OFAC Blocked Transactions – What This Means

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A transaction that is blocked by the Office of Foreign Assets Control (OFAC) at the U.S. Department of the Treasury is one that is likely to involve a sanctioned party on the Specially Designated Nationals and Blocked Persons List (SDN). Because it would violate U.S. economic sanctions, the transaction must be blocked and any domestic party involved in the transaction must take affirmative steps to both ensure that it does not go through and that the assets involved are seized. Failing to take these steps can lead to an OFAC enforcement action and substantial legal liability.

The OFAC lawyers at The Criminal Defense Firm have years of experience handling these complicated and sensitive situations. They have guided covered companies through the compliance requirements necessary to avoid liability for violating U.S. economic sanctions on foreign parties, as well as the parties who own the assets being taken.

Covered Entities Have a Legal Duty to Block Transactions That Violate Sanctions

An important thing to know about OFAC’s enforcement of U.S. economic sanctions against foreign nationals is that those foreign nationals are not within OFAC’s jurisdiction. Therefore, if those foreign nationals evade sanctions, OFAC cannot punish them. The agency has no legal authority over them, as its jurisdiction ends at the borders of the United States.

However, OFAC can and will punish domestic companies that are involved in the transaction that violated sanctions. These domestic companies that are covered by OFAC’s jurisdiction include:

  • U.S. citizens
  • U.S.-based companies
  • Foreign companies with a physical presence within the U.S.

These covered entities have legal obligations to comply with OFAC-enforced economic sanctions, and face liability for failing to do so.

One of those obligations is to block transactions that run through them if they involve a sanctioned foreign national.

This is especially common for covered entities that fall under the definition of a “financial institution.” Broadly defined by 31 C.F.R. § 561.309, financial institutions are any U.S. entities that engage in the business of:

  • Accepting deposits
  • Handling loans or credits
  • Transacting in securities

These are the organizations that are most likely to play a part in a financial transaction that involves a sanctioned party. Upon determining that there is a sanctioned party involved in the transaction, or that a sanctioned party has an account with the institution, the financial institution has a legal duty to block it or to freeze the account. The funds then have to be moved to a separate, interest-bearing account for holding while the situation is resolved. Financial institutions often create unique accounts for each block they impose. However, they can use larger accounts that pool together multiple blocks, so long as there is adequate recordkeeping to separate them accurately.

Within 10 business days of implementing the block, the financial institution has to report it to OFAC. Under 31 C.F.R. § 501.603(b)(1)(ii), that report has to include:

  • Who is holding the blocked property and how they can be contacted
  • A description of the transaction related to the blocking
  • The sanctioned entity whose property has been blocked
  • A description of the property that was blocked
  • The date it was blocked
  • The value of the property
  • The legal authority for the block and a description of what was done with the property
  • Copies of relevant documentation related to the transaction

Additionally, financial institutions must file annual reports, by September 30 of each year, about blocked property to OFAC.

Put our highly experienced team on your side

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Former DA

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney
& Former District Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

John W. Sellers
Linda Julin McNamara

Former Chief, DOJ Appeals

Local Counsel

Elizabeth Stepp
Elizabeth Stepp

Litigation Counsel

Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (OIG)

Timothy E. Allen
Timothy E. Allen

Former Senior Special Agent

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

David M. Bentz
David M. Bentz

Former U.S. Secret Service Agent

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Failing to Uphold This Duty Can Lead to Legal Liability

Parties, and particularly financial institutions, that have the opportunity to block a transaction with a sanctioned foreign national have a legal obligation to do so. Failing to uphold that obligation can lead to an OFAC enforcement action.

Under the OFAC enforcement guidelines (31 C.F.R. Part 501 Appendix A), the agency can take a variety of enforcement actions against covered entities that fail to comply with the law. These actions can include:

  • Issuing a cautionary letter, detailing the noncompliance or failure and telling the recipient to fix the issue
  • Sending a cease and desist letter
  • Issuing a Finding of Violation, which formally details the noncompliance but does not impose a penalty
  • Imposing a civil monetary penalty for failing to comply with OFAC law
  • Referring the case to the U.S. Department of Justice (DOJ) for criminal charges to be filed

The Blocked Party Can Appeal the Decision

The property will remain blocked until either:

  1. The sanctioned party is removed from the SDN list, or
  2. The sanctioned party successfully appeals the block.

If the sanctioned party can convince OFAC to remove it from the SDN list, the block will be lifted and the party will once again have access to its assets. The procedures for OFAC removal are listed at 31 C.F.R. § 501.807.

On the other hand, appealing the block is not an impossible task. OFAC makes mistakes and showing that the block was a result of, for example, mistaken identity with a person or entity that is on the SDN can unblock the assets.

Even legitimately sanctioned parties can successfully appeal a blocked transaction in some circumstances. In many cases, this involves securing a specific license to complete certain types of transactions, such as securing legal representation for the purposes of dealing with OFAC-related matters. If successful, OFAC will issue the license and will authorize the financial institution to unblock some or all of the assets under the terms of the license.

Frequently Asked Questions About OFAC Blocked Transactions and The Criminal Defense Firm

What is the Difference Between a Blocked Transaction and a Rejected One?

A blocked transaction is one involving the assets of a sanctioned entity. Those assets generally have to be sequestered into a separate account that the sanctioned entity cannot access.

A rejected transaction is one involving a sanctioned entity but not any of their assets. Rather than taking the property, the transaction is simply rejected.

An example of a rejected transaction is when a covered entity under OFAC jurisdiction is to process a financial transfer between two non-sanctioned parties related to services or the sale of goods to a sanctioned party, like North Korea. The sanctioned party and its assets are not a part of the transfer, so there is nothing that can be legally blocked, frozen, and sequestered. However, taking part in the transfer between the two non-sanctioned parties would still amount to a violation of OFAC-enforced sanctions because a sanctioned party would benefit from it.

Do Financial Institutions Have to Notify Customers That Their Funds Have Been Blocked?

OFAC does not require financial institutions to take specific actions regarding their interactions with their own customers. Therefore, financial institutions are not obligated to notify their customers of a blocked transaction. However, many of them choose to do so.

What Do Financial Institutions Do When a Sanctioned Party Tries to Open an Account?

OFAC prohibits financial institutions under its jurisdiction from opening accounts with sanctioned parties. However, OFAC also requires these institutions to block assets of sanctioned parties that come into the institution’s possession. Therefore, if a sanctioned party manages to open an account at the institution, and the institution later becomes aware of the party’s status on the SDN list, the institution would have an obligation to block and freeze the account. Additionally, if a sanctioned party tries to open an account with a financial institution and includes an initial deposit with the application, the financial institution would have an obligation to deny the account’s creation, and seize the deposit.

Why Doesn't The Criminal Defense Firm Call Itself the Best OFAC Law Firm?

There are numerous reasons why The Criminal Defense Firm is unique.

First, all of our lawyers, investigators, and compliance professionals have numerous years of experience handling cases similar to your own, including in the complex field of OFAC law. When you hire us to represent your interests and protect you or your company, you are getting experienced legal professionals on your side who know what they are doing.

Second, The Criminal Defense Firm does not have junior associates or paralegals on our staff. This means that all of the work that gets done for you in your case will be performed by the lawyers and professionals with the experience that drew you to our firm.

Third, we have a long track record of success that showcases our legal acumen and savvy defense and compliance strategies.

However, we do not feel comfortable calling our firm the best OFAC law firm because that is a judgment that we think is only appropriate for our clients to make. Read their testimonials to find out what they have to say about The Criminal Defense Firm.

The Criminal Defense Firm: Knowledgeable Compliance Professionals and Strong Defense Advocates

OFAC’s demands that covered entities block transactions involving sanctioned parties whenever possible pose a risk to both the party being blocked and the entity that is doing the blocking: The blocked party may suddenly find itself unjustifiably stripped of access to its assets, while the blocking entity has to make quick and sometimes risky decisions in order to maintain its compliance with OFAC’s rigorous demands.

Regardless of your situation, the OFAC lawyers at The Criminal Defense Firm can provide the legal representation and guidance that you need to preserve your rights and interests. Our compliance professionals have helped numerous domestic companies under OFAC jurisdiction, including financial institutions, create and maintain effective compliance protocols that ensure that transactions are blocked when necessary and that the proper follow-up steps are taken. Meanwhile, our OFAC defense lawyers have helped sanctioned entities, as well as innocent parties that have been mistaken for sanctioned entities, invoke their rights to their assets.

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