One of the powers granted to the President under the International Emergency Economic Powers Act (IEEPA) is the authority to:
“[B]lock during the pendency of an investigation . . . any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person.”
The President, through the IEEPA, also has national emergency powers to confiscate the property of any person or entity involved in armed hostility with the United States or involved in an attack against the United States. The control of foreign assets is primarily implemented through the sanctions programs administered by the US Department of the Treasury’s Office of Foreign Assets Controls (OFAC).
OFAC administers these sanctions programs through publication of a list of Specially Designated Nationals (SDNs) and Blocked Persons with whom economic transactions are prohibited. Not complying with an OFAC-mandated blocking or freezing of assets can lead to civil and criminal penalties. As a result of the USA PATRIOT Act that amended the IEEPA statute, blockings of property can be mandated during the pendency of an investigation.
A US person or anyone subject to the jurisdiction of the United States is required to block an SDN’s property or interests in property even if the SDN has not been proven guilty of any wrongdoing or had the opportunity to challenge his or her SDN designation. Furthermore, OFAC-mandated blockings are also required when the transaction a U.S. person is engaged in is totally innocent and has nothing to do with the reasons why the SDN was targeted for sanctions in the first place.
When the OFAC refers to “blocked” property, it is essentially referring to frozen assets. Examples of property which may be blocked pursuant to OFAC sanctions include:
- Bank accounts or funds of SDNs or in which a targeted government has an interest;
- Items, supplies, and goods directly or indirectly exported from the United States to a prohibited foreign country or a national thereof;
- Items, supplies, or goods directly or indirectly imported into the United States that are from a prohibited person or of origin from a targeted foreign country; or
- Any assets or property belonging to an SDN or in which a designated foreign government or SDN has an interest that is located in the United States or in U.S.-controlled areas.
Any person, including a financial institution, holding property blocked pursuant to a sanctions program must report. The reporting requirement applies to all persons who are required to block property, not just financial institutions that receive and block payments or transfers. As is stated in 31 C.F.R. § 501.603(a)(1), “[t]his requirement is mandatory and applies to all U.S. persons (or persons subject to U.S. jurisdiction . . . ) who have in their possession or control any property or interests in property blocked pursuant to” a sanctions program requiring blocking.
OFAC Licensing and Compliance
A license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited. There are two types of licenses: general licenses and specific licenses. A general license authorizes a particular type of transaction for a class of persons without the need to apply for a license.
A specific license is a written document issued by OFAC to a particular person or entity, authorizing a particular transaction in response to a written license application.
Persons engaging in transactions pursuant to general or specific licenses must make sure that all conditions of the licenses are strictly observed. If a person fails to abide by the conditions of a license they risk violating the sanctions.
OFAC’s regulations may also contain statements of OFAC’s specific licensing policy with respect to particular types of transactions. These statements of licensing policy serve as notices to the public of particular transactions that are consistent with U.S. foreign policy and national security objectives. Such transactions may have a higher likelihood of licensure by OFAC because the agency has already given them thorough consideration.
Most license applications do not have to be submitted on a particular form. However, it is essential to include in the request all necessary information as required in the application guidelines or the regulations pertaining to the particular embargo program. When applying for a license, provide a detailed description of the proposed transaction, including the names and addresses of any individuals/companies involved.
To improve the likelihood of licensure, it is advisable to reference any statements of licensing policy and include additional legal and policy considerations as to why the agency should authorize the requested transaction. Including a discussion of the purpose and scope of the particular sanctions program may also be advisable.
In order to apply for a specific license to release blocked funds, applicants are encouraged to file an electronic application to have blocked funds released by visiting the following link: http://www.treasury.gov/resource-center/sanctions/Pages/licensing.aspx
You may also submit an application for the release of blocked funds which is available on OFAC’s website under “Forms.” You should print this form, complete the required information, attach payment instructions, and mail it to the address listed above. The form only requests the minimal information necessary for OFAC to consider the application. Therefore, it is advisable to include additional information as to why it is in the best interests of the United States to release the blocked funds.
Depending upon the transaction, there may be specific guidance available on OFAC’s website under relevant “Guidance on Licensing policy” on OFAC’s various sanctions program web pages.
Organizations and entities involved in commerce, trade, or humanitarian efforts in targeted countries or with targeted persons should verify whether or not a transaction is prohibited. They should then determine whether they need to secure a specific license and/or evaluate the applicability of a general license to the intended transaction or activity.
Currently, OFAC-administered sanctions programs involve the following countries:
- The Balkans
- The Ivory Coast/Cote d’Ivoire
- The Central African Republic
- The Congo/Democratic Republic of Congo
- North Korea
- Sierra Leone
- South Sudan
Additionally, sanctions are placed against individuals and entities labeled Specially Designated Nationals as a result of suspected involvement in or support of terrorism, international narcotics trafficking, or the proliferation of weapons of mass destruction.
Financial Institutions and Credit Bureaus
Banks, mortgage lenders, and others entities issuing credit are obligated to perform due diligence in ensuring that those to whom they provide credit are not subject to OFAC sanctions as Specially Designated Nationals or members or supporters of a targeted regime. Failing to check the OFAC’s SDN list before issuing credit or conducting financial transactions can lead to blocked or frozen accounts, the imposition of reporting requirements, and civil and criminal penalties that could include multi-million dollar fines and up to 20 years in prison.