On August 13th, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) provided guidance regarding the status of entities owned by individuals or entities that have been designated as “blocked.” In particular, OFAC provided guidance regarding entities that are 50% owned (or more) by one or more blocked persons.
“Blocked property” means any property or interest in property, tangible or intangible, including present, future or contingent interests. OFAC’s guidance states that an entity that is owned (directly or indirectly) 50% or more by one or more blocked person is itself considered a blocked person. The OFAC guidance goes on to provide that such property is blocked regardless of whether the entity itself is listed on OFAC’s list of Specially Designated Nationals. As such, a U.S. person is forbidden from engaging in transactions with such an entity unless authorized to do so by OFAC.
OFAC also provided a list of FAQs, which can be found here. The FAQs clarify that the “50% Rule” speaks to ownership, and not control. An entity that is controlled by a blocked person is not automatically deemed a blocked entity; however, an entity owned 50% or more by one or more blocked persons is. While the 50% Rule speaks to entities owned by blocked persons, OFAC still prohibits U.S. persons from transacting with (e.g., negotiating, entering into contracts with, or processing transactions) blocked persons. To that end, while U.S. persons can transact with an entity that is controlled but not owned by a blocked person (and not itself deemed blocked by OFAC), U.S. persons should be careful when dealing with blocked persons who control such entities.