How does a financial institution block an account or a funds transfer?
Once it is determined that funds need to be blocked, the funds must be placed into a segregated, interest-bearing account on a U.S. financial institution's books, from which only OFAC-authorized debits may be made. The holder of the blocked funds must then report the funds as blocked property to OFAC through the OFAC Reporting System (ORS) within 10 business days, pursuant to 31 CFR § 501.603. To register for access, or to log in to ORS, please see the OFAC Reporting System page on OFAC's website.
When blocking funds, some institutions open separate accounts for each blocked transaction, while others opt for blocked omnibus accounts. Either method is consistent with regulatory requirements, provided there is a clear audit trail, including so the institution can later unblock specific funds with the appropriate interest, if authorized to do so. Please note, pursuant to 31 CFR § 501.603(d)(1), institutions maintaining blocked funds in omnibus accounts must include in their Annual Report of Blocked Property a disaggregated list showing each blocked asset contained within the omnibus account. For more information on annual reporting of blocked property, see FAQ 50.
Please see OFAC's answers to FAQs on Filing Reports with OFAC for more information. For information on blocking digital currency, see FAQ 646. For information on blocking within the insurance industry, see FAQ 62. If, after reviewing this guidance, you have questions about blocking funds in other contexts, please contact the OFAC Compliance Hotline.
How much interest do I have to pay on the blocked funds?
OFAC regulations require that blocked 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.
Can my financial institution deduct service charges from a blocked account?
Generally, yes. Most OFAC regulations contain licenses allowing a U.S. financial institution to debit blocked accounts for normal service charges, which are described within the relevant OFAC implementing regulations for each sanctions programs. The service charges must be normal, for example, in accordance with a published rate schedule for the type of account in which the funds are maintained.
Do all OFAC programs involve blocking property?
No. Each OFAC sanctions program is based on different underlying authorities and foreign policy and national security goals, so the prohibitions imposed vary between programs. Most programs block the property and interests in property of specific individuals and entities. Certain programs do not require blocking of any property; instead, they generally prohibit U.S. persons from engaging in certain trade or financial transactions and other dealings with specified persons or jurisdictions.
When a particular sanctions program prohibits transactions but does not impose blocking requirements, an institution may be required to reject, rather than block, the prohibited transactions. As with blocked transactions, rejected transactions must also be reported to OFAC through the OFAC Reporting System (ORS), within 10 business days, pursuant to 31 CFR § 501.604. To register for access or to log in to ORS, please see the OFAC Reporting System page on OFAC's website.
For more information on rejecting transactions, see FAQ 36. For information on specific prohibitions, authorizations, or exemptions under a particular OFAC sanctions program, please see the relevant OFAC implementing regulations and the Sanctions Programs and Country Information page on OFAC's website.
When should I reject a transaction rather than block it?
In the case of certain sanctions programs, a transaction may be prohibited for U.S. persons, but there may be no blockable interest (i.e., no interest of a Specially Designated National (SDN), blocked government, or other blocked person) in the transaction. In this situation, the transaction should be rejected and returned to the originator. Rejected transactions must not be processed forward to the beneficiary.
The following examples may help illustrate which transactions should be blocked and which should be rejected under certain OFAC sanctions programs. For information on specific prohibitions, authorizations, or exemptions under a particular OFAC sanctions program, please see the relevant OFAC implementing regulations and the Sanctions Programs and Country Information page on OFAC's website.
Blocked and rejected transactions must be reported to OFAC through the OFAC Reporting System (ORS) within 10 business days, pursuant to 31 CFR §§ 501.603 and 501.604. To register for access or to log in to ORS, please see the OFAC Reporting System page on OFAC's website.
You need to discuss this with your state authorities and with OFAC.
Updated on April 20, 2022
Should an organization notify its customer that it blocked their property, and, if so, how does the organization explain it to the customer?
An organization may notify its customer that it has blocked property in accordance with OFAC's regulations and may identify the sanctions program or regulations under which the organization blocked the property. (For more information on OFAC sanctions programs, visit the Sanctions Programs and Country Information page on OFAC's website.) In certain instances, OFAC may issue a blocking order or directive that requires the recipient to promptly disclose such order or directive to affected persons with whom the recipient maintains direct commercial relationships.
The customer may apply to OFAC for a license to unblock and release the funds. For guidance on how to request and apply for a specific license, please see 31 CFR § 501.801 and the OFAC Specific Licenses and Interpretive Guidance page on OFAC's website. (For a list of program tags specific to sanctions programs, which are used when applying for licenses, see the Program Tag Definitions for OFAC Sanctions Lists page on OFAC's website.)
What should I do if a blocked person, such as a person listed on OFAC's SDN List, tries to open an account? What if a non-blocked person wants to transact with a blocked person?
Generally, U.S. persons should neither open an account for a blocked person nor permit transactions with blocked persons.
U.S. persons, including foreign branches of U.S. financial institutions and others subject to U.S. jurisdiction, are generally prohibited from opening an account for any individual or entity named on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List) or for any individual or entity that is otherwise blocked (such as a blocked government entity or an entity blocked pursuant to OFAC’s "50 Percent Rule"). For more information, see the Basic Information on OFAC and Sanctions FAQ topic page on OFAC's website.
If a U.S. person gains control or possession of any property in which a blocked individual or entity has an interest, however, then the U.S. person is required to block that property and report it to OFAC. (For more information, see FAQ 49.) This means, for example, that if a bank receives an application to open an account—and an initial deposit—from an individual or entity on the SDN List, the bank is obligated to decline to open the account and block the initial deposit.
This blocking requirement also applies to other transactions involving any blocked person. This can be likened to a bouncing ball—once the ball starts moving, it must be stopped if it comes into your possession. If, for example, a customer asks whether they can send money from their U.S. bank to a relative's account with a bank listed on the SDN List, the U.S. bank can say "No. That would be illegal." If, on the other hand, the U.S. bank receives instructions from its customer to debit his or her account and transfer the funds to the blocked bank, the U.S. bank must act on the instructions by blocking the funds that contain a future interest of the blocked bank.
Before taking action, it is important to verify that the individual or entity attempting to open the account or involved in the customer's transaction is the same as the person listed on OFAC's SDN List or that the person is otherwise subject to blocking. There may be instances of "false positives," where the individual's or entity's name is similar to a sanctioned person's name, but the rest of the information provided by the applicant or customer does not match the descriptor information on the SDN List. An institution may need to conduct further due diligence, such as requesting additional identifying information from the individual or entity, to determine whether the match is a "false positive." See FAQ 5 for more information on assessing potential matches to OFAC's sanctions lists.
When a customer wants to transfer funds to a sanctioned party or country, how does a financial institution differentiate between an "inquiry" by a customer and a "payment instruction"?
In those sanctions programs with blocking authorities, OFAC's regulations block all "property" or "interests in property" in which a blocked person has an interest. The term "property" is very broadly defined, including present, future, or contingent interests. (For more information, see FAQ 9.)
For example, if a bank receives payment instructions from a customer to send a wire transfer to a blocked person, the bank should block the funds and report to OFAC through the OFAC Reporting System (ORS) within 10 business days from the date that property becomes blocked by the bank. For additional details on reporting, and to register for access to the ORS, please see the OFAC Reporting System page on OFAC's website.
However, if a customer simply asks a question such as, "Can I send money to Cuba?" then the bank can answer the customer's question or direct the customer to contact the OFAC Compliance Hotline for guidance.
The same logic applies to situations involving prohibited transactions that do not involve any blockable interest that must be rejected under OFAC sanctions regulations. If a bank receives instructions to send funds to a non-blocked person in Iran, then the bank must reject the transfer and file a reject report through ORS, pursuant to 31 CFR § 501.604. If a customer merely asks whether they can send funds to Iran and the bank explains that activity is prohibited, there is nothing to reject. In that situation, the bank does not need to file a report of a rejected transaction.