The OFAC 50 Percent Rule treats any entity that is 50 percent or more owned, in the aggregate, by one or more blocked persons as if it were itself on the sanctions list. That means U.S. persons must freeze its property and refuse to transact with it, even when the entity’s name appears nowhere on any government list. The rule exists to keep sanctioned parties from operating through shell companies and unlisted subsidiaries, and violating it carries civil penalties up to $377,700 per violation (or twice the transaction value, whichever is larger) and criminal penalties up to 20 years in prison for willful conduct.
The Office of Foreign Assets Control issued the current version of this guidance on August 13, 2014. The moment the 50 percent ownership threshold is met, the entity is blocked by operation of the rule alone.1U.S. Department of the Treasury. Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked
How Ownership Is Counted
OFAC does not look at each blocked person’s stake in isolation. It adds together the ownership interests of every blocked person who holds a piece of the same entity. If the combined total reaches 50 percent, the entity is blocked.2Office of Foreign Assets Control. Entities Owned by Blocked Persons (50 Percent Rule)
OFAC’s own example: if Blocked Person X owns 25 percent of Entity A and Blocked Person Y owns another 25 percent of Entity A, Entity A is blocked. It doesn’t matter whether the two blocked persons know each other, coordinate, or were even designated under the same sanctions program. OFAC aggregates across programs.2Office of Foreign Assets Control. Entities Owned by Blocked Persons (50 Percent Rule)
Indirect and Layered Ownership
The rule reaches through every layer of a corporate chain. If a blocked person owns 50 percent of Company A, and Company A owns 50 percent of Company B, then Company B is also blocked. Blocked status flows downward as long as each link meets the 50 percent threshold.2Office of Foreign Assets Control. Entities Owned by Blocked Persons (50 Percent Rule)
This is where compliance staff most often stumble. Unlike many tax and accounting frameworks, OFAC does not multiply percentages down the chain. A blocked person who owns 50 percent of Company A, which owns 50 percent of Company B, is considered to own 50 percent of Company B indirectly. OFAC does not multiply the two figures together to arrive at 25 percent.3Office of Foreign Assets Control. Frequently Asked Questions The question at each level is the same: does a blocked person, directly or through a blocked pass-through, own 50 percent or more? If yes, the next entity down is blocked.
Parallel chains get added together. If Blocked Person X owns 50 percent of Entity A and 50 percent of Entity B, and A and B each own 25 percent of Entity C, OFAC treats X as indirectly owning 50 percent of Entity C. The indirect stakes through each parent are summed.2Office of Foreign Assets Control. Entities Owned by Blocked Persons (50 Percent Rule)
Control Versus Ownership
The 50 Percent Rule is a bright-line ownership test. An entity managed or directed by a blocked person but not owned at the threshold is not automatically blocked under this rule. Dealing with such an entity is still not safe. OFAC has said clearly that it looks past legal formalities to underlying economic realities when evaluating whether a blocked person retains a property interest.4U.S. Department of the Treasury. Guidance on Sham Transactions and Sanctions Evasion Recent enforcement actions have penalized parties who relied on formalistic ownership arrangements while ignoring obvious signs that a blocked person still called the shots.
Who Has to Comply
The obligation runs to every “U.S. person,” a term with broad reach. It covers any U.S. citizen wherever they live, any permanent resident, any entity organized under U.S. law (including foreign branches of U.S. companies), and any person physically present in the United States.5eCFR. 31 CFR 560.314 – United States Person; U.S. Person A U.S. bank’s London branch, an American citizen working abroad, and a foreign national visiting on a tourist visa all qualify.
What Blocking Requires
When a U.S. person identifies property belonging to a blocked entity, they must freeze it. The property cannot be transferred, withdrawn, or otherwise dealt with without OFAC authorization. Title stays with the blocked person, but the U.S. person holding the property cannot allow any exercise of ownership rights.6U.S. Department of the Treasury. Basic Information on OFAC and Sanctions
Blocking and rejection reports go to OFAC’s Sanctions Compliance and Evaluation Division within 10 business days and must include a copy of the original transfer instructions.7U.S. Department of the Treasury. Filing Reports with OFAC After that, any blocked property still being held must be reported annually, with the deadline falling on September 30 each year.8Office of Foreign Assets Control. Is There a Requirement for Annual Reporting of Blocked Property
Doing the Ownership Due Diligence
Complying with the rule means knowing who actually owns your counterparties. That calls for corporate structure charts, capitalization tables, partnership agreements, and other documents that reveal every direct and indirect owner. Once you have identified the natural persons at the top of each chain, screen those names against OFAC’s consolidated sanctions list.
Screening cannot stop at names. Blocked persons use aliases, alternative spellings, and different identification numbers, so effective checks compare addresses, dates of birth, and national identification numbers as well. OFAC expects due diligence proportional to the risk of the activity.9U.S. Department of the Treasury. FAQ 15 – Due Diligence
Red Flags for Evasion
OFAC has flagged specific warning signs that a blocked person is hiding behind a corporate structure or sham transfer:4U.S. Department of the Treasury. Guidance on Sham Transactions and Sanctions Evasion
- Property once held by a blocked person that changed hands without fair-market-value consideration or on terms no arms-length buyer would accept.
- Transfers to relatives or close associates of a blocked person, who often serve as proxies.
- Transfers to individuals with no relevant experience regarding the property, or transactions with no apparent commercial rationale.
- Multi-layered shells, trusts, or partnerships, especially in jurisdictions with weak oversight and no obvious connection to the underlying assets.
- Facts suggesting the sanctioned individual still uses, manages, or directs the disposition of the property, even through intermediaries.
Licenses and Divestiture
Not every transaction with a blocked entity is permanently off-limits. OFAC issues two kinds of authorizations. A general license authorizes a category of transactions for a broad class of persons without an application. A specific license is a written authorization for a particular person and a particular transaction, granted only after a formal application.10U.S. Department of the Treasury. OFAC Licenses Anyone acting under either type must strictly follow every attached condition.
When a blocked person divests enough of their stake that combined blocked ownership drops below 50 percent, the entity is no longer automatically blocked going forward. Property already frozen while the entity was blocked stays frozen until OFAC specifically authorizes its release or removes the relevant person from the SDN List.2Office of Foreign Assets Control. Entities Owned by Blocked Persons (50 Percent Rule) The divestiture itself has to happen entirely outside U.S. jurisdiction and without the involvement of U.S. persons, because OFAC will not recognize an unlicensed transfer of blocked property. OFAC also expects due diligence sufficient to confirm the divestiture was real rather than a sham.
Penalties
Under the International Emergency Economic Powers Act, which governs most OFAC programs, the statutory civil penalty is the greater of $250,000 or twice the value of the underlying transaction.11Office of the Law Revision Counsel. 50 USC 1705 – Penalties After inflation adjustments, the per-violation cap stands at $377,700 as of January 2025.12Federal Register. Inflation Adjustment of Civil Monetary Penalties For large transactions, the “twice the transaction value” formula pushes the penalty well above that cap.
Criminal penalties reach willful violations: up to $1,000,000 in fines and up to 20 years in prison.11Office of the Law Revision Counsel. 50 USC 1705 – Penalties Separate recordkeeping penalties apply too. Failing to provide information OFAC requests can cost up to $29,150 per instance, rising to $72,876 when the underlying suspected violation involves a transaction over $500,000.12Federal Register. Inflation Adjustment of Civil Monetary Penalties
The SSI List Distinction
One boundary worth knowing. The 50 Percent Rule applies to entities on the Sectoral Sanctions Identifications List, but the consequences are different. Persons on the SSI List, and entities 50 percent or more owned by them, are not required to be blocked. A narrower set of restrictions applies, such as prohibitions on certain debt and equity dealings. The ownership math works the same way, but crossing the threshold on the SSI side does not trigger a full asset freeze.2Office of Foreign Assets Control. Entities Owned by Blocked Persons (50 Percent Rule) Anyone on the SSI List who is also separately designated on the SDN List remains subject to full blocking.