OFAC Updates Sanctions Guidance on Blocked Transactions and Reporting

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) updated 11 frequently asked questions just recently, as part of its ongoing review of sanctions guidance. The changes cover two key areas: blocking and rejecting transactions, and filing reports with OFAC.

The updated guidance helps financial institutions understand what to do when a payment involves a sanctioned party or prohibited activity. Although the terms may sound similar, blocking and rejecting a transaction are different actions.

A financial institution generally must block funds when a blocked person or entity has an interest in the property. The funds must be placed in a segregated, interest-bearing account, and the institution must report the blocked property to OFAC.

A transaction may instead need to be rejected when it is prohibited under a sanctions programme but no blocked person has an interest in the funds. The payment in that case must not be processed to the beneficiary and should be returned to the originator.

OFAC also clarified the difference between a customer asking whether a transaction is permitted and giving an actual payment instruction. For example, asking whether a payment to a restricted destination is allowed does not, by itself, mean a transaction has been initiated. The institution’s obligations depend on the facts and the sanctions rules that apply.

The updated FAQs reiterate that reports on blocked property and rejected transactions generally must be submitted through OFAC’s Reporting System within 10 business days of the relevant action, with supporting documents. Institutions holding blocked property as of June 30 must also submit their annual report by September 30 of the same year.

The update revises existing guidance; it does not, by itself, announce a new sanctions programme or designation.

Implications for compliance teams

Compliance teams should review their sanctions procedures to confirm that staff can distinguish between blocking and rejecting payments. They should also check that potential matches are reviewed carefully, reporting deadlines are tracked, and supporting records are retained.

Payment operations, sanctions screening, and compliance reporting teams should use consistent procedures so that prohibited transactions are handled correctly, and reports are submitted in a timely manner.