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Executive Summary
During a recent Ethixbase360 webinar, experts from Ethixbase360 and Squire Patton Boggs explored how organizations should approach ownership transparency amid evolving sanctions, export control, and due diligence expectations — with Adam Klauder and Tom Firestone of Squire Patton Boggs, and James Swenson of Ethixbase360.
Five themes emerged: UBO analysis is no longer a one-time exercise; the OFAC 50 Percent Rule is increasingly a floor, not a ceiling; global ownership transparency remains fragmented; regulators expect a risk-based, defensible programme rather than perfection; and AI can help, but human judgment remains essential.
Key Facts
Named Insights
1. UBO is no longer a one-time, single-agency exercise
FinCEN's Customer Due Diligence rule, OFAC's 50 Percent Rule, and the BIS Affiliates Rule all converge on the same question: who really owns and controls this entity? The BIS Affiliates Rule — currently suspended but set to return November 10 — will extend export restrictions to non-U.S. entities owned 50 percent or more by certain listed parties.
"What was once considered more of a one-time exercise is now really an ongoing expectation — that you're constantly looking at and refreshing your information and doing continued due diligence on the beneficial ownership structure."
2. The OFAC 50 Percent Rule is increasingly viewed as a "floor, not a ceiling"
Regulators are increasingly looking beyond formal ownership percentages to assess whether sanctioned individuals continue to exercise effective control through indirect structures or intermediaries.
"The 50 Percent Rule is a floor, not a ceiling."
"If you've got evidence of continued involvement of the SDN, then there is reason to suspect that the transaction was a sham. The same person is controlling the entity, just doing it behind this complicated structure to obscure his control."
3. Global ownership transparency remains deeply fragmented
Transparency does not necessarily correlate with economic development: some developed jurisdictions are harder to navigate due to privacy restrictions, while some emerging markets have digitized records more effectively. New restrictions in China may make supply-chain due diligence on Chinese suppliers materially harder going forward.
"a jigsaw puzzle"
4. Regulators expect a risk-based and defensible program
Regulators aren't necessarily expecting perfection, but they do expect organizations to demonstrate reasonable, documented, risk-based efforts — why third parties were classified as high risk, what sources were reviewed, and how escalation decisions were made.
"Imagine you're being scrutinized by a regulator. How persuasive is your explanation going to be? We did X, we did Y, we did all of these things that you advised us to do — or, we didn't even ask the question."
5. AI and automation can help — but human judgment remains critical
Automation and AI-driven tools can support ownership analysis and pattern detection, but determining whether a structure is legitimate or whether a sanctioned actor may still exercise influence requires contextual human judgment.
"There's simply no substitute for rolling up your sleeves and getting into the facts."
"It's not just a name of someone who's prohibited. Who are the bad actors? And what are you doing to figure out who those bad actors are?"
Key Concepts
- OFAC 50 Percent Rule
- The foundational sanctions ownership threshold; regulators increasingly treat it as a floor rather than a ceiling, looking beyond formal percentages to actual control.
- BIS Affiliates Rule
- A rule from the Bureau of Industry and Security, currently suspended but set to return November 10, extending export restrictions to non-U.S. entities owned 50 percent or more by certain listed parties.
- Sham transaction (OFAC guidance)
- Per OFAC's March 2026 guidance, an ownership transfer that appears legitimate on paper but where the designated party continues to direct the entity in substance.
- SDN (Specially Designated National)
- A person or entity on OFAC's sanctions list; continued involvement of an SDN behind a complex ownership structure is the most important sham-transaction red flag.
- Risk-based, defensible program
- An approach regulators expect organizations to demonstrate — documented, proportionate due diligence with a clear rationale for classification and escalation decisions, not perfection.
Frequently Asked Questions
Key Takeaways & Actions
- ✓Treat UBO analysis as continuous, not one-time — refresh ownership information on an ongoing basis.
- ✓Look beyond the 50 percent ownership threshold for indicators of continued control by sanctioned persons.
- ✓Prepare for the BIS Affiliates Rule's return on November 10 by folding relevant non-U.S. affiliates into screening.
- ✓Document risk-based decisions: why entities were classified as high-risk and the rationale for escalation.
- ✓Apply a phased, risk-based approach — prioritize enhanced UBO analysis on higher-risk third parties first.
- ✓Use automation to identify patterns, but rely on human judgment for contextual analysis.