What is the 50 percent rule?
The OFAC 50 percent rule – also known as ‘Entities Owned by Blocked Persons’ – is a rule that banks must focus on when doing business within the US (under the jurisdiction of the Office of Foreign Assets Control [OFAC], hence its name). The UK and the EU both have their own versions of the rule, with sanctions screening software required for institutions to stay compliant.
What is OFAC’s 50 percent rule?
The US Treasury’s OFAC 50 percent rule imposes sanctions on companies where sanctioned entities own 50% or more of the organization. In effect, they are blocked from doing business with the US. It is a straightforward rule based around ownership. For example, although a company itself may not appear on sanctions lists, it is treated as a sanctioned business because of its sanctioned owner.
Although 50% is the threshold, it shouldn’t be seen as a hard line; OFAC recommends caution if a sanctioned entity holds a large stake in a company. As such, the 50 percent rule may still apply if a company is 47% owned by a company or organization on a sanctions list. It’s best to flag a transaction just in case.
This safeguards against an institution becoming culpable should the scope of the rule change, or in cases where CDD appears to have been neglected.
It’s important to note that 50% is a cumulative number – should two sanctioned entities own 25% of a company, it would still trigger the OFAC 50 percent rule.
Additionally, indirect ownership also results in an organization being sanctioned. If entity A, which is subject to sanctions, owns 50% of company B, and company B owns 50% of company C then company C will still be sanctioned by association.
What is the EU and UK 50 percent rule?
The EU and the UK both operate a similar rule, but it is slightly different in its wording. Prior to Brexit, the UK followed the guidelines of the EU 50 percent rule. They are still broadly similar with both differing from the US in one key aspect – the UK and EU 50 percent rule applies where there is either ownership or control.
What is the 50 percent rule in the APAC region?
There is no equivalent 50 percent rule in Australia and Singapore, two of the countries within APAC that have autonomous sanctions frameworks. New Zealand has the third APAC autonomous sanctions framework. The remaining countries in Southeast Asia tend to implement just the UN listings.
Interestingly, relevant government bodies in APAC provide very limited guidance, though New Zealand did put out a guide on Russian sanctions which mentions the 50 percent rule.
In practice, the finance industry in APAC tends to observe the OFAC 50 percent rule if dealing with OFAC frameworks. In other cases, countries apply their own AML program beneficial ownership percentage (usually 10-25%).
Staying ahead of the 50 percent rule with SymphonyAI
Entity resolution
With so many sanctions lists and many different implementations of the 50 percent rule from the US, EU, and the UK, ensuring compliance has never been more difficult.
Thankfully, SymphonyAI offers entity resolution to make everything easier. Perfect for AML, payment fraud, KYC, CDD, and sanctions screening, entity resolution allows financial institutions to transform their risk and compliance ecosystem.
Available out of the box in SymphonyAI’s tools for AML transaction monitoring, screening, and CDD processes, entity resolution allows businesses to resolve disconnected data. Not only does it allow for more effective investigations, but it also helps identify duplicate records and expose hidden risk.
Reconciling data hidden in siloed systems for a unified view of customers, entity resolution allows for the identification of shared contact details, easily allowing investigators to recognize how different entities relate to one another, or how they may even be the same person.
Visualize customer relationships and follow the money to uncover concealed relationships and expose criminal networks, improving a financial institution’s ability to remain compliant with the 50% rule.
Want to know more? Visit the entity resolution page.
Dynamic sanctions screening solutions
Another method to help your organization stay ahead of the 50 percent rule is by using dynamic name screening and transaction screening software. This demands both real time scale and response but also easily adapted screening tools that keep up with changing demands.
SymphonyAI’s sanctions screening solutions improve detection accuracy, accelerates investigations, enhances the customer experience, and allows for scalable compliance, which can easily be configured to suit your needs.
With 350+ watchlists (in 60+ languages), 2000+ rules, a 98% accuracy rate in identifying true positives, and 70% decrease in false positives, it provides effective sanctions screening for businesses of all sizes.
By prioritizing the highest risk alerts and using intelligent name matching and AI-driven data analytics that process in real-time, SymphonyAI’s dynamic sanctions screening software maximizes investigator efficiency alongside improved detection accuracy.
Want to know more? Visit the sanctions screening page.
Discover SensaAI for Sanctions
SymphonyAI also offers SensaAI for Sanctions. Augment your existing detection solutions to dramatically enhance matching capabilities with gen AI and predictive AI that analyzes and structures previously unstructured text and significantly reduces false positives. The result is a real-time AI upgrade for screening with a seamless, streamlined process.
Learn more about SensaAI for Sanctions.
For more information, see what is the 50 percent rule?
