OFAC Listing: What to Do Next

By Dr. Julius Hagen, Attorney at Law

What has the bank flagged?

A payment fails, access to an account is restricted or a counterparty asks you to explain an OFAC match. This is often how a possible sanctions problem first comes to light. The bank's notice should identify the entry or rule it relies on. A name match, a legally required asset freeze and the bank's own risk decision may each call for a different response.

We start with the notice and the full list entry. Does it name your company, concern a shareholder or refer to someone else with a similar name? The particular list also matters. OFAC maintains lists other than the SDN List, and their restrictions do not all amount to a comprehensive asset freeze.

Is it a genuine match?

OFAC's public Sanctions List Search helps with the comparison. Relevant details include dates of birth, addresses, nationality and registration information as well as names. A close name match does not establish that the person concerned is sanctioned. Identity or registration documents may resolve a false match with the bank.

The absence of a name from the list does not, however, rule out sanctions. Ownership and the rules of the particular programme may also require blocking. A response to the bank should therefore address its specific concern with the relevant evidence. A general statement that you are not on a sanctions list may be insufficient.

When a shareholder is sanctioned

Under the 50 Percent Rule, a company is treated as blocked even without a separate list entry if blocked persons own at least 50 percent in total, directly or indirectly. Interests held by different blocked persons are aggregated. Each level of an ownership chain must be examined; simply multiplying percentages through to the final company can produce the wrong result.

The rule concerns ownership. Control alone, below the ownership threshold, does not automatically make an entity blocked under this rule. It may still matter under other sanctions criteria or where a blocked individual participates in a transaction. We examine shareholder records, ownership agreements and the people who will enter into the proposed contract. Replacing a director alone does not remove an ownership-based restriction.

Blocked funds cannot simply be sent back

Where funds are legally blocked under OFAC sanctions, they remain frozen until their release is permitted. They cannot simply be returned to the sender or moved to a different account. OFAC's explanation of blocking confirms that ownership remains in place, but dealings are prohibited without applicable authorisation.

A rejected transfer or a payment still undergoing internal bank checks is different. Payment messages and bank correspondence help establish which bank holds the funds and the reason it gives. We then assess whether identity documents, an application to release the funds or action against the bank is appropriate. A different currency or payment route does not in itself resolve the legal problem.

Which application is appropriate?

An actual designation can be challenged through administrative reconsideration under 31 CFR § 501.807. The available grounds for designation and evidence against continued listing provide the starting point. Our page on removal from the SDN List addresses the procedure and preparation of the petition.

For a particular payment, an applicable general licence or a specific licence may be relevant. Such authorisation does not remove the designation. An account closure also requires examination of the contract and possible remedies under European law. In defined circumstances, the EU Blocking Regulation may apply.

How we handle the initial response

We examine the listing information and affected transactions, establish the ownership position and handle correspondence with banks or counterparties. Where a deadline is approaching, we discuss which documents can be supplied promptly and whether an extension is needed. Factual statements are checked against the available records before they are sent.

If other companies or business partners are affected, we examine each party's role. Your company's legal position cannot simply be applied to the entire group. Where a non-US counterparty faces sanctions of its own, we assess secondary US sanctions. We coordinate with US counsel where steps in the United States are required.