The US, UK, and EU all have a 50 percent rule in their sanctions regulations but what does it mean?
Monitoring customers is critical to modern banking. Through know your customer (KYC) and customer due diligence (CDD) processes, a bank or financial institution is equipped to understand exactly who they are dealing with, whether it’s a person or business customer.
The OFAC 50 percent rule – also known as ‘Entities Owned by Blocked Persons’ – is another area 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.
Because of the nature of modern business, governments and regulators are aware that many organizations are structured in such a way that it is hard to know who owns which company, and how much of it they may own. There can be good reasons for such a structure but nefarious ones also. This is where the 50 percent rule comes in – to prevent businesses from breaching international law by working with sanctioned entities.
What are the main sanctions lists?
Sanction lists are imposed and published by countries, groups of countries (such as the European Union), and international organizations (United Nations, Interpol, etc.) These act as living documents with governments and agencies maintaining sanctions lists, allowing them to be freely accessible online to ensure that companies can reference them before working with an unknown entity (either a person or organization).
There are many and variable sanctions lists, which make complying with each one a difficult and time-consuming process. As such, banks and financial institutions often use third-party sanctions screening tools to help with sanctions, PEP, and adverse media screening. For example, out of the box, SymphonyAI currently analyzes 350+ lists in 60 languages and can integrate new watchlists in as little as 15 minutes. Major lists to be aware of include:
- Der Sicherheitsrat der Vereinten Nationen (UNSC) - Konsolidierte Sanktionsliste
- US - AUSSENMINISTERIUM Außenministerium, AECA-Liste der Ausgeschlossenen
What is the OFAC 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.
Dadurch wird verhindert, dass ein Institut schuldig wird, wenn sich der Anwendungsbereich der Vorschrift ändert oder wenn die CDD vernachlässigt wurde.
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.
The EU and the UK both operate a similar rule, but it is slightly different in its wording.
What is the 50 percent rule of the UK and EU?
Prior to Brexit, the UK followed the guidelines of the EU 50 percent rule. They are still broadly similar enough to align here as both differ from the US in one key aspect – the UK and EU 50 percent rule applies where there is either ownership or control.
An entity falls under the sanctions when over 50% of a company is owned (directly or indirectly) by a person appearing on a sanctions list of either the UK or EU. In contrast to the US, under the EU and UK rules, a joint 50/50 venture between two people where one person is sanctioned would not automatically mean the business is subject to sanctions.
However, because the UK and EU 50 percent rules can come into force when a sanctioned entity ‘controls’ a company, the ownership part of the rule is arguably moot; a company can still be subject to sanctions if the sanctioned entity owns less than 50% of the business but controls the company.
Controlling a company is much less clear-cut than ownership. It requires that a financial organization must undertake a more intensive analysis surrounding a company and its operations and, to make things more confusing, the UK and EU’s definitions of ‘control’ are different. Alongside this, suitable ways to test for control aren’t always readily available, while those being asked to provide the information may not wish to provide the necessary documentation.
The rules are so complex that the EU regularly releases a 50 percent rule FAQ to help with companies looking to understand current sanctions against Russia and Belarus.
With so many differing approaches to a 50 percent rule, it makes it very difficult for financial institutions to do business, especially considering many operate across the US, UK, and EU and need to comply with each of the sets of rules. To make things even more difficult, multinational companies may also have to comply with the rules of other countries, such as Japan, Canada, Switzerland or Australia. Sanctions screening software is therefore a necessity and extremely valuable to global financial institutions.
Wie lautet die 50-Prozent-Regel in der APAC-Region?
In Australien und Singapur, zwei der Länder in APAC, die über einen autonomen Sanktionsrahmen verfügen, gibt es keine entsprechende 50-Prozent-Regel. Neuseeland hat den dritten autonomen APAC-Sanktionsrahmen. Die übrigen südostasiatischen Länder neigen dazu, nur die UN-Listen umzusetzen.
Interessanterweise geben die zuständigen Regierungsstellen in APAC nur sehr wenige Hinweise, obwohl Neuseeland einen Leitfaden über Russland-Sanktionen herausgegeben hat, in dem die 50-Prozent-Regel erwähnt wird.
In der Praxis neigt die Finanzbranche in APAC dazu, die OFAC 50-Prozent-Regel einzuhalten, wenn sie mit OFAC-Rahmenwerken zu tun hat. In anderen Fällen wenden die Länder im Rahmen ihrer AML-Programme eigene Prozentsätze für wirtschaftliches Eigentum an (in der Regel 10-25 %).
Complying with the 50 percent rule
Complying with the 50 percent rule can be difficult without appropriate sanctions screening tools, especially because those named explicitly in sanctions lists (‘explicit sanctions’) are estimated to only make up 5% of sanctioned entities.
This means that up to 95% of entities are subject to sanctions via what is known as narrative or implicit sanctions: these entities may be subject to sanctions if they fit within the broad statement (the narrative summary), which accompanies each sanctions list. This means that a person not named in a sanctions list might be sanctioned through association with a sanctioned entity (e.g., a family member or somebody working with a terrorist organization). This is known as ‘sanctioned by association’.
Entities may also be subject to sanctions if they are part of so-called sectoral sanctions. This is where sanctions apply to countries for instances of war or international violence. For example, many Russian oligarchs and government officials were subject to sanctions despite not necessarily being individually named on sanctions lists.
It’s also important to note that a sanctioned individual in one country may not be sanctioned in another. However, doing business with a sanctioned entity outside of the US will still cause a financial institution to breach the OFAC’s 50 percent rule.
Examples of OFAC’s 50 percent rule
Because OFAC’s 50% rule is the most straightforward, here a few examples from OFAC to help with guidance and understanding:
Example #1
A sanctioned individual – Mr. X – owns 50% of Company A.
Company A owns 50% of Company B.
In this example, Company B is blocked because Mr. X indirectly owns 50% of the company through his holding of Company A.
Because Mr. X owns 50% of Company A, it would also be blocked.
It is important to note OFAC’s idea of ‘indirect’ ownership. If an entity owns 50% or more of a company – and therefore has a controlling interest in it – the entity is responsible for the full percentage of whatever that company then goes on to own.
Example #2
A sanctioned individual – Mr. X – owns 50% of Company A.
Company A owns 50% of Company B.
Company A and Company B each own 25% of Company C.
As with the previous example, Company A and Company B are also blocked for the same reasons.
Company C is sanctioned and becomes a blocked entity because Mr. X indirectly owns 50% of the company through his holdings in Company A and Company B.
Example #3
A sanctioned individual – Mr. X – owns 50% of Company A.
Mr. X also owns 10% of Company B.
Company A owns 40% of Company B.
In this case, both companies are sanctioned and blocked because Mr. X owns 50% of Company A and 50% of Company B (10% directly, 40% indirectly).
Example #4
A sanctioned individual – Mr. X – owns 50% of Company A.
Mr. X owns 25% of Company B.
Company A and Company B each own 25% of Company C.
In this instance, Company A is the only company to be sanctioned and blocked.
At 25%, Mr. X’s ownership of Company B is not enough to breach the 50 percent rule.
Meanwhile, Mr. X’s stakes in Company A and Company B are not enough to breach the 50 percent rule with Company C either.
Example #5
A sanctioned individual – Mr. X – owns 25% of Company A.
Mr. X also owns 25% of Company B.
Company A and Company B each own 50% of Company C.
In this example, no company will be sanctioned and blocked.
Mr. X’s ownership of Company A and Company B are both below the 50% threshold so neither company is sanctioned. The same is true for Company C.
Why institutions must use sanctions screening solutions to comply with the 50 percent rule
Failure to comply with the 50 percent rule can result in strict fines and penalties. This is why it is important to ensure that your organization is not dealing with an entity that is sanctioned by association or which is subject to narrative sanctions. Because so many different laws and regulations exist globally, using sanctions screening software is paramount to avoid punishment.
Penalties can be severe as dealing with sanctioned entities is seen as a threat to national security and foreign relations. For example, potential penalties for breaching OFAC’s 50 percent rule include:
- Revoking of licenses and/or authorizations: The most significant penalty, OFAC has the power to remove licenses and authorizations from companies dealing in the US. In effect, this designates an offending company as being a sanctioned entity and prevents an organization from operating in the entire US market.
- Large fines: OFAC can issue fines up to almost $300,000 per transaction. OFAC fined companies more than $1.54 billion for breaching sanctions rules in 2023.
- Criminal prosecution: Non-compliance with OFAC’s 50 percent rule can lead to up to 20 years’ imprisonment.
- Loss of assets: An organization’s assets may be frozen. Physical assets, such as cars or property, may be destroyed.
- Global consequences: Fines and penalties do not occur in a vacuum. Any company found in violation of sanctions may face global consequences, leading to potential restrictions on international business.
- Reputational impact: Even if countries don’t place restrictions on an organization because of sanctions violations, the consequences can still be severe with a significant reputational hit. Relationships with stakeholders, clients, and partners might all diminish as a result.
- Further monitoring: Although an investigation may be complete, and no fine or penalty issued, a company may notice further scrutiny by regulatory authorities. This can have a significant impact on productivity in the short term and may last for an extended period, until such time as OFAC is satisfied that further problems with not be forthcoming.
The exact nature of the penalty is dependent on the US entity, the scale of the violation, and the industry where it occurred.
Because of the severity of the consequences, OFAC encourages companies to volunteer the issue once discovered, cooperate with authorities, and make no attempt to conceal the wrongdoing. Even in these instances though, such actions only lessen the resulting fines. It is always best to use the leading sanctions screening solutions to dramatically minimize the possibility of any wrongdoing.
Staying ahead of the 50 percent rule
Auflösung der Entität
Angesichts der vielen Sanktionslisten und der unterschiedlichen Umsetzungen der 50-Prozent-Regel durch die USA, die EU und das Vereinigte Königreich war es noch nie so schwierig, die Einhaltung der Vorschriften sicherzustellen.
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.
In SymphonyAIs Tools für die Überwachung von AML-Transaktionen, Screening- und CDD-Prozessen ist die Entity Resolution sofort verfügbar und ermöglicht es Unternehmen, unzusammenhängende Daten aufzulösen. Dies ermöglicht nicht nur effektivere Untersuchungen, sondern hilft auch, doppelte Datensätze zu identifizieren und versteckte Risiken aufzudecken.
Durch den Abgleich von Daten, die in getrennten Systemen verborgen sind, um eine einheitliche Sicht auf Kunden zu erhalten, ermöglicht die Entitätsauflösung die Identifizierung gemeinsamer Kontaktdaten, so dass Ermittler leicht erkennen können, wie sich verschiedene Entitäten zueinander verhalten oder ob es sich sogar um dieselbe Person handelt.
Visualisieren Sie Kundenbeziehungen und folgen Sie dem Geld, um verborgene Beziehungen aufzudecken und kriminelle Netzwerke zu entlarven, und verbessern Sie so die Fähigkeit eines Finanzinstituts, die 50%-Regel einzuhalten.
Möchten Sie mehr erfahren? Besuchen Sie die Entitätsauflösung Seite.
Dynamische Lösungen für die Überprüfung von Sanktionen
Eine weitere Methode, die Ihrem Unternehmen hilft, der 50-Prozent-Regel einen Schritt voraus zu sein, ist der Einsatz dynamischer Software für das Namens- und Transaktionsscreening. Dies erfordert nicht nur eine Echtzeitskalierung und -reaktion, sondern auch leicht anpassbare Screening-Tools, die mit den sich ändernden Anforderungen Schritt halten.
Die SymphonyAI-Lösungen für das Sanktionsscreening verbessern die Erkennungsgenauigkeit, beschleunigen die Ermittlungen, verbessern das Kundenerlebnis und ermöglichen eine skalierbare Compliance, die leicht an Ihre Bedürfnisse angepasst werden kann.
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.
Durch die Priorisierung der risikoreichsten Warnungen und den Einsatz intelligenter Namensabgleiche und KI-gesteuerter Datenanalysen, die in Echtzeit verarbeitet werden, maximiert die dynamische SymphonyAI-Software für das Sanktionsscreening die Effizienz der Ermittler bei gleichzeitig verbesserter Erkennungsgenauigkeit.
Möchten Sie mehr erfahren? Besuchen Sie die Überprüfung von Sanktionen Seite.
Entdecken Sie SensaAI für Sanktionen
SymphonyAI bietet auch SensaAI für Sanktionen an. Erweitern Sie Ihre bestehenden Erkennungslösungen, um die Abgleichsmöglichkeiten mit Gen-KI und prädiktiver KI erheblich zu verbessern, die zuvor unstrukturierten Text analysiert und strukturiert und Fehlalarme deutlich reduziert. Das Ergebnis ist ein Echtzeit-KI-Upgrade für das Screening mit einem nahtlosen, optimierten Prozess.
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