OFAC 50 Percent Rule

The OFAC 50 Percent Rule is the US Treasury Office of Foreign Assets Control's position that any entity owned, directly or indirectly, 50% or more in the aggregate by one or more blocked persons is itself treated as blocked, whether or not the entity appears on the SDN list. OFAC issued its current guidance on the rule on August 13, 2014, and answers the common questions in FAQs 398 to 402.

How the rule works

• Ownership only. FAQ 398: "OFAC's 50 Percent Rule speaks only to ownership and not to control." An entity a blocked person controls but does not own at 50% or more is not automatically blocked, though OFAC may designate it separately.
• Aggregation. Stakes of different blocked persons add up. FAQ 399: if one blocked person owns 25% and another owns 25%, the entity is blocked.
• Indirect ownership. FAQ 401 counts shares held through other entities that are themselves 50% or more owned by blocked persons. Ownership passes down the chain.
• Blocked individuals in unblocked companies. FAQ 400 cautions US persons to be careful dealing with non-blocked entities in which blocked individuals are involved: sanctions generally prohibit transactions involving a blocked person "even if the blocked person is acting on behalf of a non-blocked entity," and US persons may not, for example, enter into contracts signed by a blocked individual.

Why it matters in KYB review

Name screening only finds names on a list. A company owned 60% by a sanctioned oligarch through two holding companies will not appear on the SDN list and will clear a name-only screen. Catching it requires the ownership work that KYB already does: tracing the chain to the natural persons, then screening every owner at every layer and adding up the blocked stakes.

What an analyst checks

• The complete ownership chain, with percentages at each layer, from registry filings, shareholder registers or certified structure charts.
• Screening of every entity and individual in the chain, not only the applicant and its ultimate beneficial owners.
• The aggregate blocked share, recalculated through each intermediate entity.
• Directors, officers and signatories who are blocked persons, even where ownership is below 50%.
• Recent ownership changes, especially transfers made shortly before or after a designation. OFAC addresses divestment in FAQ 402.

Common pitfalls

• Stopping the ownership trace at the 25% beneficial-ownership threshold. The 50 Percent Rule aggregates across all blocked owners, so smaller stakes matter.
• Screening only the top-level applicant.
• Relying on an ownership chart the applicant drew without registry evidence behind it.
• Treating "not on the SDN list" as "not blocked."

Related terms

OFAC SDN list, ultimate beneficial owner, 25% ownership threshold, alert escalation.

Sweat AI is an AI-native BPO for banks and fintechs, working onboarding and fraud queues 24/7. Our analysts trace ownership chains, screen every layer and show the evidence and arithmetic behind each conclusion, so your sanctions team can make the call. See business investigations.