Every day, funds transfers are blocked by U.S. financial institutions and others due a belief that the blocking is necessary for compliance with U.S. economic sanctions regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). As readers of this blog may be aware, OFAC designates parties alleged to be engaged in activity that has been declared as contrary to U.S. national security and foreign policy interests under various legal authorities. Those designations have the effect of blocking any property or interests in property that come within U.S. jurisdiction or the possession or control of U.S. persons.

Some of these blockings are appropriate. Some of them are not. While compliance staff at financial institutions seek to identify sanctioned interests in payments messages and information they are reviewing, some times they are looking at data that is either incorrect, misleading, or vague. In those instances, transactions may be blocked that should not be.

While OFAC regulations are the root cause of these blockings, they also provide the antidote–31 C.F.R. § 501.806. That regulation provides the procedures available to parties with an interest in a blocked funds transfer to seek a license from OFAC to unblock the transfer in the event that the blocking arose from a case of mistaken identity. While the OFAC Licensing Portal’s Release of Blocked Funds Instructions page also contains information as to what should go into an unblocking application, those instructions are a bit misleading insofar as they offer an impression that a mechanical approach–i.e., the mere entry of data into the application fields–is the appropriate, and perhaps only, approach for seeking the unblocking application. For that reason, I believe following the regulation is more instructive for preparing a successful application for unblocking.

While the regulation is a great starting point, it has been my experience that successful unblocking applications require advocacy, not mere data entry. Indeed, there is a story behind that data, and that story may reveal where the mistaken blocking occurred. Make sure to get it out. For help on getting that story out, and to generally increase the chances for a more successful unblocking application, follow the following tips.

Tip #1: Anyone can apply, but not everyone should apply.

OFAC’s regulations governing unblocking and release of blocked funds make it clear that “[a]ny person who is a party to the transaction” may request the release of funds blocked pursuant to an OFAC-administered sanctions program. 31 C.F.R. § 501.806(a). This is important because many blocked payments are cross-border payments in which a number of foreign parties may maintain an interest. U.S. persons involved in the transactions may not want to pursue unblocking of the transfer, seeing it as not their problem or not worth their resources–in the case of U.S. financial institutions–or may be scared to put themselves on OFAC’s radar by filing that application–in the case of U.S. companies or individuals. The first concern is understandable, but the second is isn’t given that a report will be filed with OFAC within 10 days of the blocking and will likely identify any relevant U.S. parties to the transaction.

Thus, it is often up to foreign parties involved in the transaction to seek authorization from OFAC to release the funds. As the language of 31 C.F.R. § 501.806(a) indicates any person who is party to the transaction may seek authorization to unblock the funds. This dispels a popular, albeit erroneous belief, that only U.S. persons can apply for OFAC license authorization.

While this is good news, just because any person to a transaction can seek authorization to unblock improperly blocked funds, it doesn’t mean that multiple applications should be sent in. Indeed, if OFAC gets multiple applications it slows down the processing of those applications, and may delay a final decision. For example, I have seen scenarios in the past where OFAC has gone back to parties who had filed applications seeking to unblock the same transaction and asked them to withdraw one or more of the pending license applications that were filed. Further, it opens up the possibility that different applicants could provide varying information concerning the blocked transfer that would then call into question the credibility of the representations contained in the various applications.

Thus, where there are multiple parties with an interest in the transaction the parties should coordinate as to who will apply for the license and to ensure that there is consistency amongst the interested parties with respect to the facts. In short, there should be one application and one set of facts and arguments OFAC is reviewing in determining whether or not to release blocked funds.

Tip #2: Conduct your own pre-application due diligence to determine the propriety of initial blocking.

One of the hardest parts of applying for an application to release blocked funds is that you don’t know what information the financial institution or others relied upon to justify the blocking, nor what information was contained in the blocking report. Therefore, applicants should go back to the transaction and make sure they understand the true purpose of the remittance, and the ultimate beneficial ownership of every party to the transaction, including any financial institutions, agents, intermediaries, insurers, vessels, etc. Clearly, the financial institution that blocked the payment saw something to support their blocking action. Applicants should attempt to reverse engineer the blocking to discover what the financial institution might have seen or found during their investigation that gave them to cause to block the transfer.

If you’re not finding anything–which is a good thing–try to discover where mistakes could have been. For example, does a counter party share a similar name to a sanctioned person, does something in the payment message or the underlying documentation reference a blocked jurisdiction (e.g., Cuba), are there addresses that might have triggered the financial institution’s review and blocking?

In short, if you’re applying for an OFAC license to release a blocked payment transfer, you’re likely going to be in the dark as to the exact reasons for the blocking. Thus, an investigation into possible causes for the blocking will be necessary, and the findings of that investigation should be presented to OFAC as part of any unblocking application.

Tip #3: Offer countervailing evidence and arguments by attaching a separate written application.

The license application portal on OFAC’s website presents an opportunity to attach documents. For our clients, I always attach a written license application that supplements and puts into context the information entered into the form, and also presents the legal case as to why the funds have been improperly blocked. Doing so is important for a number of reasons.

First, OFAC might not always realize the argument for unblocking by simply reviewing the static information inputted into the fields of their license application form. Again, see the point above about similar names. In a separate attached letter, context can be given to the information contained in the form’s fields–e.g., mistaken names, addresses with SDN names that don’t have relevance to the blocking, etc. Explain to OFAC how the information you are providing supports your position that the unblocking was improper.

Second, this provides an opportunity for you to point out to OFAC aspects of the transaction that led to the blocking that may be relevant. For example, perhaps the transaction was one in which a blocked party had an interest, but that was for an exempt or authorized purpose. The applicability or exemption may not have been apparent on the face of the payment message or in the data or information available to the financial institution’s compliance personnel, but it would be relevant to OFAC’s consideration as to whether or not the blocking was legally appropriate.

Finally, the purpose of providing the level of detail offered by a written supplemental submission is to create a record of the reasons–and evidence supporting those reasons–why the unblocking would be appropriate. In preparing a record with respect to their decision on the unblocking application, OFAC is required under the Administrative Procedure Act (“APA”) to consider and discount relevant information put before it in the event they find that information to be incredible or not dispositive. Thus, for purposes of developing a record that could go up on appeal, it’s a good idea to supplement your unblocking application with a supplemental letter that clearly presents your case for unblocking in a fulsome manner.

OFAC unblocking licenses can be difficult to obtain. That said, they are also more clear cut in terms of estimating whether or not they will be granted, and some homework on the front end can provide an applicant a good sense as to their chances for unblocking. While there are no certainties with OFAC, the above tips will help assess whether or not an unblocking is possible, and increase the chances of an unblocking license being issued.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@falawpc.com