Funds can be blocked following a bank’s analysis of a transaction and finding it in violation of a sanction. Generally, the transaction was attempted by a party and one of the banks involved in the transaction, usually the intermediary bank, reviewed the information about the transaction. After conducting a thorough analysis of the transaction, the bank concluded that there would be an apparent sanctions violation if that transaction were to go through.
This may also occur if a party involved is on the sanctions list or for some other reason under the economic sanctions regulations. The bank is obligated by the Office of Foreign Assets Control to block these funds.
It can be very frustrating when funds from a transaction or business account are blocked by a bank due to sanction violation issues. Our OFAC blocked asset attorneys frequently deal with unblocking application cases in order to release your funds back to you and complete the transaction.
How Funds are Blocked
A simple explanation of what occurs with blocking is that the bank is forced by the economic sanctions regulations to block a certain fund, amounts of money, or account. At that point, they take those funds and put them in an interest bearing account with very particular properties. The most unique of these properties is that under the sanctions regulations, once the funds are put into the blocked accounts and the funds are blocked, no one is allowed to touch the money except for perhaps the bank under very limited circumstances such maintenance of the account. No one is allowed to touch these funds without the explicit specific license authorization from the Office of Foreign Assets Control.
This may cause a bit of a conundrum because financial institutions may overreact to a piece of information and block it. Once it is blocked, even if the financial institution realizes a mistake was made, they do not have the power to unblock those funds until the Office of Foreign Assets Control gives authorization. In very specific types of blocking cases, there may be a general license available for a bank to unblock the funds, common with sanctions regimes or sanctions being lifted in an incremental way, however, this is not commonly the case.
Release of the Funds
Because the bank cannot unblock the money, except in very limited circumstances. The proper way to pursue an unblocking of funds is to file an unblocking application with the Office of Foreign Assets Control.
An unblocking application is treated very similarly to a specific license application. It is just that the specific license authorization requested is the authorization to unblock the funds. This similarity means the application is submitted via the same process online and the type of information provided to the Office of Foreign Assets Control is also similar. This information is used for OFAC to determine whether or not it was an appropriate blocking of funds based on the specific transaction.
One of the main issues with having to go through the specific license application process for unblocking application is that it is handled along with all other specific license applications and requests for interpretive guidance by the licensing officers. This means that your application is put into the same queue as other individuals’ applications who are asking to do a certain type of business. For many people with money blocked, the timeline for the process is much longer than they would like. Sometimes the process can take as long as six months to hear back from the Office of Foreign Assets Control with an answer as to whether money can be unblocked. This can occur even when there was an egregious and obvious error on the part of the financial institution that blocked the funds.
You must go through the same process and include all information available to demonstrate definitively to OFAC that there is no party involved that is subject to sanctions to the extent that the money needs to be blocked. This often requires the attorney to go through all of the documents and contracts regarding the underlying transaction. Sometimes there may be a blocked property interest on one of the subcontractors listed very briefly by name on one of the documents, and it was for this reason that the money was blocked.
Other times the money was blocked not because of a mistake but because there was a prohibited property interest somewhere that was involved. In these cases, you also file an unblocking application. However, the legal and policy arguments for the unblocking of money is that the transaction will not hurt the United States economic policy, foreign policy, or national security interest.
Sometimes the money is blocked for an appropriate reason that took place in the past, perhaps it has been many years since the transaction occurred and much has changed with the entities whose funds had been blocked from the underlying transaction. Things that may influence the licensing officer that things have evolved include:
- changes to management or their employees;
- proper remedial actions taken to ensure there are no sanctions violations in the future
- or institution of a compliance program.
These are the types of things you can consider with your compliance counsel to write a compelling and persuasive narrative so the licensing officer can understand what occurred when the money was blocked and also have good reasons for wanting to provide specific license authorization to unblock it.