OFAC 50% rule: practical challenges with indirect ownership

The OFAC 50% rule states that entities owned 50% or more (directly or indirectly) by a sanctioned person are also blocked. In theory this is straightforward, but in practice we're finding it incredibly difficult to apply.

Specific challenges:

• Determining indirect ownership percentages through multi-layered structures
• Aggregating ownership across multiple SDN family members
• Keeping ownership data current

How are you implementing this in practice? Do you screen entity ownership against the SDN list at onboarding only, or on an ongoing basis?

The 50% rule is one of the most operationally complex aspects of sanctions compliance. Our approach:

At onboarding: We collect the full ownership chain and screen every individual/entity with 25%+ ownership against the SDN list. We then calculate aggregate ownership per the OFAC guidance (multiplicative method for indirect ownership).

Ongoing: This is harder. We re-screen the ownership chain whenever:

• The SDN list is updated
• We become aware of ownership changes
• The periodic KYC review triggers

Practical tip: Build a simple ownership calculator tool that your analysts can use. Input the ownership percentages at each layer, and it calculates the effective indirect ownership. Reduces errors significantly.

The 50% rule is deceptively simple on paper — if a sanctioned person or entity owns 50% or more of another entity, that entity is also blocked. The complexity explodes when you encounter chains and aggregation.

A few scenarios we help clients navigate frequently:

Chain ownership — Entity A (SDN) owns 60% of Entity B, which owns 80% of Entity C. Is Entity C blocked? Yes — you trace down the chain and the effective ownership exceeds 50%.

Aggregation — Two SDN individuals each own 30% of an entity. Individually neither hits 50%, but combined they do. OFAC treats this as a blocked entity because sanctioned persons collectively own a majority.

Minority stakes by SDNs with other indicators — An SDN owns 25% of a company but also controls the board. The 50% rule doesn't technically apply, but OFAC's broader authorities might. This is where legal counsel becomes essential.

The practical challenge is data. Most companies don't have visibility into their counterparties' ownership structures beyond the first level. Corporate registries are incomplete, beneficial ownership data is stale, and some jurisdictions simply don't disclose. This is why enhanced due diligence for sanctions-adjacent jurisdictions and sectors is so important — the 50% rule only works if you actually know the ownership.