OFAC Reporting Requirements (Part II): What is blocked property?

As we saw with the Visa case, blocked assets reporting is a matter that OFAC takes seriously. It is also something your auditors and regulators are guaranteed to understand. While an FOV from OFAC for violating the RPPR is rare, having your ducks in order can save you a headache when your favorite examiner comes stomping on by. Before we go into the question of what to report and when, we should take a look at what blocked assets are. Because sanctions are divided up depending on the program, blocked property is defined multiple times for each program. Fortunately for us, the definitions are copy/paste jobs with the program and targets ad-libbed into the text. For instance, the definition taken from my favorite fall-back program to pick on, Zimbabwe: The terms blocked account and blocked property shall mean any account or property subject to the prohibitions in § 541.201 held in the name of a person whose property or interests in property are blocked pursuant to § 541.201(a), or in which such person has an interest, and with respect to which payments, transfers, exportations, withdrawals, or other dealings may not be made or effected except pursuant to an authorization or license from the Office of Foreign Assets Control expressly authorizing such action. That’s the technical definition. But what does it mean? Well, first… OFAC DOESN”T HAVE YO MONEYZ. Sorry. I had to get that off my chest… When property becomes blocked, the financial institution places it into a separate account in which only the FI has access to. The blocked party certainly doesn’t have access to it, and while OFAC can authorize its release, OFAC also does not have access to it. For the majority of the programs the account may bear reasonable interest and your institution may deduct fees from the account based on a published fee schedule. Making an SDN broke over minimum balance fees is not something that keeps me up at night. Generally, we block property for certain things: Transactions and accounts involving specially designated nationals including Governments that we have designated such as Iran and Sudan Cuban Nationals There are a few exceptions. Vessels are generally not blocked (the main exception being the sale of the vessel) and banks that have been issued a special license called an MUL don’t block for Cuban nationals or other specific conditions (generally because of a conflict of law). So what do they do? They reject and report, of course! Generally if a transaction is prohibited but does not contained a blocked or designated SDN, the transaction is simply returned to the originator. For instance, if someone is sending a commercial transaction to Sudan that does not involve an SDN or the government of Sudan or any other blocked interest, instead of placing the money into a blocked account the wire would be returned to the originating party and OFAC would be notified with a rejected transaction report (still within 10 days). This is a much more frequent occurrence than blocked property. While rejected transactions are not put into the annual report of blocked property form, it is important to report them to OFAC so that OFAC can assess patterns and potential violations. Because rejects are much more common than blocked assets, the reports filed by the institution are perhaps more instrumental in painting a picture for OFAC and even identifying potential cases to pursue. A final option does exist. With the pressure from OFAC ramping up, there may be an appeal to reject transactions that you suspect there is an OFAC interest but cannot confirm. There are industry lists...

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