Until recently, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and industry practice were generally aligned on the agency’s well‑known 50 Percent Rule: entities with less than 50 percent aggregate ownership by blocked persons were not automatically blocked, and control alone by any blocked persons—while a theoretical concern—rarely dictated the sanctions compliance analysis. However, since June 2025, OFAC has increasingly signaled that control by blocked persons over an entity can itself create enforcement exposure for parties dealing with that entity and its assets. Taken together, recent guidance and enforcement actions suggest that OFAC is developing a de facto “control” rule that operates alongside, but outside, the formal 50 Percent Rule.
This article traces how an unwritten “control” standard is emerging alongside OFAC’s 50 Percent Rule, highlights the key guidance and enforcement actions driving that shift, and assesses what these developments should mean for sanctions compliance programs and firms’ tolerance for counterparties controlled—but not majority‑owned—by blocked persons.
OFAC’s 50 Percent Rule: What the Text Actually Says (And Doesn’t Say)
When a person (individual or entity) is designated on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List, all their property and interests in property that are under U.S. jurisdiction are required to be blocked and cannot be dealt in by U.S. persons, unless authorized. The prohibitions on dealings with the SDN expressly include: (1) the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of the SDN; and (2) the receipt of any contribution or provision of funds, goods, or services from the SDN.
For sanctions compliance purposes, OFAC defines the term property extremely broadly to include any interest in property of any nature whatsoever—direct or indirect, tangible or intangible, present, future, or contingent. The term entity is likewise defined broadly to cover partnerships, associations, trusts, joint ventures, corporations, groups, subgroups, or other organizations.
This raises a familiar OFAC compliance-related question for companies and financial institutions: when an SDN co‑owns an entity with non‑sanctioned persons, is the entire entity—and all of its property—also treated as blocked and therefore off-limits for U.S. persons? In other words, does an SDN’s partial ownership interest cause the entity itself to become “constructively blocked” for sanctions purposes, even if the entity’s name never appears on the SDN List? OFAC’s answer has been the well‑known OFAC 50 Percent Rule.
In its current form, OFAC’s 50 Percent Rule guidance provides that any entity owned either individually or in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered blocked under the same legal authorities, even if the entity does not appear by name on the SDN List. This rather straightforward concept has been incorporated across most OFAC sanctions program’s regulation’s in 31 C.F.R. Chapter V. OFAC has also extended the 50 Percent Rule beyond traditional SDNs, applying it to ownership interests held by persons on certain other sanctions lists (e.g., OFAC’s SSI List) and to entities owned by certain blocked governments (e.g., Venezuela). The extension of the rule to other lists and relevant governments has been through the publication of relevant regulations, and/or in the form of published Frequently Asked Questions (“FAQs”).
Example: Applying the 50 Percent Rule
The following ownership structures illustrate how OFAC’s 50 Percent Rule and aggregation concepts work in practice for sanctions compliance teams, without reference to any emerging “control” standards:
An SDN, X, owns 30 percent of Company A and another SDN, Y, owns 25 percent of Company A. Because X and Y together own 55 percent, Company A is treated as blocked in its entirety under the 50 Percent Rule (i.e., Company A is “constructively blocked”). According to OFAC, this aggregation of ownership applies even if the SDNs are designated under different programs, although it remains unclear which program’s respective requirements would govern in the event of a conflict.
If Company A—which is constructively blocked but does not itself appear on the SDN List— owns 50 percent of Company B, then Company B is also constructively blocked pursuant to the same underlying legal authorities.
By contrast, if X alone owns 40 percent of Company C and no other blocked persons have an interest, Company C is not automatically blocked because aggregate blocked ownership there is still below 50 percent.
Focused on Ownership, Not Control
The European Union and the United Kingdom both treat entities that are owned or controlled by sanctioned persons as subject to asset‑freeze sanctions, so their respective “50 Percent” concepts expressly extend to control as defined in their regimes. By contrast, OFAC has expressly provided in guidance since at least August 2020 (See, FAQ #398) that its 50 Percent Rule “speaks only to ownership and not to control,” and that and that an entity controlled—but not owned 50 percent or more—by blocked persons is not automatically considered blocked under that rule.
Since the August 13, 2014 version of the 50 Percent Rule, three key OFAC FAQs—#398, #400, and #402— have specifically cautioned that dealings with non‑blocked entities in which blocked persons are involved, including through positions of control, can still create sanctions risk even where the entity does not meet the 50 Percent Rule ownership threshold. Under these FAQs, OFAC’s cautioning for dealing with an entity where blocked individuals arguably exercise control—including through a sham ownership transfer—but do not nominally own 50 percent or more, were limited to the following examples:
- Dealing with a blocked person representing the non-blocked entity (e.g., a blocked individual is an executive of a non-blocked entity), such as entering into a contract that is signed by a blocked person;
- OFAC potentially designating the relevant entity under an available sanctions criteria or otherwise identifying the entity as blocked property if it were to later determine it to be controlled by one or more designated persons and add the entity to the SDN List; or
- The relevant entity becoming the subject of potential enforcement actions.
OFAC provides its clearest example in FAQ #400 (i.e., the first example above): even if a non‑blocked company is not owned 50 percent or more by blocked individuals, U.S. persons may not negotiate, enter into contracts, or process transactions where a blocked person is acting on that company’s behalf, such as signing contracts as an executive of the non‑blocked entity. Although FAQ #400 cautions U.S. persons more generally about doing business with non‑blocked entities in which blocked individuals are involved, the concrete prohibition it articulates focuses on situations where the blocked person is plainly front‑facing for the entity. Beyond that, the FAQs mark a zone of heightened “control” risk without creating a formal OFAC control rule or a clear standard for when control alone causes the entity and its property interests to be treated as blocked.
Emerging “Control” Standard: Recent OFAC Enforcement and the March 2026 Advisory
OFAC Civil Enforcement Trends
On June 12, 2025, OFAC imposed a nearly $216 million civil penalty on GVA Capital Ltd. for Ukraine-/Russia sanctions program related violations and for failing to comply with an OFAC subpoena, arising from investment‑related dealings in the property interests of SDN Suleiman Abusaidovich Kerimov. What stood out to sanctions practitioners was less the penalty amount than OFAC’s reasoning about ownership, control, and the limits of its 50 Percent Rule. OFAC doubled down on those themes in its December 2, 2025 enforcement action against IPI Partners, LLC (“IPI”), again focused on investment structures tied to Kerimov.
In GVA Capital, before Kerimov’s designation the California-based venture capital firm had solicited and invested his funds—primarily through a family‑member proxy—into a U.S. company via a Guernsey‑based vehicle (“Prosperity”). After designation, GVA obtained a legal opinion concluding that Prosperity was not itself blocked because it was not nominally owned 50 percent or more by SDNs under OFAC’s 50 Percent Rule. OFAC nevertheless faulted the firm for continuing to deal with Kerimov’s investment through Prosperity, emphasizing senior management’s knowledge of his ongoing property interest based on dealings with him and his nephew, notwithstanding the opinion’s explicit warning against any direct or indirect dealings involving Kerimov.
OFAC warned that the GVA Capital case, “demonstrate[d] the risk that U.S. persons face when relying on formalistic ownership arrangements that obscure the true parties in interest behind an entity or investment, without sufficiently considering factors such as control or influence over that investment.” This cautionary language explicitly pushes beyond a narrow, ownership‑only reading of the 50 Percent Rule and points toward a broader ownership-and-control-based sanctions analysis.
In IPI (a Chicago-based private equity firm), OFAC described, how after Kerimov’s designation, the firm sought outside counsel’s advice on whether to block an investment account of an entity historically known to be associated with him (“Definition”). Counsel concluded that Kerimov’s sub‑50 percent nominal stake meant no blocking obligation, and IPI continued to deal in the account. OFAC criticized both IPI and its counsel for failing to fully account for ongoing interactions with Kerimov and his proxies—even where IPI was indirectly dealing with Kerimov—and for not probing the true source of investment funds, stressing that its broadly defined regulatory terms “interest” and “property interest” must be assessed in light of “practical and economic realities,” not just formal equity ownership. It is worth noting that shortly after the IPI case, OFAC highlighted the exact same caution regarding the need to assess such interests in consideration of “practical and economic realities” in a separate December 9, 2025 enforcement action involving a complex legal structure.
Taken together, GVA Capital and IPI preview OFAC’s emerging “control” standard: in structures featuring proxies, opaque vehicles, or other indications that an SDN retains influence or a concealed economic stake, OFAC expects parties to look past the 50 Percent Rule and assess the SDN’s practical control and concealed economic stake as a basis for treating dealings with the entity as prohibited—even where ownership on paper never reaches 50 percent. In the IPI release, OFAC expressly links this expectation to its longstanding guidance in FAQs #398, #400, and #402 and signals that individuals and companies with reason to know of such involvement cannot later claim ignorance simply because the SDN lacks nominal ownership or an overt role. Yet, as discussed above, those FAQs themselves stopped short of articulating a freestanding “control rule” or a clear standard for when an entity and its property interests should be treated as blocked based solely on control. The March 2026 sham‑transactions advisory then makes OFAC’s evolving view more explicit, translating these enforcement themes into stated risk indicators and red flags.
Guidance on Sham Transactions and Sanctions Evasion – March 31, 2026
On March 31, 2026, OFAC published a Sanctions Advisory titled, Guidance on Sham Transactions and Sanctions Evasion, effectively taking the themes from the GVA Capital and IPI enforcement actions—among others—and generalizing them into formal guidance, while also building on prior guidance in FAQ 402. OFAC warns that blocked persons may continue to hold an interest in property through sham transfers, front persons, and complex structures, and, echoing IPI, that parties must look past nominal ownership to the “underlying practical and economic realities” to determine whether a blocked person still retains an interest in the property.
To operationalize this “look‑through” concept, the advisory sets out a non‑exhaustive list of red flags that may indicate a sham transfer, a continuing blocked interest, or both, emphasizing that no single factor is determinative and that a functional, totality‑of‑the‑circumstances analysis is required. Taken together—transfers to family members or close associates, unduly complex structures in higher‑risk jurisdictions, commercially unreasonable or last‑minute transfers around designation, continued involvement of a blocked person through intermediaries, and evasive responses about their role—these indicia all target the same question: whether, despite a nominal transfer, a blocked person still retains an interest in the property of an entity in question. The advisory underscores this point by expressly citing the GVA Capital and IPI Partners enforcement actions as examples of U.S. persons continuing to manage or maintain property for a blocked individual through proxies and layered structures, despite knowing that the blocked individual retained an interest and continued to make relevant investment decisions.
In practical terms, the advisory wraps up with a Compliance Considerations section that functions like a simple decision rule: where there was a prior SDN interest and a risk‑based review of the available facts turns up these red flags, OFAC expects the property to be treated as still blocked (and reported) and U.S. persons to refrain from dealing in it absent authorization; where the same review is reasonably performed and does not reveal such indicia, OFAC states that it does not seek to disturb legitimate, good‑faith dealings with the property. What the advisory does not squarely address is how far a transaction party must go to discover that a prior SDN interest ever existed in the first place—a question that will turn on the party’s existing knowledge of the counterparty, risk profile, and diligence practices, and that remains one of the more unsettled aspects of OFAC’s emerging “control” standard.
The Emerging De Facto “Control” Rule and OFAC Compliance Implications
Taken together, the FAQs, enforcement actions, and sham‑transactions advisory describe an unwritten rule: When a blocked person’s property interest in an entity has been “transferred” only on paper, or where a blocked person otherwise exercises practical control or influence through proxies, trusts, or other complex legal structures, OFAC expects U.S. persons to look beyond the 50 Percent Rule and, unless a deeper, risk‑based review demonstrably supports the opposite conclusion, treat dealings with that entity’s property as if it were blocked. This emerging standard is particularly relevant for asset managers, private funds, banks, and multinational corporates that routinely navigate complex ownership and control structures, especially in higher‑risk jurisdictions.
For sanctions compliance personnel, the practical message is that an ownership‑only 50 Percent Rule screen is no longer enough wherever there is a known or reasonably suspected history of SDN ownership or involvement. In such cases, OFAC’s recent enforcement actions and sham‑transactions advisory call for a separate analysis that asks whether a purported divestment was real or whether the SDN’s property interest persists in substance. A risk‑based review against OFAC’s red flags then drives the outcome: if the facts suggest that interest continues, the property should be treated as blocked and reported; if a reasonable, documented review supports the conclusion that no blocked interest remains, OFAC indicates it does not seek to disturb legitimate, good‑faith dealings—even though it remains largely silent on how far parties must go to uncover a prior SDN interest in the first place (other than its generic call for a “risk-based approach” to compliance).
As OFAC continues to apply this substance‑over‑form approach, it would be helpful for the agency to acknowledge its emerging control standard more directly. For example, the agency could potentially do so by either updating the 2014 50 Percent Rule guidance or by revising FAQs 398 and 400 to explain how the sham‑transaction and retained‑interest analysis fits alongside the ownership test. Doing so would give U.S. persons clearer lines of sight on when OFAC expects them to treat an entity’s assets as blocked based on a continuing property interest, rather than leaving those expectations to be pieced together from scattered FAQs, enforcement actions, and advisories.
For firms grappling with complex ownership and control questions around SDN divestments or sham‑transaction risk, it can be helpful to stress‑test existing OFAC screening, diligence, and escalation frameworks against this emerging standard. In practice, these developments are likely to considerably narrow firms’ tolerance for dealing with counterparties that are controlled—but not majority‑owned—by SDNs, particularly where proxies, family members, or opaque structures are present.
The author of this blog post is Kian Meshkat, an attorney specializing in U.S. economic sanctions and export controls matters. If you have any questions, please contact him at meshkat@meshkatlaw.com.
