KYC in trade finance checks the counterparty, owners and goods, with ownership lines at 25 and 50 percent
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Ossiano Guides · Documents and risk
US rules set two ownership lines. Banks identify every owner with 25 percent or more of a company. A company owned 50 percent or more by blocked persons, added together, is itself blocked. Commerce Department rules control certain exports too.
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01 · The customer
KYC starts with who the customer is and who stands behind it
Before a bank finances a trade, it checks who it is dealing with. This is called , or KYC. It means identifying customers and their owners, and checking that they are who they say they are. The check happens before the relationship starts and continues while it lasts, as the US Treasury's Financial Crimes Enforcement Network (FinCEN) describes in its CDD Final Rule page.
, or CDD, goes one step further. The bank also learns what the relationship is for. It then keeps watching the account, so it can report suspicious transactions, according to FinCEN.
A company is run by people, so the bank looks behind it. A is the real person who ultimately owns or controls a customer, the Financial Action Task Force (FATF) explains. FATF is the global body that sets anti-money laundering standards.
US law makes this a written process. Covered financial institutions must keep written procedures to identify and verify the beneficial owners of each , meaning a company or similar body that opens an account. The rule is 31 CFR 1010.230. It has two tests:
- Ownership. Each person who owns 25 percent or more of the company's equity, under section 1010.230(d)(1).
- Control. One person with significant responsibility to control, manage or direct the company, under section 1010.230(d)(2).
Banks also note any , or PEP. This is someone given a prominent public job, such as a senior government, judicial or military official, as FATF defines it.
Figure 1 · Interactive
The four checks behind a trade finance onboarding
Pick a check to see what is verified and under which rule.
Steps are drawn from FinCEN, 31 CFR 1010.230; OFAC FAQs 18 and 401; BIS, Export Administration Regulations; FATF. Reference description only.
02 · Sanctions
Sanctions screening covers named parties and the companies they own
The bank then checks every name against official sanctions lists. This is . In the US, the lists come from the Treasury's , the Office of Foreign Assets Control.
The best known is the , OFAC's list of Specially Designated Nationals and Blocked Persons. The assets of listed parties are blocked. US persons are generally not allowed to deal with them, OFAC says in its FAQ 18. means freezing the assets, so nothing can be moved or used, as OFAC's basic FAQs explain.
A listed person can also own companies that are not named on the list. The covers this. A company owned 50 percent or more by one or more blocked persons, added together, is itself treated as blocked. OFAC released this guidance on August 13, 2014, in FAQ 401.
So two owners with 30 percent and 25 percent, both blocked, make the company blocked, at 55 percent in total. Neither would trigger the rule alone. Try your own split in Figure 2.
Figure 2 · Try it
Two ownership lines: 25 and 50 percent
Set up to four owners and mark any blocked. The page shows who is a beneficial owner and whether the entity is blocked.
Is Owner 1 blocked?
Is Owner 2 blocked?
Is Owner 3 blocked?
Is Owner 4 blocked?
Stakes entered
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Beneficial owners (25 percent test)
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Blocked owners' share, added together
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How it works: every owner with 25 percent or more is listed as a beneficial owner under the ownership test. The stakes of all blocked owners are added up. If they reach 50 percent or more, the company is treated as blocked. Stakes must total 100 percent.
Our Research Desk applied the 25 percent ownership prong of 31 CFR 1010.230(d)(1) and the OFAC 50 Percent Rule to illustrative, fictional owners. This is not Ossiano pricing or advice.
This calculator explains the concept only. Indirect holdings, control rights and other programs' rules change the result, and screening decisions sit with the institution's compliance function.
Sanctions can also reach into a trade contract. In RTI Ltd v MUR Shipping BV [2024] UKSC 18, sanctions on a charterer's parent company in April 2018 led the charterer to offer payment in euros instead of the US dollars in the contract. The UK Supreme Court held that a promise to use reasonable endeavors did not require the shipowner to accept payment the contract did not provide for, unless the contract clearly said so.
03 · Export controls
Export controls follow the item and the end user, under Commerce Department rules
Some goods need a license to leave the US. The rules are the , or EAR. They are issued by the (BIS), part of the US Department of Commerce, and cover exports, reexports and certain activities. The EAR sit in 15 CFR chapter VII, subchapter C.
The EAR run from Part 730 to Part 774, according to the BIS table of contents. The last part is the , which lists the controlled items.
Export controls also look at who receives the goods. The names parties that need a license, as specified on the list, before they can receive items subject to the EAR. The list sits in Supplement No. 4 to Part 744 of the EAR, as the BIS Entity List page explains.
04 · The trade itself
In trade finance, the goods, prices and documents are part of the check
A trade bank checks the deal as well as the customer. hides the proceeds of crime by moving value through trade deals, FATF explains. So invoices, prices and dates matter.
One OFAC case shows why. On July 26, 2024, OFAC announced a settlement with State Street Bank and Trust Company and its subsidiary Charles River Systems. The amount was $7,452,501, for 38 apparent violations of Ukraine- and Russia-related sanctions between 2016 and 2020, according to the enforcement release.
The case turned on payment terms. Directive 1 under Executive Order 13662 limited how long certain sanctioned customers could take to pay. The limit was 90 days before September 2014, 30 days from September 2014 to November 2017, and 14 days after that. Charles River staff regularly redated or reissued old invoices for these customers, one invoice as many as six times, and accepted payments outside those limits, OFAC found. The , or length of payment terms, was itself a sanctions question.
Figure 3
One sanctions case in four numbers
Each card shows one fact from OFAC's July 26, 2024 release.
Source: US Treasury, Office of Foreign Assets Control, enforcement release, July 26, 2024.
05 · Across the chain
Supply chain programs run KYC on every supplier they sign up
KYC applies to each supplier in a program, not only to the large buyer. In , a buyer-led program that pays suppliers early, the seller and the finance provider go through onboarding together. That includes KYC and anti-money laundering checks, the Global Supply Chain Finance Forum notes.
In the US, those checks sit inside an , the policies a bank keeps to meet the . That 1970 law requires reports of cash transactions over $10,000, says FinCEN. When something looks wrong, a bank files a , a requirement since 1992.
06 · Ossiano view
Clear, published thresholds make trade KYC a checkable process
OBSERVATION 01
Two numbers anchor ownership checks
FinCEN's 25 percent line and OFAC's 50 percent line, added across blocked owners, give every onboarding file two fixed tests. Each can be checked against the ownership table.
OBSERVATION 02
Documents are part of compliance
The Charles River case turned on redated invoices and payment terms. That puts invoice dates and terms inside the sanctions review.
OBSERVATION 03
Supply chain programs extend KYC to suppliers
The GSCFF describes KYC and anti-money laundering checks as part of supplier onboarding in payables finance. Program growth and onboarding move together.
Summary
Trade KYC checks the customer, its owners, the sanctions lists and the goods
Know your customer means identifying and verifying customers and their beneficial owners. US banks list each person who owns 25 percent or more of a company, plus one person who controls it. OFAC treats a company as blocked when blocked persons own 50 percent or more of it, added together. US persons generally cannot deal with SDN List parties.
Export controls add a check on the goods and the end user, under the Commerce Department's EAR. In trade finance, invoices and payment terms are part of the review too, as the $7,452,501 Charles River settlement shows.
Related guides: The trade documents checklist; Buyer, country and performance risk; Fraud controls in trade finance; Payables finance; Who's who in a trade transaction.
Instrument cards: Payables finance; Letter of credit (sight); Open account; Factoring. Every term on this page is defined in the Trade Finance Glossary.
For questions on how KYC and sanctions checks apply to existing or planned trade finance relationships, contact the Ossiano Research Desk.
Sources
- eCFR (Office of the Federal Register); rule issued by FinCEN, US Treasury, 31 CFR 1010.230, Beneficial ownership requirements for legal entity customers, September 28, 2017 (eCFR current as of September 25, 2026). Supports: written procedures to identify and verify beneficial owners (1010.230(a)); 25 percent ownership test (1010.230(d)(1)); control test (1010.230(d)(2)); Figure 2.
- US Department of the Treasury, Office of Foreign Assets Control, OFAC FAQ 401, August 13, 2014. Supports: OFAC 50 Percent Rule and its release date; Figure 2.
- US Treasury, Office of Foreign Assets Control, Enforcement release: State Street Bank and Trust Company and Charles River Systems, Inc., July 26, 2024. Supports: $7,452,501 settlement; 38 apparent violations, 2016 to 2020; redated or reissued invoices, one as many as six times; Directive 1 limits of 90, 30 and 14 days; Figure 3.
- Financial Crimes Enforcement Network (FinCEN), US Treasury, History of Anti-Money Laundering Laws, undated; accessed September 29, 2026. Supports: Bank Secrecy Act and the $10,000 cash transaction report; anti-money laundering program; Suspicious Activity Report.
- Financial Crimes Enforcement Network (FinCEN), US Treasury, CDD Final Rule, undated; accessed September 29, 2026. Supports: definitions of know your customer and customer due diligence.
- US Department of the Treasury, Office of Foreign Assets Control, OFAC FAQ 18, September 10, 2002. Supports: SDN List parties have assets blocked and US persons are generally prohibited from dealing with them.
- eCFR (US Government Publishing Office), 15 CFR 730.1, What these regulations cover, September 24, 2026. Supports: EAR citation (15 CFR chapter VII, subchapter C) and issuer.
- Bureau of Industry and Security, US Department of Commerce, EAR Table of Contents, September 29, 2026. Supports: EAR Parts 730 to 774, ending with the Commerce Control List.
- Financial Action Task Force (FATF), FATF Glossary, undated; accessed September 29, 2026. Supports: definitions of beneficial owner and politically exposed person.
- Office of Foreign Assets Control (OFAC), US Treasury, OFAC FAQs: Basic information on OFAC and sanctions, undated; accessed September 29, 2026. Supports: definitions of the SDN List (FAQ 91) and blocking (FAQ 9).
- Bureau of Industry and Security (BIS), US Department of Commerce, Entity List, undated; accessed September 29, 2026. Supports: Entity List, Supplement No. 4 to Part 744, license required as specified.
- Financial Action Task Force (FATF), Trade-Based Money Laundering, 2006. Supports: definition of trade-based money laundering.
- Global Supply Chain Finance Forum, Payables Finance, technique page, October 31, 2024. Supports: supplier onboarding including KYC and anti-money laundering checks.
- UK Supreme Court, RTI Ltd v MUR Shipping BV [2024] UKSC 18, May 15, 2024. Supports: a reasonable endeavors proviso does not require accepting payment outside the contract (para 38).
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