This white paper highlights how our unique Sanctions Ownership Research data help to stay on top of sanctioned entities and individuals and the companies they are involved with.

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THE AGGREGATE 50% RULE: IS THE CUP
H A L F F U L L O R
H A L F E M P T Y ?

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The “OFAC 50% Rule,” and its EU
equivalent, are not new guidance
documents. However, no firm
had ever been ensnared by an
enforcement action for not blocking
assets on the basis of
that requirement.
These regulatory strictures,
which put meat on the “owned or
controlled” wording prevalent in
the sanctions regulations issued
by active financial crime regulators
across the globe, received renewed
attention in the wake of the
sanctions imposed on Russia for
its actions in support of separatist
movements in eastern Ukraine, and
its annexation of the Crimea region.
OFAC, in fact, reissued the 50%
Rule guidance, later amending it to
include cases where 50% or greater
ownership by multiple sanctioned
persons or entities would cause
the sanctions to apply to the
owned entity. This “aggregate 50%
Rule” would then also be applied
to the firms listed on the Sectoral
Sanctions Identification (SSI) List.
The revised 50% Rule guidance
applies to all OFAC sanctions
programs, as noted by links to
the guidance from the sanctions
overview documents on OFAC’s
website. That fact was recently
reinforced by Barclays’ $2,485,890
settlement with OFAC. According
to the details published on OFAC’s
website, Barclays processed
159 violations involving multiple
corporate customers who were,
due to the ownership stake of
Industrial Development Corporation
of Zimbabwe, also subject to U.S.
sanctions.
Fleshing out the ownership structure
of corporate entities, however, is
a task best left to the experts. Our
experience in researching sanctions
ownership in relation to the Ukraine-
related sanctions involved many
twists, turns and dead ends.
C A M E R A O B S C U R A
Russian corporate structures are
intricate, perhaps intentionally so.
Lukoil’s corporate “map” has over
300 separate legal entities, for
example. Tucked inside this maze
is LICARD EURASIA FILO HIZMETLERI
SANAYI VE TICARET LIMITED SIRKET,
which is 1% owned by Lukoil
Inter-Card LLC and 99% owned by
LICARD Euro Services GmbH. On its
face, this would seem to be benign,
as the overwhelming majority of
the firm is owned by a German
subsidiary. Digging further, however,
one discovers that LICARD Euro
Services GmbH is fully owned by
Lukoil Inter-Card LLC. Therefore, the
Turkish subsidiary is actually wholly
owned by the Russian firm!
Company identity also shifts over
time, further clouding the overall
picture. Consider AK Sibur OJSC
and Sibur Holdings, which were
two separate companies. In 2006,
however, Gazprom sold a 50% stake
in AK Sibur to Sibur Holdings. Then,
according to 2012 news stories, AK
Sibur went out of business. Or did it?
One news story the next year referred
to the two companies as one and
the same, while another reported AK
Sibur’s assets being absorbed into
Sibur Holdings.
Furthermore, transparency and
accuracy of online records leave
something to be desired. Defense
Systems OJSC is owned by
Oboronprom, but that relationship
does not appear in Defense
Systems’ corporate documents.
Luckily, Oboronprom’s website, as
well as news stories, do establish
the relationship. Additionally,
the two firms share the same
managing director.
In a more generic sense, researching
information in online records often
leads to dead ends. In more than
one instance, company locations
listed online turned out to be out
of date. In one case, the address
was discovered to actually be
the location of a school, while
in another, it was the location
of a completely different kind
of company. Additionally, we
discovered that private citizens can
be listed anonymously in corporate
documents, totally obscuring their
beneficial ownership of a company.
Another consideration when
performing such research is the
ability to understand documents in
the local language. In one notable
case, while Sibur Holding’s English
website noted the presence of a
subsidiary dealing in fertilizer, the
native language site contained a
story about the subsidiary’s sale
years earlier.
T O I N F I N I T Y…
A N D B E YO N D ?
One thing the Barclays enforcement
action pointed out in exquisite
detail: one cannot pick and choose
which sanctions programs you will
perform 50% Rule research for, and
how extensive and in-depth that
research needs to be. In geographic
areas in which your firm does a
significant amount of ongoing
business, it makes sense to
match that additional exposure to
One cannot pick
and choose which
sanctions programs
you will perform
50% Rule research for,
and how extensive and
in-depth that research
needs to be.
THE AGGREGATE 50% RULE:
IS THE CUP HALF FULL OR HALF EMPT Y?
E R I C A . S O H N , D I R E C T O R O F B U S I N E S S P R O D U C T

3. sanctions risk with a corresponding
enhanced level of scrutiny.
While, for many of the country-based
programs (as well as the narcotics
trafficking sanctions program),
those areas are likely well-defined
and confined to areas in close
proximity to those formally identified
by regulators, that is not always
possible. The over 4,000 entities
identified as having ties to EU and
OFAC Ukraine-related financial and
sectoral sanctions are located in over
80 countries, for example.
So, how hard does one look for ties
to sanctions lists in order to manage
regulatory risk – and does it make
sense to look further in order to
reduce potential reputational risk
from relationships that are not
formally prohibited? After all, OFAC
does say to proceed with caution
for aggregate ownership stakes
less than 50% as such firms may be
targets of future designations, and
because a significant minority owner
may still exercise control by non-
ownership means.
It is a balancing act, to be sure,
and one driven by practical concerns.
For example, depending on the
jurisdiction, smaller ownership stakes
don’t have to be made public and are
therefore unknowable. Additionally,
the number of ownership stakes
tends to increase geometrically as
the size of the stake increases. That
means that you might have 2 or 3
times as many 5% or greater owners
as you have 10% or greater owners.
And owners with smaller stakes have
less control and influence, further
reducing the impetus to cover them
in research. So, one has to determine
how much research effort to put into
covering people whom are less likely
to be of concern.
On the other end of the spectrum,
based on beneficial ownership
guidance (admittedly a different,
albeit related, field) issued or
proposed by multiple regulators,
it appears that one’s research needs
to extend at least as low
as 25% ownership.
To put these numbers in perspective,
there are on the order of only about 350
unique persons and entities on the EU
and OFAC Ukraine-related sanctions
lists. By including all ownership stakes
down to 10%, regardless of whether or
not the 50% threshold has been met,
we have managed to identify 4200
additional entities, which is roughly
80% the size of the entire SDN List.
One can only imagine what that figure
would be were the threshold to be
dropped to the US reporting threshold
of 5% ownership.
The other logical research extension,
based on actual events, but not
backed by regulatory guidance or
inference, is researching the relatives
and close associates of those on
sanctions lists. The most prominent
case is that of the Rotenberg family,
which passed ownership of Hartwall
Arena, an events venue in Finland,
multiple times from members who
were sanctioned to those who were
not. As such cases proliferate, most
likely with respect to the Ukraine-
related sanctions, impetus for
expanding guidance to cover people
and firms associated with those
already subject to sanctions could
grow, especially for the largest firms
involved in wealth management and
international funds transfers.
The best harbinger of things to come
can be found in OFAC’s enforcement
actions. The Civil Monetary Penalty
or Finding of Violation imposed on a
prominent Tier 1 firm today will likely
evolve into a general regulatory
expectation 12-18 months down the
line, if not sooner. These may the
best way to plan for your compliance
program’s future.
E R I C A . S O H N , D I R E C T O R O F
B U S I N E S S P R O D U C T
Eric has over two decades of
experience in regulatory compliance
and risk management. He previously
provided advisory services for a global
array of clients’ compliance programs.
Eric is ACAMS certified, serves on
the ACAMS Editorial Task Force and
contributes thought leadership
regularly for industry conferences
and publications.
For more information, visit
www.dowjones.com/risk
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Dow Jones Risk and Compliance
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visit www.dowjones.com/risk
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