The OFAC 50 Percent Rule is a rule established by the U.S. Office of Foreign Assets Control (OFAC) that states that any organization or company in which 50% or more of the shares are owned by one or more persons on the Specially Designated Nationals (SDN) list is automatically subject to sanctions. This means that any interaction with such organizations is prohibited without obtaining the appropriate OFAC authorization.
OFAC (Office of Foreign Assets Control) — is the Office of Foreign Assets Control, which is part of the US Department of the Treasury. The organization is responsible for implementing and monitoring economic and trade sanctions against foreign countries, terrorist groups, and individuals or organizations that pose a threat to U.S. national security.
OFAC 50 Percent Rule works as follows: if one or more individuals or entities from the Specially Designated Nationals (SDN) list own 50% or more of a company's shares in aggregate, that company is automatically subject to sanctions, even if it is not included in the SDN list itself.
The main principles of this rule are as follows:
This rule ensures that sanctions restrictions apply not only to specific individuals or entities, but also to their economic assets.
OFAC's 50% rule is important for ensuring the effectiveness of sanctions policy. It helps to avoid cases where sanctions restrictions are circumvented through the creation of subsidiaries or complex controlled structures. This rule ensures transparency and control by identifying companies that are actually controlled by sanctioned persons, even if they are not formally listed on the SDN. It also prevents the circumvention of sanctions by making it impossible to disguise ownership and use of complex corporate schemes. In addition, the rule protects the international financial system by ensuring that threat actors do not have access to financial resources internationally.
OFAC's 50% rule is often applied in real-life situations to identify companies that are subject to sanctions. Let's look at a few examples of its practical application:
Compliance with OFAC's 50% rule can be challenging for companies. It requires constant monitoring and verification of counterparty data.
Main challenges:
To comply with the 50% rule from OFAC, it is necessary to regularly check counterparties against special databases. This allows you to find out whether they are on the SDN list. It is also important to analyze the ownership structure of the companies with which you plan to cooperate to determine whether SDNs own 50% or more of the shares. Employees should be trained on OFAC requirements and the principles of compliance with the 50% rule. The use of modern automated systems for monitoring sanctions lists significantly reduces the risk of errors and facilitates compliance. These measures will help to avoid violations and preserve the company's reputation.
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