OFAC's 50 Percent Rule: Checking Who Owns Your Entity Customers and Suppliers

A name screen tells you whether a company is on a list. It does not tell you whether the company is blocked. Under OFAC's 50 Percent Rule, an entity owned 50 percent or more by blocked persons is blocked by operation of law, listed or not, and a dealer that buys from it or sells to it has the same problem as if the name had matched.

The case that shows how it happens

On October 27, 2026, OFAC announced that Extreme Networks, Inc., a North Carolina networking company, agreed to pay $1,529,685 to settle nine apparent violations of the Ukraine-/Russia-Related Sanctions Regulations (OFAC enforcement release, Oct. 27, 2026). Its Russian subsidiary had bought a book of customer contracts in 2018. One of the end users was a Russian defense manufacturer, MMZA, that was not on the SDN List at the time. But MMZA was majority owned by JSC Concern Almaz-Antey, which OFAC had designated on July 16, 2014. OFAC's conclusion was direct: "at all relevant times MMZA was a blocked person with which U.S. persons were prohibited from dealing, directly or indirectly." MMZA was not designated in its own right until June 28, 2022.

The company had a compliance function, and it screened each of the nine purchase orders. The screening missed what mattered. OFAC described the red flags:

Seven of the purchase orders named a different Russian company as the end user but carried MMZA email addresses or listed MMZA's Moscow office as the destination.
Twice, when asked for the end user's website, the third-party distributor sent MMZA's. When the company raised concerns about MMZA's military ties, the distributor "deflected" by sending the other company's website and calling the earlier answers a mistake. The orders were approved on the distributor's end-user statement.
MMZA staff registered for the company's customer portal using MMZA email addresses, and one registration was approved after the employee failed to answer a due diligence request.

OFAC found the case egregious and voluntarily self-disclosed. The base penalty was $1,699,650, half the statutory maximum, and the settlement reflects the General Factors in OFAC's Enforcement Guidelines. The Justice Department announced a non-prosecution agreement with the company the same day, with a criminal fine and forfeiture totaling $975,721.84 (DOJ release, Oct. 27, 2026), and OFAC said the company's settlement obligation would be deemed satisfied up to the amount of the DOJ fine for the same conduct. OFAC's lesson for everyone else: "Inconsistent explanations and questionable end-user representations are red flags that should be cause for particular concern."

Networking equipment is not bullion, but the pattern carries over. A dealer that buys from a foreign refiner or trading house, or sells to a corporate buyer, is relying on what the counterparty says about who it is and who stands behind it.

What the rule says

OFAC set out the current rule in its Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked (August 13, 2014): "any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person," and its property is blocked "regardless of whether the entity itself is listed." Many program regulations now state it directly. The Russia-related provision cited in the Extreme case is 31 CFR 589.411, which applies "regardless of whether the name of the entity is incorporated into" the SDN List.

OFAC's FAQs fill in how it works:

Ownership, not control. The rule "speaks only to ownership and not to control." An entity a blocked person controls but owns less than 50 percent of is not automatically blocked. OFAC still "urges caution" with such entities and with those in which blocked persons hold a significant stake below 50 percent, because they "may become the subject of future designations or enforcement actions" (FAQ 398).
Stakes add up, across programs. If one blocked person owns 25 percent and another owns 25 percent, the entity is blocked. Ownership by persons "blocked under different OFAC sanctions programs" is aggregated (FAQ 399).
Indirect ownership runs through blocked entities. "Indirectly" means ownership through entities that are themselves 50 percent or more owned by blocked persons. If a blocked person owns 50 percent of Entity A and 10 percent of Entity B, and A owns 40 percent of B, then B is blocked: 40 plus 10 is 50 (FAQ 401, Example 3).
A blocked person's signature is still a problem. Even with a non-blocked company, "U.S. persons may not, for example, enter into contracts that are signed by a blocked individual" (FAQ 400).
Divestment has to be real and offshore. An entity whose blocked ownership falls below 50 percent is no longer automatically blocked, but the divestment "must occur entirely outside of U.S. jurisdiction," property already blocked stays blocked, and OFAC tells U.S. persons to make sure the transfer "was not merely a sham transaction" (FAQ 402).

FAQ 398 adds one more caution. Some programs, including those for Cuba, Iran, North Korea, Syria, Venezuela, and the Crimea region, block certain persons on other criteria, such as meeting the definition of a blocked government. The 50 Percent Rule is a floor, not the whole test.

Blocking flows down, not up

The rule reaches entities a blocked person owns. It does not reach the blocked person's owners, or its sister companies, unless they are themselves owned 50 percent or more by blocked persons. Two FAQs show the line.

On May 19, 2023, the State Department designated Russia-based Polimetall AO. OFAC said the sanctions apply "only to this entity and any entities in which it owns, directly or indirectly, a 50 percent or greater interest." The parent, Jersey-based Polymetal International PLC, was not designated and, on the information available to OFAC, was not 50 percent owned by blocked persons. U.S. persons could deal with the parent and its non-blocked subsidiaries and affiliates "to the extent the proposed dealings do not involve any blocked person" or blocked property (FAQ 1129).

After the designation of Vladimir Potanin, OFAC said in December 2022 that Norilsk Nickel was not blocked as a result, because, based on information available to OFAC as of December 15, 2022, the company was not owned 50 percent or more by blocked persons (FAQ 1104).

Both answers are tied to dates and to the information OFAC had then. Ownership changes, and so do designations. Treat an FAQ like these as the answer on its date, not a permanent clearance.

A separate rule: Russian-origin gold

Dealers sometimes run the 50 Percent Rule together with a different Russia measure. Under a determination issued June 28, 2022 under Executive Order 14068, and amended December 22, 2023, the importation into the United States of gold of Russian Federation origin is prohibited, except gold that was located outside Russia before June 28, 2022 (FAQ 1070). That is an origin rule. It applies no matter who owns the seller. A refiner with no blocked owners can still offer you Russian-origin gold you may not import, and a blocked entity can offer you gold from anywhere. OFAC's FAQ 1029 treats them as separate prohibitions and names "gold dealers, distributors, wholesalers, buyers, individual traders, refineries, and financial institutions" among the U.S. persons generally prohibited from gold transactions in which blocked persons have an interest. A dealer's supplier review needs both checks.

Where the rule fits in a dealer's obligations

Required of every U.S. person: not dealing with blocked persons, including entities blocked under the 50 Percent Rule, and blocking or rejecting and reporting when required. This is OFAC law, not the Bank Secrecy Act, and it applies whether or not you meet the dealer test. OFAC states that its civil penalties are generally based on strict liability, as our post on OFAC and small businesses explains.
Voluntary, above Part 1027: a written procedure for checking the ownership of entity customers and suppliers. No regulation prescribes one. A dealer that adopts one should write it into its program and follow it.
For other institutions: the CDD rule at 31 CFR 1010.230, which requires banks, broker-dealers, mutual funds, and futures firms to identify individuals who own 25 percent or more of a legal entity customer. Dealers are not covered by it (see Your AML Program Is Not a Bank's). Do not describe your ownership check as that rule, and do not borrow its 25 percent individual threshold as if it answered the OFAC question. The two tests ask different things.

What industry standards ask

These codes bind their members or the companies certified under them. They are not law for other dealers, but trading partners who are bound by them will ask you the same questions.

LBMA. The Responsible Gold Guidance, Version 9, which binds LBMA Good Delivery refiners, calls for identifying and verifying a gold-supplying counterparty's ultimate beneficial owners, "defined as 10% or more ownership," and confirming that the counterparty and its UBOs "are not named on any government lists." As of November 2026, Version 9 is current and LBMA has launched a second public consultation on Version 10 (LBMA Responsible Sourcing).
Responsible Jewellery Council. The 2024 Code of Practices requires members, where a risk assessment or law calls for it, to "determine and record the beneficial ownership and principals of the counterparty," and to verify that the counterparty and its beneficial owners "are not named on relevant government lists" (COP 12.1(a)-(b)). It also requires best endeavours to confirm that suppliers "are not otherwise subject to sanctions" (COP 7.1(b)).
OECD. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals (third edition, 2016) is guidance for companies, not a membership code; RJC's Code requires members in the gold chain to implement its Supplement on Gold. Its Gold Supplement lists, among risk-based supplier checks, "identification of the ownership (including beneficial ownership) and corporate structure," "identification of the related businesses, subsidiaries, parents, affiliates," and checking government watchlists such as "OFAC Specially Designated Nationals Lists."

Note the thresholds. LBMA's 10 percent UBO test and the CDD rule's 25 percent test identify people to know about. OFAC's 50 percent test decides whether an entity is blocked. A good ownership check collects enough to answer all three.

A workable ownership check

Consider a dealer that buys refined bars from a trading company abroad. The trading company is not on any list. Its registry filing shows two shareholders: a holding company with 40 percent and an individual with 60 percent. The holding company is not listed either, but it is 50 percent owned by a designated person, so it is blocked. Its 40 percent stake alone does not block the trading company. Now suppose the dealer screens the individual and finds that he is on the SDN List under a different program. The blocked stakes add up to 100 percent, and the trading company is blocked. A screen of the trading company's own name would have shown nothing.

A procedure sized for a small or mid-sized dealer:

Decide who gets the check. Every entity supplier, and entity customers above a threshold or with foreign ownership, set by your risk assessment.
Collect the ownership chain. Ask for owners at each level, up to individuals or a listed company, with registry extracts where available. A 10 percent cut-off is common, but several small blocked stakes can still add up to 50 percent. Record who signs for the counterparty.
Screen every name. Screen each owner, each intermediate entity, and each signatory, not just the counterparty. Add up blocked stakes the way FAQ 399 and 401 do.
Treat inconsistencies as red flags. Mismatched email domains, ship-to addresses that do not fit the named buyer, intermediaries who change their story, and unanswered diligence requests are the Extreme Networks pattern. Resolve them before you ship or pay.
Check origin separately. For metal, record country of origin and confirm it is not subject to an import prohibition such as the Russian-gold determination.
Re-check when things change. New designations can make an existing counterparty blocked overnight. Re-screen owners against list updates, and repeat the ownership request when a counterparty reports a change of control.
Keep the file. OFAC recordkeeping is 10 years under 31 CFR 501.601. If you find a blocked entity, block or reject and report within 10 business days; our post on clearing OFAC alerts covers how to document the decision.

An ownership check will not always reach the truth. Nominee arrangements and opaque registries are built to defeat it. What it does is show OFAC, if a question ever comes, that the dealer looked past the name. For how we build screening and ownership review into dealer programs, see OFAC programs for dealers, and for short answers, the FAQ.