jurisdictions, and owners may divest shares just below the threshold while keeping influence. The difference between ownership-based and control-based tests creates uncertainty for global firms, which typically apply the strictest standard across their operations. Non-US firms dealing in US dollars or with US persons also need to consider secondary sanctions risk, which can arise even where local law does not prohibit the transaction.

• Office of Foreign Assets Control (OFAC)