OFAC 50 percent rule explained

The OFAC 50 percent rule provides that any entity owned, directly or indirectly, 50 percent or more in the aggregate by one or more blocked persons is itself a blocked person, whether or not that entity appears on the SDN List. The rule is ownership-based. It is central to sanctions screening of counterparties, owners and intermediate holding companies in export, project and real estate credit.

How the OFAC 50 percent rule sets the ownership threshold

OFAC's revised guidance of 13 August 2014 states that blocked persons are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered blocked. Property and interests in property of that entity are blocked regardless of SDN listing. A U.S. person generally may not engage in transactions with such an entity unless authorised by OFAC.

FAQ 399 confirms aggregation. If Blocked Person X owns 25 percent of Entity A and Blocked Person Y owns another 25 percent of Entity A, Entity A is blocked because aggregate ownership by blocked persons is 50 percent or more. Ownership interests of persons blocked under different OFAC sanctions programmes are aggregated for that calculation. Exact 50 percent ownership meets the threshold; the guidance uses "50 percent or more" and "50 percent or greater". Property subject to blocking is defined broadly in the 2014 guidance to include any property or interest in property, tangible or intangible, including present, future or contingent interests, and interests of any nature whatsoever, direct or indirect.

In certain OFAC sanctions programmes the guidance notes a broader category of entities whose property may be blocked based on ownership or control tests that sit outside the core 50 percent ownership rule. Credit files therefore distinguish automatic blocking under the ownership rule from programme-specific definitions of a blocked government or similarly defined class.

Control without majority ownership

FAQ 398 states that the OFAC 50 percent rule speaks only to ownership and not to control. An entity controlled, but not owned 50 percent or more in the aggregate, by one or more blocked persons is not automatically blocked under the rule. OFAC may still designate that entity under available criteria or identify it as blocked property if determined to be controlled by designated persons, and add it to the SDN List.

OFAC urges caution on transactions with non-blocked entities in which blocked persons hold significant ownership below 50 percent, or which blocked persons may control other than by majority ownership. Such entities may become the subject of future designation or enforcement. FAQ 400 adds that OFAC sanctions generally prohibit transactions involving a blocked person, even when that person acts on behalf of a non-blocked entity, for example by signing a contract as an executive of a non-blocked company.

Indirect ownership through corporate chains

FAQ 401 interprets "indirectly" as ownership of shares of an entity through another entity or entities that are 50 percent or more owned in the aggregate by the blocked person or persons. OFAC's published examples show majority ownership cascading through subsidiaries, aggregation of parallel holdings, and cases where minority stakes do not create blocking.

In one example, Blocked Person X owns 50 percent of Entity A, and Entity A owns 50 percent of Entity B; Entity B is blocked because X owns Entity B indirectly at 50 percent, and Entity A is itself blocked. In another, X owns 50 percent of each of Entities A and B, and A and B each own 25 percent of Entity C; Entity C is blocked through aggregated indirect ownership of 50 percent.

Where X owns only 25 percent of each of Entities A and B, and A and B each own 50 percent of Entity C, Entity C is not blocked under the rule because A and B are not blocked and X is not treated as indirectly owning Entity C through them.

Those examples illustrate why UBO analysis and intermediate ownership charts matter for the OFAC 50 percent rule. An SPV borrower or holding company that is 50 percent or more owned by blocked persons is blocked even if the SPV name is absent from public lists. Identifier data such as an LEI supports entity resolution but does not replace ownership arithmetic. Joint ventures with two 25 percent blocked shareholders are blocked under FAQ 399 aggregation even when neither shareholder alone crosses 50 percent and even when the joint venture is absent from the SDN List.

Divestment and already blocked property

FAQ 402 addresses post-designation ownership changes. If blocked persons divest so that combined ownership falls below 50 percent, the entity is no longer automatically blocked under the rule, provided the divestment occurs entirely outside U.S. jurisdiction and does not involve U.S. persons. Property of such an entity that later comes into the United States or into the possession or control of a U.S. person while aggregate blocked ownership remains below 50 percent is not blocked by the rule.

By contrast, property that was properly blocked while the entity was owned 50 percent or more remains blocked unless OFAC authorises unblocking or SDN List removals change the position as described in FAQ 402. OFAC does not recognise unlicensed transfers of blocked property interests after property becomes blocked in the United States or in the possession or control of a U.S. person. Certain programmes also block persons on criteria separate from the 50 percent rule, including definitions of a blocked government.

Institutional boundary

The OFAC 50 percent rule is a U.S. Treasury OFAC doctrine under Executive orders and regulations administered by OFAC. It expands blocking beyond names printed on the SDN List to majority-owned subsidiaries and joint holdings. It does not by itself define EU, UK or UN listing mechanics. Credit files that rely on list matching alone are incomplete relative to this ownership test. Screening programmes therefore combine list hits with ownership due diligence sufficient to apply the aggregation and indirect ownership examples OFAC has published.