Where the confusion usually starts

A client walks in with a Russian passport and asks whether he can own a Delaware limited liability company (LLC). Most advisers instinctively reach for the Specially Designated Nationals and Blocked Persons List (SDN List), run the name, find nothing, and say yes. That answer is right about a quarter of the time.

No US sanctions program prohibits a Russian national from holding equity in a US entity. No federal statute conditions membership in an LLC or shares in a corporation on the holder’s citizenship, and no secretary of state (Delaware, New York, Wyoming, Florida) asks for it on the formation documents. The field does not exist.

But a US company for Russian citizens does not fail on a prohibition. It fails on one of three independent filters: whether the individual is designated, where the individual is located, and who holds what percentage of the equity. The first two are questions of law. The third, whether a bank will open and keep the account, is a commercial decision that no regulation compels and no agency reviews.

Nationality is not a designation criterion

The Office of Foreign Assets Control of the US Department of the Treasury (OFAC) does not maintain a list of Russian nationals. It maintains a list of named persons, each added by an individual determination.

The grounds appear in Executive Order (EO) 14024 and its successors, implemented at 31 Code of Federal Regulations (C.F.R.) part 587: operating in identified sectors of the Russian economy, association with the Government of the Russian Federation, facilitating evasion, and a handful of others. Citizenship is not among them, and that is not a technicality. Тhe SDN List contains nationals of dozens of countries.

So the screening question is not “is this person Russian?” It is three separate questions:

• Is the individual named on the SDN List or another OFAC list?
• Where is the individual located: not where he is from, but where he ordinarily resides?
• Who holds the equity, in what proportion, and through what chain?

The operative line is location, not citizenship

This is the point that gets missed, and it is the one that most often makes the engagement impossible.

On May 8, 2022, OFAC issued a determination under section 1(a)(ii) of EO 14071 prohibiting US persons from supplying accounting, trust and corporate formation, and management consulting services to any person located in the Russian Federation. It took effect on June 7, 2022, and remains in force.

OFAC’s guidance defines the reach. Under Frequently Asked Question (FAQ) 1058, a “person located in the Russian Federation” includes individuals physically in Russia, individuals ordinarily resident there, and entities organized under Russian law. FAQ 1063 confirms that the prohibition covers administering an existing entity as squarely as forming a new one. FAQ 1060 separately prohibits nominee officer, director, shareholder, and signatory services provided on behalf of such a person.

The consequences run against intuition. A Russian citizen ordinarily resident in Moscow cannot receive formation or maintenance services from a US lawyer or registered agent, not because of the passport, but because of the residence. A German citizen ordinarily resident in St. Petersburg is inside the prohibition, with no Russian passport at all.

Note who the rule binds. It runs against the US person supplying the service, not the foreign client receiving it. A non-US owner does not violate US law by holding equity; the adviser violates it by providing a prohibited service. The declined engagement means the service would have been unlawful, not that the client did anything wrong.

The determination also reaches indirect supply: where the benefit is ultimately received by a person located in Russia, it applies even if the contracting party sits in a third country (FAQ 1059 and 1188). A UAE holding company interposed for a beneficial owner in Moscow does not solve the problem; it relabels it. Once the client genuinely lives and works outside Russia, the determination drops away, and the engagement becomes ordinary work. Residence still shapes the rest of the file (the bank’s risk rating, tax residency, proof of address), but those are no longer OFAC questions.

Ownership: the 50 percent rule and what sits below it

If one or more designated persons hold 50 percent or more of an entity directly, through a chain, or in the aggregate, the entity is blocked automatically. No separate OFAC action is required, and the entity’s name never appears on the list.

The more useful point here concerns what sits below the threshold. A designated person holding 30 percent does not block the company, but that 30 percent stake is itself blocked property. Distributions, dividends, and redemption payments attributable to it must be blocked rather than paid, and a blocked property report follows. The company keeps operating with a frozen slice of its capital table and a reporting obligation attached to it.

A related risk is control without a majority: board appointment rights, veto rights over major decisions, shareholder agreements. The 50 percent rule does not capture those structures on its face, but in practice they are a recurring basis for designating the entity itself later.

Where the stake already belongs to a designated person, the situation is difficult but not hopeless. Two routes exist: a specific OFAC license authorizing a defined transaction: a buyout, a restructuring, a distribution; and a delisting petition where there are grounds to contest the designation or show changed circumstances.

What does not work is transferring the stake to a relative or a nominee. OFAC treats those transfers as sham transactions: the interest remains blocked, and everyone who participates acquires an independent basis for designation. Any exit by a designated holder runs through a license or a delisting and has to be papered as a real transaction for value.

The bank’s list is not OFAC’s list

The bank is answering a different question. OFAC asks whether the transaction is prohibited. The bank asks whether it wants the relationship.

The federal rollback of beneficial ownership reporting, discussed below, did not touch financial institutions. The Customer Due Diligence (CDD) Rule still requires a bank opening an account for a legal entity to identify each individual holding 25 percent or more and one individual with control. Everything past that is internal policy: exposure to a high-risk jurisdiction, source of funds, tax residency, whether there is a real US address and real operating activity behind the entity.

This is where a US company for Russian citizens most often stalls, not on a prohibition but on a compliance decision. We have covered the de-risking pattern in “Russians Denied US Bank Accounts” and the diligence itself in “US Bank Account for Foreigners: What Banks Really Ask”. The essential point: a declined account is not a sanctions measure, there is no appeal to OFAC, and it implies nothing about the legality of the structure.

Three layers OFAC does not administer

Sanctions are one coordinate system. Three others operate independently, and each is checked on its own.

Beneficial ownership reporting. On August 11, 2026, the Financial Crimes Enforcement Network (FinCEN) issued a final rule removing the obligation of US companies and US persons to report beneficial ownership information under the Corporate Transparency Act. It took effect on August 14, 2026. Only entities formed under foreign law and registered to do business in the United States remain reporting companies.

Federal investment review. The America First Investment Policy memorandum of February 21, 2025 names Russia among the designated foreign adversaries and directs tighter review of adversary investment in technology, critical infrastructure, healthcare, agriculture, energy, and raw materials. It expressly preserves passive investment: non-controlling stakes with no voting, board, or governance rights and no access to non-public technical information. The dividing line is control and access, not the size of the check. Review by the Committee on Foreign Investment in the United States (CFIUS) therefore turns on governance rights in a sensitive sector, not on the acquisition of equity as such.

State property statutes. The fastest-moving layer. Indiana SB 256 (P.L. 131-2026), effective July 1, 2026, bars nonresident aliens who are citizens of Russia, China, North Korea, or Iran from purchasing any property in the state (with some exemptions). Florida SB 264 and Georgia SB 420 are narrower, but Georgia reaches US companies in which an entity domiciled in a covered country holds at least 25 percent equity. None of this is administered by OFAC or satisfied by sanctions screening, and each state must be checked separately wherever the company intends to acquire or lease real property.

What to check, and in what order

A US company for Russian citizens is a structuring question, not a permission question. The sequence that matters:

• Screen the individual and every upstream holder against the SDN List and the consolidated lists; name screening alone, without the ownership chain, is not screening.
• Establish where the client ordinarily resides, because that determines whether a US person may lawfully provide formation and maintenance services at all.
• Map the ownership chain to the 50 percent threshold, and treat any designated minority interest as blocked property in its own right.
• Separate the sanctions analysis from the account-opening analysis; they fail for different reasons and are fixed by different means.
• Check the three non-sanctions layers: reporting obligations, CFIUS exposure if the sector is strategic, and the property statutes of each state where real estate is contemplated.

Corporate and banking questions are addressed in the Business in the USA practice section; licensing and delisting in the OFAC Sanctions practice section.