Sanctions don’t just target those explicitly listed. They can also affect companies owned or managed by such individuals. Even if your partner looks “clean” at first glance, the ownership stakes or actual control behind the scenes could drag you into trouble.
Let’s break down how the so-called 50% rule works and what it means for your business.
What Are “Designated Persons”?
This term refers to people or companies officially included in sanctions lists. Their assets are frozen, and transactions with them are prohibited. But it’s important to understand that these restrictions also apply to companies they own (usually 50% or more) or control (even if their formal stake is less).
For example, if a person on a sanctions list owns 51% of your subcontractor company, that company is also sanctioned. Even if they own less than half formally but effectively call the shots, the risk is still there.
Why Does It Matter?
Sanctions violations threaten businesses not only with fines but also with criminal charges, account freezes, contract blocks, and—most importantly—reputational damage. Considering ownership and control structures is no longer just a recommendation; it’s a necessity.
How to Reduce Risks
To avoid hidden pitfalls:
- Check your partners. Look deeper—who really owns and controls the company? Specialized services can help reveal this.
- Keep up with updates. Sanctions lists change often—check OFSI, OFAC, or EU sites at least weekly.
- Use automation. Set up systems to track sanctions and send alerts automatically.
- Consult lawyers. It’s better to clarify the situation early than explain later to regulators.
- Train your team. Employees should know key risks and rules to spot problems early.
How to Determine the Real Ownership and Control Structure
Many companies seem transparent at first glance, but actual connections and owners may be hidden behind complex corporate setups. Often, chains of subsidiaries or affiliates are used to conceal sanctioned persons’ involvement. It’s important not to rely solely on public information but to conduct in-depth analysis using various sources and specialized databases.
Using professional due diligence tools and services can uncover hidden links and risks. Regular checks like these should become standard practice for businesses operating internationally to spot potential threats early and avoid sanctions exposure.
Consequences of Sanctions Violations for Business
Breaking sanctions rules carries serious consequences that go far beyond administrative fines. Companies risk losing access to international financial systems, which can effectively cripple their operations. Moreover, executives and responsible individuals may face criminal prosecution, including long prison sentences.
Reputational damage can be even more devastating. News of dealing with sanctioned entities spreads quickly in the market, leading to loss of trust from partners, clients, and investors. Ultimately, this may cause a steep decline in company value and loss of competitive edge.
Key Takeaway
Even a company that looks “clean” can be controlled by a sanctioned person. To avoid trouble, don’t hesitate to dig deeper and check not just official data but also hidden connections. This will save you time, money, and reputation.
Check regularly, stay updated, consult experts, and don’t let things slip—ignorance is definitely no excuse in the world of sanctions.