Asset Management Sanctions Compliance & Investment Risk

Most securities data providers that offer sanctions screening aggregate published sanctions lists, match by ISIN or CUSIP, and flag securities that appear on a government list. This tells you what is already publicly designated — it does not tell you what should be treated as blocked under the OFAC 50 Percent Rule, what ownership networks connect a security to sanctioned parties, or how risk is evolving across an entity's corporate structure. Kharon takes a fundamentally different approach. Our team of subject matter experts — steeped in national security threat networks, open-source investigations, and government restriction programs — conducts original research to map ownership networks, identify unlisted blocked entities, and verify risk at the entity level. The result is high-quality risk intelligence, supported by powerful context from features like Dynamic Exposure Scores, that provides instant insight into risk emanating from sanctions and other trade and investment restrictions — coverage and investigative depth that securities data infrastructure was never designed to provide.

Sanctioned securities screening is the process of identifying securities — equities, fixed income, derivatives, funds and other instruments — that are subject to sanctions restrictions. This includes securities issued by designated entities on the SDN List, securities that should be treated as blocked under the OFAC 50 Percent Rule due to sanctioned ownership, and securities subject to other restrictions such as Executive Order 14105 (the Outbound Investment Security Program). For asset managers, this is not optional. Holding blocked property is a strict liability violation under U.S. sanctions law. Kharon's sanctioned securities data covers millions of active securities across sanctions, ownership, and trade and investment restriction risk — giving compliance teams the coverage to identify exposure that standard screening misses.

Under OFAC's 50 Percent Rule, any entity owned 50 percent or more in the aggregate, directly or indirectly, by one or more blocked persons is itself considered blocked — even if that entity does not appear on the SDN List. For investment portfolios, this means a security can be blocked property without any sanctions list flagging it. Identifying these exposures requires mapping beneficial ownership across layered corporate structures and opaque jurisdictions — the kind of investigative work that corporate registry data and algorithmic aggregation cannot reliably perform. Kharon’s subject matter experts investigate and verify these ownership chains, producing data that identifies entities and securities subject to the 50 Percent Rule that published lists do not cover.

The Outbound Investment Security Program, established under Executive Order 14105 and effective January 2, 2025, requires U.S. persons — including asset managers — to notify or refrain from certain transactions involving entities in countries of concern that are engaged in specified technology sectors, including semiconductors, quantum computing, and artificial intelligence. For asset managers, this means new due diligence obligations on investments that may involve covered entities or activities. Kharon provides OISP-relevant data through GraphCast and ClearView, enabling firms to screen holdings and prospective investments against verified entity-level intelligence rather than relying on incomplete or unverified sources.

Clear and convincing evidence is the evidentiary threshold importers must meet to release goods detained under the UFLPA. It requires that the evidence be substantially more likely than not to be true—a higher standard than the preponderance standard used in most civil proceedings. For apparel importers, this means providing supply chain documentation that specifically traces raw materials through every processing stage and demonstrates that no input originated with a UFLPA Entity List entity or the XUAR. Generic supplier certifications and factory audit reports are rarely sufficient. Kharon’s entity-level intelligence and documented ownership chains help build the kind of specific, sourced evidence CBP expects.

Standard sanctions screening compares holdings against published lists — the SDN List, the EU Consolidated List, and similar government designations. This catches what is explicitly named. It does not catch entities that should be treated as blocked due to their ownership by sanctioned parties, entities that use layered corporate structures to obscure their beneficial owners, or entities where the sanctioned connection runs through multiple jurisdictions and intermediaries. Kharon's network intelligence maps these ownership structures through original investigations, not algorithmic scraping of corporate registries. GraphCast delivers this data in formats that integrate into existing screening systems, and ClearView provides the visualization and investigative tools to trace ownership and commercial relationships when a holding requires deeper analysis.

Dynamic Exposure Scores are Kharon's patented, proprietary risk indicators that quantify the degree of sanctions and related global controversy exposure associated with an issuer. Unlike binary list-based flags that indicate only whether a name appears on a sanctions list, Dynamic Exposure Scores reflect the entity's position within a sanctioned network, its proximity to sanctioned parties, and the nature and severity of its risk indicators. These scores are available through ClearView for visual risk analysis and through the Kharon API as a filterable data point for portfolio-level analytics. They give investment and compliance teams a quantifiable risk signal that translates complex analysis into a format that compliance teams, portfolio managers, risk committees, and regulators can understand and act on.

Sanctions risk affects investment returns through multiple channels. A security issued by a designated entity can become illiquid overnight — with no buyer, no clearing mechanism, and no exit. A holding blocked under the 50 Percent Rule may require costly freezing and reporting requirements, and marking the position to zero. A new designation or ownership revelation can impair the value of otherwise performing assets. And the regulatory exposure itself — potential OFAC enforcement, investor scrutiny, reputational impact — compounds the financial cost. Kharon provides the intelligence to identify these exposures before they materialize, turning an invisible risk factor into a manageable investment input.

Pre-trade screening evaluates a security or entity before an investment decision is executed — identifying sanctions exposure, ownership risk, and regulatory restrictions at the point of decision. Post-trade screening monitors existing holdings on a continuous basis for changes in sanctions status, ownership structure, or regulatory designation. Both are essential for a defensible compliance program. Kharon supports both workflows: GraphCast provides data feeds that integrate into order management systems for pre-trade screening and continuous monitoring alerts and ClearView enables investigation when a holding's risk profile requires a deeper look.

Yes. Kharon is designed to integrate into existing compliance and investment infrastructure, not replace it. GraphCast delivers curated datasets in standard formats that connect directly to portfolio management systems, order management systems, and compliance screening platforms. The Kharon API enables custom integrations and workflows built on Kharon data and risk scores. This approach means firms can add Kharon's sanctions and ownership intelligence to their existing technology stack without rip-and-replace — enhancing coverage and data quality within systems their teams already use.

ESG risk data provides assessments of environmental, social, and governance factors that may affect an investment's long-term performance or alignment with stakeholder values. Kharon provides intelligence on a fundamentally different category of risk: sanctioned companies and jurisdictions, issuers that are trade and investment restrictions, and related global controversies like sensitive technology transfer and adversarial military production, These regulatory restrictions can create binary outcomes — a holding is blocked or it is not, a transaction is prohibited or it is not. These risks are not captured by ESG frameworks, which are not designed to investigate entities implicated in national security threats, map beneficial ownership chains, or identify issuers subject to the OFAC 50 Percent Rule. That said, there is a critical intersection: human rights abuses and forced labor are core concerns within ESG frameworks, and they are increasingly subject to enforceable trade restrictions. The EU Forced Labour Regulation, which requires companies to demonstrate that goods entering the EU market are free from forced labor, creates compliance obligations that connect ESG commitments to the kind of supply chain and entity-level intelligence Kharon provides. The two are complementary: ESG addresses long-term sustainability risk, while Kharon addresses sanctions and related global controversy risk — and in areas like forced labor, those two categories overlap directly.

Private equity and venture capital firms face the same OFAC sanctions compliance obligations as other U.S. persons and financial institutions — it is unlawful to engage in transactions involving blocked persons or blocked property. For PE firms, this applies across the investment lifecycle: screening target companies and their ownership structures, monitoring portfolio companies for changes in sanctions status and commercial exposure to sanctioned actors, and ensuring co-investors, LPs, and counterparties are not sanctioned. Venture capital firms face particular exposure under the Outbound Investment Security Program, which restricts investments in AI, semiconductors, and quantum computing in countries of concern — sectors where VC activity is concentrated. The involvement of both PE and VC in complex ownership structures and cross-border transactions makes ownership and affiliation-level intelligence — not just list screening — essential. Kharon provides the investigative depth and entity-level data that PE and VC compliance programs require.

Leading asset management firms are increasingly looking to use AI and data analytics to move beyond manual, list-based screening toward continuous, intelligence-driven risk management. This includes automated screening of holdings against dynamic risk datasets, network analysis to identify ownership commercial connections that manual review would miss, and natural language processing to extract risk signals from regulatory filings and enforcement actions. Kharon's data is structured to support these applications — all data in the Kharon Core is readable by AI and LLM-powered systems to ground results in a reliable source of truth. The combination of Kharon's verified, expert-sourced data with a firm’s own analytical capabilities creates a compliance and risk management program that is both more thorough and more efficient than traditional approaches.