US persons are generally prohibited from dealing with people and entities blocked under US sanctions. Investors and acquirers screen founders, owners and major counterparties as a routine part of diligence. Founders can run the same checks first.
The lists
The Treasury Department's Office of Foreign Assets Control (OFAC) publishes the Specially Designated Nationals (SDN) list and other sanctions lists, searchable through its Sanctions List Search tool.2
The 50 percent rule
An entity can be blocked even if it is not on any list. Under OFAC guidance, entities owned 50% or more in the aggregate by one or more blocked persons are considered blocked.1
- Ownership adds up: two blocked persons owning 25% each make the entity blocked.1
- It applies through chains of ownership, not just direct stakes.1
- Control alone does not trigger the rule, but OFAC cautions about dealing with non-blocked entities where blocked individuals are involved.1
Who to screen
- Founders, officers and directors.
- Beneficial owners and investors, especially non-US ones.
- Major customers, suppliers, distributors and resellers, and their owners.
Good practice
- Screen on full legal names and dates of birth or registration details, to rule out false matches.
- Re-screen periodically, since the lists change.
- Document what was screened, when and with what result.
Not legal advice
Sanctions law is complex and penalties can be severe. Talk to counsel about any potential match or cross-border business.