Once it has been determined that funds need to be blocked, they must be placed into an interest-bearing account on your books from which only OFAC-authorized debits may be made. The blocking also must be reported to OFAC Compliance within 10 business days. Some banks have opted to open separate accounts for each blocked transaction, while others have opted for omnibus accounts titled, for example, "Blocked Libyan Funds." Either method is satisfactory, so long as there is an audit trail which will allow specific funds to be unblocked with interest at any point in the future.
OFAC regulations require that funds earn interest at a commercially reasonable rate, i.e., at a rate currently offered to other depositors on deposits or instruments of comparable size and maturity.
Generally yes. In most cases (excluding Iraq, for instance) OFAC regulations contain provisions to allow a bank to debit blocked accounts for normal service charges, which are described in each set of regulations. The charges must be in accordance with a published rate schedule for the type of account in which the funds are maintained.
No. OFAC regulations are tailored to further the requirements and purposes of specific Executive Orders or statutes which provide the basic outline of each program. In some cases, the President has determined that a comprehensive asset freeze is appropriate, and in others the President has determined that more limited restrictions (for example, import bans) are in order. The individual program web pages outline the restrictions for each program. Special attention should be given when reviewing sanctions list targets that are included on one of OFAC's non-Specially Designated Nationals sanctions lists.
In some cases, an underlying transaction may be prohibited, but there is no blockable interest (i.e., that of a Specially Designated National (SDN) or blocked person or government) in the transaction. In these cases, the transaction is simply rejected, or not processed and returned to the originator.
For example, a U.S. financial institution would have to reject a wire transfer between two third-country companies (non-SDNs) involving an export to a company in Iran that is not otherwise subject to sanctions. Since there is no interest of the blocked person (e.g., the Government of Iran, and Iranian financial institution, or an SDN), there is no blockable interest in the funds. However, the U.S. financial institution cannot process the transaction because that would constitute a prohibited export of services to Iran pursuant to the Iranian Transactions and Sanctions Regulations (ITSR), unless authorized by OFAC or exempt from regulation. Similarly, a U.S. financial institution is prohibited under the ITSR from an engaging in trade-related transactions or dealings with Iran, including financing a prohibited transaction. A U.S. financial institution cannot so much as advise a letter of credit if the underlying transaction is in violation of OFAC regulations. In addition, U.S. persons are prohibited from facilitating transactions by foreign persons that would be prohibited if performed by a U.S. person.
The following examples may help illustrate which transactions should be blocked and which should be rejected.
A U.S. financial institution interdicts a commercial payment destined for the account of XYZ Import-Export Co. at the Bank of XYZ in Iran. The Bank of XYZ is an Iranian financial institution and wholly-owned by the Government of Iran; accordingly, Bank of XYZ is blocked under section 560.211 of the ITSR. This payment must be blocked.
A U.S. financial institution interdicts a commercial payment destined for ABC Import-Export in Tehran, Iran. Unlike the Bank of XYZ, ABC Import-Export in Tehran is not a blocked person, so there is no blockable interest in this payment. However, processing the payment would mean facilitating trade with Iran, exporting a service to Iran, and engaging in trade-related transactions with Iran; therefore, the U.S. financial institution must reject the payment.
Blocked and rejected transactions must be reported to OFAC within 10 days (see 31 C.F.R. §§ 501.603 and 501.604). Questions about whether a transaction should be blocked or rejected should be directed to OFAC’s Sanctions Compliance & Evaluation Division at OFACReport@treasury.gov.
You need to discuss this with your state authorities and with OFAC. For instance, the state of New York has a license to escheat blocked funds, pending OFAC approval of each transfer. Banks in New York should contact the State Banking Department for instructions on how to proceed. Banks in other states should contact OFAC directly for instructions on how to proceed.
An institution may notify its customer that it has blocked funds in accordance with OFAC's instructions. The customer has the right to apply for the unblocking and release of the funds.
To apply online to have the funds released, please go to our online application page.
A U.S. financial institution, its foreign branches, and — in some cases — its wholly-owned or -controlled foreign subsidiaries, cannot open an account for a person named on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) or a person who is otherwise blocked (e.g., a blocked government or an entity that is subject to the 50 Percent Rule). This is a prohibited service. However, the institution or its affiliates should pay careful attention to ensure the person trying to open the account is the same person as the one named on OFAC’s SDN List or is otherwise subject to blocking. In many cases, an institution may identify a “false positive,” where the name is similar to a sanctioned person’s name, but the rest of the information provided by the applicant does not match the descriptor information on OFAC’s SDN List. If a U.S. financial institution does come into the possession or control of any property in which a blocked person has an interest, the U.S. financial institution is obligated to block that property. In other words, if you receive an application to open an account from a person who matches the information on the SDN List, together with an opening deposit, you are obligated to block the funds. The same is true for other banking transactions. If, for example, a customer asks if he or she is allowed to send money to a relative’s account with Bank of XYZ, which appears on the SDN List, the bank can say “no, that’s illegal.” If, on the other hand, a bank receives instructions from its customer to debit his or her account and send the funds to Bank of XYZ, the bank must act on the instructions by blocking the funds that contain a future interest of the SDN bank. You might think of the analogy of a bouncing ball. Once the ball starts moving, you must stop it if it comes into your possession.
When your interdiction software or account holder checking service shows a potential match, OFAC recommends that you do an initial analysis prior to contacting OFAC. If you have a reasonably close match to a name on the Specially Designated Nationals (SDN) list (or one of OFAC's other sanctions lists) and your customer is located in the same vicinity as the SDN, feel free to contact OFAC. Computer software may flag some transactions that are not actually associated with OFAC targets. This is where human intervention becomes critical and some hands-on research may be necessary. Please look at the following "due dilligence" steps before calling OFAC. Unless you have an exact match or are otherwise privy to information indicating that the hit is a sanctions target, it is recommended that you do not actually block a transaction without discussing the matter with OFAC.
In those programs with blocking provisions, OFAC's regulations block all "property" in which a target has an interest. The term "property" is very broadly defined, including present, future or contingent interests. In the case of a wire transfer, the bank will be holding blocked property upon the receipt of concrete instructions from its customer to send the funds. In this case, the funds must be blocked and reported to OFAC within ten days. If, on the other hand, a customer simply asks "Can I send money to Cuba?" there is no blockable interest in the inquiry and the bank can answer the question or direct the customer to OFAC. The same logic applies to cases where the transaction would be required to be rejected under OFAC regulations. There is not technically a "reject" item until the bank receives instructions from its customer to debit its account and send the funds.