International Trade > AG Trade Law > New Sanctions Guidance Increases Due Diligence Burden on Companies
15 Aug '14

On August 13, 2014, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) published guidance (“Revised Guidance”) that revises its 2008 guidance regarding how to treat entities that are owned or controlled by blocked persons—i.e., persons whose property and interests in property are blocked. The 2008 guidance—which is widely known as the “50 Percent Rule”—held that if a blocked person owns 50 percent or more interest of an entity, either directly or indirectly, that entity would automatically be blocked by operation of law. The Revised Guidance reaffirms this 50 Percent Rule, but now requires aggregation when determining blocked persons’ ownership interests. In other words, under the Revised Guidance, an entity is automatically considered “blocked” if one or more blocked persons together own 50 percent or more (directly or indirectly) of the entity, even if the entity itself is not formally identified as a blocked party by OFAC.

OFAC stated that this Revised Guidance equally applies to entities identified on the Sectoral Sanctions Identification (SSI) List, which is part of the Ukraine-Russia sanctions program. Thus, any entity that is owned 50 percent or more (directly or indirectly) in the aggregate by one or more persons on the SSI List is also subject to SSI restrictions.

OFAC’s Revised Guidance represents a tightening of the U.S. approach to its sanctions programs, including its Ukraine-Russia sanctions program. As a result, it is expected that a greater number of entities will be subject to U.S. blocking sanctions and sectoral sanctions. Significantly, as discussed further below, the Revised Guidance greatly increases the due diligence burden on U.S. companies and their foreign affiliates seeking to comply with OFAC sanctions programs.

To read more on this, click here for a piece authored by Akin Gump’s International Trade group.