OFAC Issues Guidance on New "50% Rule" for Entities Owned by Blocked Persons, Etc.
The Office of Foreign Assets Control has issued a guidance document on the status of entities owned by persons1 whose property and interests in property are blocked pursuant to an Executive Order or regulations administered by OFAC ("blocked persons").
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(Such blocked property is broadly defined to include any property, tangible or intangible, or any interest therein, including present, future, or contingent interests. A property interest subject to blocking includes interests of any nature whatsoever, direct or indirect.)
50% Rule for Entity Ownership by "Blocked Person"
According to the guidance document, a "blocked person" is considered to have an interest in all property and interests in property of an entity in which it owns, directly or indirectly, an interest of 50% or more.
In such instances, the property and interests in property of such an entity are blocked, regardless of whether the entity itself is listed in the annex to an EO or otherwise placed on OFAC's list of Specially Designated Nationals (SDNs).
Accordingly, a U.S. person generally may not engage in any transactions with such an entity, unless authorized by OFAC.2
Advice if Ownership by "Blocked Person" Falls Below 50% Rule, Etc.
The guidance also advises U.S. persons to act with caution when considering a transaction with a non-blocked entity in which a "blocked person" has a significant ownership interest that is less than 50% or which a "blocked person" may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action by OFAC.
Third Party Intermediaries for Goods, Services, Technology, Etc.
Furthermore, the guidance states that U.S. persons may not procure goods, services or technology from, or engage in transactions with, a "blocked person" directly or indirectly, including through a third-party intermediary.
New and Existing OFAC Regulations to Reflect this Guidance
The guidance adds that as OFAC issues regulations implementing new sanctions programs, the guidance in this document will be incorporated into those regulations. In addition, OFAC expects to amend existing sanctions programs to incorporate this guidance into the regulations implementing those programs.
1Individuals or entities
2In certain OFAC sanctions programs (e.g., Cuba and Sudan), there is a broader category of entities whose property and interests in property are blocked based on, for example, ownership or control.
OFAC's "Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked" (dated 02/14/08) available at http://www.treasury.gov/offices/enforcement/ofac/programs/common/licensing_guidance.pdf