537. Subsection 2 of Directive 4 applies to certain projects in which a person subject to Directive 4 owns a 33 percent or more interest. Is OFAC changing its guidance on entities owned 50 percent or more by one or more entities subject to Directive 4?

No. The prohibition in subsection 2 of Directive 4 applies to any deepwater, Arctic offshore, or shale project: (1) that is initiated on or after January 29, 2018; (2) that has the potential to produce oil; and (3) in which a person subject to Directive 4 (including its property or interests in property) either (a) owns a 33 percent or more interest, or (b) owns a majority of the voting interests. This prohibition applies to persons determined to be subject to Directive 4 as well as to entities owned 50 percent or more by one or more persons determined to be subject to Directive 4. The following examples illustrate the relationship between amended Directive 4 and OFAC’s 50 percent rule.

Example 1: An SSI entity listed under Directive 4 (“Entity A”) has a 33 percent ownership interest in a deepwater, Arctic offshore, or shale project initiated on or after January 29, 2018 that has the potential to produce oil (“Project X”). The prohibition of subsection 2 of Directive 4 applies to Project X. Consequently, U.S. persons are prohibited from providing goods, services (except for financial services), or technology in support of exploration or production for Project X.

Example 2: Instead of holding a direct interest in Project X, Entity A now owns 50 percent of Entity B, and Entity B holds a 33 percent interest in Project X. As a result of OFAC’s 50 percent rule, Entity B is subject to Directive 4. Because Entity B is subject to Directive 4 and owns a 33 percent or greater interest in Project X, the prohibition of subsection 2 of Directive 4 applies to Project X. Consequently, U.S. persons are prohibited from providing goods, services (except for financial services), or technology in support of exploration or production for Project X.

Example 3: Entity A now owns only 33 percent of Entity B, and Entity A is the only SSI entity that owns any interest in Entity B. Entity B holds a 100 percent ownership interest in Project X. Entity A owns less than 50 percent of Entity B, and so, in accordance with the 50 percent rule, Entity B is not subject to Directive 4. The prohibition of subsection 2 of Directive 4 would therefore not apply to Project X, even though Entity B owns an interest in the project that is 33 percent or greater.