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Sanctions: What is the 50% rule?

It’s not a widely-enough known fact that not everyone who is sanctioned appears on a sanctions list. Learn about the 50 percent rule here and, if you work in AML/KYC due diligence, find out how you can do more to catch all sanctioned individuals and entities.

What is the 50 percent rule?

This is an OFAC (the Department of the Treasury’s Office of Foreign Assets Control), EU and UK rule that prescribes that sanctions also apply to companies that are owned in at least 50 percent by sanctioned individuals or entities. 

It could be one or more sanctioned individuals/entities that make up that 50 percent threshold. For example, if two sanctioned individuals have a 26 percent stake each in a company then they cumulatively pass the 50% threshold and therefore the company they own is sanctioned.

In other words, the 50% is based on what total percentage of ownership is held by an individual and/or entity that is sanctioned in aggregate NOT what percentage one single sanctioned individual/entity owns of the company (which may be under 50% according to this rule).

What about cases of indirect ownership?

Yes, indirect ownership still counts. Here’s an example from OFAC’s website: Blocked Person X owns 50 percent of Entity A, and Entity A owns 50 percent of Entity B. Entity B is considered to be blocked. This is because Blocked Person X owns, indirectly, 50% of Entity B. In addition, Blocked Person X’s 50 percent ownership of Entity A makes Entity A a blocked entity. Entity A’s 50 percent ownership of Entity B in turn makes Entity B a blocked entity.

So, whether a company is directly or indirectly owned by sanctioned individuals/entities in 50 percent or more, it is sanctioned by association.

Examples of the 50 percent rule

See the infographic below for more examples of the 50 percent rule. These examples can help make it clearer.

What if the 50% threshold is almost met but not quite?

OFAC recommends being careful if sanctioned ownership nears 50 percent but doesn’t quite make the cutoff. For example, if a sanctioned person owns 48 percent of a company you are investigating.

It’s best to think twice before doing business with such an entity. Get advice from an experienced sanctions compliance expert

If you are an analyst, don’t forget to red flag such an entity, add it to your reports and draw your superior’s attention to it as such a business may require special steps to be taken. 

Are the 50 percent rule and “sanctioned by association” the same?

Sanctioned by association (sometimes referred to as “sanctioned by extension”) is the term for those companies that are owned by an explicitly sanctioned individual or entity (or another entity that is explicitly owned by a sanctioned individual or entity) in at least 50 percent. So, yes the terms “50 percent rule” and “sanctioned by association” refer to the same issue, but “sanctioned by association” is the term for the entity that meets the 50 percent rule.

What is a “narrative sanction”?

According to experts, those who are explicitly sanctioned (i.e. those whose names appear in black and white on a sanctions list) may make up only 5% of those who are sanctioned. The other 95% belong to wants called narrative sanctions.

What does this mean? Sanctions programs include a narrative statement, which is a broad statement on who else may be sanctioned. Those sanctioned individuals and entities who fall under these broad blanket statements are under so-called narrative sanctions.

Is your sanctions screening thorough enough?

If your AML/KYC processes only entail searching sanctions lists, you are likely missing individuals or entities who are sanctioned by extension. Keep in mind, bad actors know about this rule and have been working to hide their ownership or using other methods to obscure their controlling stake in companies.

Read on to find out how you can make your sanctions monitoring more robust.

What can you do to uncover entities sanctioned by association?

Before we go on, step one must be to do sanctions screening of the main global sanctions lists (like EU, OFAC, UN, DFAT). You can use Complytron’s sanctions screening tool to this easily and affordably.

Next let’s turn our attention to how you can uncover those people and companies who are sanctioned by association.

Given how hard it is to even pin down who the owners of an entity are and what percentage stake they have, it’s definitely onerous and challenging to try to catch them.

Still to satisfy sanctions regulations, you do have to show that you tried to uncover this information as part of enhanced due diligence. You don’t want to be caught entering a business relationship with a sanctioned entity and then be unable to provide evidence that you did everything possible to avoid it.

So, what can you do?

  1. If you can establish who the owners are and in what percentage, then you should be running those owners through sanctions screening tools like Complytron. If an entity is one of the owners, try to investigate who owns that entity and run them through sanctions screening too. Do this all the way up the chain until you have the ultimate beneficial owner(s) and screen them too.
  2. If you cannot establish who the owners are and in what percentage, it is more challenging and it will take more enhanced investigative techniques to try to colour in some of the unknowns. Check things like incorporation documents, annual reports, tax filings, media reports, data leaks and social media to try to map out the ownership structure. Then, tools like Complytron can help. For example, if your target has a URL (most companies have a web presence these days!) search it in our tool and that will uncover if it has any digital fingerprint links to a sanctioned entity’s website. URLs that share very similar digital fingerprints may have an ownership relationship (i.e. you may find one company owns the other, or that they both have the same owner). This can give you much needed clues to go on when investigating whether your target has any links to a sanctioned entity. Complytron can also help you check the back-end of the website to identify whether a sanctioned entity is operating via a front that has not been explicitly declared on a sanctions list. Not only that, doing this URL search is another piece of evidence you can use, should you be under a sanctions audit, to prove that you did everything possible to spot the risks and enforce sanctions. 

Case study: How Complytron can help you catch sanctioned by association individuals and entities

How can you tell if an entity you are investigating is worth exploring further to check that the 50 percent rule is not broken?

It all starts with discovering, whenever possible, who the owners are. It may even involve getting to the bottom of who the owners of the owners are (until you get to the ultimate beneficial owner).

Tools like Complytron’s digital fingerprint search, can also give you clues.

Here’s one example:

Run a search of on Complytron (you can do this using a 7 day free trial)

We can reveal that it shares digital fingerprint similarities with⁠—an OFAC sanctioned company.

Although Marex Oil Refinery does not appear on a sanctions list, Complytron gives you critical information that you should further investigate them. Why? Their potential business links to Transneft may make Marex sanctioned by association (if there is an ownership link), alternatively their links to a sanctioned entity may be an indication of other business risks that require further investigation.Remember to comply with the 50 percent rule, it’s not just sanctions lists you need to check to avoid doing business with a sanctioned entity. You also need to do further investigations to ensure the company you are doing business does not have owners who are sanctioned.

What should you do with a client who is sanctioned by association?

You risk fines and other penalties if you are caught doing business with someone who is sanctioned by association.

Therefore, as a general rule, you should not enter a business relationship or transact with a client or potential client who is sanctioned by association.

The bottom line

Now you know what the 50 percent rule is and how you can use tools like Complytron’s to try to catch those who may be sanctioned by association, you can help protect yourself and your company from falling foul of sanctions regulations and remain compliant.

Contact us to learn more about how Complytron can help you enforce sanctions regimes. Together we can make the world a safer place free from financial crimes.


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