Introduction

The 50 Percent Rule is one of the critical points of the US sanctions policy. It helps to understand how US sanctions work, whom they primarily target, and who falls under them.

US Sanctions and the 50 Percent Rule

Not only do those individuals and companies on the US sanctions list fall under US sanctions, but also those entities in which blocked persons own 50 percent or more “individually or in the aggregate, directly or indirectly” . Indirect ownership refers to ownership through another entity in which the sanctioned person owns 50% or more shares. In this case, an entity controlled by an intermediate entity that is at least 50% owned by a sanctioned person is also subject to US sanctions or “blocked.”

The term “blocked” is widely used in the United States about persons (“blocked persons”) and organizations (“blocked entities”) under sanctions for the reason that all accounts, assets, and other property located in the United States and belonging to sanctioned persons or entities automatically become frozen or, as they say here, “blocked.” Ownership of 50% or more “in the aggregate” occurs, for example, when one blocked person owns 25% of the company shares and another blocked person owns another 25% in the same company. And although each of the persons under sanctions does not own 50% of the shares of this company, either directly or indirectly, the company will automatically fall under sanctions because 50% of its shares in the aggregate belong to the sanctioned persons .

The 50 Percent Rule and Controlling Blocked Persons

Now let’s deal with the situation where US-sanctioned individuals effectively control a company without owning 50% or more of the shares directly, indirectly, directly, or in the aggregate. Does such a company automatically fall under US sanctions? – No, it doesn’t. The reason for this is that the 50 Percent Rule is defined by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury based on ownership, not control. Thus, even if a blocked person or persons exercise control over a particular entity but do not own 50% or more of its assets directly, indirectly, individually, or in the aggregate, that entity is not automatically subject to US sanctions.

At the same time, this does not exclude other situations where such an entity may fall under US sanctions due to other criteria, for example, due to the sanctions imposed against the government and officials of Crimea . In any case, such an entity is subject to increased risk. For instance, US sanctions prohibit entering into any transaction with an entity if a blocked person represents it or, moreover, if a blocked person signs a contract on behalf of the entity . In addition, such an entity can soon become a candidate for the US sanctions list.

Conclusion

US sanctions are a multi-level complex of various regulations, which are very difficult to deal with on your own. Therefore, it is best to consult an experienced American lawyer without delay if you have any issues related to US sanctions. Contact us , and we will explain how we can help you.