The OFAC 50% Rule Explained:Hidden Sanctions Risks in Cross-Border Transactions Most Businesses Miss

In today’s global marketplace, cross-border transactions are routine. Yet, for companies doing business internationally, sanctions compliance can be one of the most overlooked areas of risk. A central piece of this puzzle is the Office of Foreign Assets Control’s (“OFAC”) Fifty (50%) Percent Rule, which can transform a counterparty who does not appear on any restricted-party list, operates through a respected intermediary, and even provides compliance certifications, into one that is effectively prohibited.

Understanding how this rule works, and how it is enforced, is essential for companies and individuals involved in cross-border transactions where ownership structures may implicate sanctions restrictions. Individuals and companies frequently seek legal guidance only after a transaction has already triggered compliance concerns. By that stage, remediation is often more costly and complex than preventative review. In this article, we help you understand how the OFAC 50% Rule works, why it creates hidden sanctions risk, and what individuals and companies must do to identify ownership-based restrictions before transactions occur.

What the OFAC 50% Rule Actually Says

Under OFAC’s definition of the Fifty (50%) Percent Rule,

“the property and interests in property of entities owned 50 percent or more, directly or indirectly, in the aggregate by one or more blocked persons (SDN) is itself considered blocked and subject to the same prohibitions as if the entity were explicitly listed on the Specially Designated Nationals and Blocked Persons (SDN) List.”

For sanctions purposes, “blocked persons” include both individuals and entities designated under U.S. sanctions programs. This means that a company may not be on any sanctions list at all, yet because of its ownership structure, it may be legally blocked from U.S. persons and transactions, thereby driving significant compliance risk, if:

• If a sanctioned person owns a parent company that owns a subsidiary, the subsidiary may be blocked as well.

• Two sanctioned persons each owning 25% of a company together trigger blocking.

• Ownership “cascades” through intermediate companies.

In other words, the rule targets economic reality, not formal corporate structure. It was created specifically to stop sanctioned parties from evading restrictions through shell companies or affiliates. Without it, a sanctioned entity could simply transfer ownership to a nominally independent affiliate, conduct transactions through subsidiaries, or split equity across associates to avoid direct majority control. The rule eliminates these workarounds by treating controlled companies as if they themselves were sanctioned. Its influence has been so strong that U.S. export-control authorities have adopted parallel frameworks.

Ownership Aggregation: The Compliance Trap Most Companies Miss

Ownership structure can be confusing. Many organizations assume sanctions screening is satisfied by checking names against the Specially Designated Nationals (SDN) list. That assumption is dangerously incomplete. The Fifty (50%) Percent Rule explicitly aggregates ownership stakes across multiple blocked persons, whether individuals or entities. This means, for example, if Blocked Person A owns 30% and Blocked Person B owns 20% of Entity X, then Entity X is treated as blocked under the Fifty (50%) Percent Rule even though neither individual owns a majority.

This approach prevents sanctioned parties from avoiding restrictions simply by spreading ownership across affiliated entities. In a typical compliance workflow, failures to examine beneficial ownership risks are a common source of sanctions violations precisely because the blocked entity may not show up on an SDN list. Because indirect ownership may exist through layered structures, OFAC urges companies to perform due diligence to determine relevant ownership stakes before entering transactions.

From a regulatory perspective, liability often arises not because a company knowingly transacted with a sanctioned party, but because it failed to investigate ownership structures deeply enough to detect a prohibited interest.

What Is a “Reasonable Search” Under OFAC Guidance?

OFAC does not provide a bright-line checklist of exactly what constitutes a “reasonable search.” However, the agency’s FAQs make clear that companies must perform appropriate due diligence on entities involved in transactions to determine whether they are owned fifty (50%) percent or more (in the aggregate) by blocked persons, even if they themselves are not listed on the SDN List.

In regulatory practice, this typically means:

• Identifying beneficial owners and corporate ownership structures (not just the immediate counterparty).

• Evaluating direct and indirect ownership interests for signs that blocked persons’ stakes exceed 50%.

• Screening all owners against sanctions lists and incorporating alternative name spellings, jurisdictions, and identifiers.

Although OFAC doesn’t mandate specific tools or processes, courts and enforcement actions strongly imply that merely relying on automated list screening is insufficient. Instead, companies should adopt reasonable due diligence policies tailored to their risk exposure, including reviewing ownership data from corporate filings, third-party databases, and direct counterparty disclosures. Failure to do so can result in asset freezes, transaction reversals, reputational damage, and civil penalties, even where a company had no intent to violate sanctions.

Real-World Risk Exposure for Companies

OFAC enforcement focuses less on intent and more on whether a prohibited transaction occurred. If a such transaction occurs and a U.S. nexus exists, such as U.S. dollars, U.S. banks, or U.S. persons, enforcement risk arises. Even unintentional violations by persons subject to U.S. jurisdiction, where a business lacked actual knowledge that a counterparty was effectively blocked under the Fifty (50%) Percent Rule, can trigger enforcement actions. Regulators have repeatedly pursued cases involving foreign-to-foreign transactions where a U.S. nexus was deemed sufficient to trigger jurisdiction.

For instance, in February 2026, OFAC announced a $1,720,000 settlement with IMG Academy, LLC after finding that the Florida-based institution engaged in repeated transactions with two SDNs tied to a sanctions-targeted Mexican cartel over multiple years. The academy entered into annual tuition agreements and accepted payments, which OFAC deemed prohibited dealings with blocked persons.

Matters like this frequently arise in compliance reviews or government inquiries where companies believed their screening procedures were sufficient but later learned that ownership-based restrictions applied. The lesson here is that even sectors that don’t ordinarily consider themselves “high risk” for sanctions can quickly become the subject of enforcement. Fines may reflect “non-egregious” conduct, but the reputational damage and legal expense are significant.

How a Person or Entity Can Be Removed From Sanctions Lists

Designation is not always permanent. The U.S. Treasury Department allows sanctioned persons and entities to request administrative reconsideration for removal from sanctions lists by submitting a written petition demonstrating that the circumstances resulting in designation no longer apply or were based on mistaken identity or insufficient evidence. Petitioners must provide supporting documentation showing, for example, changes in ownership, divestment by sanctioned parties, termination of prohibited conduct, or compliance remediation. Regulators evaluate these requests case-by-case and may remove names when sufficient evidence demonstrates that blocking is no longer warranted. However, the process is technical, evidence-driven, and often requires detailed legal and factual submissions to meet regulatory standards.

The Current Political Posture Toward Sanctions Enforcement

Sanctions continue to be a cornerstone of U.S. foreign policy, and the Fifty (50%) Percent Rule remains codified across multiple sanctions programs.

On one hand, enforcement intensity fluctuates. U.S. penalties for money-laundering and sanctions breaches fell about 61% in 2025, reflecting a more business-friendly regulatory posture and reduced investigations.

On the other hand, sanctions remain a bipartisan foreign-policy tool whose compliance expectations persist across administrations.

While enforcement patterns vary with administrations, sanctions remain a bipartisan tool. Even when some enforcement activity declines, as reported for certain financial penalties in recent years, the underlying legal obligations and expectations for compliance do not disappear.

Conclusion

The most dangerous sanctions risks are not obvious ones. They arise when a transaction appears clean on its face but is tainted by unseen ownership ties. The OFAC 50% Rule is designed precisely to capture those scenarios. Failure to understand and appropriately investigate ownership stakes can expose companies to significant regulatory risk and penalties.

For businesses engaged in cross-border activity, the rule is not a technical footnote, it is a central compliance pillar. Investing in structured due diligence and screening processes is a necessity in today’s global sanctions landscape. Ignoring it does not reduce risk. It simply delays the moment when that risk becomes visible, often to regulators first. If your team handles international transactions, ownership checks and sanctions screening must be integral components of your compliance program.

If your organization conducts international transactions, sanctions exposure should be assessed proactively, not after a regulator raises questions. A properly structured compliance review can identify hidden ownership risks, evaluate counterparties, and implement defensible screening protocols before transactions occur. A law firm experienced in sanctions enforcement and cross-border regulatory risk can also assist in responding to government inquiries, conducting internal investigations, and preparing delisting or remediation submissions where necessary.

If you are unsure whether your counterparties, investors, or partners could trigger sanctions exposure under the Fifty (50%) Percent Rule, a targeted sanctions risk assessment conducted before transactions occur can often identify vulnerabilities early, reduce exposure, and provide defensible documentation should regulators later scrutinize a transaction. Because sanctions liability can arise even where companies act in good faith, many organizations and transaction participants elect to conduct periodic independent compliance reviews to confirm that their screening protocols, ownership analyses, and transaction controls align with current enforcement expectations. Identifying gaps early is often the most effective way to prevent enforcement exposure later.

Individuals and organizations evaluating their exposure under the Fifty (50%) Percent Rule often benefit from experienced regulatory counsel who can assess risk, interpret ownership structures, and provide defensible compliance guidance tailored to their specific cross-border operations.

Frequently Asked Questions (FAQ):

• What is the OFAC 50% Rule?

  It treats any entity with 50% or more ownership (direct, indirect, or aggregated) by blocked persons as itself blocked, even if it does not appear on the SDN List.

• Why isn’t list screening alone sufficient?

  Because entities might never appear on the SDN List yet still be considered blocked by operation of law under the 50% Rule.

• What does “reasonable search” mean in sanctions compliance?

  A reasonable search typically includes investigating beneficial ownership and screening owners and ultimate beneficiaries against sanctions lists, not just the immediate counterparty.

• Do indirect and aggregated ownership counts?

  Yes. Indirect ownership through intermediate entities and aggregated interests of multiple blocked parties are included in the 50% calculation.

• Is control the same as ownership under the 50% Rule?

  No. Control without 50% or greater aggregate ownership isn’t automatically a trigger for the 50% Rule, though it may lead to separate designation.

• Can ownership changes after a transaction matter?

  Yes. If a sanctioned party divests and ownership falls below 50%, the entity may no longer be considered blocked, subject to jurisdictional requirements.

• What industries should pay the closest attention?

  Import/export, finance, logistics, supply chain, shipping, and investment firms, all sectors with cross-border exposure.

• Can foreign entities be subject to U.S. sanctions requirements?

  Yes, if a U.S. nexus exists (e.g., U.S. dollar payments, U.S. persons involved, or U.S. bases of operations).

• Are there penalties for unintentional violations?

  Yes. OFAC can impose civil penalties even for non-willful violations if the prohibited transaction occurred.

• How should companies handle complex ownership structures?

  By adopting robust due diligence policies that include beneficial ownership investigation, regular screening updates, and documentation of compliance reasoning.