On August 13, 2014, the Office of Foreign Assets Control (“OFAC”) revised its guidance on the status of entities owned by persons designated on the Specially Designated Nationals List (“SDN List”). Under the new guidance, OFAC will consider an entity to be blocked if it is 50 percent or more owned, directly or indirectly, in the aggregate by one or more SDNs. This rule applies even if the entity is not itself listed on the SDN List. The guidance reverses OFAC’s prior position on aggregate ownership by multiple SDNs. In conjunction with the revised guidance OFAC also issued further guidance in the form of Frequently Asked Questions (“FAQs”).
OFAC’s revised guidance addresses ownership only and not control. OFAC clarified that an entity collectively controlled by multiple SDNs - that is not also an SDN - owned under the 50 percent standard articulated in the guidance - is not automatically blocked. Other more comprehensive sanctions programs may apply separate SDN control criteria, such as Cuba and Sudan. However, OFAC warns that entities that are controlled by SDNs have a high risk of future designation by OFAC.
OFAC encourages entities considering potential transactions to undertake appropriate due diligence on parties to or involved with the transaction, especially in cases where complex ownership structures exist, since direct or indirect ownership by SDNs will trigger automatic blocking. Persons doing business with companies owned in part by an SDN should reevaluate the companies' status under the new guidance and consider whether existing due diligence processes will be sufficient to identify blocked persons going forward.