INTERNATIONAL TRADE LAW
Sanctions Due Diligence Checklist: A Guide
Sanctions due diligence is the set of checks you run on a specific customer, vendor, or transaction before you do business — screen the parties against OFAC’s lists, trace who really owns and controls them, and document what you found. This checklist covers the counterparty-level review. For the broader question of how to build a company-wide program, see the sanctions compliance checklist.
Due diligence is where a sanctions program meets a real deal. It is the practical edge of OFAC’s internal controls, and it is what stands between you and a strict-liability violation.
Why Counterparty Diligence Matters
OFAC sanctions are enforced on a strict-liability basis for civil penalties: you can be liable for dealing with a sanctioned party even if you never knew. Diligence is the only thing that converts “we had no idea” into “we checked, and here is the record.” It does not just lower the odds of a violation — a documented diligence process is a mitigating factor in how OFAC calculates any penalty if something slips through.
The Checklist
Screen the Parties
- Run every counterparty — and its known owners, principals, and intermediaries — against OFAC’s Specially Designated Nationals (SDN) List and consolidated sanctions lists.
- Screen at onboarding and re-screen on an ongoing basis; a clean party today can be listed tomorrow.
- Resolve “possible match” hits before proceeding, and keep the resolution.
Apply the 50% Rule
- Identify the counterparty’s ownership. An entity that is not on any list is still blocked if sanctioned parties own 50% or more of it, individually or in the aggregate, directly or indirectly.
- Aggregate stakes count: two SDNs owning 25% each makes the company blocked.
- Remember the rule speaks to ownership, not control — but see the 2026 guidance below, which says ownership is no longer where the inquiry ends.
Look Past Ownership to Control
- On March 31, 2026, OFAC issued guidance on sham transactions and evasion confirming the 50% Rule is a floor, not a ceiling. A clean ownership result does not end the analysis if a blocked person still pulls the strings.
- Look at practical and economic reality: who actually directs the entity, benefits from it, or was inserted to disguise a sanctioned party.
- Treat shell structures, sudden ownership changes, and opaque intermediaries as red flags warranting deeper diligence.
Check the Transaction Itself
| Diligence point | What you are looking for |
|---|---|
| Geography | Embargoed or adjacent jurisdictions; transshipment hubs |
| Goods / end use | Items that are controlled or could be diverted |
| Payment routing | Third-party payers, unusual banking chains, last-minute changes |
| Documentation | Reluctance to provide end-use or ownership information |
Document and Retain
- Record what you screened, what you found, and the decision you made.
- Keep the records for 10 years — OFAC’s recordkeeping requirement was extended from five to 10 years effective March 2025.
Red Flags That Should Stop a Deal
Slow down and escalate when ownership is deliberately opaque, a counterparty resists basic diligence questions, payment or shipping instructions change at the last minute, or a deal is routed through an unexpected third country. Any of these should trigger your escalation process before the transaction closes. For deeper counterparty risk work, the vendor risk management checklist covers ongoing supplier monitoring.
Frequently Asked Questions
Is screening against the SDN List enough? No. Screening catches listed parties, but you also have to apply the 50% Rule to catch unlisted entities owned by sanctioned parties — and, after OFAC’s March 2026 guidance, look beyond ownership to who actually controls the counterparty.
What is the 50% Rule in plain terms? If sanctioned parties own half or more of a company — counting their stakes together and including ownership held through other entities — that company is treated as blocked even though it is not on any list.
Do we have to re-screen existing customers? Yes. Sanctions designations change constantly, so a counterparty that cleared at onboarding can later be listed. Re-screen on an ongoing basis.
How long should we keep diligence records? Ten years, as of March 2025. Retain the screening results, ownership analysis, and the decision for each counterparty and transaction.
Counterparty diligence is easy to describe and easy to get wrong under deal pressure. Reidel Law Firm helps importers and exporters build sanctions screening and due-diligence procedures that hold up under scrutiny, delivered as a flat-fee compliance memo with direct attorney access. Get an export compliance memo →
