Screening is the floor, not the ceiling
The obvious step is to screen each counterparty (and its principals) against the relevant sanctions lists - the UK consolidated list, the EU list, and OFAC's Specially Designated Nationals (SDN) list. That is necessary but not sufficient, because sanctions reach beyond the names actually published. The exposure that catches firms out is indirect: an entity that is not itself listed but is owned or controlled by people who are.
Effective due diligence therefore starts with list screening but does not stop there. It has to look through the counterparty to its ownership and control, and it has to be repeated, because the lists and the underlying ownership both change.
The OFAC 50% rule
The most important trap is OFAC's 50% rule. An entity that is owned, directly or indirectly, 50% or more in the aggregate by one or more blocked persons is itself treated as blocked - even though it does not appear on the SDN list and OFAC never names it. 'In the aggregate' means the stakes of several blocked persons are added together, and 'indirectly' means ownership held through intermediate entities counts.
Two points catch people out. First, because OFAC does not publish a separate list of entities blocked under the rule, the compliance burden is entirely on the business to trace the ownership and work it out. Second, the rule speaks to ownership, not control: an entity controlled by blocked persons without 50% ownership is not automatically blocked under this rule, though it may raise serious risk and may be caught by other regimes' control-based tests. The practical response is to obtain ownership information and trace it through the structure.
Jurisdiction and ongoing risk
Where a counterparty is connected to a high-risk jurisdiction - whether through incorporation, operations, or the location of performance - the level of diligence required rises. Some jurisdictions attract comprehensive or near-comprehensive sanctions, others targeted measures, and the position can change quickly in either direction. The substantial easing of Syria-related sanctions across the US, EU and UK during 2025 is a reminder that regimes are relaxed as well as tightened, so a static risk map goes stale.
That is why screening must be continuous. A counterparty that was clean at onboarding can become a blocked person overnight, or can become caught indirectly when its ownership changes. Long-term contracts in particular need periodic re-screening, supported by contractual rights to information and to suspend or terminate if the counterparty becomes sanctioned.
Use at the desk
Practical checklist
- Screen each counterparty and its principals against the UK, EU and OFAC (SDN) lists.
- Apply the OFAC 50% rule: trace aggregate, direct and indirect ownership by blocked persons.
- Remember the burden is on you - OFAC does not separately list entities blocked under the 50% rule.
- Distinguish ownership from control, and check other regimes' control-based tests where relevant.
- Raise the diligence where a counterparty is connected to a high-risk jurisdiction.
- Re-screen through the life of the contract, with contractual rights to information and to suspend or terminate.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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