UK Financial Sanctions: Understanding Ownership & Control

Are you aware that entities you work with might still be subject to sanctions, even if they're not on the Consolidated List? Learn how ownership and control can affect compliance.

In the world of export controls and sanctions compliance, understanding ownership and control is key to maintaining compliance, especially in the context of EU, UK, and US sanctions. Whether you're a sanctions professional, exporter, or compliance officer, grasping the nuances of how ownership works can save your business from potential pitfalls.

When an entity or individual is subject to sanctions, the ripple effect can impact not just the designated person or entity but any associated bodies under their control. For instance, if a designated individual controls an entity, that entity could also face asset freezes and financial restrictions—even if it doesn’t appear on the Consolidated List. This topic is particularly relevant when dealing with high-risk countries like Russia, Iran, and North Korea, where sanctions regimes are robust and constantly evolving.

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Key Questions Covered in This Blog

• What happens when a person, entity, or ship is designated?

• How is an entity considered to be owned or controlled by another person?

• Can you provide examples of ownership and control?

• What happens if an entity is owned or controlled by a designated person?

• Can you provide an example of ownership and control relating to entities?

• Can you provide an example of ownership and control relating to individuals?

• What happens if a designated person holds a minority interest in another entity?

• How should I monitor a designated person’s minority interest in an entity?

• How is joint ownership of funds or economic resources treated?

• What should be done when shares or rights are jointly held?

• Does OFSI aggregate holdings when assessing ownership and control?

• What factors should be considered in assessing ownership and control?

"Ownership is not just about holding shares; it’s about the power to influence, direct, and control. Sanctions compliance requires us to look beyond the surface and understand who really holds the reins."Arne Mielken, Managing Director, Customs Manager Ltd

Abbreviations Used In This Blog

• OFSI: Office of Financial Sanctions Implementation (UK)

• OFAC: Office of Foreign Assets Control (USA)

• EU: European Union

• UK: United Kingdom

• Sanctions List: A list of individuals and entities subject to sanctions

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1. What happens when a person, entity, or ship is designated?

When a person, entity, or ship is designated, their name is recorded on the Consolidated List. Financial sanctions, such as asset freezes and restrictions on financial services, will apply to entities owned or controlled, directly or indirectly, by a designated person, even if those entities are not themselves listed on the Consolidated List.

2. How is an entity considered to be owned or controlled by another person?

An entity is considered to be owned or controlled by another person if any of the following conditions are met:

• The person holds more than 50% of the shares or voting rights in the entity.

• The person has the right to appoint or remove a majority of the board of directors.

• It is reasonable to expect that the person can ensure the entity’s affairs are conducted in their interests.

  
  

3. Can you provide examples of ownership and control?

Yes, examples include:

• Appointing, through voting rights, a majority of the board members.

• Controlling, through an agreement, a majority of voting rights in the entity.

• Having the right to exercise a dominant influence over the entity through its Articles of Association, agreements, or even by using a front company.

• Being able to direct the actions of the entity through any means, directly or indirectly.

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4. What happens if an entity is owned or controlled by a designated person?

If the ownership or control criteria are met and the owner or controller is designated, financial sanctions, including asset freezes, apply to that entity in full. This means the same restrictions apply to the entity, even if it is not individually listed on the Consolidated List.

5. Can you provide an example of ownership and control relating to entities?

Example: Entity X is not listed on the Consolidated List, but Entity Y, its majority owner, is designated. Since the ownership and control criteria are met, Entity X is subject to the same restrictions as Entity Y.

6. Can you provide an example of ownership and control relating to individuals?

Example: Person A is not listed on the Consolidated List, but Person A is closely associated with Person B, who is designated. If Person B exercises control over transactions via Person A, then Person A is subject to the same restrictions as Person B.

7. What happens if a designated person holds a minority interest in another entity?

If a designated person holds a minority interest, financial sanctions may not automatically apply. It depends on whether the designated person is in control of the entity, such as if the entity is operated according to their wishes. If control is established, the financial sanctions will apply.

8. How should I monitor a designated person’s minority interest in an entity?

You should monitor any changes in the stake held by a designated person. If the stake increases above 50% or they gain a majority interest, then financial sanctions will apply to the entity.

9. How is joint ownership of funds or economic resources treated?

A designated person is considered to own funds or economic resources even if they share ownership with another person, including any interest in those resources. In joint ownership, all parties are considered to own the shares or rights equally.

10. What should be done when shares or rights are jointly held?

When shares or rights are held jointly, all parties involved in the joint arrangement are treated as owning those shares or rights. Therefore, the jointly owned funds or economic resources should be frozen in full.

11. Does OFSI aggregate holdings when assessing ownership and control?

No, OFSI does not aggregate the holdings of different designated persons unless there is a joint arrangement or one party controls another's rights. If each designated person holds less than 50%, and there is no joint arrangement, the company would not be considered owned or controlled by a designated person.

12. What factors should be considered in assessing ownership and control?

In addition to shareholding, other factors to consider include:

• Holding more than 50% of voting rights.

• Having the right to appoint or remove a majority of the board of directors.

• Being able to influence the company’s affairs to align with the designated person’s wishes.

  
  

Arne’s Takeaway

Ownership and control can be tricky to navigate in the context of sanctions. Regular due diligence and vigilance are key to ensuring that entities under your control or with shared interests comply with financial sanctions. Staying informed and proactive will help you avoid penalties and mitigate risk in your operations.

Expert Recommendations

• Ensure that your due diligence process includes both direct and indirect control assessments.

• Regularly update your records of ownership and control structures, especially in cases of joint ownership or minority interests.

• Work closely with legal professionals to understand complex ownership structures and ensure compliance with financial sanctions.

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Sources & Further Information

For more detailed guidance on sanctions compliance and ownership structures, refer to the UK Government's OFSI website or consult with a sanctions expert.

DisclaimerThis blog is for educational purposes only and is not intended as legal advice. If you require specific guidance, please consult with a legal professional or sanctions expert.

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