From The Department of Questions That Should Have Been Answered Already

Posted by Clif Burns at 8:36 pm on February 20, 2008
Category: OFAC

Last week the Department of Treasury’s Office of Foreign Assets Control issued a guidance document that answered a question that has probably prompted legions of law firm associates and export compliance officers to call OFAC. The question: what if a company is not on the SDN list, but one of its partners/shareholders/members is? Can we do business with the company?

And the answer, given out by countless on the Hotline team and other OFAC employees is what you might think: only if the SDN does not control, directly or indirectly, a “50% or greater” interest in the company. Note that’s 50 percent or greater, not greater than 50%, although this distinction may not have been carefully observed by folks at the OFAC Hotline.

OFAC promises to start putting this into new regulations and to amend existing regulations to reflect this guidance. Be very careful, however, and don’t assume that this guidance applies to all sanctions programs. Some programs — such as the Cuba and Sudan sanctions — cover entities where persons of interest might hold less than 50 percent. Under section 515.201(a) of the Cuban Assets Control Regulations, transactions are prohibited in connection with property in which a Cuban national has any interest.

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Copyright © 2008 Clif Burns. All Rights Reserved.
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One Comment:

The problematic nature of this guidance is shown by the 2/21 blocking of Rami Makhlouf in the Syria corruption program. Treasury’s press release says he’s a businessman active in a number of industries, but there’s no designation of any business he owns 50% or more in. So banks, insurance firms, exporters, and others have to scramble now to figure out what those businesses are and the extent of Makhlouf’s ownership, and then — if they meet the test in the guidance — put these names into their software for screening customers’ names.

The Treasury Department could presumably have shared the names of the target businesses in companion designations when it designated Makhlouf, which would have made the Syria program more effective on the first day of his blocking. Now, it will be days before the review of ownership can be done by all the private sector players individually (another unfunded mandate) and cleared off on by their counsel. Will there be any blockable assets of the Makhlouf businesses left in U.S. financial institutions by the time the names under the blocking guidance are put into the screening software?

Your tax dollars at work…