19 Sep Know Your Business Partners (OFAC Changes 50% Rule)
US persons and companies are prohibited from doing business with blocked persons. On August 13, 2014 the Treasury Department’s Office of Foreign Asset Control (“OFAC”) issued revised guidance on its 50% rule for Entities Owned By Persons Whose Property and Interest in Property Are Blocked. This new guidance dramatically increases the vigilance and diligence necessary to verify that you are not doing business with an entity that is a blocked person.
The new guidance from OFAC declares that “any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person.” Prior informal advice on the 50% Rule indicated that OFAC would not aggregate for purposes of the 50% rule. Accordingly, under the prior understanding, an entity would not be considered a blocked person unless a single blocked person owned 50% or more of the ownership interest.
This revised guidance is a reminder to U.S. companies that they need to identify and screen the equity holders of companies with whom they are doing business – particularly in the international context.