The US Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued an interim final rule effective June 21, 2019 amending the Reporting, Procedures and Penalties Regulations, 31 CFR Part 501 (the “RPPR Rule”), to add new requirements for reporting blocked or unblocked property and rejected transactions. The new reporting requirements apply to any US person (or person subject to US jurisdiction). Importantly, the rejected transaction reporting requirements, which previously applied to funds transfers rejected by financial institutions, now apply in the context of potentially any business transaction. This change could have significant implications for some companies in terms of compliance responsibilities and the need for related internal controls. The RPPR Rule does not provide much detail on the circumstances that would trigger the new reporting requirements in the context of the enumerated categories of transactions.

OFAC also added certain informational requirements for reports to clarify upfront the details needed to fully identify blocked or unblocked property and rejected transactions, and determine the authority under which they were blocked/unblocked/rejected. In announcing the RPPR Rule, OFAC indicated that in the past, these clarifications could sometimes require multiple time-consuming communications between OFAC and the submitter.

OFAC further clarified that reports of blocked and unblocked property and rejected transactions are subject to the Freedom of Information Act (“FOIA”). Accordingly, such reports generally will be released upon the receipt of a valid FOIA request unless OFAC determines that such information should be withheld in accordance with an applicable FOIA exemption.

Reports on Rejected Transactions

Historically, US financial institutions have been required to submit reports to OFAC of funds transfers they rejected in compliance with US sanctions regulations. Now, any company, not just a financial institution, is required to report any rejected transaction in which processing or engaging in the transaction would violate US sanctions. Rejected “transactions” include those related to wire transfers, trade finance, securities, checks, foreign exchange, and goods or services.

At the moment, it is not clear when and how the reporting requirement would be triggered, depending on the nature of the transaction. For example, in the context of transactions related to goods or services, OFAC has not indicated whether a general business inquiry originating in a sanctioned country, or a proposal from a non-US subsidiary to a US parent company regarding potential business in a sanctioned country would be sufficient to trigger the reporting requirement or, alternatively, whether an identifiable order or specific financial transaction would need to be declined to trigger reporting. Details of information required to be submitted in such reports are set forth in the bullet points below.

Reports on Blocked and Unblocked Property

In addition to expanding the scope of the rejected transaction reporting requirement, OFAC has expanded the information required to be provided in connection with initial and annual reports of blocked property.

OFAC has also added informational requirements for reports on the release of property from blocked status (i.e., unblocked property). These reports are only due when specifically required by OFAC, e.g., when they are made a condition of a general or specific license.

Informational Requirements

The information required in reports of rejected transactions, and blocked and unblocked property is provided below. OFAC indicated in the RPPR Rule that it strongly prefers to receive reports by email or any other official electronic reporting option, as specified on its website.

  • Reports of Rejected Transactions:
    • The name and address of the person that rejected the transaction and a contact from whom additional information may be obtained;
    • a description of the rejected transaction, including certain required identifying information;
    • if applicable, the associated sanctions target(s) whose involvement in the transaction has resulted in the transaction being rejected and its location, if known;
    • the date the transaction was rejected;
    • the actual, or if unknown, estimated value of the property in US Dollars;
    • the legal authority or authorities under which the transaction was rejected; and
    • a copy of any related payment or transfer instructions or other relevant documentation.
  • Initial Reports of Blocked Property (to be submitted on one of two forms, one for financial transactions, and one for tangible/real/other non-financial property):
    • The name and address of the person holding the blocked property and a contact person from whom additional information may be obtained;
    • a description of any transaction associated with the blocking, including certain identifying information;
    • the associated sanctions target(s) whose property is blocked or a reference to the relevant written communication from OFAC if there is no associated target or that target is unknown;
    • a description of the property that is the subject of the blocking and its location;
    • the date the property was blocked;
    • the actual, or if unknown, estimated value of the property in US Dollars;
    • the legal authority or authorities under which the property is blocked and the action taken with respect to the property (e.g., that the property has been deposited into a new or existing blocked, interest-bearing account); and
    • a copy of any payment or transfer instructions or other relevant documentation.
  • Annual Reports of Blocked Property (to be submitted on revised Form TDF 90-22.50):
    • The name and address of the person holding the blocked property and a contact from whom additional information may be obtained;
    • the number of accounts or items reported in the annual report;
    • the associated sanctions target(s) whose property is blocked or a reference to the relevant written communication from OFAC if there is no associated target or that target is unknown;
    • a description of the property that is the subject of the blocking and its location;
    • the date the property was blocked;
    • the actual, or if unknown, estimated value of the property in US Dollars; and
    • the legal authority or authorities under which the property is blocked.
  • Reports of Unblocked Property:
    • The name and address of the person holding the property immediately prior to the property’s release from blocked status and a contact from whom additional information may be obtained;
    • the associated sanctions target(s) whose property had been previously blocked or a reference to the relevant written communication from OFAC if there is no associated target or that target is unknown;
    • a description of the property and its location immediately prior to its release from blocked status, including certain required identifying information;
    • the date the property was unblocked;
    • the actual, or if unknown, estimated value of the property that was released from blocked status in US Dollars;
    • the legal authority or authorities under which the property was unblocked; and
    • when available, a copy of the original blocking report filed with OFAC.

In addition to the reporting requirements, OFAC updated the process for applying for licenses to unblock property. License applications must now be submitted on OFAC’s website or by mail, using Form TD-F 90-22.54.

Although the amendments described above came into effect on June 21, OFAC is soliciting public comment on the RPPR Rule until July 22, 2019.

Author

Callie C. Lefevre is an associate in the Washington, DC office where she is a member of the International Practice Group. Her practice is focused on all aspects of International Trade law, particularly compliance with US export controls, trade and economic sanctions, and US foreign investment restrictions. *Admitted in New York only. Practice limited to matters and proceedings before US courts and federal agencies.

Author

Inessa Owens is an associate in the Washington, D.C. office and member of the Firm’s International Trade practice group. She focuses on outbound trade compliance issues, including compliance with the Export Administration Regulations, anti-boycott rules, and economic sanctions administered by the US Treasury Department’s Office of Foreign Assets Control, including those targeting Cuba, Iran, North Korea, Syria, and Russia. She has worked with clients in diverse industries that include finance, pharmaceuticals, and energy.

Author

Ms. Lis has extensive experience advising companies on US laws relating to exports and reexports of commercial goods and technology, defense trade controls and trade sanctions — including licensing, regulatory interpretations, compliance programs and enforcement matters. She also has advised clients on national security reviews of foreign investment administered by the Committee on Foreign Investment in the United States (CFIUS), including CFIUS-related due diligence, risk assessment, and representation before the CFIUS agencies.