• November 5, 2024

The Only Comprehensive Resource on U.S. Economic Sanctions

To Reject or To Block, That is the OFAC Question

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A number of people have come to us recently inquiring into whether or not a funds transfer will be blocked by a U.S. bank because it may be related to a transaction that was prohibited under a sanctions program administered by the United States Department of the Treasury Office of Foreign Assets Control (OFAC). Sometimes these concerns revolve around funds derived from a prohibited transaction which have already been transferred to the United States and are sitting in a U.S. bank account.

As a general rule, if an underlying transaction is or may be prohibited, but there is no blockable interest in the transaction, then the transaction is simply rejected, or not processed. As such, transactions will only be blocked if a party on OFAC’s SDN (Specially Designated Nationals) List has an interest in the transaction.

For example, a U.S. bank interdicts a funds transfer destined for the account of a company at Bank Saderat in Tehran, Iran. Bank Saderat is designated on OFAC’s SDN List. As such, the U.S. bank must block the payment. On the other hand, if a U.S. bank interdicts a payment destined for the account of that company at HSBC Bank, London, U.K. which facilitates trade with Iran and provides a service in support of a commercial transaction in Iran, the U.S. bank must reject the payment.

To determine whether or not a transaction will be rejected or blocked, pay close attention to who has an interest in the transaction. If an OFAC SDN has an interest in the transaction then the funds will be blocked and it will be an uphill battle to have them unblocked. On the other hand, if it is only the underlying transaction which is prohibited and no blocked parties have an interest, then it is likely that the transaction will be rejected. All OFAC blocking cases are fact specific and could have circumstances unique to that situation. If there are additional questions about the funds transfer at hand, then contacting a lawyer who specializes in OFAC matters may be appropriate.

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@ferrari-legal.com.

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Erich Ferrari

As the Founder and Principal of Ferrari & Associates, P.C., Mr. Ferrari represents U.S. and foreign corporations, financial institutions, exporters, insurers, as well as private individuals in trade compliance, regulatory licensing matters, and federal investigations and prosecutions. He frequently represents clients before the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC), the United States Department of Commerce’s Bureau of Industry and Security (BIS), and in federal courts around the country. With over 12 years of experience in national security law, exports control, and U.S. economic sanctions, he counsels across industry sectors representing parties in a wide range of matters from ensuring compliance to defending against federal prosecutions and pursuing federal appeals.