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      What does the 50% rule mean for my business?

      The 50 percent rule in the U.S., UK and EU is designed to prevent bad actors that own 50% or more of a company from using corporate bodies to evade economic sanctions.

      Not only is it illegal to transact with a sanctioned individual or company, if a company is 50% or more owned by a sanctioned individual or entity, you may not transact. 

      This is regardless of anti-money laundering (AML) legislation being in place: economic sanctions are in place for all businesses across the private sector. 

      In the U.S., they’re overseen by OFAC (Office of Foreign Assets Control), in the UK by OFSI (Office for Financial Sanctions) and for individual EU member states, the relevant FIU (Financial Intelligence Unit).

      Lack of transparency in the sector 

      The art market is known for its lack of transparency in transactions, which has been cited by multiple countries as a vulnerability to being targeted by financial crime. 

      In the UK, the National Risk Assessment 2020 states:

      “The ability to conceal the beneficial owners… make it attractive for money laundering.” 

      In the U.S., the Treasury report on the art market and money laundering risks from February 2022 states:

      “Other third-party intermediaries, such as interior designers and independent art advisors, represent exploitable ML vulnerabilities in the art market by intermediating between the seller and the end buyer. These intermediaries can provide anonymity to illicit actors seeking to launder funds through the purchase of high-value art by refusing to disclose to sellers or other intermediaries—specifically galleries and auction houses—who the ultimate client is.”

      Challenge for U.S. and other jurisdictions not regulated for AML

      Whereas Art Market Participants in the UK and EU have AML regulations and are legally required to identify and verify their customer, including beneficial owners of corporations, State-side colleagues are not similarly regulated. Therefore although the U.S. shares the requirement to not transact with a sanctioned person, company (incl. 50% rule), this can be more of a challenge to attain in practice. Regardless, knowledge of this requirement provides confidence and certainty in having the mandate to require it of customers. 

      How we can help

      We have two solutions to support this requirement, including a company information search in our Customer Due Diligence module and a standalone sanctions screening for both individuals and companies. 

      The company information search presents names of beneficial owners, providing the company’s jurisdiction makes this information publicly available. You will need to confirm the percentage. 

      The standalone sanctions screening enables you to access up-to-date information to see if an individual or company is sanctioned with confidence. Once you determine if someone is the UBO of a company, you will need to screen that person for sanctions as an individual. Sanctions information is regularly updated so it’s paramount to use reliable data such as that provided by a professional provider. 


      Conclusion

      The 50 percent rule in the U.S., UK and EU is designed to prevent bad actors that own 50% or more of a company from using corporate bodies to evade economic sanctions. Economic sanctions apply to all businesses in the private sector, regardless of having explicit AML legislation in place and no matter the transaction value or product / service. It’s key to use a reliable source for checking sanctions as this is regularly being updated by governments.