OFAC vs OFSI: Control beyond the bright-line ownership test compared

A multinational treasury team screens a prospective joint-venture partner. The counterparty's name returns clean. Its immediate parent returns clean. The deal advances to term sheets. Three weeks later, an expanded ownership trace reveals that two sanctioned persons together hold a combined stake of just over half the parent's shares. The question is no longer whether to proceed – it is whether a violation has already occurred.

The OFAC and OFSI tests for when a non-listed entity is caught by a designation diverge in a way that matters operationally. Under OFAC, the 50 percent rule (the rule treating any entity owned 50 percent or more in aggregate by blocked persons as itself blocked) operates mechanically: ownership is the trigger, and control plays no independent legal role. Under OFSI, and under the EU ownership-and-control test, a non-listed entity may be caught even where the ownership threshold is not reached – if a designated person exercises control through other means. As of January 2026, both the UK and US regimes are under active policy development in this area, making the divergence both practically significant and evolving.

This analysis maps each point where the two regimes differ – from the legal trigger, through the aggregation methodology, to the evidence standard – and draws out the implications for a business that must comply with both simultaneously.

Divergence point one: the legal structure of the test

OFAC's 50 percent rule is a bright-line, non-discretionary trigger: if blocked persons own, directly or indirectly and in the aggregate, 50 percent or more of an entity, that entity is treated as blocked regardless of whether it appears on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons). Control is not part of the test. A designated person who owns 51 percent but exercises no operational influence over the target entity produces the same result as one who owns it entirely and directs its business.

OFSI's test under the UK financial-sanctions regime sits on a different legal foundation. The UK ownership-and-control test can catch a non-listed entity that a designated person controls, even where no ownership threshold is crossed. Control is assessed by reference to influence over the management and governance of the entity – not by reference to a fixed percentage holding.

The difference is structural. OFAC asks a question about shares and economic interests. OFSI asks a question about power. A transaction team that applies only the OFAC methodology to a UK-facing deal may pass the ownership screen and fail the control analysis entirely.

What are the practical consequences of that structural difference? The answer turns on how your counterparty is governed, and on which regime – or both – applies to the persons in your ownership chain.

Divergence point two: how aggregation works across the two regimes

Under OFAC, aggregation operates across all blocked persons simultaneously: if Blocked Person A holds 30 percent and Blocked Person B holds 25 percent, the entity is treated as blocked because the combined holding reaches the threshold. The rule does not require that any single blocked person hold a majority, and it does not require that A and B act in concert. In our experience, this is the single most common screening gap: compliance teams flag individual holdings but do not aggregate them.

The aggregation mechanics under OFSI are less clearly codified in percentage terms and turn more heavily on facts and circumstances. UK guidance distinguishes between ownership, which may or may not reach a defined level, and control, which is assessed through the actual relationship between the designated person and the entity. Indirect ownership – through layers of intermediate vehicles – requires a chain-by-chain analysis under both regimes, but the question asked at each layer differs: OFAC asks what the beneficial ownership percentage is; OFSI asks whether the designated person can exercise decisive influence.

For a business holding ownership and governance information at the first level only, both analyses are incomplete. The correct approach is to trace the full indirect chain under OFAC's methodology and then to overlay a control assessment for OFSI purposes. These are not the same exercise, and running only one does not satisfy the other.

Divergence point three: the role of control evidence

Under OFAC, control is not legally required to establish a prohibited relationship – but it remains relevant as a factual signal. US guidance has moved toward looking at the practical and economic reality of a transaction, not merely its legal form, when assessing whether the 50 percent rule should apply to a given structure. Sham transactions and structures designed to disguise beneficial ownership have attracted explicit attention. This does not alter the ownership test; it supplements it.

Under OFSI, evidence of control is central to the analysis. UK case law distinguishes between existing, exercisable influence and a hypothetical or contingent ability to exert control. Control must be actual, not merely theoretical. This requires positive evidence: board representation, veto rights, decision-making authority, exclusive economic dependence, or a combination of factors that, taken together, demonstrate that the designated person can direct the entity's conduct.

The EU test, which is relevant to any business also subject to EU measures, requires that control be proved by objective and sufficiently weighty evidence. The character of an ownership structure alone does not substitute for proof of actual control over a particular entity. This is consistent with OFSI's approach and departs from OFAC's purely mathematical methodology.

In cross-border practice, this three-regime picture creates a specific challenge: a legal opinion that addresses OFAC's ownership test may not address OFSI's or the EU's control analysis. The two exercises require different factual inputs, different legal questions, and – in contested cases – different standards of proof.

Divergence point four: indirect ownership and layered structures

Indirect ownership is addressed under both regimes, but the methodology for piercing layers differs. OFAC's guidance requires that each layer of ownership be traced and that percentage interests be multiplied through the chain to arrive at the effective beneficial ownership. If Blocked Person A owns 80 percent of Holding Co X, and Holding Co X owns 70 percent of Target, the effective blocked ownership of Target is 56 percent – above the threshold. The analysis is arithmetic.

OFSI's analysis of indirect ownership is not purely arithmetic. At each layer, the question is not only what the designated person's mathematical stake is, but whether the designated person controls the intermediate vehicle. If the intermediate vehicle is itself controlled – even without majority ownership – the analysis proceeds to the next layer on that basis.

This creates an asymmetry. A structure that is not caught by OFAC's 50 percent rule because the arithmetic falls below the threshold may still be caught by OFSI's control analysis if a designated person directs an intermediate holding company. We regularly advise on structures where this asymmetry determines which transactions can proceed and on what terms.

The practical implication is that the correct due-diligence process is not a single ownership trace. It is two parallel analyses: one applying OFAC's arithmetic methodology, and one applying OFSI's (and where relevant the EU's) control methodology. Stopping at the ownership screen is the error that produces the screening gap described at the start of this analysis.

Divergence point five: the facilitation and benefits test

OFAC's prohibition on facilitation – the rule under which a US person is prohibited from facilitating a transaction that a non-US person could not lawfully do if the US person did it directly – is a mechanism through which the ownership analysis can reach beyond the entity that is directly blocked. It applies where a US person assists, supports, or provides services in connection with a transaction involving blocked property, regardless of whether the US person is itself a direct counterparty.

OFSI's prohibition extends to making funds or economic resources available, directly or indirectly, to or for the benefit of designated persons. The "benefit" limb of this prohibition is functionally broader than a pure ownership question. It can catch transactions that return value to a designated person through a chain of intermediate steps – including through entities that are not themselves designated and are not caught by the ownership-and-control test.

Both regimes therefore contain a second-order prohibition that sits outside the ownership and control test. A structure that passes the ownership screen and the control screen may still engage the facilitation or benefit analysis. This is a separate legal question, and it must be asked separately. In our experience, compliance reviews that conflate the ownership test with the full prohibition framework routinely miss this step.

The cross-border implication is direct: a transaction conducted by a non-US counterparty that would not breach OFAC's 50 percent rule may nonetheless engage US facilitation rules if a US service provider, correspondent bank, or intermediary is in the payment chain. That analysis runs alongside – not instead of – the OFSI analysis.

Divergence point six: the myth of name screening as a complete control

A common assumption in compliance teams is that running counterparties and their direct shareholders through a sanctions list satisfies the ownership-and-control obligation. It does not. Name screening against the SDN List and the UK Consolidated List addresses only direct designations. It says nothing about whether an entity not on those lists is caught by the 50 percent rule, the aggregation analysis, or the OFSI control test.

Sanctions screening obligations attach on a risk basis. "We screened the name" is not by itself a complete control. What is required is a beneficial-ownership trace that reaches the natural persons and entities behind the counterparty, an aggregation analysis under OFAC's arithmetic methodology, and a control assessment under OFSI's and the EU's fact-based approach. These steps require different data, different analysis, and – for complex ownership structures – specialist legal review.

The consequence of relying on name screening alone is not hypothetical. A significant number of sanctions breaches in the financial-services sector arise from failures at exactly this point. The designation was not missed; it was present, but the entity that triggered it sat one or two layers above the direct counterparty. OFAC liability is strict: knowledge and intent are not required to establish a civil violation. OFSI operates on the same strict-liability basis, as in force since 2022. Neither regulator accepts "our screening tool did not flag it" as a mitigating factor where reasonable due diligence would have identified the issue.

Voluntary self-disclosure – a VSD (a proactive report to the regulator of an apparent violation before enforcement action) – is a recognised mitigating factor under OFAC's Enforcement Guidelines and under OFSI's enforcement guidance. However, a VSD addresses the consequences of a breach; it does not substitute for the controls that would have prevented it.

Divergence point seven: how the two regimes interact when both apply

For a business subject to both OFAC and OFSI – a UK subsidiary of a US parent, or a UK company that processes US dollar transactions through US correspondent banks – both analyses must be completed and both conclusions must hold. Where two regimes both apply, the stricter prohibition governs the conduct of the person subject to both. A transaction that passes OFAC's ownership test but fails OFSI's control test is prohibited under the UK regime. It cannot be authorised under the US regime.

The sequencing of the two analyses is a practical question. A logical starting point is to run the OFAC arithmetic first, because a threshold breach under the 50 percent rule produces an immediate, binary result. If the arithmetic does not reach the threshold, the OFSI control analysis follows. If the control analysis produces a positive result, a specific licence (a case-by-case authorisation from OFSI to conduct an otherwise prohibited transaction) is required before proceeding. A licence under one regime does not authorise the prohibited transaction under the other.

The EU regime operates in parallel for any EU-nexus transaction. EU asset-freeze prohibitions extend to making funds or economic resources available, directly or indirectly, to or for the benefit of listed persons – a formulation that aligns more closely with OFSI's approach than with OFAC's mechanical rule. An EU-nexus analysis should therefore proceed on the same fact-based methodology as the OFSI analysis, with attention to the additional layer of the EU Blocking Regulation where US secondary-sanctions risk is also in play.

When does this three-regime picture require specialist involvement? The short answer is: at the point where the ownership trace reveals any designated-person interest above five percent, or where governance arrangements give any sanctioned-adjacent party influence over management or distributions. Waiting for a clean first-layer screen to return a concern is too late in a structure of meaningful complexity.

Risk flags and when to involve counsel

Certain features of a counterparty's structure or governance are reliably associated with elevated ownership-and-control risk. Each of the following should trigger an escalated review rather than a standard screening process.

• Ownership chains with three or more layers where beneficial ownership has not been independently verified at each level.
• Any direct or indirect stake held by a natural person whose nationality, residence, or business activities connect them to a high-risk jurisdiction, even where that person is not currently listed.
• Governance rights – board seats, veto rights, approval thresholds – held by persons or entities not reflected in the shareholder register.
• Economic arrangements that return a significant share of revenues or distributions to a party whose identity is not fully disclosed.
• Structures formed, or ownership arrangements entered into, after the imposition of a designation that affects a connected person.
• A sharp or unexplained change in a counterparty's ownership structure in the period preceding a transaction.
• Any AIS transmission gap, ship-to-ship transfer record, or port-call history for a vessel counterparty that is inconsistent with the declared voyage – these are maritime-specific indicators that warrant escalation.

The standard of care that OFAC and OFSI apply to assess whether a business exercised reasonable caution is calibrated to the risk profile of the business and the transaction. A bank processing large-value cross-border payments is held to a higher standard than a small exporter making a first-time shipment. The controls expected at each level differ accordingly. We have acted for financial institutions and multinationals at each point on that spectrum, and in our experience the businesses that manage this risk most effectively are those that treat the ownership-and-control analysis as a legal matter requiring legal input, not a data-matching exercise.

The position above covers the analytical framework. Your specific facts – the counterparty's ownership structure, the regimes in scope, the transaction type, and the presence of any adjacent sanctions risk – change the analysis in ways that cannot be anticipated in a general briefing. For a precise assessment of your exposure, contact Calder & Vance at info@caldervance.com.

Related practices

• Affiliate-level restrictions under BIS and the EAR – how entity-list and denial-order restrictions flow through ownership chains under US export-control rules.
• OFSI vs EU: control beyond the bright-line ownership test compared – the UK and EU control tests compared in depth, with attention to the EU court standard for evidence of control.
• FFI exposure: OFAC vs EU analysis – how foreign financial institution risk arises under OFAC and EU rules and the steps financial institutions can take to manage it.

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@caldervance.com.