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:
Julia Bell
Julia leads Deloitte’s Global Export Controls & Sanctions team in London. She has led compliance-enhancing projects for a number of years in a variety of industries, including financial services, consumer products, oil and gas, aerospace & defence, manufacturing and the technology, media and telecommunications industries. She is a specialist in US, EU, UK, French, German and other EU Member State military, dual-use and sanctions regulations. Julia has a thorough understanding of the export control challenges faced by companies involved in international trade activities. More broadly, Julia supports her clients in developing integrated compliance programmes to manage their regulatory compliance requirements (including export controls, ABAC and data privacy), with a focus on lean business requirements to manage regulatory obligations. Julia has also been involved in the development of a number of different technology solutions to manage export compliance requirements, and has supported clients to develop and implement their digital strategies for effective compliance management.
