Following a bank’s analysis of a transaction and finding that it violates a sanction, funds may be blocked. Typically, a party attempted the transaction, and one of the institutions involved in the transaction, typically the intermediary bank, examined the transaction information. After undertaking a comprehensive analysis of the transaction, the bank determined that if it were to proceed, there would be an apparent violation of sanctions.
In accordance with the economic sanctions regulations, this may also occur if a party is on the sanctions list or for another purpose. The Office of Foreign Assets Control requires the bank to block these funds.
It can be very frustrating when a bank blocks funds from a transaction or business account due to sanctions violations. Our OFAC-blocked asset attorneys routinely handle unblocking application cases in order to return your funds to you and close the deal.
The economic sanctions regulations require the bank to restrict a particular account, fund, or sum of money. The funds are then deposited into an interest-bearing account with very specific characteristics. In accordance with sanctions regulations, once the funds are placed in the blocked accounts and the funds are blocked, no one is permitted to access the funds, with the possible exception of the bank in very limited circumstances, such as account maintenance. No one may handle these funds without the Office of Foreign Assets Control’s explicit, specific license authorization.
Financial institutions may overreact to a piece of information and block it, which may create a dilemma. Even if the financial institution realizes an error was made after the funds are barred, they lack the authority to unblock them until the Office of Foreign Assets Control grants permission. In very specific types of barring cases, a general license may be available for a bank to unblock the funds, as is common with sanctions regimes or sanctions being gradually lifted. However, this is not typically the case.
Because the bank cannot unblock the funds in all but the rarest of circumstances. The appropriate method for pursuing the unblocking of funds is to submit a request to the Office of Foreign Assets Control.
A barring application is handled similarly to a license application. Simply, the specific license authorization requested is the authorization to release the funds. This similarity indicates that the application is submitted online using the same method and that the Office of Foreign Assets Control receives similar types of information. This information is used by OFAC to determine whether or not the specific transaction warranted the barring of funds.
One of the biggest concerns with having to go through the particular license application procedure for unblocking applications is that it is handled by the licensing officials with all other specific license applications and requests for interpretative assistance. This means that your application is placed in the same queue as other people’s applications requesting to do a certain sort of business. For many customers who have money stopped, the procedure is taking far longer than they would want. It might take up to six months to receive a response from the Office of Foreign Assets Control about whether money can be unblocked. This can happen even if the financial institution that froze the cash made an egregious and evident mistake.
You must follow the same procedure and include all relevant information to establish unambiguously to OFAC that no person involved is subject to sanctions to the degree that funds must be stopped. This frequently necessitates the attorney going over all of the documentation and contracts pertaining to the underlying transaction. Sometimes there is a blocked property interest in one of the subcontractors stated very briefly by name on one of the documents, and the money was barred for this reason.
On other occasions, the funds were frozen not by mistake, but because there was a forbidden property interest somewhere involved. You must also file an unblocking application in these circumstances. However, the legal and policy justifications for unblocking money include that the transaction would not harm US economic, foreign, or national security interests.
Sometimes money is stopped for an appropriate cause that occurred in the past; perhaps the transaction occurred many years ago and much has changed with the companies whose funds were barred from the underlying transaction. The following factors may persuade the licensing officer that things have changed:
These are the sorts of topics you may discuss with your compliance counsel in order to construct a compelling and persuasive story so that the licensing officer understands what happened when the money was stopped and has excellent grounds for granting particular licence authorization to unblock it.
