Blocked property is frozen and all transactions with it are prohibited. In the context of OFAC sanctions programs that have blocking provisions, OFAC’s regulations also require submitters to file initial and annual reports on blocked property and rejected transactions.
When your interdiction software or account holder check results in a potential match with a Specially Designated National or Blocked Person (SDN), you should take the following due diligence steps before calling OFAC.
Blocked assets are property in which a Specially Designated National (SDN) or a blocked person or government has a present, future, or contingent interest. Title to the property remains with the SDN or blocked person or government, but the exercise of powers and privileges associated with ownership is prohibited unless authorized by OFAC.
Financial institutions and other entities that issue credit are obligated to perform due diligence to ensure that individuals to whom they provide credit are not on OFAC’s SDN list or are supporters of targeted regimes. Failure to do so may result in blocked or frozen accounts and reporting requirements that can carry significant civil and criminal penalties.
OFAC regulations often require a U.S. person to report blocked property and rejected transactions to the agency within ten days of the rejection. Whether you are rejecting property because it is associated with a sanctioned country or an SDN or because the transaction violates sanctions, you must file a rejection report with OFAC.
The regulations that govern blocked property impose an across-the-board prohibition on the transfer of interests in such property. Title to the property remains with the blocked individual or entity, but any exercise of powers and privileges associated with ownership are prohibited unless approved by OFAC.
For example, if a credit union receives an application for a wire transfer with the descriptor information matching one on the SDN List, the institution is required to block the property and report it to OFAC within 10 days. In addition, the regulations require all U.S. financial institutions to report rejected transactions that do not involve a blocked person or interest, but where processing or engaging in the transaction would nonetheless violate any OFAC sanctions.
Lastly, OFAC regulations require all holders of blocked property to file an Annual Report of Blocked Property (ARBP) with the Treasury Department by September 30 of each year. Credit unions must also be prepared to comply with a number of other OFAC requirements, which NAFCU has outlined here.
Every bank that transacts in the United States is obligated to screen any account opening applications, wire transfers and other banking transactions for a match to names on the Specially Designated Nationals and Blocked Persons list (SDN List) or any other OFAC sanctions lists. If a match is identified, the institution must block the asset or reject the transaction.
OFAC does not have agents out on the streets looking for violations, but rather largely depends on other federal agencies such as FBI or Customs and Border Protection to identify them. In addition, OFAC attorneys also work closely with these other departments to collaborate on investigations.
As the world and global relations constantly evolve, so does OFAC’s sanctions programs. To protect the integrity of these programs, Tipalti reviews the relevant OFAC regulations and compliance policies on a regular basis. OFAC allows for certain transactions under a concise licensing process, but only when it’s determined the transaction does not undermine U.S. foreign policy objectives.
A blocked asset is subject to significant restrictions, including a prohibition on the transfer of ownership or exercise of powers and privileges normally associated with ownership. Nevertheless, title to the asset remains with the blocked owner, and the asset is not necessarily a frozen asset.
Blocked assets earn interest in accordance with the rate set forth in each program’s regulations. However, blocked assets may only be withdrawn in small amounts and with the approval of OFAC.
Individuals whose names appear on the Specially Designated Nationals list or one of OFAC’s other sanctions lists have a right to access information about them and challenge the basis for designation. This is an opportunity for them to rectify inaccurate or incomplete information, but it does not guarantee delisting. OFAC may also take other enforcement action in response to an apparent violation, such as imposing a civil penalty. In addition, OFAC may refer a case to law enforcement for criminal investigation and prosecution.