The US Office of Foreign Assets Control (OFAC) has issued revised guidance concerning the status of entities owned by individuals and entities whose property and interests in property are blocked under US sanctions (SDNs). OFAC has also issued new Frequently Asked Questions (FAQs), which provide important clarifications regarding the meaning of the revised guidance.

The revised guidance, as with prior OFAC guidance, focuses on ownership of an entity, not on control of the entity.  Also as with prior guidance, OFAC focuses on the "50 Percent Rule", i.e., whether SDN ownership – direct or indirect -- in an entity equals or exceeds 50%, and if it does then the entity's property and interests in property are blocked just as the SDN's would be.

However, the following two important elements of the ownership issue have now been clarified:

• First, to determine whether an entity is subject to blocking, the ownership positions of all applicable SDNs are aggregated to determine whether the 50 Percent Rule applies.  Thus, if SDN X owns 25% of Entity B and SDN Y owns 25% of Entity B, then Entity B is subject to blocking because – in the aggregate – Entity B is owned 50% by SDNs.

• Second, although SDN ownership counts whether "direct or indirect", the meaning of "indirect" ownership has been clarified.  If a particular entity is owned less than 50% by SDNs, then its ownership of another entity is disregarded for purposes of the 50 Percent Rule.  According to the FAQs, if an SDN owns 25% of Entity A and 25% of Entity B, and Entity A and Entity B each own 50% of Entity C, SDN X "is not considered to indirectly own any of Entity C through its part ownership of Entities A or B."

Given the extensive network of counterparties dealing with certain SDNs that have been recently designated under the US Ukraine-related sanctions, the OFAC revised guidance will likely cause many to reassess whether they may safely deal with entities in which such SDNs have ownership positions.