Understanding Ownership, Control, and Representation in the Context of Targeted Financial Sanctions

In the global effort to combat terrorism financing and the proliferation of weapons of mass destruction, the implementation of Targeted Financial Sanctions (TFS) plays a critical role. Implementation of TFS is a crucial regulatory obligation of Financial Institutions, Designated Non-financial Businesses and Professions (DNFBPs), and Virtual Assets Service Providers (VASPs)- collectively referred to as “Reporting Entities”. 

Reporting Entities are required to freeze all funds or other assets—without delay and within 24 hours—upon identifying a Confirmed Name Match on the UAE Local Terrorist List or the UNSC Consolidated List. Freezing must occur without prior notice to the designated individual, entity, or group. These measures apply to assets owned or controlled, wholly or jointly, directly or indirectly, by designated persons. Freezing encompasses prohibiting any transfer, conversion, disposition, or movement of affected funds or assets. It also prevents their use, alteration, movement, or access, ensuring that no economic resources can be leveraged to obtain funds, goods, or services in any form—including through sale or mortgage.

A key component of this framework is ensuring that sanctions are not only applied to designated individuals and entities but also to those entities they may own, control, or influence indirectly.

Majority Ownership: The 50% Rule

Entities that are majority-owned—defined as holding more than 50% of proprietary rights—by designated individuals or entities are subject to immediate freezing measures. If this criterion is satisfied, it is considered that the legal entity or arrangement is owned by another individual or entity and is subject to freezing measures. 

Minority Ownership

When a designated individual holds 50% or less of ownership in a legal entity, the entity does not automatically become subject to asset freezing measures. Nevertheless, any funds or assets owed to the designated person resulting from such minority ownership must be frozen. Reporting Entities should closely monitor changes in ownership structures that may alter control dynamics and potentially trigger Targeted Financial Sanctions (TFS) obligations.

Control: Influence Beyond Shareholding

Control can exist even without majority ownership. A designated person may exert control through various mechanisms, including voting rights agreements, management appointments, or legal instruments such as powers of attorney. If such control is evidenced, the entity in question becomes subject to TFS measures. Importantly, freezing actions must be based on documented evidence—not mere suspicion.

Acting on Behalf or at the Direction of Designated Persons

TFS obligations extend to individuals or entities acting on behalf of or under the direction of designated persons. This includes scenarios where legal authority—such as a power of attorney or authorized signatory status—enables a non-designated person to manage or access assets on behalf of a designated individual or entity. In such cases, the assets under their control must be frozen.

The Importance of Evidence-Based Action

Across all these scenarios, the common thread is the requirement for evidence-based decision-making. This ensures both compliance with legal obligations and protection against unwarranted actions. At Baker Tilly UAE, we advise and assist TFS compliance policies and procedures.