Comments on: That Depends on What the Definition of 50 Percent Is http://www.exportlawblog.com/archives/467 Latest News on DDTC, BIS, OFAC, and other export law matters Thu, 29 Jul 2010 15:45:32 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Ex-OFAC http://www.exportlawblog.com/archives/467/comment-page-1#comment-21861 Ex-OFAC Wed, 04 Mar 2009 15:17:58 +0000 http://www.exportlawblog.com/?p=467#comment-21861 The example of the 51% interest of an SDN shareholder in the 51% shareholder of the accountholder still seems a reasonable exercise in determining controlling ownership by the SDN. If OFAC is about harming the interests of an SDN, it is not the 26% aggregate interest in the accountholder that counts here, but the fact that each successive tier can be controlled by the SDN (even though the OFAC policy guidelines of 2/14/08 were explicitly about ownership, not control). Where the SDN can control, OFAC can go after the SDN's direct interests by blocking -- and indirectly apply leverage on the (non-U.S.) minority holders to take action to get their entity out from under the blocking. (For example, they may go after the SDN to reduce its interest in the blocked entities or to buy out the minority holders.) This seems a reasonable way to make targeted sanctions effective. And it can be done in the financial institution's normal client identification program, which would typically seek verification of ultimate shareholders with more than a 10% interest in the accountholder. The second example is, indeed, more complicated, but again, the typical financial institution's CIP will pick up the SDN's indirect interests in verifying the ultimate beneficial holders of greater than 10% interests. Whether the SDN actually controls is often not clear in a situation with substantial, though less than majority ownership interests. And again, there is a direct impact on the SDN and leverage on its co-investors that works to the advantage of sanctions. (In blocking programs, any interest of an SDN blocks that SDN's property interests -- with or without control. So the shareholdings of the SDN would be blocked, whether or not the issuer is itself blocked.) The example of the 51% interest of an SDN shareholder in the 51% shareholder of the accountholder still seems a reasonable exercise in determining controlling ownership by the SDN. If OFAC is about harming the interests of an SDN, it is not the 26% aggregate interest in the accountholder that counts here, but the fact that each successive tier can be controlled by the SDN (even though the OFAC policy guidelines of 2/14/08 were explicitly about ownership, not control). Where the SDN can control, OFAC can go after the SDN’s direct interests by blocking — and indirectly apply leverage on the (non-U.S.) minority holders to take action to get their entity out from under the blocking. (For example, they may go after the SDN to reduce its interest in the blocked entities or to buy out the minority holders.) This seems a reasonable way to make targeted sanctions effective. And it can be done in the financial institution’s normal client identification program, which would typically seek verification of ultimate shareholders with more than a 10% interest in the accountholder.

The second example is, indeed, more complicated, but again, the typical financial institution’s CIP will pick up the SDN’s indirect interests in verifying the ultimate beneficial holders of greater than 10% interests. Whether the SDN actually controls is often not clear in a situation with substantial, though less than majority ownership interests. And again, there is a direct impact on the SDN and leverage on its co-investors that works to the advantage of sanctions. (In blocking programs, any interest of an SDN blocks that SDN’s property interests — with or without control. So the shareholdings of the SDN would be blocked, whether or not the issuer is itself blocked.)

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