OFAC Shakes Up Sanction Rules: Here’s What It Means for You!

On May 10, 2024, the Office of Foreign Assets Control (OFAC) issued an interim final rule to amend the Reporting, Procedures and Penalties Regulations of the Sanctions rules, to require electronic filing of certain submissions to OFAC and to describe and modify certain reporting requirements related to blocked property and rejected transactions. Specifically, the rule would require use of the electronic OFAC Reporting System for submission of reports related to blocked property and rejected transactions, remove the mail option for certain other types of OFAC submissions, describe reports OFAC may require from financial institutions for transactions that meet specified criteria, and add a reporting requirement for any blocked property that is unblocked or transferred.

The rule is effective August 8, 2024. Anyone interested in providing comments on the interim rule may do so on or before June 10, 2024.

Background

OFAC mandates that all U.S. persons, including businesses and financial institutions, report any transactions that are rejected or blocked due to sanctions. This includes any dealings that involve sanctioned parties, countries, or regions. The reports must be submitted to OFAC within a certain timeframe, typically 10 business days from the date of the transaction. These reports must include comprehensive details about the parties involved, the nature of the blocked or rejected transaction, and the reasons why it was blocked or rejected.

The Reporting, Procedures, and Penalties Regulations detail guidelines that outline the requirements and processes for compliance with economic and trade sanctions. These regulations are crucial for ensuring that individuals, companies, and financial institutions understand their responsibilities under U.S. law when dealing with sanctioned entities or countries.

In this interim final rule, OFAC is updating nine of the sections of the regulations.

Key Updates

A.    Electronic Filing of Submissions

OFAC Reporting System (ORS) for reports of blocked property and rejected transactions. Currently, many filers use the ORS, on a voluntary basis, to submit to OFAC, initial reports of blocked property, Annual Reports of Blocked Property, and reports of rejected transactions. To improve efficiencies in reporting and reviewing data, beginning on August 8, 2024, OFAC is removing the options for mail submissions and requiring filers to use ORS to submit initial and Annual Reports of Blocked Property and reports of rejected transactions.

Email Submission of Other Reports. For the following reports or submissions, the option for mail or fax submission has been removed.

§ Unblocked or transferred blocked property—OFAC will accept reports via either email or ORS.

§ Documentation and notifications required for litigation, arbitration, and dispute resolution proceedings—Email submissions are required, given the time sensitivity of these reports.

§ Petitions for rulemaking, requests under the Freedom of Information Act (FOIA), requests for authorization to unblock erroneously blocked funds, and petitions to delist a person or property from the Specially Designated Nationals and Blocked Persons List (SDN List)—Email submissions are required.

If a filer can provide evidence of unique and extraordinary circumstances that would not allow the filer to submit reports electronically, such as lack of access to the internet, the filer may request to submit reports in an alternative manner by calling OFAC. The phone number is provided in the interim final rule. Such requests will be subject to a presumption of denial and granted only in writing.

B.    Reports of Unblocked or Transferred Blocked Property

The updates require reports within 10 business days, not only when blocked property is unblocked, but also when it is transferred, for example, by a valid order from a U.S. government agency or U.S. court. Filers must submit these reports electronically, either via email or ORS.

Additionally, the updates expanded the retention requirement for Annual Reports of Blocked Property by extending it to initial reports of blocked property.

C.    Reports of Rejected Transactions

§ Clarifying the definition of transaction.” The updates clarify the scope of the term “transaction” by specifying that the term includes transactions related to securities, checks, or foreign exchange, as well as sales or purchases of goods or services, thereby clarifying that securities, checks, foreign exchange, and goods and services are not in and of themselves transactions, when not provided as part of a transaction.

§Confirmation of the scope of the term U.S. persons.” The updates confirm that the reporting requirement applies to all U.S. persons and persons subject to U.S. jurisdictions (in certain cases), not only U.S. financial institutions.

§Clarifying information that must be reported for rejected transactions. The updates clarify that the information required must be reported only to the extent the information is available to the filer at the time the transaction was rejected.

D.    Compliance Release Requests for Property Blocked Due to Mistaken Identity or Other Similar Errors

The updates revised the procedures for requesting release of funds blocked due to “mistaken identity” to extend to a broader category of any property blocked due to “typographical or similar errors leading to blocking.”

The updates also narrowed the procedures, so they are available only to the person that mistakenly blocked the property. In these cases, the person that mistakenly blocked the property may request a “Compliance Release” from OFAC’s Compliance Division. Others may continue to request unblocking of property through license applications submitted to OFAC’s Licensing Division.

E.     Procedures for Delisting

The updates clarify that persons may submit a petition for administrative reconsideration to remove a person or property from the SDN List or any other list of sanctioned persons maintained by OFAC.

F.     Instruction To Report Certain Transactions

The updates added a note to describe reports OFAC may require financial institutions to provide. Specifically, if OFAC has reason to believe an account or transaction (or class of transactions) may involve the property or interests in property of a blocked person, OFAC may instruct the financial institution to report transactions that meet specified criteria and to notify OFAC prior to processing such transactions. Upon review, OFAC may determine that a reported transaction involves the property or interests in property of a blocked person and may take further action.

Impact

§  The likely filers and recordkeepers affected are financial institutions, business organizations, nonprofit organizations, individuals, and legal representatives.

§  The overall burden of the recordkeeping requirement may likely increase, largely due to the imposition of a broad range of sanctions in response to Russia’s invasion of Ukraine, which has led to increase in related reporting.

§  The new electronic reporting mandate for some reports may impose initial costs on businesses that do not already file such reports electronically.

Key Takeaways

§  Assess overall obligations imposed by the updates and implement necessary changes to processes and procedures to comply with the requirements.

§  Provide training to relevant personnel on the updated requirements.

§  Become familiar with ORS and consider submitting reports using the system in advance of the August 8, 2024, deadline.

§  If interested in submitting comments to OFAC on the interim final rules, submit written comments on or before June 10, 2024.


Jacqueline Maduneme, CEO, Compliance Core

Thought Leadership

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