FAQ Flashcards
- What is OFAC and what does it do?
Administers and enforces economic sanctions programs primarily against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions
- What does one mean by the term “prohibited transactions”?
Prohibited transactions are trade or financial transactions and other dealings in which U.S. persons may not engage unless authorized by OFAC or expressly exempted by statute.
- Are there exceptions to the prohibitions?
Yes. OFAC regulations often provide general licenses authorizing the performance of certain categories of transactions. OFAC also issues specific licenses on a case-by-case basis under certain limited situations and conditions. Guidance on how to request a specific license is found below and at 31 C.F.R. 501.801.
- What must I do to get permission to trade with an embargoed country?
In some situations, authority to engage in certain transactions is provided by means of a general license. In instances where a general license does not exist, a written request for a specific license must be filed with OFAC.
- What do you mean by “blocking?”
Another word for it is “freezing.” It is simply a way of controlling targeted property. Title to the blocked property remains with the target, but the exercise of powers and privileges normally associated with ownership is prohibited without authorization from OFAC. Blocking immediately imposes an across-the-board prohibition against transfers or dealings of any kind with regard to the property.
- How do you handle entities owned by an SDN?
Entities that a person on the SDN List owns (defined as a direct or indirect ownership interest of 50% or more) are also blocked, regardless of whether that entity is separately named on the SDN List.
- Who must comply with OFAC regulations?
- U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches.
- In the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply.
- Certain programs also require foreign persons in possession of U.S.-origin goods to comply.
- Self-Disclosure?
Please submit all voluntary self-disclosures electronically to OFACDisclosures@treasury.gov. Unless the disclosure is an initial disclosure which will be supplemented with additional information, the submission should contain sufficient detail to afford OFAC a complete understanding of an apparent violation’s circumstances.
- What is an SDN?
As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called “Specially Designated Nationals” or “SDNs.” Their assets are blocked and U.S. persons are generally prohibited from dealing with them.
- Does OFAC maintain or can it create a country-by-country list of Specially Designated Nationals (SDNs)?
Yes
- How do I block an account or a funds transfer?
Once it has been determined that funds need to be blocked, they must be placed into an interest-bearing account on your books from which only OFAC-authorized debits may be made. The blocking also must be reported to OFAC Compliance within 10 business days. Some banks have opted to open separate accounts for each blocked transaction, while others have opted for omnibus accounts titled, for example, “Blocked Libyan Funds.” Either method is satisfactory, so long as there is an audit trail which will allow specific funds to be unblocked with interest at any point in the future.
- I understand blocking a transaction, but what is meant by rejecting a transaction? When should a transaction be rejected rather than 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 blocked person or government) in the transaction. In these cases, the transaction is simply rejected, or not processed and returned to the originator.
For example, a U.S. financial institution would have to reject a wire transfer between two third-country companies (non-SDNs) involving an export to a company in Iran that is not otherwise subject to sanctions. Since there is no interest of the blocked person (e.g., the Government of Iran, and Iranian financial institution, or an SDN), there is no blockable interest in the funds. However, the U.S. financial institution cannot process the transaction because that would constitute a prohibited export of services to Iran pursuant to the Iranian Transactions and Sanctions Regulations (ITSR), unless authorized by OFAC or exempt from regulation. Similarly, a U.S. financial institution is prohibited under the ITSR from an engaging in trade-related transactions or dealings with Iran, including financing a prohibited transaction. A U.S. financial institution cannot so much as advise a letter of credit if the underlying transaction is in violation of OFAC regulations. In addition, U.S. persons are prohibited from facilitating transactions by foreign persons that would be prohibited if performed by a U.S. person.
The following examples may help illustrate which transactions should be blocked and which should be rejected.
A U.S. financial institution interdicts a commercial payment destined for the account of XYZ Import-Export Co. at the Bank of XYZ in Iran. The Bank of XYZ is an Iranian financial institution and wholly-owned by the Government of Iran; accordingly, Bank of XYZ is blocked under section 560.211 of the ITSR. This payment must be blocked.
A U.S. financial institution interdicts a commercial payment destined for ABC Import-Export in Tehran, Iran. Unlike the Bank of XYZ, ABC Import-Export in Tehran is not a blocked person, so there is no blockable interest in this payment. However, processing the payment would mean facilitating trade with Iran, exporting a service to Iran, and engaging in trade-related transactions with Iran; therefore, the U.S. financial institution must reject the payment.
Blocked and rejected transactions must be reported to OFAC within 10 days (see 31 C.F.R. §§ 501.603 and 501.604).
- My bank operates accounts for individuals living in Iran. OFAC has told us that these accounts cannot be operated. Does this mean that the accounts are blocked?
No, the accounts are restricted. The Iranian sanctions prohibit the export of goods or services to Iran. By operating an account for an individual or company in Iran, the bank would be exporting services to that person or entity in violation of the Iranian Transactions Regulations. The accounts, however, are not blocked. The account holder can close the account and have the funds transferred to his or her account outside the United States.
- Should an institution tell its customer that it blocked their funds, and, if so, how does the institution explain it to them?
An institution may notify its customer that it has blocked funds in accordance with OFAC’s instructions. The customer has the right to apply for the unblocking and release of the funds.
- What do I do if a person tries to open an account and the individual 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 funds?
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 named on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) or a person who is otherwise blocked (e.g., a blocked government or an entity that is subject to the 50 Percent Rule). This is a prohibited service. However, the institution or its affiliates should pay careful attention to ensure the person trying to open the account is the same person as the one named on OFAC’s SDN List or is otherwise subject to blocking. In many cases, an institution may identify a “false positive,” where the name is similar to a sanctioned person’s name, 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 does come into the possession or control of any property in which a blocked person has an interest, 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 who matches the information on the SDN List, together with an opening deposit, you are obligated to block the funds. The same is true for other banking transactions. If, for example, a customer asks if he or she is allowed to send money to a relative’s account with Bank of XYZ, which appears on the SDN List, the bank can say “no, that’s illegal.” If, on the other hand, a bank receives instructions from its customer to debit his or her account and send the funds to Bank of XYZ, the bank must act on the instructions by blocking the funds that contain a future interest of the SDN bank. You might think of the analogy of a bouncing ball. Once the ball starts moving, you must stop it if it comes into your possession.
