On May 10, 2024, the US Department of the Treasury’s Office of Foreign Assets Controls (“OFAC”) issued an interim final rule (“IFR”), effective on August 8, 2024, amending the Reporting, Procedures and Penalties Regulations under 31 CFR 510 (the “Regulations”). The IFR includes revisions and clarifications to certain procedures and reporting requirements related to certain OFAC submissions, including reports of blocked property and rejected transactions.
In particular, the IFR implements the following revisions and clarifications:
- Electronic Filing of Submissions: The IFR requires filers to use the electronic OFAC Reporting System (“ORS”) for submissions to OFAC of initial and annual blocked property reports and rejected transaction reports pursuant to § 501.603(d) and § 501.604(d) respectively, unless the filer can provide evidence of unique and extraordinary circumstances preventing the electronic filing of reports, in which case the filer can submit a request for submission in an alternative manner (such requests would be subject to a presumption of denial). The IFR also removes the mail option and requires electronic submissions via the ORS or by email for OFAC submissions required under the following sections of the Regulations: §§ 501.603 (reports on unblocked or transferred property), 501.605 (reports on litigation, arbitration, and dispute resolution proceedings), 501.804 (rulemaking), 501.805 (rules governing availability of information), 501.806 (procedures for unblocking property believed to have been blocked and reported in error due to mistaken identity or typographical or similar errors), and 501.807 (procedures governing delisting from the Specially Designated Nationals and Blocked Persons List or any other list of sanctioned persons or property maintained by the Office of Foreign Assets Control).
- Reports of Unblocked or Transferred Blocked Property: The IFR adds a reporting requirement under § 501.603(b)(3)(i) for any blocked property that is unblocked or transferred. As noted above, these reports must be submitted electronically via email or the ORS within 10 business days of the unblocking or transfer of the blocked property .
- Clarifications of Rejected Transaction Reports: Under § 501.604, any US Person that rejects a transaction that is not blocked, but where processing or engaging in the transaction would nonetheless violate OFAC regulations, must submit a report to OFAC. In response to public comments received on the June 21, 2019 interim final rule implementing § 501.604, the IFR is clarifying the scope of this reporting requirement:
- securities, checks, foreign exchange, and goods and services, when not provided as part of a transaction, are not considered a “transaction” under § 501.604 and therefore not subject to the reporting requirement;
- the reporting requirement under § 501.604 applies to all US Persons, not just US financial institutions; and
- the report must include the information available to the filer at the time the transaction was rejected.
- Changes in the Procedures for Properties Blocked in Error: The request for release procedures that existed for funds blocked due to mistaken identity under § 501.806 are now extended to any property blocked due to “typographical or similar errors.” OFAC also narrows the procedures such that these requests for release are only available to the person that mistakenly blocked the property, although others may continue to request unblocking of property by submitting license applications to OFAC’s licensing division.
- Reporting of Certain Transactions by Financial Institutions: The IFR adds a note to § 501.602 to state that if OFAC has reason to believe an account or transaction may involve the property or interests in property of a blocked person, OFAC may instruct a financial institution to provide certain information to aid the identification of blocked property, and to report transactions that meet specified criteria and notify OFAC prior to processing such transactions.
- Clarifications to Delisting Procedures: The IFR clarifies that a person may submit a petition for administrative reconsideration to seek removal of a person or property from the List of Specially Designated Nationals and Blocked Persons or other sanctions lists maintained by OFAC.
OFAC is soliciting public comments on this IFR until June 10, 2024. Baker McKenzie would be happy to assist interested companies in preparing and submitting public comments in response to the IFR.
