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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OFAC Reporting Requirements (Part I): Inside the Visa RPPR finding and the importance of reporting

Today, OFAC issued a Finding of Violation (FOV) against Visa. But it wasn’t your typical notice that we have been accustomed to, of payments slipping through the cracks, wire stripping or general failure to stop bad money going into bad hands. Today’s FOV was focused on the failure to report that an entity had blocked funds. Essentially, the crux of the FOV is that after blocking funds in which Iranian proliferation-bank Melli had an interest in, they placed the money into a blocked account but never reported it to OFAC. Of all the things that have happened in the past couple of years, this is comparatively benign. However, given the size of the institution (your wallet probably has one of their products in quick reach), a failure to report both left OFAC in the dark and raises some concerns about their program’s ability to keep records. Hence why this was an FOV and not a cautionary letter. To be clear, there are varying degrees of actions OFAC can take to penalize an institution. An FOV exists to straddle the dimension where a party committed an error that is of sufficient concern to OFAC that warrants more than a private cautionary letter but not of sufficient concern to warrant a civil penalty. Oddly, FOVs alone are a very rare occurrence, more rare than settling and much more rare than a simple cautionary letter. FOVs do tend to proceed a civil penalty, but this was not the case here. If anything, this case does bring up a very important point. The ten day reporting requirement is not arbitrary. It exists to ensure that critical information gets to the right people in a timely fashion.Blocked and rejected assets reports serve two key purposes. To provide information for the Terrorist Assets Report through the use of the Annual Report of Blocked Property. The second and more immediate purpose is these reports of blocked and rejected assets help paint a picture and inform OFAC of activities. These are critical for allowing OFAC to identify trends in sanctions, understand the landscape and identify possible violations. In this case, Visa left critical information out of both their annual report as well as two blocking reports. The consequences of these actions could be anywhere from something as simple as partial accounting of all blocked assets all the way to not having the right information about a critical incident involving sanctions. For instance, if a bank was to block funds but not report it and a party was to come to OFAC with a license to release those funds, OFAC, the client and the bank would all be caught flat footed in adjudicating the request. An even more serious example would be failing to report blocked funds from a bank with known ties to nuclear proliferation, resulting in OFAC not knowing about a particular transaction and being able to execute steps to prevent further transfers. It essentially gives the bad guys a head start on their ability to adjust.   This is part one in a series of OFAC reporting requirements that will cover the importance of good reporting, what OFAC does with Blocking and Reject reports and a look at the Annual Report of Blocked...

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