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.
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.
A simple explanation of the blocking process is that, under economic sanctions regulations, a bank is compelled to freeze specific funds, monetary amounts, or accounts. In this scenario, the bank transfers these funds into an interest-bearing account with distinct characteristics. The most notable feature is that, according to the sanctions regulations, once the funds are deposited into these blocked accounts and subject to the freeze, no one is permitted to access the money unless granted explicit and specific authorization by the Office of Foreign Assets Control.
This situation can create a dilemma because financial institutions may sometimes react excessively to information and impose a block. Once a block is in place, even if the financial institution later acknowledges an error, they lack the authority to release the frozen funds until the Office of Foreign Assets Control grants approval. In certain specific types of blocking cases, a general license may be available for a bank to unfreeze the funds, especially in scenarios where sanctions are being gradually lifted, but this is not the usual course of action.
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.
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.