What is the 50 Percent Rule Under OFAC Sanctions?
The 50 Percent Rule is one of the key requirements enforced by OFAC (the U.S. Office of Foreign Assets Control) to strengthen the sanctions regime. The idea is simple: if one or more individuals or entities from the SDN list own 50% or more of a company – whether directly or through other structures – that company is automatically considered blocked, even if it’s not named on the list.
This means that any dealings with such a company – contracts, payments, or transactions – will be treated as a violation of sanctions. The rule was introduced to prevent sanctioned parties from bypassing restrictions by hiding their ownership through front companies or subsidiaries.
For instance: If a certain individual, included on the SDN list, owns 60% of the shares in Company ‘X’, then Company ‘X’ automatically falls under OFAC sanctions, even if it’s not explicitly listed on the SDN. All transactions with ‘X’ will be considered as transactions with that individual.
Explanation of the OFAC’s 50 percent rule
The rule is designed to prevent sanctioned parties from hiding behind complex ownership structures — for example, by spreading ownership across multiple entities to stay under the radar. OFAC doesn’t just look at direct ownership; it also considers indirect and cumulative ownership. If two SDN-listed individuals each own 25% of a company, that company is blocked because their combined ownership reaches the 50% threshold.
This rule applies across all OFAC sanctions programs — including country-based programs like those targeting Cuba, Iran, or North Korea, and thematic sanctions such as those aimed at terrorism, cybercrime, or human rights abuses.
If a company or entity is blocked under the 50 Percent Rule, any attempt to release or transfer its assets requires a specific license from OFAC. Obtaining such a license is a complex and time-consuming process that involves submitting detailed documentation and legal arguments. In most cases, it’s essential to involve experienced sanctions counsel.
Complying with the 50 Percent Rule is not just a technical formality — it’s a legal requirement. Failure to follow this rule can result in massive fines, asset seizures, blocked transactions, reputational damage, and even criminal prosecution. That’s why it’s crucial for companies, financial institutions, and investors to conduct thorough due diligence and seek professional guidance when dealing with international counterparties.
Consulting with experts will allow you to minimize risks and interact effectively with regulatory authorities and OFAC.
Ownership Scenarios and Compliance Consequences
| Ownership Structure | Is Entity Blocked? | Explanation | Recommended Action |
|---|---|---|---|
| One SDN individual owns 60% directly | Yes | Direct ownership over 50% by a listed person | Block all transactions; treat as SDN |
| Two SDN individuals own 30% each (total 60%) | Yes | Combined SDN ownership ≥ 50% | Blocked under cumulative rule |
| SDN owns 49%, non-SDN owns 51% | No (but caution) | Below threshold, but still risky | Enhanced due diligence advised |
| SDN owns 25% directly + 30% via controlled entity | Yes | Combined direct and indirect ownership = 55% | Blocked under indirect ownership rule |
| SDN owns 50% exactly | Yes | OFAC treats ≥50% as blocked | Treat as SDN-owned |
| Non-SDN owns 40%, SDN owns 10% | No | SDN ownership well below threshold | Proceed, but monitor for future changes |
| Ownership split between SDN (20%) + two other SDNs (15% each) | Yes | Combined = 50% → entity is blocked | Prohibited transactions apply |
| SDN owns 30% via offshore trust | Yes | Indirect ownership counted | Requires full ownership chain analysis |
| No SDN ownership, but controlled by SDN (not by shares) | Not under 50% Rule | OFAC does not apply “control” test | Check other sanctions regimes (e.g. EU) |
What is the reason for Introducing the 50 Percent Rule of OFAC?
The 50 Percent Rule of OFAC was established to strengthen compliance with sanctions legislation and prevent the circumvention of sanctions through complex ownership structures. According to this rule, if 50% or more of the combined ownership of a company’s physical assets, property, or accounts is held by a sanctioned entity or individuals listed on the SDN list, those assets are considered blocked property and are subject to sanctions.
In December 2022, the 50 percent rule was updated. The changes introduced an extended period and additional clarifications to exclude the possibility of some non-blocked entities and persons circumventing sanctions through indirect ownership of blocked pursuant. The new measures strengthened control over ownership structures considered by blocked entities and persons again, allowing for more accurate identification of sanctioned ownership of assets associated with non-blocked persons, entities specially designated nationals of targeted countries, and those considered blocked persons along with sanctions. Particular attention is paid to sanctions against Cuba, where within the framework of the program, the assets of companies associated with individuals from the SDN list are also considered entities under the same sanctions of targeted countries, regardless of ownership structure.
The rule change and update is aimed at preventing illegal operations by blocked persons and entities and strengthening the sanctions regime for blocked persons and entities, pursuant and blocked persons and sanctioned parties. Thus, the 50 Percent Rule of OFAC continues to play an important role in protecting the international financial system and countering illegal activities by blocked persons and entities, individuals, and other blocked persons, pursuant and blocked persons and other sanctioned persons and parties.
Consequences of the Introduction of the OFAC 50 Percent Rule stipulates
The introduction of the 50 Percent Rule has significantly raised the compliance bar for companies operating internationally. It has restricted the ability to do business with entities that are even partially owned by sanctioned individuals or organizations — including those not explicitly named on the SDN list.
As a result, companies are now required to perform thorough due diligence when engaging with foreign partners. This includes carefully verifying the ownership structures of counterparties to avoid inadvertently doing business with blocked entities.
Failure to comply with the 50 Percent Rule can lead to serious consequences — including asset freezes, substantial civil penalties, loss of licenses, and reputational damage.
To reduce these risks, businesses are strongly advised to consult with OFAC sanctions lawyers. Legal professionals can help interpret the rule correctly, screen counterparties effectively, and ensure that all transactions are compliant with U.S. sanctions law. In a complex global environment, expert guidance is essential to stay on the right side of the law.
Ensuring Compliance with the 50 Percent Rule
Compliance with the 50 percent rule requires due diligence, a thorough approach to due diligence, and reliable tools for verifying counterparties and other entities owned by complex ownership and control structures of financial organizations. Violation of this rule can lead to serious consequences, including asset blocking and restrictions on company activities. To avoid mistakes, it is important to follow several key due diligence steps:
- Consultation with OFAC lawyer.
Lawyers specializing in sanctions legislation will help you understand the details of the 50% Rule and provide recommendations on partner verification, document analysis, and risk mitigation related to compliance. - Partner verification.
Before concluding deals or starting cooperation, it is necessary to check partners and counterparties for connections with individuals or organizations on the SDN list. This will allow you to avoid working with companies subject to the 50 percent rule. - The use of verified databases.
To check counterparties, it is recommended to use specialized databases that are updated in real time. Such tools help identify the owners of assets under sanctions and avoid cooperation with them. - Monitoring changes in the ownership structure.
Even after concluding the contract, OFAC urges caution in handling sanction compliance matters and regularly monitorinng changes in the ownership structure of partners. Company owners may change, and this could lead to an unexpected violation of the 50 Percent Rule of OFAC.
Compliance with the OFAC’s 50 percent rule requires time, money services, and resources, but it helps to avoid legal issues, and potential penalties and maintain the company’s reputation. Compliance ensure the correctness of actions, it is best to involve professionals who will help comply with all OFAC regulations and requirements, and OFAC’s 50 percent rule.
Fines for non-compliance with the OFAC 50 percent rule
Non-compliance with the 50 percent rule may lead to serious sanctions for individuals, blocked persons, entities, and legal entities. OFAC strictly has sanctions regulations and monitors the enforcement of non-compliance with this rule to prevent attempts to circumvent sanctions legislation. The most common consequence of violating sanction is large monetary fines, which can reach millions of dollars depending on the severity of the crime. Fines are imposed on SDN-controlled entities, the ownership of the company, and its management.
Apart from financial sanctions, the company may lose its business licences. This part of OFAC sanction is especially relevant for organizations in businesses operating in the financial money services sector, where compliance with the 50 Percent Rule of OFAC regulations is mandatory. Additionally, OFAC sanctions may make regulatory authorities take a greater interest in businesses operating in financial institutions and establish constant monitoring of the company’s activities, including transaction checks, operation control, compliance programs, and mandatory reporting.
Violation of the 50 percent rule causes serious damage to the company’s reputation. Information about sanctions becomes public, leading to a loss of trust from clients, business partners, and investors. To prevent such consequences, it is important to regularly consult with lawyers, check counterparties for compliance with sanction legislation requirements, and use reliable databases to analyze complex ownership structures and control structures. Compliance with the rules allows a greater interest in avoiding fines and preserving the company’s reputation.
What’s the Difference Between the OFAC 50 Percent Rule and the Control Rule?
Understanding the difference between the OFAC 50 Percent Rule and the Control Rule is essential for identifying whether a company is subject to sanctions. These frameworks reflect distinct legal approaches in the U.S. and Europe.
Legal Basis and Jurisdiction
- OFAC 50 Percent Rule – Applies under U.S. sanctions law.
- Control Rule – Commonly used in the EU, UK, and other jurisdictions.
Ownership vs. Control
- OFAC 50 Percent Rule (U.S.):
A company is automatically considered sanctioned if one or more designated individuals or entities (SDNs) collectively own 50% or more of it. Actual control is not a factor — only ownership matters. - Control Rule (EU/UK):
A company may be subject to sanctions even with less than 50% ownership, if a sanctioned person exerts significant influence or control.
Why It Matters?
Relying solely on ownership thresholds like the OFAC rule may overlook serious risks in jurisdictions applying the Control Rule. A company can be sanctioned without meeting the 50% ownership mark if effective control is established.
Contact our OFAC Lawyers
If you encounter issues related to compliance with the 50 Percent Rule of OFAC regulations, it is crucial to seek assistance from qualified lawyers. Violation of the 50 Percent Rule can result in severe fines, asset blocking, and other sanctions. We have extensive experience in handling cases related to the various OFAC regulations and 50 percent rule and are ready to help you avoid mistakes.
Our specialists will help you understand the nuances of legislation, check your counterparties, when processing transactions, and ensure compliance with all requirements of the 50 percent rule change. We will also provide support in preparing documentation and interacting with OFAC.
By contacting us, you minimize risks and preserve your business reputation. We are ready to offer effective solutions for any issues related to sanctions legislation.
OFAC 50 Percent Rule FAQ
What does OFAC’s 50 rule mean?
The OFAC 50 Percent Rule means that if individuals on the sanctions list own 50% or more of a company, that company is automatically subject to sanctions. You cannot do business with it, even if it’s not directly listed. This rule helps prevent sanctions from being circumvented through complex ownership structures.
Can a company be sanctioned if it’s controlled by someone on the SDN List but they don’t own 50%?
Yes, that’s possible — but under OFAC’s 50 Percent Rule, ownership is what triggers automatic sanctions, not control. If an SDN controls a company without owning 50% or more, OFAC may still decide to sanction the company later, but it’s not automatic.
What if multiple SDNs each own less than 50%, but together they hold more than half?
If the combined ownership of all SDNs is 50% or more, then the company is automatically considered sanctioned under the 50 Percent Rule, even if no single SDN owns a controlling share.
Is it allowed to do business with a company that’s not on the sanctions list, if someone from the SDN List is involved?
No — if a sanctioned person is directly or indirectly involved in the transaction, such as signing a contract as a company executive, then the transaction is generally prohibited. A special license from OFAC would be required to go ahead with it.
How does OFAC calculate SDN ownership when a company has a complicated structure?
OFAC looks not just at direct ownership, but also at indirect ownership through other companies. For example, if an SDN owns 50% of Company A, and Company A owns 50% of Company B, then Company B is also considered sanctioned, even if the SDN’s name isn’t directly attached.
What if an SDN sells their shares and ends up owning less than 50%?
If the ownership drops below 50% and the sale is real — not just on paper — the company is no longer automatically blocked under the 50 Percent Rule. But any property or funds that were already frozen remain frozen unless OFAC specifically allows their release. Also, U.S. persons can’t be involved in the sale unless they have a license.
