| US Treasury Department (2023)

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Blocking and Rejecting Transactions

32.How do I block an account or transfer?

Once funds have been determined to require freezing, they must be deposited into an interest-bearing account on your books from which only OFAC-authorized withdrawals can be made. The ban must also be reported to OFAC Compliance within 10 business days. Some banks have chosen to open separate accounts for each blocked transaction, while others have opted for omnibus accounts titled "Blocked Libyan Funds", for example. Either method is satisfactory as long as there is an audit trail that allows certain funds to be released with interest at any point in the future.

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33.How much interest do I have to pay on the blocked balance?

OFAC regulations require funds to receive interest at a commercially reasonable rate, i.e. H. at a rate currently offered to other depositors for deposits or instruments of comparable size and maturity.

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34.Can my bank deduct service fees from my account?

Generally yes. In most cases (e.g. with the exception of Iraq), OFAC regulations contain provisions that allow a bank to charge blocked accounts with normal service fees described in the individual regulations. Fees must conform to a published fee schedule for the type of account in which funds are held.

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35.Do all OFAC programs include transaction blocking?

no OFAC regulations are tailored to further the needs and purposes of specific executive orders or by-laws that provide the broad 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 (e.g. import bans) are appropriate. The only oneProgramming websitesoutline the limitations for each program. Particular attention should be paid to checking targets on sanctions lists that are included in any ofOFAC Non-Specially Designated Nationals Sanctions Lists.

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36. I understand that a transaction will be blocked, but what does declining a transaction mean? When should a transaction be declined and not blocked?

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 a blocked person or government) in the transaction. In these cases, the transaction is simply rejected or not processed and sent back to the originator.

For example, a US financial institution would have to refuse a transfer between two third-country companies (non-SDNs) involving an export to a company in Iran that is otherwise not subject to sanctions. Since there is no interest from the blocked person (e.g. the Iranian government and an Iranian financial institution or an SDN), there is no blockable interest in the funds. However, the US financial institution cannot process the transaction as it would constitute a prohibited export of services to Iran under the Iranian Transactions and Sanctions Regulations (ITSR) unless approved by OFAC or exempt from regulation. Likewise, under the ITSR, a US financial institution is prohibited from engaging in any trade-related transaction or business with Iran, including financing a prohibited transaction. A US financial institution cannot even advise a letter of credit if the underlying transaction violates OFAC regulations. In addition, US persons are prohibited from facilitating transactions by foreign persons that would be prohibited if conducted by a US person.

The following examples can illustrate which transactions should be blocked and which should be rejected.

  • A US financial institution has banned a commercial payment for XYZ Import-Export Co.'s account at Bank of XYZ in Iran. Bank of XYZ is an Iranian financial institution wholly owned by the Iranian government; Accordingly, Bank of XYZ is blocked under Section 560.211 of the ITSR. This payment must be blocked.

  • A US financial institution bans a commercial payment for ABC Import-Export in Tehran, Iran. Unlike XYZ's bank, ABC Import-Export in Tehran is not a blocked person, so there is no blockable interest on this payment. However, processing the payment would mean facilitating trade with Iran, exporting a service to Iran and conducting trade-related transactions with Iran; Therefore, the US financial institution must refuse the payment.

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Blocked and declined transactions must be reported to OFAC within 10 days (see 31 C.F.R. §§ 501.603 and 501.604). Questions as to whether a transaction should be blocked or declined should be directed to OFAC's Sanctions Compliance and Evaluation Department atOFACReport@treasury.gov.

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39. What do I do if I have a blocked account that must be inherited by the state?

You must discuss this with your state authorities and with OFAC.

Updated April 20, 2022

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41. Should an institution inform its clients that it has blocked its funds and if so, how does the institution explain this to them?

An institution may notify its client that funds have been blocked, in accordance with OFAC's instructions. The customer has the right to request the unblocking and release of the credit.

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To request the release of funds online, please go to ourOnline application page.

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42. What do I do if a person is trying to open an account and the person or entity's name is on OFAC's SDN list (or is otherwise a blocked person)? Do I open the account and then block the money?

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 on OFAC's Specially Designated Nationals and Restricted Persons (SDN) list, or for a person who is otherwise blocked (e.g. a blocked government or a body subject to the 50 percent rule). This is a prohibited service. However, the institution or its affiliates should exercise due care to ensure that the person attempting to open the account is the same person as appears on OFAC's SDN list or is otherwise subject to suspension. In many cases, an institution can identify a "false positive" when the name resembles the name of a sanctioned person, 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 obtains possession or control of property involving a Blocked Person, 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 matching the information on the SDN list, along with an opening deposit, you are obligated to block the funds. The same applies to other banking transactions. For example, if a customer asks if he or she can send money to a relative's account at Bank of XYZ that is on the SDN list, the bank may say, "No, that's illegal." If, on the other hand, a bank receives instructions from their client to debit their account and transfer the funds to XYZ's bank, the bank must comply with the instructions by freezing the funds containing future interest of SDN Bank. You may be thinking of the analogy of a bouncing ball. Once the ball starts moving, you must stop it as it gains your possession.

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48.I just received a ban "alert". What can I do?

If your blocking software or account holder verification service indicates a potential match, OFAC recommends that you conduct an initial analysis before contacting OFAC. If you have a fairly exact match with a name on theListe der Specially Designated Nationals (SDN).(or one of OFAC'sother sanctions lists) and your customer is in the same environment as the SDN, feel free to contact OFAC. Computer software may flag some transactions that are not actually linked to OFAC goals. This is where human intervention becomes crucial and some hands-on research may be necessary. Please look at the followingDue Diligence Stepsbefore calling OFAC. Unless you have an exact match or are otherwise privy to information that indicates the hit is a sanction target, it is recommended that you do not actually block a transaction without raising the matter with OFAC.

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53.How do I distinguish between a "Request" and a "Money Instruction" when a customer wants to send a transfer to a sanctioned party or country?

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In these programs with blocking provisions, OFAC's rules block any "property" in which a target has an interest. The term "property" is very broad and includes present, future or contingent interests. In the case of a wire transfer, the bank holds blocked property after receiving specific instructions from their client to send the funds. In this case, funds must be blocked and reported to OFAC within ten days. On the other hand, if a customer simply asks "Can I send money to Cuba?" There is no blockable interest in the request and the bank can answer the question or forward the customer to OFAC. The same logic applies to cases where the transaction would have to be rejected under OFAC regulations. Technically, there is no "rejection item" until the bank receives instructions from their customer to debit their account and wire the funds.

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