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OFAC’s 50% Rule: The Achilles Heel of Sanctions Programs
Monday, April 3 | 4:50 PM
Presenter:
Anders A. L. Rodenberg, Head of Financial Institutions and Advisory in North America, Bureau van Dijk
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Agenda
2 Examples of current 50% exposure
1 The 50% rule and its challenges
3 Proposed and actual solutions
4 Key Takeaways
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Example: Traditional Sanctions Program - Clients
1. Multiple lists globally double matches
2. False positives
3. OFAC or EU updates on Friday afternoons…
Operational Challenges:
EDD/
Investigation
Sanctions
Lists
Counterparty A
Counterparty B
Counterparty C
FIU/Sanctions
Investigation
KYC Review/Refresh
High risk – Annually
Low risk – 3-year review
Sanctions
Investigations
Risk ModelSanctions
ScreeningKYCProspects
Sanctions
Lists
Transaction Monitoring system
(Sanctions Screening)Clients
High Risk
No
Match
Match
Low Risk
Accepted
Suspicious Activity
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Aggregation rebranding of “50% rule” to “0.1% rule”?
OFAC’s 50% rule and different ownership
Sanctioned
company
Sanctioned
Individual
Aggregation
Indirect
Cascade
Indirect
Direct
100% 15% 40%
70%50%
50%
A I
FB
C D
E
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“Sanctioned or Not?”
Complexity example from Orbis: Cascade down, indirect and
aggregation ownership
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…has led to very complex corporate ownership structures
Globalization…
Sample from Orbis on a Sanctioned entity
Owners Subsidiaries
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…used to hide ownership from the traditional
ownership thresholds
Circular ownership…Individual
A
Company
B
Company
C
1%
100%99%
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That’s equal to more than 200,000 per day, 8,800 changes per
hour or over 2 changes per second!
Change! Ownership is dynamic
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Company at the bottom sanctioned due to cascade down ownership from
Arkadii Rotenberg, August 2016.
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Received off-cycle notification of the change in ownership. Ownership
transferred from Arkadii Rotenberg to Igor Rotenberg, September 2016.
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Igor Rotenberg is not on a sanctions list → company no longer
sanctioned due to OFAC 50% rule, September 2016.
* Igor is Arkadii’s son - EU 50% rule including control might give different answer.
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Sanctions compliance in 2017 rely on Ownership…
…but not widely applied in Sanctions programs.
More than 276,000,000 unique positions
More than 31,00,000 companies with 50% ownership
More than 148,000,000 ownership links
Total links for owners and control - more than 424,000,000
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- More than 667 shadow sanctioned entities for Gazprombank alone
- More than 8 levels down
- Constant changes: acquisitions, names, percentages…
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- Security issued June 2014
- Sberbanksanctioned September 2014
- Capital increase on security December 2014 → From Grandfarthered to Sanctioned
Named on OFAC list
Named on OFAC list
100% ownership by
Sberbank RU
Not Named on OFAC list
50.01% ownership by
Sberbank Europe
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Countries with 50% owned subsidiaries of a limited number of
sanctioned entities
Source: Orbis
“But I don’t have exposure to Russia”
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Not concerned with US companies?
Plenty of companies in the US with foreign ultimate ownership.
The ownership in the example goes from USA to Italy, UK, Luxembourg, Cyprus, Bahamas x 4 and ends in Russia.
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Incorporation of ownership in sanctions programs
EDD/
Investigation
Sanctions
Lists
Counterparty A
Counterparty B
Counterparty C
FIU/Sanctions
Investigation
KYC Review/Refresh
High risk – Annually
Low risk – 3-year review
Sanctions
Investigations
Risk ModelSanctions
ScreeningKYCProspect
Sanctions
Lists
Transaction Monitoring system
(Sanctions Screening)Clients
High Risk
No
Match
Match
Low Risk
Suspicious Activity
Accepted
50% Lists
50% Lists
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New Trends and Challenges for Sanctions Compliance
2 Sanctioned yesterday, ok today and sanctioned again tomorrow…
1 Sanctions compliance moved from “Math” to “Political Science”
3 Operational trends: Screening intermediaries, 50% lists, ownership tools
4Challenges:
- More screens and more lists equals more alerts
- Unknown Ownership create false positives
5 OFAC or EU updates on Friday afternoons…
6 Global and updated ownership data
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Political solutions around ownership
• Europe• 4th EU AML-directive → Beneficial owner registries
• USA• Central beneficial owner registry
• FinCen CDD-rule
• Global• GLEIF level 2 data collection
Common source of the beneficial owner data: Company-driven
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1. Criminal intent has given rise to AML & Sanction
legislation in the first place
2. Inherent flaw
a) Some won’t have the knowledge of their
beneficial owner
b) Some won’t have the authority to disclose
c) No line of communication when change
happens
Who controls or owns a company with X%?
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UK Registry Example
Looking up company in Companies House
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UK Registry ExampleBeneficial Owner
“PSC”
Source: Orbis
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UK Registry Example
Mr. Ortega known for being founder and chairman of Zara.
If problematic with “easy” and transparent companies then how will it work for companies trying to hide relations.
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Global approach to collecting Beneficial Ownership information
Multiple, global sources and networks are essential
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Key take-aways
2 Limited access to ownership data in Sanctions programs have created unknown
sanctions exposure.
1The 50% rule made sanctions compliance dependent on detailed and global
ownership information.
3Global ownership can only be certain if your data source captures ownership
across every country and companies of all sizes.• Make sure your data source is as comprehensive as possible
• Make sure your data source is not just focused on big companies and large countries
4 Automated data process based on multiple sources is crucial to detect
ownership changes as and when they occur
Download our free Beneficial Ownership White Paper: http://www.bvdinfo.com/en-
us/useful-links/about-bvd/white-papers/getting-to-grips-with-the-challenge-of-beneficial
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Specializing in private company information
• More than 215 million companies globally
• More than 148 million corporate ownership links
• Over 115 million people in 276 million roles
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For any questions about this presentation,
or a demo of Bureau van Dijk’s solutions, please contact me:
bvdinfo.com
