Do we have to use screening software, and what is the 50 Percent Rule?
No, OFAC does not require you to use screening software or to scan, but you must not do business with a target or fail to block property, so you need a way to catch listed parties before you complete a transaction (OFAC FAQ 43). Under the 50 Percent Rule, an entity is blocked when blocked persons own 50 percent or more of it in the aggregate, even if the entity is not on the SDN List.
Screening:
- Every transaction a U.S. financial institution engages in is subject to OFAC regulations, and a bank that knows or has reason to know a target is a party acts unlawfully by processing it (OFAC FAQ 45).
- Software may need analysis to confirm a hit. The important thing is not to conclude transactions before that analysis is completed (OFAC FAQ 43).
- OFAC calls it prudent to screen account beneficiaries at opening, when updating account information, in periodic screening and upon disbursing funds (OFAC FAQ 95).
The 50 Percent Rule:
- Property of entities owned directly or indirectly 50 percent or more in the aggregate by one or more blocked persons is blocked. "Indirectly" means ownership through entities that are themselves 50 percent or more owned in the aggregate by blocked persons (OFAC FAQ 401).
- An entity owned 50 percent or more in the aggregate by blocked persons is blocked whether or not it is listed on the SDN List (OFAC FAQ 91).
- Stakes are aggregated. If Blocked Person X owns 25 percent of Entity A and Blocked Person Y owns another 25 percent, Entity A is blocked (OFAC FAQ 399).
- The rule covers ownership, not control. An entity controlled but not owned 50 percent or more by blocked persons is not automatically blocked by the rule, though OFAC urges caution with such entities (OFAC FAQ 398).
What to do: OFAC urges due diligence on entities party to or involved with a transaction, or with which you hold account relationships, to determine ownership stakes (OFAC FAQ 401). Checking names alone will not show ownership. If property is blocked, it may not be transferred or dealt in, and it must be reported to OFAC within 10 business days of becoming blocked (OFAC FAQ 9).
Sources
- OFAC FAQ 43: https://ofac.treasury.gov/faqs/topic/1621
- OFAC FAQ 401 (50 Percent Rule): https://ofac.treasury.gov/faqs/topic/1521
- OFAC FAQ 91: https://ofac.treasury.gov/faqs/topic/1501
This answer is general information, not legal advice. Forteris is not a law firm.
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