Customer and Beneficial-Ownership Diligence for Sanctions

Customer due diligence for sanctions builds on ordinary C-D-D but goes a step further. Standard due diligence verifies who the customer is, name, identity, basic background. Sanctions due diligence adds a sharper question: who really owns and controls this customer, and are any of those people or entities sanctioned?

You screen the customer, yes, but you also resolve and screen the beneficial owners and controllers behind it. The reason is the 50 Percent Rule we keep returning to: an entity can be blocked because of who owns it, even when its own name is clean. So in sanctions work, ownership analysis isn't optional polish, it's the decisive step.

Resolving beneficial ownership means identifying the ultimate beneficial owners, the U-B-Os, the real human beings or sanctioned entities who ultimately own or control the customer. You trace the chain through any intermediate holding companies, not stopping at the first corporate layer. And you verify the information against reliable sources, corporate registries, ownership databases, reliable documentation, rather than simply accepting a self-declared ownership chart.

Beyond ownership percentages, you look at control: who appoints the directors, who can direct the entity's actions, who holds powers of attorney. Some regimes, including the E.U.

, specifically catch entities controlled by sanctioned persons even below the ownership threshold, so control is part of the analysis, not an afterthought.

Here's the calculation you must be able to do in your head on the exam. Take every blocked person in the ownership chain and add up their stakes; if the combined blocked ownership is fifty percent or more, the entity is itself blocked under OFAC's guidance. Aggregation is the trap: two separate S-D-Ns each owning thirty percent equals sixty percent, so the company is blocked even though neither owner alone crosses the line.

And ownership counts indirectly, so you multiply through the layers, an S-D-N who owns fifty percent of a parent that owns one hundred percent of a subsidiary indirectly owns fifty percent of that subsidiary. Always document the ownership math and your conclusion, because this is exactly the analysis an examiner will re-perform.

Two more inputs sharpen sanctions C-D-D. Politically exposed persons, P-E-Ps, senior officials and their close associates, aren't automatically sanctioned, but they can carry elevated risk of involvement with sanctioned regimes, corruption, or evasion, which warrants closer scrutiny. And adverse media, negative news screening, can surface connections that a pure list match would miss, a customer reported to be a front for a sanctioned figure, or an owner under investigation.

The discipline is to combine list screening with these open-source signals: lists tell you who's designated, while P-E-P and adverse-media checks help you spot who might be hiding a sanctioned connection. When these signals raise the risk, you move to enhanced due diligence rather than clearing on the basis of a clean list hit alone.

Finally, what to do when you simply can't resolve who owns or controls the customer. Treat that as a red flag in itself, not as a neutral gap, because evasion schemes are built precisely to keep ownership opaque. The exam-correct instinct is not to onboard or clear the relationship on hope and circle back later; it's to escalate, apply enhanced diligence, and, if the ownership still can't be satisfactorily resolved, to decline or exit.

Proceeding into an unverifiable ownership structure is how institutions end up dealing with a blocked person through a front.

Let's walk a quick example, because this is exactly the calculation the exam will hand you. Suppose a customer is a company named cleanly, nothing matches a list. But its ownership shows two separate individuals, and each is on the S-D-N List, and each owns thirty percent.

Add them: sixty percent of the company is owned by blocked persons, so under the 50 Percent Rule the company itself is blocked, even though its own name is clean and neither owner alone crosses fifty percent. Now add a layer: if one of those S-D-Ns owns his stake through a holding company he fully controls, you multiply through the chain, and the indirect ownership still counts. The lesson is that you can never clear an entity on its name alone; you trace ownership, aggregate the blocked stakes, and multiply through the layers.

With customer and ownership diligence in hand, the next lecture widens the lens to geography, sectors, and trade finance, where vessels, dual-use goods, and end-users come back into play.