The 50 Percent Rule: why a clean name screen is not a clean counterparty.

Why a clean name screen does not settle the ownership question.

Foundations · 11 Jun 2026

Consider a hypothetical German industrial group screening a distributor. The name produces no hit, but the distributor's ownership has not been fully established. Two blocked individuals each hold 25 percent. The distributor is automatically blocked even if it is not named on the SDN List. Screening the correct owners against current data should reveal the problem; screening the distributor alone may not. OFAC FAQ 399.

The risk is documented. In December 2023, Privilege Underwriters Reciprocal Exchange agreed to pay $466,200 to settle potential civil liability for 39 apparent violations involving an entity owned by Viktor Vekselberg. OFAC identified a failure to incorporate available shareholder information into screening. This was a sole-owner case, not the hypothetical two-owner example above. OFAC, PURE Enforcement Release (Dec. 21, 2023), pp. 1–3.

The rule

OFAC explained the aggregate ownership test in its August 13, 2014 guidance. The rule also appears in program regulations; the Russia regulations are one example. 31 C.F.R. § 587.406; 31 C.F.R. § 589.411(a).

Persons whose property and interests in property are blocked pursuant to an Executive order or regulations administered by OFAC (blocked persons) are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person.
OFAC, Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked (Aug. 13, 2014), p. 1.

Two features do the work. The entity is blocked whether or not it appears on any list — the guidance says the property is blocked "regardless of whether the entity itself is listed in the annex to an Executive order or otherwise placed on OFAC's list of Specially Designated Nationals." And the consequence is absolute rather than graduated: "a U.S. person generally may not engage in any transactions with such an entity, unless authorized by OFAC." OFAC, Revised Guidance (Aug. 13, 2014), p. 1.

The rule also appears in regulations

It is inaccurate to dismiss the rule as guidance that binds nobody. The 2014 document is agency guidance, but 31 C.F.R. § 587.406 expressly treats an entity owned 50 percent or more, directly or indirectly and individually or in the aggregate, by persons blocked under that program as blocked whether listed or not. 31 C.F.R. § 589.411(a) does the same for the Ukraine-/Russia-related program. One nuance: each of these sections counts persons blocked under its own part. The aggregation across programs described in section 2 rests on OFAC's published guidance in FAQ 399. Read the guidance together with the applicable executive order and regulations.

It aggregates across unrelated designations — and across programs

If Blocked Person X owns 25 percent and unrelated Blocked Person Y owns another 25 percent, the entity is blocked. Their designations need not arise under the same program. OFAC FAQ 399.

For the purpose of calculating aggregate ownership, the ownership interests of persons blocked under different OFAC sanctions programs are aggregated.
OFAC FAQ 399 (Aug. 13, 2014).

A Russia-program designation and a narcotics-program designation combine. A counterparty can become blocked through two events in unrelated parts of the world, which a country-focused screening configuration may never connect. If your tool screens by program, or your diligence asks, "is anyone here Russia-sanctioned," it is asking a narrower question than the rule asks. OFAC FAQ 399.

Follow every ownership link

OFAC gives a specific interpretation of indirect ownership for this test:

"Indirectly," as used in OFAC's 50 Percent Rule, refers to one or more blocked persons' ownership of shares of an entity through another entity or entities that are 50 percent or more owned in the aggregate by the blocked person(s).
OFAC FAQ 401 (Aug. 13, 2014).

In the simplified examples below, X is blocked, the percentages are ownership stakes, and there are no other blocked owners or independent blocking grounds. A qualifying link carries attribution; a link through an intermediary that is less than 50 percent owned by blocked persons does not carry attribution through that link under this rule. Other direct or indirect paths must still be checked. OFAC FAQ 401.

Structure	Result	Why
X → 50% → A → 50% → B	B is blocked	A becomes blocked. Its entire 50% stake blocks B; do not multiply 50% × 50%.
X → 50% → A → 25% → C; and X → 50% → B → 25% → C	C is blocked	A and B are blocked. Their 25% stakes add to 50%.
X → 50% → A → 40% → B; and X → 10% directly → B	B is blocked	Blocked A holds 40%; blocked X holds 10%. Total: 50%.
X → 50% → A → 25% → C; and X → 25% → B → 25% → C	C is not automatically blocked on these facts	A is blocked, so its 25% counts. B is not blocked; that path contributes no attributed stake. Total: 25%.
X → 25% → A → 50% → C; and X → 25% → B → 50% → C	C is not automatically blocked on these facts	Neither A nor B is blocked on these facts. Neither path carries attribution to C.

The key distinction is the status of each intermediate owner. The test is not multiplication of economic ownership percentages, and 50 percent qualifies even though it is not a majority. Each result above reproduces the corresponding example in OFAC FAQ 401.

The diligence consequence

You cannot answer this from a name-screening result, and you cannot answer it from a single-layer shareholder register. You need the ownership chain, layer by layer, with percentages. Where the register is opaque, that opacity is itself the finding — and OFAC says plainly that it "urges persons considering a potential transaction to conduct appropriate due diligence." OFAC FAQ 401.

The rule does not reach control — which is a trap, not a relief

Asked directly whether an entity controlled but not majority-owned by blocked persons is blocked, OFAC says no: the rule "speaks only to ownership and not to control." A reader who stops at that answer has found the most dangerous false comfort in the subject, because three things sit immediately behind it. OFAC FAQ 398.

OFAC can simply designate the entity. It may "designate the entity" or "otherwise identify the entity as blocked property if determined to be controlled by one or more designated persons." Not automatically blocked is not out of reach. OFAC FAQ 398.
Some programs block on their own criteria, separate from the 50 Percent Rule — the 2014 guidance refers to programs that block "based on, for example, ownership or control," and FAQ 398 refers to the blocking of persons that meet the definition of a blocked government. Both documents' program examples are dated. FAQ 398 still names Syria, although the Syria-wide sanctions were revoked and OFAC removed the Syrian Sanctions Regulations effective August 26, 2025, with targeted Syria-related designations continuing under other authorities. The 2014 guidance names Sudan; OFAC removed the Sudanese Sanctions Regulations in June 2018. Check the operative program rather than relying on either list. OFAC FAQ 398; OFAC, Revised Guidance (Aug. 13, 2014); OFAC, Syrian Sanctions Regulations, 90 Fed. Reg. 41505 (Aug. 26, 2025); OFAC, Removal of the Sudanese Sanctions Regulations, 83 Fed. Reg. 30539 (June 29, 2018).
You still cannot deal with the blocked individual. This is the operational trap, and it gets less attention than it deserves.

A blocked individual who owns 30 percent and signs for a non-blocked entity creates a separate issue. Absent authorization, U.S. persons generally may not enter contracts signed by a blocked individual acting for that entity. Screen relevant representatives as well as owners. OFAC FAQ 400.

It does not reverse cleanly

Divestment below 50 percent does end the automatic blocking prospectively. The entity "is no longer considered automatically to be a blocked entity," provided the divestment occurred entirely outside U.S. jurisdiction and involved no U.S. person. OFAC pairs that with a warning that "[s]ufficient due diligence should be conducted to determine that any purported divestment in fact occurred and that the transfer of ownership interests was not merely a sham transaction." OFAC FAQ 402.

In March 2026, OFAC supplemented that warning with a sanctions advisory on sham transactions. It lists red flags — among them commercially unreasonable terms, transfers to family members or close associates, unduly complex structures involving higher-risk jurisdictions, a blocked person's continued involvement, and transfers close in time to a designation — and says no single factor is determinative. The advisory is "explanatory only and does not have the force of law." OFAC, Sanctions Advisory: Guidance on Sham Transactions and Sanctions Evasion (Mar. 31, 2026).

The asymmetry is in what has already happened. Property properly blocked while the entity was 50 percent or more owned stays blocked, even after the ownership falls away. It is released only if OFAC authorizes dealings in it, or if OFAC removes enough persons from the SDN List that the aggregate drops below 50 percent. Where the aggregate falls for any other reason — the blocked persons' own actions, the entity's included — the property remains blocked, because OFAC "does not recognize the unlicensed transfer" of a blocked person's interest once the property is blocked. Unwinding it means an application to OFAC's Licensing Division, decided case by case. OFAC FAQ 402.

So the timeline is part of the analysis

"Are they blocked today?" is the wrong question on its own. The right pair of questions is: were they blocked at the moment each payment, delivery or transfer happened, and is any property in our possession or control still blocked? A structure since cleaned up does not retroactively clean the transactions that ran through it.

The European reader's extra problem

EU ownership and control require a separate analysis. The Council's Best Practices of July 3, 2024 discuss ownership, control and rebuttal separately. They treat possession of 50 percent or more of the proprietary rights as ownership and take aggregated holdings into account, but control can matter even without a 50 percent ownership interest. The guidance is nonbinding and must be applied with the relevant current EU regulation. Council of the European Union, EU Best Practices, doc. 11623/24 (July 3, 2024), paras. 3, 62–68.

Keep jurisdictions separate

Germany and Austria are EU Member States. Switzerland has its own sanctions regime, built on the Federal Embargo Act and implementing ordinances; the EU test should not be presented as Swiss law. SECO, Sanctions: Legal basis. Qualified EU or Swiss counsel should address the relevant local rules. This article does not give a current, comprehensive EU or Swiss sanctions opinion.

What to do differently

Ask for the chain, not the shareholders. Percentages at every layer, through to ultimate beneficial owners. A one-layer register cannot answer the question the rule asks.
Aggregate across programs, not within one. Screening configured around a single country's program asks something narrower than the rule.
Test each link against 50 percent separately. Do not sum economic interests across links that fall below 50 percent — and do not treat such a link as harmless either, since it may still support a future designation. OFAC FAQ 401; OFAC FAQ 398.
Screen relevant signatories, negotiators and payment instructions. A non-blocked entity may still involve a blocked individual in a transaction prohibited for a U.S. person absent authorization. OFAC FAQ 400.
Keep the SDN List record fields. If your tool discards fields such as the "Additional Sanctions Information – Subject to Secondary Sanctions" notation to fit a data model, you are throwing away signal that is on the official record. OFAC FAQ 636.
Date every conclusion. Ownership and designations both move. A screen is evidence about one moment.

These steps address the ownership question. They do not replace the broader analysis of prohibited transactions, applicable licenses and other jurisdictions.

An ownership chain is answerable — but only layer by layer, and only on a dated record. We trace the chain, document the arithmetic, and tell you which link the answer turns on. Contact Zimmermann Law to talk it through.

Sources: Checked September 25, 2026. The regulations below are mandatory U.S. federal law within their scope. OFAC guidance, FAQs and advisories are OFAC's published interpretations; they are not regulations. The EU Council document is nonbinding EU guidance. The SECO page is an official Swiss government summary, not the legislation itself. OFAC, Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked (Aug. 13, 2014). OFAC FAQ 398 (Aug. 11, 2020) — control and independent blocking grounds. OFAC FAQ 399 (Aug. 13, 2014) — aggregation. OFAC FAQ 400 (Aug. 13, 2014) — blocked representatives. OFAC FAQ 401 (Aug. 13, 2014) — indirect ownership and Examples 1–5. OFAC FAQ 402 (Aug. 13, 2014) — divestment and previously blocked property. OFAC FAQ 636 (Nov. 5, 2018) — "Additional Sanctions Information" notation. OFAC, Sanctions Advisory: Guidance on Sham Transactions and Sanctions Evasion (Mar. 31, 2026) — red flags for purported divestments; no force of law. 31 C.F.R. § 587.406 — codified ownership rule, Russian Harmful Foreign Activities Sanctions Regulations; mandatory, U.S. federal. 31 C.F.R. § 589.411 — codified ownership rule, Ukraine-/Russia-Related Sanctions Regulations; mandatory, U.S. federal. OFAC, Syrian Sanctions Regulations, 90 Fed. Reg. 41505 (Aug. 26, 2025) — removal of 31 C.F.R. part 542. OFAC, Removal of the Sudanese Sanctions Regulations, 83 Fed. Reg. 30539 (June 29, 2018) — removal of 31 C.F.R. part 538. OFAC, PURE Enforcement Release (Dec. 21, 2023), pp. 1–3 — official enforcement record; apparent violations, not a judicial holding. Council of the European Union, EU Best Practices, doc. 11623/24 (July 3, 2024), paras. 3, 62–68 — persuasive EU guidance; no Swiss-law conclusion. SECO, Sanctions: Legal basis — Swiss government summary of the Embargo Act framework; context only.

This post is for general information and is not legal advice.

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