A trading company in the Gulf signs a supply agreement with a European distributor. The distributor's ultimate parent is held by two individuals. One holds 31 percent; the other holds 22 percent. Neither appears on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons) individually. But a routine compliance check at the bank flags the deal. Why? Because both individuals are designated – and together they hold 50 percent or more of the parent, which means every subsidiary in the chain is treated as blocked under US law, whether or not those subsidiaries are named anywhere.
Ownership and control assessments under OFAC require a structured, layer-by-layer analysis of who holds an interest in a counterparty, whether any of those holders are designated persons, and whether their combined ownership meets the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked). The analysis is governed by IEEPA-based OFAC regulations and OFAC's published guidance on the rule. A single error at any layer can expose the entire transaction to US sanctions liability.
This guide walks through the assessment in seven practical steps, identifies the points where practitioners most commonly miscalculate, and explains where OFAC's approach diverges from OFSI and EU rules – a divergence that matters for any cross-border transaction touching more than one regime.
Step 1: Understand the legal basis and who is in scope
OFAC administers US economic sanctions under authorities granted by Congress, primarily through IEEPA and, for older programmes, TWEA. The 50 percent rule is not a standalone statute; it is established and maintained by OFAC through its published guidance, FAQ releases, and the programme-specific regulations that implement each executive order.
The rule captures any entity in which blocked persons own, in the aggregate, 50 percent or more. "Blocked person" includes any individual or entity on the SDN List, as well as any entity already caught by the rule itself. That recursive quality matters: if a holding company is blocked by the rule, its subsidiaries – regardless of their own ownership percentages – are also blocked, because the holding company is itself a blocked person for the purposes of the aggregation calculation.
Who is in scope for the assessment? Any US person – including US citizens and permanent residents wherever located, and any entity organised under US law. Any foreign person or entity that conducts transactions in or transiting the United States, or in US dollars through a US correspondent bank. And any foreign entity that knowingly causes a US person to violate sanctions. The population is broader than most exporters assume.
Step 2: Map the ownership chain from the counterparty upward
Begin at the entity you are dealing with and work upward to the ultimate beneficial owners. This is the step most assessments skip or truncate. A one-layer check – confirming that the direct counterparty is not named – will miss a blocked parent, a blocked shareholder at the second or third level, or a blocked person whose stake is held through a nominee.
In our cross-border practice, the ownership mapping stage is where the most significant risks surface. The relevant questions at each layer are:
- Who holds the equity interest at this level, and what percentage?
- Are any holders themselves entities rather than individuals? If so, the chain must continue upward through those entities.
- Are any holders subject to a restriction, trust arrangement, or nominee structure that might conceal a beneficial owner?
- Does any holder appear on the SDN List, the EU Consolidated List, the UK Consolidated List, or any other major sanctions list?
The last point deserves emphasis. An entity may not be blocked under OFAC rules but may still be designated by OFSI or under an EU Council regulation. A single assessment that covers only the SDN List creates a gap that other regimes will expose. Work through each list relevant to the jurisdictions involved in the transaction.
Document every layer, every percentage, and every source you consulted. The documentation serves two purposes: it supports the legal analysis, and it demonstrates due diligence if a question later arises with OFAC or another regulator.
Step 3: Apply the aggregation test and identify blocked status
Once the ownership map is complete, apply the aggregation test. Add together the ownership percentages held by all SDN-listed persons at each layer. If the combined figure reaches or exceeds 50 percent at any layer in the chain, the entity at that layer is blocked – and so is every entity below it, because a blocked entity is itself a blocked person for aggregation purposes at lower layers.
Two points frequently cause errors at this stage.
First, the aggregation applies regardless of whether the listed persons' holdings are independent of one another. Two shareholders, each listed separately, who together hold 54 percent of a company trigger the rule. Their individual stakes – 28 and 26 percent, say – would not trigger it if assessed separately. OFAC's position is that the aggregate of all listed-person ownership is the relevant figure, not any individual stake.
Second, indirect ownership is counted the same as direct ownership. A blocked person who holds 60 percent of a holding company, which in turn holds 70 percent of an operating subsidiary, causes the operating subsidiary to be blocked – not because the blocked person directly holds anything in the subsidiary, but because the holding company itself is blocked (by the 60 percent stake) and a blocked entity's interest in a subsidiary is fully attributed to the blocked person for purposes of the rule.
The position above covers the standard case. Your facts – the ownership structure, the jurisdictions, the transaction type, and the specific OFAC programme in play – will affect the analysis. Do not apply the mechanical rule without considering the programme-specific guidance that may modify it.
For an initial assessment of a counterparty's status under OFAC, contact Calder & Vance at info@caldervance.com.
Step 4: Apply the control analysis where ownership falls below 50 percent
What if no blocked person, alone or in aggregate, holds 50 percent or more? OFAC's ownership rule does not automatically block the entity. But OFAC retains discretion to designate entities that a blocked person controls through means other than majority ownership. Control, in this context, can arise through board composition, contractual rights, de facto influence over management decisions, or other mechanisms that give a blocked person effective authority over an entity's operations.
OFAC does not apply a formalised, step-by-step control test equivalent to those used under UK and EU rules. The assessment is case-specific and fact-intensive. In our experience, where ownership is below the threshold but a blocked person has board seats, veto rights over significant transactions, or the ability to appoint senior management, the risk of an OFAC designation action or enforcement scrutiny is materially elevated. The prudent approach is to treat such an entity as high-risk and to seek a legal assessment before proceeding.
This is where OFAC diverges most sharply from its UK and EU counterparts. Under OFSI – the UK's Office of Financial Sanctions Implementation – the applicable test under SAMLA-based regulations applies a defined ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person) standard. The UK test expressly includes control indicators such as board appointments and veto rights, as separate statutory grounds for capture, alongside the ownership threshold. The EU position under the relevant Council regulations is similar. Both regimes can therefore catch an entity that OFAC's mechanical rule would not – and an assessment that concludes an entity is not blocked under OFAC may not conclude the same under OFSI or EU rules.
For a business operating between the United States and the United Kingdom or the European Union, the divergence is not academic. It changes the scope of what must be assessed and the conclusions that can be drawn from the same ownership data.
Step 5: Address the cross-border dimension – secondary sanctions and non-US parties
Ownership and control assessments conducted by or for a non-US entity must account for two additional layers of US sanctions exposure: secondary sanctions risk and the extraterritorial reach of US dollar clearing.
Secondary sanctions are measures that target non-US persons for conduct that does not touch the United States but that OFAC has designated as significant support to a sanctioned regime. A foreign bank or trading house that knowingly facilitates a significant transaction with a person who is blocked under a primary US sanctions programme can itself be designated or denied access to the US financial system, without any transaction in the United States occurring. Secondary sanctions exposure is assessed at the programme level; different OFAC programmes carry different secondary-sanctions provisions, and the threshold for "significant" is deliberately undefined, which is part of the deterrent design.
US dollar clearing amplifies the reach further. A non-US entity that has concluded its ownership assessment and determined that its counterparty is not blocked may still face a problem if any part of the payment chain passes through a US correspondent bank. That bank is a US person and is subject to primary US sanctions. The non-US party's clean assessment does not insulate the correspondent. In practice, US correspondent banks apply conservative screening and will reject transactions that they assess as carrying an unacceptable risk of involving a blocked person, even where the non-US parties have formed a different view.
The practical consequence is that a non-US exporter or financial institution conducting an ownership assessment should document its analysis with a level of rigour sufficient not only to satisfy its own legal counsel but to withstand scrutiny by a US correspondent bank's compliance team. Thin or undocumented assessments fail at the bank even when the underlying analysis is correct.
We regularly advise non-US businesses on structuring their ownership assessments to meet this dual standard. If a deal has already been flagged by a correspondent bank, an early review can preserve options that narrow quickly.
Contact us at info@caldervance.com to discuss a specific situation or to obtain a written assessment that can be shared with a financial institution.
Step 6: Identify the risk flags that practitioners most often miss
In our experience, ownership and control assessments fail not because practitioners misunderstand the 50 percent rule in principle, but because the ownership data they work from is incomplete or because specific structural patterns are misread. The following patterns recur.
Layered holding structures. An entity held by a chain of three or four intermediate companies, each partially owned by a listed person, can aggregate to a blocked position at the top of the chain without any single entity in the chain being visibly problematic. The remedy is to calculate the attributed interest – the product of the percentage holdings at each layer – and to aggregate all attributed interests held by listed persons at the level of the target entity.
Joint ventures and shared ownership. A joint venture in which one co-venturer is blocked, and in which that co-venturer holds 50 percent or more of the JV entity, is itself blocked. A joint venture in which the blocked co-venturer holds 40 percent presents a closer question, but the control analysis under step 4 becomes directly relevant: does the 40 percent stake, combined with other rights in the JV agreement, give the blocked person effective control?
Nominee and trust structures. An ownership certificate that names a nominee holder does not end the analysis. The beneficial owner behind the nominee is the person who counts for sanctions purposes. Practitioners who accept nominee-level information as conclusive create a compliance gap that OFAC is well positioned to probe in an enforcement action.
Stale or unverified data. Ownership structures change. A counterparty that was clean on last year's assessment may have sold a stake to a listed investor since then. Periodic re-screening, rather than a one-time assessment at onboarding, is the appropriate model for ongoing relationships.
Inconsistent list coverage. An assessment that checks only the SDN List will miss entities designated under other OFAC-administered lists, including the Sectoral Sanctions Identifications List, or under non-US regimes that may be relevant to the transaction.
Step 7: Document, decide, and escalate appropriately
The output of an ownership and control assessment is a documented conclusion. That document should state the sources consulted, the ownership structure identified, the list-check results at each layer, the application of the aggregation test, the control analysis if the ownership threshold is not met, the cross-border considerations addressed, and the conclusion reached. It should identify any gaps in the available data and state how those gaps were handled.
Where the conclusion is that an entity is not blocked, the document becomes the record of due diligence. OFAC's guidance recognises that businesses cannot achieve perfect information, but it expects documented, proportionate efforts. A well-constructed assessment record is the primary defence in an enforcement context.
Where the conclusion is that an entity may be blocked, or where the analysis is genuinely uncertain, three options are typically in play. First, decline the transaction. Second, obtain a specific licence – a case-by-case OFAC authorisation to conduct the otherwise prohibited activity. Third, structure the transaction to remove the blocked element, where that is legally possible without involving the blocked person. A specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) application to OFAC is a formal process with defined evidentiary requirements; it does not guarantee a result and can take a material amount of time to resolve.
Escalation to counsel is appropriate at the point where the assessment reveals a possible block, where the ownership data is incomplete and cannot be completed through standard due diligence, where the transaction is high-value or involves a sensitive sector, or where a previous engagement with a counterparty is already in place and the block is identified retrospectively. The last scenario is time-sensitive. A retrospective identification of a possible dealings violation raises voluntary self-disclosure questions that benefit from prompt legal review.
Record-keeping requirements under US sanctions regulations require that relevant documentation be maintained for a defined period; verify the current requirement for the programme in question before relying on any general statement about duration.
Related practices
- Sanctions compliance audit and testing (Australia) – assessment and programme testing against Australian autonomous sanctions obligations.
- Ownership and control assessments under OFAC: guide 4 – extended analysis of complex ownership structures and licensing considerations.
- Ownership and control assessments under OFSI – how the UK ownership and control test differs from OFAC's 50 percent rule.
Common myths: what the 50 percent rule does not do
A persistent misunderstanding is that a company is safe from the 50 percent rule as long as no single blocked person owns a majority stake. That is incorrect. OFAC aggregates the interests of all blocked persons. Two or more listed persons whose combined holding reaches 50 percent trigger the rule, even if each individual stake is a minority position. We have seen this error in the compliance programmes of sophisticated businesses that had otherwise invested substantially in their screening infrastructure.
A second myth is that the rule applies only to direct, registered shareholdings. It applies equally to indirect holdings traced through any number of intermediate entities. The depth of the ownership chain is not a limitation; it is a map that must be followed to its end.
A third myth, encountered less often but consequential when it arises, is that a clean OFAC assessment resolves the question for all purposes. It does not. A counterparty that is not blocked under OFAC may nonetheless be designated under OFSI or under EU Council regulations, may appear on other screening lists relevant to the transaction, or may trigger secondary-sanctions exposure under a different OFAC programme than the one initially assessed. The OFAC analysis is a necessary component of a cross-border ownership assessment. It is not sufficient on its own.