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Dangerous Liaisons – With Whom Do You Trade?

Texas Lawyer
09.08.14

In response to the ongoing crisis in Ukraine, the U.S. and other countries have imposed sanctions against Russian individuals and entities.With each new round of sanctions announced by the Obama administration and the Office of Foreign Assets Control (OFAC), U.S. companies with business operations involving Russia are continually assessing how these sanctions affect them. Below are a few essential elements to keep in mind amidst this dynamic sanctions landscape.

1. Carefully assess the impact of the “50 Percent Rule”

The first step is to know the parties to the transaction. Who is your customer? Who owns them? Persons on the U.S. sanctions lists are designated as Specially Designated Nationals (SDNs). U.S. persons are generally prohibited from dealing with SDNs or with entities owned 50% or more by an SDN, either directly or indirectly. If an SDN owns 50% or more of another entity, that entity is blocked as well, even if that entity is not on the SDN list. In its most recent guidance, OFAC clarified that any entity owned in the aggregate 50% or more by one or more SDNs is itself considered an SDN.

To add to the complexity, OFAC advises companies to exercise caution when entities are under control of SDNs by means other than 50% or more ownership or when one or more SDN has a significant ownership interest that is less than 50% because those entities may be designated in the future.

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