It's Not Just Who's on the List Anymore
For economic, political, or humanitarian reasons, U.S. law prohibits engagements with certain individuals and entities. How would you know? They tell you: they publish, and regularly update, various lists (e.g.,the U.S. Treasury's Specially Designated Nationals ("SDN") list.) Violations are a strict liability offense (and a criminal offense).
Are you safe if your counterparty is not on the list? NO. Unfortunately, many companies – and certain screening tools – make this assumption...which could prove very costly.
OFAC's "50 Percent Rule" has been around for years; now, recent enforcement shows regulators doubling down. Companies must examine relationships beyond a majority ownership stake; now, they must evaluate layered structures, proxy arrangements, and other indicators that an SDN may benefit from or direct activity.
(Because who does not love a 200 page org chart with a mystery shareholder in Cyprus?)
The 50 Percent Rule, Simplified
OFAC guidance, notably FAQ 398, makes this clear: any entity owned 50 percent or more, directly or indirectly and in the aggregate by one or more SDNs, is treated as a "deemed SDN", even if it is not itself listed.
For example: two SDNs each own 25 percent of a foreign company. That company is also deemed an SDN under U.S. law. Dealings with it are prohibited. Screening tools may not catch it, but OFAC will not accept 'we did not know' as an excuse.
The UK and EU apply similar ownership aggregation concepts, and regulators increasingly emphasize substance over form.
What Enforcement Is Telling Us
In June 2025, OFAC imposed a $215,988,868 penalty on GVA Capital for dealing in the blocked property interests of SDN Suleiman Kerimov and for failing to fully and timely comply with an OFAC subpoena. The case involved managing and attempting to transfer interests in a U.S. investment through offshore structures and a proxy relationship after Kerimov's designation.
While not a 50 percent rule case, it underscores how sanctions risk can arise through indirect interests and proxies even without majority ownership. The broader message is clear: regulators look at control, influence, and practical realities, not just percentages.
Why Your Screening Tool Might Miss It
Most sanctions screening software is designed to match names, not to calculate ownership percentages or analyze governance structures. As a result, tools may fail to:
- Aggregate indirect ownership across tiers
- Review beneficial ownership disclosures in depth
- Flag control risks such as board seats, veto rights, or dominant voting power
Even the most advanced systems are only as effective as the quality of data you provide. Without thorough ownership and control information, gaps are inevitable.
What You Should Be Doing
Protecting your organization requires more than relying on software alone. Companies should embed practical steps into their compliance process. For example:
- Ask detailed onboarding questions and request ownership structure documentation
- Supplement automated screening with human review in higher risk jurisdictions or complex joint ventures
- Escalate and document decision making when red flags surface, including why you paused the engagement or declined to proceed
- Train business teams to identify and elevate concerns early, since they are often closest to the deal
The Direction of Sanctions Compliance
Sanctions compliance is no longer about list checking. Regulators expect proactive due diligence, clear documentation of your analysis, and a willingness to ask tough questions. They focus less on what you knew and more on whether you made a reasonable effort to find out.
Across industries, companies are strengthening third party due diligence, rewriting sanctions policies, and reassessing vendor and partner relationships. The 50 Percent Rule may sound technical, but its consequences are real. In today's enforcement environment, defensibility is the standard that matters most. If you cannot show that you looked, regulators will assume you did not.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
