The United States (U.S.) Office of Foreign Assets Control (OFAC) has imposed a new reporting requirement on U.S. persons for transactions or property “blocked” (property being frozen) or “rejected” (declining of financial transactions or transactions in goods or services), “where processing or engaging in the transaction would nonetheless violate” OFAC sanctions.
This is a significant change in reporting obligations for businesses, as the regulation means that any U.S. person or person subject to U.S. jurisdiction must within 10 days report to OFAC whether a transaction was rejected due to involvement of OFAC sanctioned territories or OFAC’s list of Specially Designated Nationals (SDNs).
The OFAC Reporting, Procedures and Penalties Regulations (31 CFR Part 501) lays out the several new reporting requirements as follows:
- Most significantly, reports on rejected transactions. These apply not only to rejected funds transfers but all rejected transactions. Rejected transactions include transactions related to wire transfers, trade finance, securities, checks, foreign exchange, and goods or services. Information required for submission includes the name and address of the person that rejected the transaction, a description of the rejected transaction, the associated sanctions target(s) whose involvement in the transaction has resulted in the transaction being rejected, and its date and location, amongst others information.
- Initial blocking reports must include information such as a description of any transaction associated with the blocking, the name and address of the person holding the blocked property, and a description of the property that is the subject of the blocking.
- Annual reports of blocked property are to include, amongst other information, the name and address of the person holding the blocked property, the number of accounts or items reported in the annual report, and the associated sanctions target(s) whose property is blocked.
- Reports on property that is unblocked (release of property from blocked status), which are only due when specifically required by OFAC, such as when they are made a condition of a general or specific license.
The expansion of information listed in § 501.603 that is required for submission in reports on blocked property, unblocked property, and rejected transactions, means that:
- Businesses must understand the scope for application of the new obligations, given that the reporting requirement now applies to “any U.S. person” which includes U.S. citizens and entities incorporated or registered in the U.S.
- Screening solutions and processes must ensure transactions are monitored and flagged to account for the new reporting obligations.
- The appropriate information storage and recordkeeping processes are required to ensure the necessary information can be submitted to OFAC within the 10-day reporting requirement.
Key contacts:
Marios Leonidou
Marios is a Senior Manager in Deloitte’s Export Controls and Sanctions team, within Extended Enterprise in London. Marios specialises in helping companies comply with international export control and sanctions regulations, specifically for the UK, EU and US jurisdictions. Marios has a wide range of experience with providing services across a diverse range of companies operating in the aerospace and defence, oil and gas, technology, consumer, and manufacturing industries. Marios has particular experience in: Performing general and topic-specific export controls and sanctions risk assessments and audits that consider both local and US extra-territorial controls Developing and implementing target operating models for large-scale Trade Compliance Programmes to efficiently manage compliance obligations across jurisdictions and leverage automation to create value within organisations Developing fundamental trade compliance policies and procedures for processes ranging from export classification to sanctions screening, license management, logistics inbound and outbound, and recordkeeping, amongst others Developing and delivering export controls and sanctions training for military, dual-use and sanctions regulations, for all target audiences across beginners, intermediates and experts Conducting mass classification exercises for items across jurisdictions, including items containing and using encryption, and supporting clients with liaising with government authorities on classification, licensing and sanctions queries. Across a similar range of industries, Marios has also delivered wider regulatory and strategic risk projects relating to anti-bribery and corruption compliance, and internal auditing. Prior to joining Deloitte, Marios worked in several law firms and in the United Nations Office on Drugs and Crime (UNODC). Within UNODC, Marios worked for the International Narcotics Control Board (INCB), dealing with Member State export and import monitoring and assessing compliance with United Nations international drug treaties. Marios holds a Bachelors Degree with Honours in History from the University of Reading United Kingdom, with First Class Honours.
