The 50% Rule and the Reach of OFAC Designations
How OFAC's 50 Percent Rule extends blocking sanctions to entities owned by designated persons, and the compliance reach of derivative designations.
The Doctrine of Aggregated Ownership
The "50 Percent Rule" is the operative interpretive guidance issued by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) that extends blocking sanctions automatically to entities not themselves named on the Specially Designated Nationals and Blocked Persons List (SDN List). The current formulation, published on August 13, 2014, supersedes prior guidance from February 14, 2008, and states: any entity owned, directly or indirectly, 50 percent or more in the aggregate by one or more blocked persons is itself considered blocked, regardless of whether that entity appears on the SDN List.
Three features of the 2014 guidance distinguish it from the earlier rule. First, the threshold is ownership, not control — a blocked person who owns 49 percent of a company but appoints its entire board does not, by the rule alone, taint the subsidiary (though OFAC retains discretion to designate it separately under the relevant program). Second, aggregation across multiple blocked owners is required: if SDN A owns 30 percent and SDN B owns 25 percent of Company X, the company is blocked because the combined holding is 55 percent. Third, indirect ownership is captured through the chain: if SDN A owns 60 percent of Holding Co., which owns 60 percent of Operating Co., Operating Co. is blocked.
Automatic Operation and Self-Executing Effect
The rule is self-executing. OFAC does not need to publish the subsidiary's name for U.S. persons to incur liability for dealing with it. This was made explicit in OFAC's December 2014 Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked, which warned that the burden falls on U.S. persons to conduct due diligence sufficient to identify derivative blocked entities. The practical consequence is that compliance officers cannot rely on SDN List screening alone; they must perform beneficial ownership analysis against the entire SDN universe.
The enforcement record demonstrates the rule's bite. In the 2019 Société Générale settlement ($1.34 billion, combined with DOJ and DANY), and in the 2014 BNP Paribas settlement ($8.9 billion), liability turned in part on transactions with entities not individually named but owned by Sudanese, Cuban, and Iranian SDNs. The Epsilon Electronics enforcement action of 2014 ($4 million) reinforced that constructive knowledge — what a reasonable compliance program would have discovered — is sufficient for civil liability under the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701–1708.
The rule's reach is global because OFAC's jurisdiction under IEEPA and the Trading with the Enemy Act extends to all U.S. persons (citizens, permanent residents, entities organized under U.S. law, and persons physically present in the United States), U.S.-origin goods and technology, and transactions touching the U.S. financial system through correspondent accounts. A French bank clearing a euro payment for a Russian SDN's 51-percent-owned Cypriot trading company may incur primary U.S. jurisdiction if the payment routes through a New York correspondent — a fact pattern that recurred throughout the post-2014 Russia/Ukraine-related sanctions enforcement. Critically, the rule applies to property "in which" a blocked person has an interest under 31 C.F.R. § 510.201 and parallel provisions across OFAC programs, meaning the subsidiary's assets and the parent's interest are both blocked upon coming within U.S. jurisdiction.