OFAC’s 50 percent rule: 50 percent of 50 percent is still 50 percent…

Michel Klompmaker

On November 14, the first edition of the Augmenting Customer Due Diligence (ACDD) event was held at the Jaarbeurs in Utrecht. Compliance is certainly not a boring field and you must be fully familiar with what is possible and what is not allowed. No financial institution, large or small, appears to be immune to the threat of fraud or money laundering. This event was meant to examine how data and innovation can accelerate progress towards common goals, such as cost reduction and streamlining of the CDD (KYC) process.

Five seminars took place during this exciting evening. Four of the keynote presentations were given in Dutch, but this particular article will focus on the English keynote that was given by David Hodgson, Head of Content Strategists at Dow Jones Risk & Compliance, about keeping up with the increasingly sophisticated methods of risk screening.

Office of Foreign Assets Control

David began his keynote presentation by stating that risk screening was very complicated and that the process can be made more accurate and efficient with high quality data. Dow Jones has a global team of specialist sanctions researchers, combining automated monitoring tools and human expertise to ensure this. David noted he was going to focus his presentation on discussing sanctions, but more specifically on the 50 percent rule surrounding sanctions, one of Dow Jones Risk & Compliance’s core coverage areas. He provided some statistics on OFAC, which is part of the United States Department of Treasury, known as the Office of Foreign Assets Control. David said that OFAC has sanctioned more than 770 parties this calendar year to date and under the Trump administration, 14 new programs, advisories and executive orders have been published, meaning one about every 2.3 months.

He also gave an example where the US showed concern over Chinese ships carrying Iranian oil. One company had been previously sanctioned (from 2012 to 2016) for exporting gasoline to Iran. This entity was taken off the sanctions list following the enactment of the JCPOA but was re-listed this year. David stated that the 50 percent rule comes into focus here, as OFAC does not identify the entities that are owned or controlled by sanctioned parties. He says that OFAC wants companies to determine and do this for themselves.

OFAC’s 50 percent rule

 When it comes to the Office of Foreign Assets Control’s 50 percent rule, David said that OFAC provides specific guidance on control. Moreover, he says that it is absolutely crucial to know if an individual or a company has influence in another company without actual ownership. So, with the 50 percent rule, David spoke about how we have to know who is behind it and how much individuals or companies own. He also stated how it is important to remember that 50 percent of 50 percent is still 50 percent, according to OFAC’s guidance.

David also briefly discussed the Aggregation Guidance for Specially Designated Nationals (SDN), which was a new guidance that was issued by OFAC in 2014. The guidance also provides examples, explained David, such as an SDN owns 25 percent of Entity A, and another SDN owns another 25 percent of Entity A, Entity A is considered to be blocked.

David explained that blocked is the term OFAC uses to essentially mean an indirectly sanctioned entity. OFAC says that if a company is 50 percent owned by another company, then they consider that company blocked. David explained that it would no longer be blocked if the shares of the company held by the sanctioned party were sold. He also stated it is hard to foresee when something is going to be sanctioned due to control and other factors.