OFAC's 50 Percent Rule: How Indirect Ownership Triggers Sanctions

The Specially Designated Nationals (SDN) List is widely recognized as the definitive source for identifying individuals and organizations subject to economic sanctions. Until 2026, reliance on the list for determining whether a party is subject to sanctions will likely result in exposure to potentially substantial financial losses and severe penalties, in direct contradiction to an organization’s expectations of relying on the list to provide a “green light” for a transaction where the party is not listed.

The OFAC 50 Percent Rule, arguably the most complex provision within U.S. sanctions, creates a ‘shadow list’ of thousands of entities which are subject to legal blocking, even though their names have never appeared on any list of specially designated nationals. Under the Rule, an entity is considered to be ‘blocked’ if it is owned 50% or more, whether directly or indirectly, by one or more persons that appear on the SDN List, the UN Sanctions List(s) or other lists of specially designated nationals.

The burden of discovery is on you, not OFAC. OFAC will not publish a list of effectively blocked entities and companies under its control. It is up to each financial institution and corporation to conduct a thorough investigation in order to uncover a complex web of ownership and in order to uncover the hidden sanctioned actor(s) that are hiding behind one or more shells and/or in one or more foreign countries.

The following topics are going to be covered in this article;

1. What is the OFAC 50 Percent Rule?
2. Legal Basis: IEEPA + 2014/2022 Updates
3. Direct vs Indirect Ownership: How the Rule Propagates
4. The Aggregation Trap: Multiple SDNs Across Different Programs
5. Ownership vs Control: What the Rule Does NOT Cover
6. Practical Compliance: Step-by-Step Methodology
7. Common Compliance Pitfalls
8. What Happens When an SDN Divests Below 50%?
9. How Sanction Scanner Helps

1. What Is the OFAC 50 Percent Rule?

The 50 Percent Rule is often referred to in plain language as the sanctions “multiplier”. In practical terms it means that any entity owned by one or more specially designated national(s) (SDN) is itself considered to be “blocked” regardless of its separate existence.

The "50% rule" applies when one or more sanctioned individuals are the owners of an entity with 50% or more interest in such an entity.

The important thing to note in this example is that the owner, Sanctioned Oligarch A, is listed on the SDN list but Entity X is not. Therefore when conducting due diligence and searching the SDN list for Entity X, none will be found.

This creates a significant due diligence gap because the responsibility for identifying such relationships is placed on the financial institution conducting the due diligence. Therefore, mere “exact match” screening of a sanctions list is not sufficient as internal control and such failures will not be acceptable to OFAC under the circumstances. The fact that the financial institution did not know that the party was an SDN and was owned by the SDN is not sufficient in itself.

This is precisely where Sanction Scanner's Secondary Screening capability becomes essential. Beyond name-based list screening, Secondary Screening enables compliance teams to investigate ownership structures and identify blocked entities that would never appear on a standard SDN search.

2. Legal Basis: IEEPA + 2014/2022 Updates

OFAC’s 50 Percent Rule is an interpretative policy in the form of guidance intended to facilitate the U.S. Treasury Department’s application of its authority under a number of separate statutes and Executive orders and regulations thereunder.

OFAC exercises its authority under two primary statutes of law:

International Emergency Economic Powers Act (IEEPA): Grants the President the authority to regulate or prohibit economic transactions during a declared national emergency.

Trading with the Enemy Act (TWEA): An older law which is the basis of the sanctions on Cuba.

Regulatory Evolution

Historically, the concept of “ownership” has played a central role in determining whether or not an entity would be considered subject to certain sanctions; however, in order to address the evolving complexity of global corporate structures, the OFAC 50 Percent Rule has undergone significant updates and revisions.

Original Guidance (2008): OFAC formally established that an entity would be considered to be under the ownership or control of one or more individuals who are subject to designated sanctions if such individual(s) hold 50% percent or more of the entity’s interests.

The 2014 Expansion (Aggregation): OFAC expanded its sanctions evasion guidance with respect to calculating the aggregate amount of interests held by multiple blocked parties in an entity subject to the rule. Pursuant to this policy, a person that is subject to sanctions would be considered to be holding a majority interest in an entity if the sum of all of the individual’s interests in the entity combined with the interest(s) of any other party or parties subject to similar sanctions equals or exceeds 50% in the entity.

The December 2022 Update of the 50% Rule guidance contains important changes to the wording that affect how to calculate the interests of parties subject to the Rule. These changes include the inclusion of both direct and indirect ownership individually and in the aggregate when determining whether an entity is subject to the sanctions of one or more programs. The updated guidance contains a clear “cascading” description of how to calculate the interests of all parties subject to the Rule in multiple programs.

Note on Cuba and Sudan:

Other sanctions programs such as the Cuban Assets Control Regulations (CACR) (which are currently in place) apply an even more restrictive “interest” standard with respect to property where Cuba or a Cuban national has any interest whatsoever. Similarly, although most of the Sudan sanctions were terminated in 2017, the same “any interest” standard of restriction applies to property where an individual or entity on the List of Specially Designated Nationals and Blocked Persons (“SDN List”) or other “comprehensively sanctioned” jurisdictions (e.g. Iran, North Korea) has no interest.

3. Direct vs Indirect Ownership: How the Rule Propagates

Determining if a company is owned by a sanctioned party requires a company to review both direct and indirect owners.

Direct Ownership

This is the most straightforward scenario. If SDN X owns 100% of Company A, then Company A is blocked. If SDN X owns 50% or more of Company A, then Company A is also blocked.

• Mechanism: Review the cap table for direct shareholding by the SDN.
• Result: Automatic blocking of the company’s assets and prohibition of any transactions by the company.

Indirect Ownership (The “Cascading” Principle)

The 50 Percent Rule follows down chains of ownership until it hits a blocked intermediate entity.

The Rule of Thumb for determining when an intermediate entity is considered a “blocked person” for subsequent calculations is: if a blocked person (or multiple blocked persons) owns 50% or more of an intermediate entity, then that intermediate entity is considered a “blocked person” for all subsequent calculations down the chain.

Example 1:

SDN X owns 100% of Holding Co (a corporation). Holding Co in turn 100% owns Operating Co (a corporation). 51% of Operating Co is owned by an unblocked third party. In this case, Holding Co is considered blocked because it is 100% owned by SDN X. Therefore, any interest in Operating Co held by Holding Co is also considered a “blocked interest.” Thus, Operating Co is also considered to be blocked.

Example 2:

Many compliance officers incorrectly attempt to multiply the percentage of ownership down the chain (i.e., $60% X 40% = 24%). Such calculations are never required under the 50 Percent Rule to determine if a company is considered to be owned by a blocked person. Consider the following scenario: SDN Y owns 100% of Alpha Corp (a corporation). Alpha Corp in turn owns 40% of Beta Ltd (a limited liability company). Beta Ltd in turn 100% owns Gamma Inc (a corporation). In this case, because Alpha Corp is 100% owned by SDN Y, then Alpha Corp is considered to be blocked. However, because Alpha Corp only owns 40% of Beta Ltd, then Beta Ltd is NOT considered to be blocked because 40% is less than 50%. The chain of ownership stops here because Beta Ltd is not considered to be a blocked person. Even though SDN Y has a very significant economic interest in Gamma Inc, Gamma Inc is NOT automatically considered to be blocked under the 50 Percent Rule.

4. The Aggregation Trap: Multiple SDNs Across Different Programs

The Single-Owner Fallacy is the most common error in sanctions compliance. Many teams follow a straightforward approach for clearing transactions: They screen for a single majority shareholder and, if none are found, clear the transaction. However, this approach fails to take into account OFAC’s Aggregation Rule that requires a team to aggregate the interests of all blocked persons in an ownership structure.

Crucially, this aggregation applies across different OFAC programs.

For example, a company called “Company Z” is 25% owned by a sanctioned Russian Oligarch subject to the Russia-related sanctions and the remaining 25% owned by a designated Iranian shipping entity subject to the Iran-related sanctions. In this case, Company Z would be considered to be 100% blocked.

The reason for this is very simple: OFAC does not care why any individual or entity has been designated for sanctions. All they care about is whether the sum of the “blocked” interest(s) of any and all such individuals or entities equals or exceeds fifty percent (50%) of the entity’s ownership interests. Therefore, screening for sanctions compliance across all applicable OFAC programs is a must.

5. Ownership vs Control: What the Rule Does NOT Cover

It is important to note that the 50 Percent Rule is based solely on ownership which is defined as the legal title to shares, equity, or voting interests.

Control is described as the power to appoint and influence a board of directors, to influence management and other activities conducted by the entity, and to direct and control the entity’s affairs.

Currently, in the U.S., if an SDN controls an entity (i.e., he/she is CEO or Chairman), but only owns 10% of it, the entity is not blocked. As opposed to EU and UK (OFSI) practice and policy that incorporates control-based blocking, in the current U.S. framework, control does not automatically result in an entity being listed as blocked. However, OFAC issues a stern caution in these circumstances as control is considered a significant indicator that in the future the entity could be designated by OFAC.

OFAC even puts out a stern caution that although control is not used as a basis for blocking in and of itself, it can be used as the basis for a future entity designation by OFAC.

Sanction Scanner's Secondary Screening module is built specifically to support this methodology, automating the aggregation of ownership interests across multiple SDN programs and flagging entities that cross the 50% threshold through direct, indirect, or combined ownership.

6. Practical Compliance: Step-by-Step Methodology

Since the 50% Rule is a “shadow” regulation, we have to set up a forensic process to identify it. The following 5 step process has to be executed for high-risk counterparties:

Step 1:

Calculating the ownership of a natural person or a corporate entity requires a huge amount of quality data. You start off by identifying the Ultimate Beneficial Owners (UBOs) and from there’s a lot of information that’s available in a simple corporate registry online. However, due to the complexity of the layered structures that exist around the world, a lot more information is required than a simple click of a mouse. In order to understand the ownership structure, ask for a “Certificate of Incumbency” or a “Shareholder Declaration” from the counterparty.

Step 2:

Screen all identified names against the full SDN List including all AKA’s (Alternate Known Aliases) and Previous Names listed on an individual. In addition, ensure to screen against all programs i.e. OFAC, UN, EU, etc.

Step 3:

To find out how much Direct Stake SDNs have in a particular company or entity, you would need to look at the corporation’s shareholders or owners to see if any of them are listed as SDNs. As mentioned previously, let’s say for example that Direct SDN 1 holds if a particular entity has 10% ownership of the corporation and Direct SDN 2 has 15% ownership then together that would be a total of 25% of the entity’s ownership or interest that is blocked.

Step 4:

Is the intermediary holding company a Blocked Person or entity? If an intermediary is a Blocked Person or subject to sanctions, then all of the interests flowing through that Blocked Person or entity are also subject to be added to the Blocked Interest calculation (i.e. “sum” of the Blocked Interest). To make this calculation, one must determine if the Blocked Person or entity is a majority owner of the intermediate holding company (i.e. 50% or greater). If so, then all interests held by that intermediary holding company are to be added to the Blocked Interest calculation.

Step 5:

Add the Direct Stakes (Step 3) to the Stakes held by way of blocked intermediaries (Step 4). If the total interest of SDNs, aggregated as above, is greater than or equal to 50% then the entity is blocked.

7. Common Compliance Pitfalls

Auditors and OFAC enforcement actions consistently highlight 5 common mistakes. Relying on SDN List Screening, based on the entity’s name only: Effectively blocked individuals and entities are not listed on the SDN List under the same name as their blocked owners or controllers.

The Single-Program Filter: The sum of a Russian SDN’s 30% stake in a vehicle and a Venezuelan SDN’s 20% in the same vehicle is not blocked under OFAC’s regulations.

The “One-Level” Stop: A common practice among many firms is to verify the ownership of a company by only looking at the company immediately above it in the corporate structure. As SDNs attempt to hide behind layers of “unblocked” shell companies, one level of verification is not enough.

Treating a 49% SDN as “safe” as it is not blocked and failing to conduct enhanced monitoring and obtain board approval (as required for high-risk relationships).

Stale screening: A company’s ownership may change drastically within a short period of time (e.g. in 2024 a company was “clean”, and in 2026 it was bought by an SDN).

8. What Happens When an SDN Divests Below 50%?

An SDN can poison a company by virtue of their ownership. When an SDN realizes this, they attempt to sell their shares in order to decrease their ownership below 50% in an attempt to cease being “poisoning” to the company.

Transactions divested by an SDN for the purpose of avoiding designation as being in charge of or acting on behalf of another designated person or entity with respect to a particular entity are viewed with extreme skepticism by OFAC. For example, in May 2026, OFAC issued an Advisory on Sham Transactions, and described the following example: An SDN currently holds 75% interest in a corporation. The SDN, through a series of transactions, caused the corporation to be reduced to below 50% interest held by the SDN, by divesting his interest in the corporation to his spouse, children or other relatives and close business associates, for less than fair market value. Such a divestment and resulting decrease in ownership below 50% interest would be considered a Sham Transaction subject to the advisory issued by OFAC in May 2026, and OFAC would consider the SDN to be continuing to control the corporation, notwithstanding the fact that on a formal basis the SDN would no longer be considered to be holding a majority of interest in the corporation. To establish that an SDN has Effectively Divested an interest in an entity (and thus would no longer be considered to be a person subject to designation with respect to that entity), a person would have to establish that any subsequent reversion of that interest by such person would be an arms-length commercial transaction.

Minhac Celik

Marketing Lead

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