What the OFAC 50 percent rule actually says

The company is not on any sanctions list. The name screens clean, there are no hits, and it is registered in a perfectly ordinary jurisdiction. The transaction is still prohibited, and the payment will still be blocked. That is the OFAC 50 percent rule at work.

The statement of the rule is short. Any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered a blocked person. It acquires that status automatically, by operation of the rule, whether or not its name has ever appeared on the Specially Designated Nationals and Blocked Persons List (SDN List).

The legal foundation is the authority of the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) to block property and interests in property of blocked persons under the International Emergency Economic Powers Act (IEEPA). The rule itself sits not in a regulation but in interpretive guidance, revised on 13 August 2014 and refined since through published answers to frequently asked questions.

Three consequences flow from that structure, and they shape everything that follows.

OFAC does not maintain or publish a list of entities blocked by operation of the rule. There may be tens of thousands of them. Establishing a counterparty’s status is the private party’s job, not the government’s.

Blocking is automatic and instantaneous. No determination, no publication, no notice. An entity can become blocked in the middle of a live contract, in the window between signature and payment.

Liability is strict. Lack of intent and honest mistake do not excuse a civil violation; they bear only on the size of the penalty.

Aggregation: adding up the stakes of several blocked persons

The most common error in a do-it-yourself review is to look at each shareholder in isolation.

The rule speaks in the aggregate. Where two shareholders each appear on the SDN List, and each holds 25 percent, neither has a controlling stake, but together they hold exactly 50 percent, and the entity is blocked. Where four blocked persons hold 13 percent each, the aggregate is 52 percent, and the result is the same.

A few points that come up repeatedly:

• Exactly 50 percent is enough. The rule reads “50 percent or more”, not “more than 50 percent”. A fifty-fifty joint venture with a blocked partner is blocked in its entirety.
• The blocked persons need not be connected. Family ties, common interest, and concerted action are irrelevant. Тhe stakes simply add up.
• Who holds the remaining shares does not help. Fifty percent in the hands of a blameless European investor does nothing to change the entity’s status.
• Jurisdiction does not matter either. The rule reaches domestic entities as readily as foreign ones.

Ownership chains: why the arithmetic changes at the second tier

This is where intuition fails almost everyone, experienced finance professionals included.

“Indirectly”, as the rule uses the word, means ownership held through an intermediate entity that is itself owned 50 percent or more in the aggregate by blocked persons. The mechanism is this: once the intermediate entity crosses the threshold, it becomes a blocked person in its own right, and from that point down the chain, its stake counts in full rather than in proportion to the ultimate beneficial owner’s economic interest.

Put numbers on it. A blocked person owns 50 percent of Company A, so Company A is blocked. Company A owns 50 percent of Company B. The blocked person’s economic interest in Company B is 25 percent, but that figure is irrelevant. Company A is a blocked person, its 50 percent stake meets the threshold, and Company B is blocked as well. Repeat at the next tier, and Company C is blocked too, on a real economic interest of 12.5 percent.

The reverse case marks the boundary of the rule. A blocked person owns 49 percent of Company A, so Company A is not blocked. Company A owns 100 percent of Company B. Company B is not blocked either. Тhe chain broke at the first link, and nothing passes down, however obvious the practical connection.

The practical requirement follows directly: screening the first tier of ownership proves nothing. A company with an immaculate first tier can be blocked at the fourth. That asymmetry is precisely what evasion structures are built on, and precisely why the OFAC 50 percent rule has stopped being a sufficient diligence tool on its own.

Ownership and control are not the same thing

The distinction is fundamental and worth holding precisely.

The OFAC 50 percent rule is built on ownership alone. Control is not part of it. A blocked person may run a company in every practical sense (appointing directors, dictating decisions, directing cash flows), and if the holding is 30 percent, the rule does not block that company.

It does not follow that the company is safe to deal with. The opposite follows, for three reasons.

OFAC expressly urges caution in relation to entities that a blocked person controls without holding a majority. That is not a prohibition, but it is a warning set out in official guidance.

Control is an independent basis for designation. Acting “for or on behalf of” a blocked person is a stated designation criterion in the executive orders underpinning the Russia-related programs. An entity controlled by a blocked person is an obvious candidate for designation in its own right, and that can happen on any given morning.

And most importantly: where the facts show that a blocked person retains a real interest in the property, the formal size of the stake may not be decisive at all. That is the subject of the guidance OFAC issued in spring 2026.

What the 31 March 2026 guidance changed

On 31 March 2026, OFAC issued a sanctions advisory titled Guidance on Sham Transactions and Sanctions Evasion. The substance is as follows. OFAC applies functional definitions of “interest” and “property interest”, looking past legal formalities to practical and economic reality. A sham transaction is one that conceals, rather than genuinely extinguishes, a blocked person’s continuing interest in property. Property given up on paper only remains blocked, whatever the share register shows.

The advisory sets out seven indicators that may point to a sham. Among them: commercial unreasonableness of the transaction, transfers within a family, an unclear purpose for the transfer, needlessly complicated corporate structures involving higher-risk jurisdictions, the blocked person’s continued involvement in the business, and suspicious timing, particularly proximity to the date of designation. OFAC is explicit that neither the presence nor the absence of any single indicator, or any combination of them, is dispositive. The assessment turns on the totality of the circumstances.

Formally, the advisory is explanatory and carries no force of law. Practically, it means the OFAC 50 percent rule should now be treated as the floor of a diligence exercise rather than its completion. Calculating stakes is a necessary first step and an insufficient last one.

The intended audience deserves attention in its own right. The advisory continues an enforcement campaign aimed at professional gatekeepers: private equity and venture capital firms, real estate businesses, corporate and trust formation service providers, and legal advisers. In June 2025, OFAC imposed a penalty of roughly $216 million (the statutory maximum) on GVA Capital, a California venture capital firm, for knowingly managing an investment for a blocked person. The formal ownership structure did not save it.

There is a retrospective dimension too. OFAC may apply the principles in the advisory to transactions already completed, where it later emerges that they preserved a blocked person’s control, benefit, or access. Restructurings carried out in 2022 and 2023 as a precaution are worth revisiting through exactly this lens.

Sitting close to 50 percent: what to do

This is the position a great many businesses dealing with Russian, Belarusian and other affected structures find themselves in: a blocked person holds somewhere between 40 and 49 percent. The threshold is formally unmet. What does that mean in practice?

First, that the bank will very likely say no. Financial institutions apply their own thresholds, and those sit well below the regulatory one. A 45 percent holding by a blocked shareholder will almost certainly produce a refusal to onboard or a closure of an existing account, and there is no route to challenge that as unlawful: a bank is entitled to choose its customers.

Second, the threshold is not usually crossed by a share sale. Far more often it is crossed by a new designation. Your counterparty does not change, and the cap table does not move; OFAC adds one more shareholder to the list, and by morning you are dealing with a blocked entity. A one-off check at signing offers no protection here; continuous monitoring does.

Steps worth taking:

• Document the full ownership chain down to ultimate beneficial owners, with the date of the check and the sources relied on. In an OFAC proceeding, documented diligence functions as a mitigating factor; recollection of having looked into it does not.
• Build ownership representations into the contract, together with an obligation to give immediate notice of any change and a right to exit on the threshold being crossed through a mechanism that operates automatically rather than by negotiation.
• Put the counterparty and its shareholders on continuous SDN List monitoring instead of screening once at signature.
• Assess indicators of control separately from the ownership arithmetic: board composition, veto rights, shareholder agreements, the source of funding, and who in fact takes decisions.

A separate word on stake reduction. Since March 2026, a blocked person selling down from 51 to 49 percent is itself a suspicious transaction, particularly where the buyer is a relative or a vehicle in a higher-risk jurisdiction, and the deal follows shortly after designation. For a divestment to carry legal effect, it has to be real: an arm’s-length price, an independent buyer, complete withdrawal of the blocked person from management, and no continuing access to benefit. A formal transfer that leaves practical influence intact keeps the property blocked and adds an evasion episode on top of the original violation.

Practical takeaways

• Screening the first tier of ownership proves nothing. The chain has to be traced to ultimate beneficial owners.
• Blocked persons’ stakes aggregate. That none of them holds a controlling interest is beside the point.
• Once an intermediate entity crosses the threshold, its stake counts in full down the chain, not in proportion.
• Control without a majority does not block an entity automatically, but it creates a standing risk of designation in its own right.
• Since March 2026, ownership arithmetic is the minimum rather than the answer. What is assessed is the practical substance of the arrangement.
• The threshold is crossed by new designations more often than by share transfers. Screening has to be continuous.

If a counterparty’s ownership structure raises questions, or a blocked person’s stake is approaching the threshold, working through the specific chart costs a fraction of a blocked payment or an OFAC enforcement matter. We handle these questions in English and Russian.