Unblocking Frozen Funds or Assets
Our lawyers understand the challenges individuals and businesses face when dealing with frozen funds or assets. Our dedicated legal team specializes in navigating the complexities of asset recovery, working tirelessly to help you unlock your financial resources.
The Office of Foreign Assets Control (OFAC) wields a range of enforcement tools for a crucial purpose. OFAC’s primary mission is to administer economic and trade sanctions in the United States, aimed at thwarting foreign entities with malicious intent from utilizing American resources. In this capacity, the Office’s enforcement actions play a pivotal role in advancing critical national security and foreign policy objectives.
Among the enforcement tools at OFAC’s disposal is its authority to freeze funds and other assets when a blocked or targeted entity holds an interest in such property. This entity could be a foreign nation subject to economic or trade sanctions or a Specially Designated National (SDN). In either scenario, OFAC can swiftly block property and transactions. Subsequently, U.S. parties involved bear the responsibility of demonstrating either (i) the transaction’s compliance with relevant federal laws, rules, or regulations or (ii) their entitlement to have their property unblocked and returned.
How OFAC Freezes Funds and Other Assets for Blocked and Targeted Entities
In most instances, OFAC plays an indirect role in asset freezing. Import/export firms and financial institutions have a legal obligation to scrutinize OFAC’s Specially Designated Nationals and Blocked Persons List and prohibit transactions involving blocked or targeted countries, businesses, and individuals. Once a company or institution blocks a transaction, it is obliged to report the transaction to OFAC within 10 days. At this stage, OFAC does not take possession of the funds or assets in question. Instead, these assets remain under the control of the commercial entity that initiated the blockage until OFAC grants authorization for their release. These assets are only forfeited to the federal government if OFAC (or another federal agency) separately pursues forfeiture proceedings in a federal court.
How funds are blocked
The Office of Foreign Assets Control (OFAC) publishes and regularly updates the Specially Designated Nationals and Blocked Persons List (SDN List). Individuals and organizations included in this list are subject to a complete asset freeze. Banks and financial institutions operating within the jurisdiction of the United States are required to:
- Use “Know Your Customer” (KYC) programs to identify and verify clients for inclusion on sanction lists.
- Immediately freeze funds and assets related to sanctioned individuals or organizations.
- Notify the regulator about blocked assets and attempts to conduct prohibited transactions.
When a match is found between a client or transaction and an entry on the sanctions list, the bank freezes the funds without prior notice. The financial institution is required to notify OFAC of the block within 10 business days. The frozen funds are held in a special account until further instructions from OFAC.
The client cannot use frozen funds or assets. Attempts to circumvent the block may result in additional fines and criminal prosecution.
However, all companies and individuals can protect themselves from OFAC sanctions. To do this, it is necessary to follow these recommendations:
- Development and implementation of internal policies for compliance with sanctions;
- Implementation of software for automated client and transaction verification;
- Legal review of international agreements for sanction risks;
- In the event of asset freezing, proper preparation of licenses and exemptions is essential.
Applying to OFAC for Unblocking of Frozen Funds or Other Assets
Once assets have been frozen, any entity or individual desiring their release must initiate an application for release with OFAC, commonly referred to as obtaining an OFAC license. As per OFAC’s definition, a license is essentially an authorization from OFAC to engage in a transaction that would otherwise be prohibited, such as releasing blocked funds.
OFAC processes these license applications in the order they are received. It’s not uncommon for the processing time to extend to six months or even longer. In the event of a denial of a license application, the applicant may need to go through a reconsideration process, effectively starting over.
Consequently, for companies and individuals seeking to unlock funds or other assets, the accurate completion of the license application is of utmost importance. This is where our legal team can be of assistance.
Firstly, we can assess whether you or your company qualifies for a license. If not, an alternative approach to unblocking may be necessary. We can scrutinize the transaction, the foreign entity or foreign national involved, and the pertinent sanctions to identify the reasons behind the transaction blockage and any challenges you may encounter.
Secondly, if applying for an OFAC license is the appropriate course of action, we can prepare the license application on your behalf. We will ensure that your application is comprehensive, reducing the risk of denial and the need for a reconsideration request. This entails thorough and precise completion of the application itself, along with the attachment of all necessary evidence, such as invoices, bills of lading, and identifying documentation. These are vital for OFAC agents to evaluate your application and release the assets in question.
Thirdly, we can represent your interests in communication with OFAC when necessary. This encompasses not only addressing your license application but also any other related matters. If the transaction in question has the potential to trigger an OFAC investigation or enforcement action, we can assist you in preparing responses to OFAC administrative subpoenas and defending you or your company against allegations of OFAC non-compliance.
Who can submit an application for unblocking to OFAC?
An OFAC asset freeze means that all assets will be frozen, and any financial transactions involving them are prohibited until special permission is obtained from the Commission.
The following categories of individuals can apply for the release of funds:
- Individuals: Private citizens whose funds or assets have been frozen have the right to independently apply for their release. This can include residents of countries under sanctions or citizens of other nations whose assets were frozen as a result of financial transactions going through the US or involving American companies.
- Legal entities: leading businesses in regions include international corporations, non-profit organizations whose activities may be related to humanitarian aid in sanctioned regions, as well as small and medium-sized businesses that may have unintentionally become involved in operations with sanctioned individuals.
- Representatives of companies or legal entities: attorneys and legal advisors acting on behalf of a client under a power of attorney, trust managers, and official company representatives (directors, compliance managers, or other appointed individuals).
In the event of a block, the first step is to identify the reason. To do this, you need to request information from the bank, obtain an official notification, and details about the block. Make sure that the block is not the result of an error or a name coincidence.
Seek assistance from a qualified attorney. An experienced professional can help determine the legality of the block and possible solutions, as well as gather the necessary documentation to file with OFAC.
The final step is to submit a request to OFAC for a license. It might be possible to secure an exemption from the sanctions lists.
Reasons for the Unblocking of Your Funds or Assets
Unblocking frozen funds or assets isn’t merely a matter of submitting a compliant application. It requires the ability to establish a valid reason for unblocking. When our legal team evaluates your situation and prepares your OFAC license application, we will explore all potential grounds for unblocking, including, but not limited to:
1. Demonstrating that the company or financial institution that blocked the transaction or property made an error.
2. Arguing that although the transaction was technically blockable, it should be authorized as it will not jeopardize U.S. national security or foreign policy interests.
3. Showing that property properly blocked in the past should no longer be blocked due to changed circumstances, such as alterations in the counterparty’s management team or OFAC compliance status.
In many cases, identifying and substantiating valid reasons for unblocking property can be a intricate and time-consuming process. It may require a thorough examination of all transaction-related documents and parties’ organizational records. Convincing OFAC to unblock the property necessitates presenting the pertinent information in a compelling manner, demonstrating that either the transaction can proceed or the property should be returned.
These are intricate situations, and identifying available options requires a meticulous assessment of the parties involved, the sanctions in place, the property in question, and the national interests at stake. If you find yourself in need of applying for the unblocking of frozen funds or other assets with OFAC, we encourage you to speak with one of our lawyers in confidence.
