In response to Russia’s invasion of Ukraine, numerous countries have imposed sanctions that target wealthy Russian elites close to President Vladimir Putin, including oligarchs, heads of state-owned companies, and government officials, along with their family members and companies owned by them. As a result of these sanctions, these individuals and entities have been added to various sanctions lists, such as the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) Specially Designated Nationals and Blocked Person List (SDN List), the HM Treasury’s Office UK Sanctions List (UK List), or the EU’s Consolidated Financial Sanctions List (EU List). These sanctions have expansive consequences, with immediate impact beyond just the individuals and entities specifically added to the sanctions lists.
First, in the United States, EU and other jurisdictions, sanctions do not just block the named sanctioned person, but also flow-through to any entities owned 50% or more by the sanctioned person, even if the entity itself is not specifically mentioned in one of the sanctions lists. In the United States, this is known as the “50 Percent Rule” and it can result in unpleasant surprises for companies and their investors. Second, even if the percentage of a company owned by sanctioned persons is less than 50% in the aggregate, ownership interests held by sanctioned persons still results in serious compliance risks and complex business challenges for companies and investors. In other words, small ownership interests held by sanctioned investors, directly or indirectly, can create large problems.