INTERNATIONAL TRADE LAW
Sanctions Due Diligence in High-Risk Jurisdictions
Sanctions due diligence in a high-risk jurisdiction means verifying — before you transact — that no party, owner, or destination in the deal is blocked, and documenting how you checked. The standard is higher when the country, counterparty, or supply chain carries elevated risk, because OFAC’s civil penalties apply on a strict-liability basis: you can be liable even if you never knew the other side was sanctioned. Here is how to do the diligence that protects you.
Identify What Makes a Jurisdiction High-Risk
Not every market deserves the same scrutiny. A jurisdiction is high-risk when it carries comprehensive sanctions, sits next to a sanctioned country and serves as a transshipment route, or is known for opaque ownership and weak regulatory oversight. OFAC maintains comprehensive or near-comprehensive programs targeting certain countries and regions — among them Cuba, Iran, North Korea, Syria, and specific regions of Ukraine — but these programs change, so always confirm the current scope on OFAC’s website rather than relying on a list you saw last year. Geographic risk is your starting filter for how much diligence a deal needs.
Screen Against the Right Lists
Screening is the core mechanic of sanctions due diligence. Every party to a transaction — the customer, the end user, intermediaries, freight forwarders, and the banks — gets checked against the U.S. government’s restricted-party lists, starting with OFAC’s Specially Designated Nationals (SDN) List and the broader Consolidated Screening List. A name match is a stop sign: you pause the transaction and resolve the hit before going further.
Screening is continuous, not a one-time gate. Lists are updated frequently, so re-screen counterparties over the life of a relationship, not just at onboarding.
Apply the 50 Percent Rule
The most common way businesses get caught is by screening only the names in front of them and missing who owns those parties. Under OFAC’s 50 Percent Rule, any entity owned 50% or more — directly or indirectly, individually or in the aggregate — by one or more blocked persons is itself blocked, even though OFAC never lists it by name. Two SDNs who each own 25% of a company make that company blocked. Ownership can also cascade down a chain of holding companies. Because OFAC does not publish these entities, the burden is on you to map beneficial ownership in high-risk deals. The rule turns on ownership, not control, but control can still raise other red flags worth resolving.
Watch for the Red Flags
Beyond list hits, certain patterns signal that a transaction needs enhanced diligence before it proceeds.
| Red flag | Why it matters |
|---|---|
| Reluctance to identify the end user or end use | Hides the party who actually receives the goods |
| Routing through a high-risk transshipment country | Classic method for diverting goods to a sanctioned destination |
| Ownership obscured by shell companies or nominees | May conceal a blocked beneficial owner under the 50 Percent Rule |
| Payment from a third country unrelated to the deal | Can indicate an attempt to evade financial-channel controls |
| Terms that make no commercial sense | Unusual urgency or overpayment often masks a prohibited purpose |
A single flag is not proof of a problem, but it raises the bar: resolve it, document the resolution, and escalate when you cannot.
Document Everything
Due diligence you cannot prove is due diligence you did not do. Keep a clear record of the lists you screened, the ownership analysis you ran, the red flags you found, and how you resolved each one. If OFAC ever asks, this file is your evidence of a good-faith, risk-based compliance effort — and good documentation is exactly what turns a potential violation into a defensible one. Many companies use screening software and data analytics to manage volume, but the human judgment behind escalation and resolution is what regulators scrutinize. Note that recordkeeping expectations now reach back further: OFAC’s recordkeeping requirement runs to ten years, matching the extended statute of limitations for sanctions violations.
Frequently Asked Questions
What lists should I screen against? At minimum, OFAC’s SDN List and the Consolidated Screening List. Depending on your business you may also screen the BIS Entity List and other restricted-party lists.
What is the 50 Percent Rule? An entity owned 50% or more, alone or in aggregate, by one or more blocked persons is itself blocked even if it is not named on any OFAC list. You must analyze ownership, not just names.
Can I be liable if I did not know a party was sanctioned? Yes. OFAC civil penalties are strict liability, so documented due diligence is your best protection — both to avoid violations and to mitigate any penalty.
How often should I re-screen? Screen at onboarding and re-screen periodically through the relationship, because OFAC updates its lists frequently.
Dealing with a counterparty in a high-risk market? Reidel Law Firm prepares flat-fee Import/Export Compliance Memos covering screening, ownership analysis, and the red flags that matter — with direct access to the trade attorney handling your matter. Get a flat-fee compliance memo →
