What did financial institutions do before there was screening software? Interdiction software has now become a way of life in the financial industry, and it’s difficult to imagine a time when it didn’t exist.  But even with the advancements in technology utilized by banks to detect transactions that may implicate designated parties, the software is not full-proof and on occasion, is known to make mistakes.

These mistakes can result in the blocking of funds and can be quite detrimental, primarily due to the collateral consequences caused to the remitting and beneficiary parties.  A block by a bank can stop an entire transaction, and unfortunately the parties involved are left trying to figure out how to release the funds in order to proceed with payment.

A common example of a mistaken blocking occurs when a foreign remitter sends funds to a U.S. beneficiary using a foreign bank. As the funds are routed through a U.S. correspondent bank, the bank’s interdiction software flags the transaction based on a reference in the payment message that is similar to the name of a person or entity designated by OFAC. The payment is blocked automatically, and notice is sent to the remitting bank that the transaction has been blocked due to U.S. sanctions. The remitter is left puzzled, the beneficiary left without payment, and the funds are blocked unequivocally until an OFAC license is obtained to unblock them.

The anecdote above only represents one example of how funds can become blocked. Nonetheless, there is only one avenue to seek the unblocking of funds – submitting a license application to OFAC. The application may be submitted through OFAC’s licensing portal, and inquires as to the basic information regarding the blocking.  For example, OFAC asks you to provide the name of the remitting institution, the receiving bank, and the purpose of the transaction. There is also an opportunity to provide supporting documentation.

The success of a license application to unblock funds depends on the circumstances of the transaction. If the block was made due to the mistaken identity of a designated party, and that fact is readily apparent from the documents related to the transaction, then OFAC may very well issue a license to unblock the funds. However, if there is even a slight chance that a designated party maintains an interest in the funds, OFAC will deny the application.

Whether a designated party maintains an interest in the blocked property has been defined to cover “an interest of any nature whatsoever, direct or indirect.” This definition is fairly consistent across OFAC’s sanctions programs, and courts have interpreted this definition extremely broadly. See Holy Land Found. v. Ashcroft, 333 F.3d 156 (D.C. Cir. 2003); OKKO Business PE v. Lew, No. 14-cv-925 (D.D.C. Sept. 28, 2015). This holds true even if an affected party can demonstrate that the interest has been terminated, such as through the cancellation of the underlying contract to the transaction.

Thus, in order to successfully obtain a license to unblock funds, it is important to include all relevant documentation with the license application. This includes the underlying contract or invoice pertaining to the transaction, the identify of all parties involved in the transaction, and a detailed description of the underlying purpose of the transaction. If a party can effectively overcome the presumption that a designated party maintains an interest in the property, including an indirect interest, then the likelihood of obtaining a license to unblock funds will be higher. There are no guarantees with obtaining an OFAC license in any situation, but these are pertinent considerations of OFAC when considering whether the blocking was improper.

Finally, it’s important to point out that one of the misconceptions regarding unblocking applications is the turnaround time it takes for OFAC to issue a license to unblock the funds. Just because parties affected by the block may be desperate to have the funds unblocked, OFAC doesn’t operate on anyone’s timeline but their own. As such, it may take several months before OFAC renders a decision, thus adding more stress to an already stressful situation.

The author of this blog post is Margaret Ververis, an OFAC attorney specializing in sanctions compliance and criminal defense matters. If you have any questions, please contact her at 202-440-2581 or ververis@ferrariassociatespc.com.