OFAC Shell Company Glossary Part 1

A definition of shell companies, why OFAC scrutinizes them, and how the 50 Percent Rule affects screening.

TL;DR

TL;DR: A shell company is a legal entity with little or no real operations, often used to hide ownership. Under OFAC's 50 Percent Rule, an entity 50 percent or more owned by a blocked person is itself blocked.

What a shell company is

A shell company exists on paper but has no significant assets, staff, or operations. Shell entities are not illegal by themselves, but they are frequently used to conceal beneficial ownership, which is why OFAC, the Office of Foreign Assets Control, examines them closely when a transaction points toward one.

Why shell companies matter for sanctions

The 50 Percent Rule means an entity owned 50 percent or more by a blocked person is also blocked, even if it never appears on the SDN List by name. A payment to such an entity can therefore violate sanctions without the counterparty name ever matching the list. Intent is not required, because OFAC enforcement is strict liability.

How screening helps

A screening layer should look past the immediate name to the ownership structure. The sanctionsai.dev API screens a counterparty before an agent pays, returning ALLOW for clean or BLOCK for flagged in under 100 ms, drawing on 19,218 SDN names synced hourly. Not documented: any ownership graph database or corporate registry the product queries.