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OFAC Economic Sanctions & the 50 percent rule

Law Office of Heidi J Meyers, 11 Broadway, Suite 925, New York, N.Y. 10004 (212) 791-4007 or (646) 508-5225 [email protected] There are various reasons why your company, including fashion, apparel and IT companies, cannot simply rely on an entities list software program in order to comply with US economic sanctions law, which is enforced by the Treasury Department’s Office of Foreign Asset Compliance (OFAC). One important reason is the Treasury Department’s OFAC’s 50% rule. What is OFAC’s 50% rule? According to OFAC FAQs: OFAC’s 50 Percent Rule states that the property and interests in property of entities directly or indirectly owned 50 percent or more in the aggregate by one or more blocked persons are considered blocked. See, https://home.treasury.gov/policy-issu.... Fashion design, apparel and IT companies have to be concerned about complying with OFAC’s economic sanctions. For example, the Xinjiang Production and Constructions Corps (XPCC) is a large supplier of the world’s cotton. It is also on OFAC’s SDN list because of its role in persecuting the Uighur Muslims. Thus, fashion and apparel companies are prohibited from purchasing cotton not only from the XPCC, but also from any company owned 50% directly or indirectly by the XPCC. This becomes complicated to determine, as the XPCC has hundreds of thousands of subsidiaries and affiliated companies. See, https://www.scmp.com/news/china/diplo.... Thus, should the XPCC own another company 50% or more, then that subsidiary is considered a blocked entity as well. Additionally, if the XPCC owns less than 50% of a company, let’s say 40%, but another blocked entity owns 10%, for a total of 50% of the company owned by blocked entities, then that company as well is blocked, and your US company cannot do business with them.