Why OFAC’s 50 Percent Rule Demands Deeper Due Diligence
Beyond the Surface: Why OFAC’s 50 Percent Rule Demands Deeper Due Diligence
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Sanctions
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OFAC50
OFAC 50% rule
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Many of our clients have heard of the OFAC 50 Percent Rule — but aren’t entirely sure what it really means or how it affects their business. The rule is both significant and far-reaching, with implications that extend well beyond the surface. In this post, we’ll break down what the rule actually is, explain why it requires deeper due diligence, and outline practical steps your organisation can take to identify and mitigate hidden sanctions risks.
What is the OFAC 50 Percent Rule?
The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Among its most critical and far-reaching regulations is its 50 Percent Rule, introduced in 2014.
Under the rule:
Any entity that is owned 50 percent or more, directly or indirectly, by one or more blocked (i.e. sanctioned) persons is itself considered a blocked person—even if it is not explicitly listed on OFAC’s Specially Designated Nationals (SDN) List.
This rule ensures that sanctioned individuals cannot circumvent restrictions through affiliated businesses or layered corporate structures.
Key Elements of the Rule
Direct or Indirect Ownership: Ownership through multiple layers of entities still counts.
Aggregate Ownership: OFAC aggregates ownership by multiple sanctioned parties.
No Need for Control: Ownership is sufficient; operational control is not required.
Automatic Blocking: Entities meeting the 50% threshold are automatically subject to sanctions, with or without explicit listing.
Practical Application and Risk Exposure: Real-World Implications for Themis Clients
Beyond the SDN List: Many organisations assume that screening names against the SDN list is sufficient. However, the OFAC 50 Percent Rule requires deeper due diligence into beneficial ownership, including complex, multi-tier corporate structures.
Business Relationships at Risk: Clients must ensure that suppliers, intermediaries, investment targets, and partners are not inadvertently owned by sanctioned individuals or entities. Failing to detect indirect ownership can result in inadvertent sanctions violations.
Monitoring Change Over Time: Ownership structures are dynamic. Mergers, acquisitions, and equity transfers can cause a previously compliant entity to become blocked under OFAC rules.
Ownership Scenarios & Legal Thresholds
OFAC’s Definitions in Practice
Scenario
Outcome
A sanctioned person owns 60% of a company
Blocked – meets direct ownership threshold
Sanctioned Person A owns 60% of Company X; Company X owns 90% of Company Y
Blocked – indirect ownership is 54% (60% x 90%)
Sanctioned Person A owns 30%, Person B owns 25% of same entity
Blocked – aggregated ownership = 55%
A sanctioned individual controls board decisions, but owns only 30%
Not automatically blocked – control ≠ ownership
Note: While OFAC’s rule does not formally apply to “control,” OFAC may still designate entities under broader sanctions programmes based on influence or other factors.
Indirect Ownership Explained
Indirect ownership is defined as a situation where the blocked person holds ownership through other entities that are themselves 50% or more owned by the blocked person.
This means firms must examine all levels of the ownership chain, which may involve:
Corporate registries
Shareholder agreements
Beneficial ownership data
Regulatory filings
Uncovering Indirect Ownership Risk
Scenario: A European manufacturing company is evaluating a new supplier. Initial checks show no sanctions risk.
Due Diligence Outcome:
The supplier is 90% owned by a holding company.
That holding company is 60% owned by a sanctioned individual.
Result: Indirect ownership of the supplier = 54%, rendering it blocked under OFAC regulations.
Desired Outcome: The risk should be flagged and the transaction halted—preventing potential legal exposure.
The Risks of Non-Compliance
Failure to identify a blocked entity—even unintentionally—can lead to:
Civil penalties (substantial fines ranging from thousands to billions of dollars, depending on the scale and nature of the breach)
Reputational damage
Regulatory investigations
Disruption of business relationships
Now that we’ve covered the basics of the rule, let’s explore how it plays out in practice by walking through a few real-world scenarios.
Cases of Enforcement
Case Study 1: Insurance Coverage with Hidden Ties
In late 2023, Privilege Underwriters Reciprocal Exchange (PURE), a U.S.-based insurer, was penalised for issuing policies and processing claims for Medallion, Inc., a Panamanian company that, on the surface, appeared compliant.
$300,000+ in transactions conducted across 39 engagements.
Ownership link: Medallion was majority-owned by sanctioned Russian oligarch Viktor Vekselberg.
PURE had internal documentation dating back to 2010 confirming the link.
Compliance lapse: Vekselberg’s name was not integrated into their sanctions screening programme.
“This case demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls... including risk-based steps to comply with OFAC’s 50 Percent Rule.” – OFAC
Outcome: OFAC deemed Medallion a blocked entity under the 50 Percent Rule. Despite the entity not being explicitly listed, PURE was fined $466,200—a costly reminder that effective sanctions screening must go beyond name-matching.
AMAN Search
Case Study 2: Missed Ownership Links in Software Sales
In April 2023, Microsoft entered into a multi-million-dollar settlement with OFAC after discovering that its subsidiaries had provided software and services to entities indirectly owned by sanctioned individuals. While the counterparties were not explicitly listed on the SDN List, they were majority-owned by individuals who were—placing them firmly within the scope of the OFAC 50 Percent Rule.
Violation: Subsidiaries transacted with companies majority-owned by SDNs.
Screening gap: Microsoft’s compliance systems failed to detect indirect ownership links.
Scope: Transactions occurred in jurisdictions with high sanctions risk.
“This case highlights that even the largest companies, despite having extensive compliance resources, can struggle to identify complex ownership links to sanctioned individuals.”
– Case Analysis
Outcome: Microsoft paid a significant settlement and was publicly cited by OFAC. The incident underscores the importance of screening not only direct counterparties but also their ultimate beneficial owners—particularly in high-risk geographies.
Case Study 3: Manufacturing Giant Caught by Association
In 2022, Zoltek Companies, a Missouri-based subsidiary of Toray Industries, became the subject of OFAC enforcement after its Hungarian unit conducted transactions with OJSC Polymir—a Belarusian firm not itself listed as an SDN but majority-owned by J.S.C. Naftan, a sanctioned entity.
Violation: Zoltek approved 26 purchases of acrylonitrile, an industrial chemical used in plastics and synthetic fibres.
Ownership link: OJSC Polymir was majority-owned by SDN-listed J.S.C. Naftan.
Misjudged risk: The counterpart wasn’t listed but still qualified as blocked under the 50 Percent Rule.
“Even indirect exposure to sanctioned ownership—when facilitated by U.S. persons—can trigger enforcement.”
– Case Analysis
Outcome: OFAC imposed a $7.7 million penalty on Zoltek, citing violations of the 50 Percent Rule. The case also generated adverse media coverage, reinforcing the need for enhanced due diligence and ownership screening—even when counterparties aren’t directly listed.
AMAN Search and Screening
Compliance Recommendations for AMAN Clients
At AMAN, we understand the complexities of complying with the OFAC 50 Percent Rule and the critical importance of getting it right. That’s why we’ve built our platform to help organisations meet these compliance obligations with confidence and efficiency.
A key element of this is the enhancement of AMAN Search through the integration of Dow Jones’ specialised OFAC 50 Percent data into AMAN’s comprehensive financial crime dataset. This integration further strengthens our ability to support clients in navigating complex regulatory landscapes and in meeting compliance challenges. In today’s increasingly intricate financial environment, standardising due diligence and forging partnerships that unite best-in-class data sources are essential to combating financial crime effectively.
So, What Should Your Organisation be Doing to Meet OFAC50 Obligations?
Conduct Full Ownership Screening: Go beyond name-matching. Evaluate shareholding structures across all counterparties.
Utilise Reputable Data Sources: Our data enhancement with Dow Jones’ Sanctions Ownership Research covers:
Over 21,000 OFAC-related profiles
Entities with ≥10% ownership by blocked persons
Board and senior management screening
State-owned enterprises from comprehensively sanctioned regimes
Assess Aggregated Ownership: Screen for multiple sanctioned persons holding partial stakes—ownership is cumulative.
Monitor Relationships Over Time: Set up alerts or continuous monitoring for material ownership changes.
Document and Justify All Decisions: Maintain clear audit trails to demonstrate due diligence and compliance posture.
Why Choose AMAN for Your Compliance Needs?
AMAN provides clients with action able insights and automated tools to manage sanctions risks effectively:
Deep Ownership Analysis: Drill down through corporate connections and map out indirect or layered ownership, via AMAN’s comprehensive data feed.
Global Coverage, Local Precision: Sanctions compliance is increasingly jurisdiction-specific. Themis ensures alignment with U.S., EU, UK, and UN standards, among others.
Audit-Ready Compliance: Build a defensible framework to meet regulator expectations.
Expert-led Compliance Advisory: Consult our experts to ensure you are meeting your compliance needs and implementing evidence-based strategies.
Conclusion
OFAC’s 50 Percent Rule underscores the evolving complexity of global sanctions regimes. As enforcement intensifies and ownership structures become more opaque, the cost of inadequate due diligence rises. AMAN empowers clients with the tools and intelligence to stay compliant, proactive, and protected. Don’t let hidden ownership structures become hidden liabilities.
