Ownership graphs and the 50 Percent Rule

OFAC’s 50 Percent Rule treats entities owned, directly or indirectly, 50 percent or more in the aggregate by one or more blocked persons as blocked. The company does not need its own separate list entry for this consequence. Apply the rule within the relevant sanctions analysis.

In a simple direct-ownership example, two blocked people hold 25 percent each. Their combined ownership is 50 percent. Do not check each owner against 50 percent separately and conclude that neither matters. Preserve share classes and evidence where relevant; a simplified cap table may not capture every legal detail.

Aggregation is a legal ownership analysis, not a generic risk score. In the simplified U.S. example in this chapter, two blocked owners holding 25% each reach 50% in aggregate. The implementation must identify the relevant owners and avoid counting the same interest twice through duplicated records. Percentages need a common basis and a clear effective date.

A spreadsheet total is only as reliable as the ownership facts it represents. If one source describes voting interests and another describes economic interests, combining them without review can produce a false precision. Record the nature and source of each holding, preserve uncertain or incomplete information, and escalate structures that exceed the approved calculation method. The software should expose the unresolved issue rather than invent a convenient percentage.

Aggregate relevant blocked ownership — the flow

1. 01IdentifyEstablish which owners are blocked
2. 02AggregateCombine relevant ownership interests
3. 03DetermineApply the rule to the entity

Aggregate relevant blocked ownership — the distinction

Individual stake

• One owner holds 25 percent

Aggregate stake

• Two blocked owners together hold 50 percent

Direct ownership example

Fictional educational excerpt / Not for execution

Direct ownership example

Illustrative data; not a real customer record or a prescribed policy.

1. 1

   Blocked owner A25 percent

   Relevant stake

2. 2

   Blocked owner B25 percent

   Relevant stake

3. 3

   Combined50 percent

   Meets the stated ownership rule

Separate sub-50-percent stakes can meet the rule together

Aggregate relevant blocked ownership — control and failure modes

Control design

Aggregate relevant blocked ownership. Separate sub-50-percent stakes can meet the rule together.

Failure mode 1avoid

Check each owner in isolation. That misses aggregation.

Failure mode 2avoid

Require the company to be named on the list. Ownership can make an unlisted entity blocked.

Failure mode 3avoid

Use only the CDD ownership threshold. CDD and sanctions tests differ.

Indirect ownership under OFAC’s guidance is not always a simple multiplication of economic percentages along a path. If a blocked person owns 50 percent of A, and A owns 50 percent of B, OFAC’s example treats B as blocked. A becomes a blocked entity and its ownership of B matters.

An implementation should follow the legal rule with a reviewed graph procedure. Preserve the sequence of determinations and the supporting edges. A naive 0.50 times 0.50 calculation gives 25 percent economic look-through and can produce the wrong sanctions conclusion in this example.

Propagation is different from multiplying every path and comparing only the final product with 50%. In the simplified chain already described, blocked persons own 50% of A and A owns 50% of B. Once A is treated as blocked under the rule, its holding in B matters in that capacity. A naive 25% end-to-end product misses this step. Real structures can also contain cycles, changing ownership, and overlapping paths. Keep a reason trail for each status change and use specialist review when the structure is not covered by the approved method.

Propagate blocked status through the graph — the flow

1. 01First levelDetermine whether entity A is blocked
2. 02Next levelEvaluate A’s ownership of entity B
3. 03TracePreserve the determination path

Propagate blocked status through the graph — the distinction

Economic look-through

• Multiplies percentages along a path

Blocked-entity propagation

• Applies the legal consequence at each level

Indirect ownership example

Fictional educational excerpt / Not for execution

Indirect ownership example

Illustrative data; not a real customer record or a prescribed policy.

1. 1

   Blocked person to A50 percent

   A is blocked

2. 2

   A to B50 percent

   B is blocked under the example

3. 3

   Naive multiplication25 percent

   Not the correct rule application

Simple percentage multiplication can miss blocked entities

Propagate blocked status through the graph — control and failure modes

Control design

Apply the reviewed legal propagation rule. Simple percentage multiplication can miss blocked entities.

Failure mode 1avoid

Use only economic look-through. That does not reproduce the stated example.

Failure mode 2avoid

Stop after checking the first company. Downstream ownership can matter.

Failure mode 3avoid

Hide the propagation path. The determination needs an explainable basis.

OFAC explains that the 50 Percent Rule concerns ownership rather than control alone. Control by a blocked person can still raise concerns, and other sanctions rules or dealings involving that person can matter. Do not turn control evidence into an automatic ownership percentage.

Store control edges separately and route them for the appropriate analysis. This preserves a useful distinction: an entity may not be automatically blocked by this ownership rule while a proposed transaction still presents a prohibited dealing or another issue. A single blocked boolean without a reason cannot express those differences.

Keep control distinct from the ownership rule — the flow

1. 01Ownership testApply the percentage rule
2. 02Control evidenceRecord management or authority links
3. 03Broader analysisAssess other relevant restrictions

Keep control distinct from the ownership rule — the distinction

Ownership consequence

• Automatic result under the defined rule

Control concern

• Requires the applicable broader analysis

Control relationship

Fictional educational excerpt / Not for execution

Control relationship

Illustrative data; not a real customer record or a prescribed policy.

1. 1

   Blocked personmanager

   Control evidence

2. 2

   Equity10 percent

   Below the simple ownership threshold alone

3. 3

   Transactionrequires review

   Other restrictions may still matter

Not meeting one test does not establish universal clearance

Keep control distinct from the ownership rule — control and failure modes

Control design

Separate ownership status from other concerns. Not meeting one test does not establish universal clearance.

Failure mode 1avoid

Convert management control into 50 percent ownership. The facts do not support that conversion.

Failure mode 2avoid

Ignore blocked-person involvement. The transaction may still be restricted.

Failure mode 3avoid

Use one unexplained status flag. The legal basis becomes unclear.

Ownership information may be incomplete, dated, or contradictory. Record unknown portions of the graph rather than allocating them to a safe category. A missing parent company can conceal the relevant relationship.

Use a documented evidence request and escalation process. Reassess when ownership changes or when list designations affect an owner. Changes to previously blocked property can require a different analysis from future transactions after a valid ownership change. Do not automatically release restricted property because a customer submits a new cap table; the legal and evidentiary conditions need review.

Handle incomplete and changing ownership — the flow

1. 01CaptureRecord known and unknown stakes
2. 02RefreshEvaluate material ownership or list changes
3. 03EscalateResolve the legal consequence with evidence

Handle incomplete and changing ownership — the distinction

Unknown ownership

• Evidence is incomplete

Known unblocked ownership

• Evidence supports the stated status

Incomplete cap table

Fictional educational excerpt / Not for execution

Incomplete cap table

Illustrative data; not a real customer record or a prescribed policy.

1. 1

   Known owners70 percent

   Documented interests

2. 2

   Unknown30 percent

   Not assumed safe

3. 3

   Actionresolve material gap

   Scope depends on the case

Missing information is not a clean result

Handle incomplete and changing ownership — control and failure modes

Control design

Keep unknown ownership visible. Missing information is not a clean result.

Failure mode 1avoid

Assign unknown shares to unblocked. That invents a fact.

Failure mode 2avoid

Release blocked property from a new spreadsheet alone. Authority and evidence require review.

Failure mode 3avoid

Ignore designation changes. An unchanged cap table can have a changed consequence.

An ownership engine needs entity identifiers, dated edges, source documents, determination rules, and reproducible output. Handle cycles, duplicate edges, and conflicting share totals explicitly. A graph that totals 140 percent ownership needs investigation before calculation.

Use reviewed test cases covering direct aggregation, indirect propagation, non-blocked intermediaries, unknown stakes, and changes over time. Keep the engine version with each result. The tool supports a legal determination; it does not replace the need to establish that the graph and rule interpretation apply to the actual transaction.

Make the calculation auditable — the flow

1. 01Validate graphCheck identities totals and dates
2. 02EvaluateRun the reviewed rule version
3. 03ExplainReturn the determining ownership path

Make the calculation auditable — the distinction

Numeric output

• One computed result

Auditable determination

• Result plus graph rule and evidence

Graph validation

Fictional educational excerpt / Not for execution

Graph validation

Illustrative data; not a real customer record or a prescribed policy.

1. 1

   Reported stakes140 percent

   Inconsistent input

2. 2

   Duplicate edgepossible

   Needs resolution

3. 3

   Engine resultwithheld pending review

   Do not normalize silently

Bad graphs can produce precise wrong answers

Make the calculation auditable — control and failure modes

Control design

Validate input and return an explanation path. Bad graphs can produce precise wrong answers.

Failure mode 1avoid

Normalize 140 percent to 100 silently. That alters the evidence.

Failure mode 2avoid

Ignore cycles. They can break naive traversal.

Failure mode 3avoid

Drop the rule version. Past conclusions become hard to reproduce.

This chapter builds on Screening engines and match resolution. Continue with Trade, corridors, and restricted activity to follow the next part of the system. Use the glossary for terminology and risk mathematics for formulas and worked calculations.