What is OFAC blocking?
OFAC blocking is a legal measure in which the assets, funds, or property of an individual or company are frozen in accordance with the sanctions programs administered by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury. This process implies that ownership of the assets remains with the owner, but the ability to exercise any rights concerning this property (sale, transfer, use) is completely suspended. Essentially, the asset becomes inert and inaccessible to the holder until official authorization is granted by the regulator.
What does OFAC blocking mean in simple terms?
For a user encountering this term in a bank statement from a counterparty, the phrase blocked under OFAC often causes confusion with confiscation or seizure. However, the legal nature of this action is different. Blocking does not mean that the U.S. government seizes money or property for its own benefit. The owner’s title formally does not change. Instead of expropriation, the state erects an invisible legal wall around the asset, prohibiting any transactions.
In practice, this means a complete freeze:
- The bank transfers funds to a special isolated account and notifies OFAC.
- It is not allowed to use the money: any operations are prohibited without a special license.
- This applies not only to U.S. citizens but also to any currency payments passing through American correspondent banks.
Who can be subjected to OFAC blocking?
The spectrum of entities whose assets can be frozen is extremely broad and is not limited to only political figures or state corporations. The legal mechanism of freezing applies to individuals, commercial organizations, non-profit funds, as well as maritime and air vessels. Citizenship or country of registration is not a determining factor for protection here.
The key basis for applying blocking sanctions is the subject’s connection to activities that the U.S. government considers a threat to national security or foreign policy. This may include involvement in terrorism, the proliferation of weapons of mass destruction, cyberattacks, drug trafficking, or support for regimes under sanctions. At the same time, the blocking mechanism often affects entirely legal businesses if they are linked through an ownership chain to a sanctioned entity.
Particular attention should be paid to the 50% Rule. According to this rule, any company that is directly or indirectly owned by one or more blocked persons with a cumulative share of 50% or more is also considered blocked. This happens automatically, even if the subsidiary itself does not appear on any public lists. Thus, a business that has formally not violated any laws but has a toxic shareholder structure may be subject to blocking.
How does an OFAC block differ from inclusion in the SDN List?
Understanding the difference between these concepts is critically important for building the correct defense strategy. SDN List (Specially Designated Nationals and Blocked Persons List) is an identification tool, a public registry. Blocking, however, is a legal effect, a consequence of inclusion in this registry or falling under the action of relevant executive orders of the President of the United States.
Inclusion in the SDN List is the primary cause. When an individual is added to this list, all their assets located within U.S. jurisdiction or under the control of U.S. persons are subject to immediate blocking. U.S. citizens and companies are prohibited from conducting any business with such an individual. The very fact of being on the list makes the individual untouchable for the global financial system, as most international banks comply with OFAC requirements to avoid losing access to dollar correspondent accounts.
However, a blockage can occur even without direct inclusion in the SDN List. As mentioned above, property can be blocked based on the 50% rule or within the framework of sectoral sanctions, which impose restrictions on certain types of operations but do not completely block assets (although in some cases the effect may be similar). A temporary transaction blockage is also possible for a compliance check, which may escalate into a full-fledged blocking of funds if suspicions are confirmed. Thus, SDN is a black mark, and blockage is the paralysis of assets, which can result both from this mark and from other, less obvious reasons.
What assets are subject to blocking?
The wording of U.S. legislation is intentionally made as broad as possible to exclude the possibility of transferring assets through complex legal schemes. The term interest in property is interpreted broadly by the regulator. Any tangible and intangible assets are subject to blocking if they are within the reach of American jurisdiction.
The specifics of law enforcement make it possible to identify the main categories of assets that are most frequently subject to freezing under OFAC programs:
- Funds and financial instruments: This includes bank deposits, funds in brokerage accounts, checks, promissory notes, and letters of credit. If a dollar transfer goes through an American correspondent bank (which is inevitable for the USD currency), it can be stopped and blocked at this stage.
- Corporate rights and securities: Shares, bonds, stakes in the authorized capitals of limited liability companies. Blocking makes it impossible to pay dividends, sell a package of shares, or vote at shareholders’ meetings.
- Immovable and movable property: land plots, residential and commercial buildings, yachts, airplanes, cars, and even goods in transit. Any transactions with such property (leasing, insurance, sale) become illegal for American persons.
- Intellectual property and contracts: Patents, trademarks, copyrights, as well as active agreements. Counterparties are obligated to cease fulfilling obligations under contracts if this implies the transfer of economic benefit to a blocked person.
- Digital assets: Cryptocurrency wallets also fall under regulations. OFAC actively includes wallet addresses in the SDN List, which obliges crypto exchanges and operators to block access to the corresponding digital coins.
The regulator proceeds from the principle of total coverage: if the blocked person has any property interest in an asset, that asset must be frozen.
Is an OFAC block temporary?
A common misconception is that a block is a temporary administrative measure that is automatically lifted after a certain period (for example, after a year). In reality, an OFAC block is indefinite. It has no statute of limitations or automatic expiration date.
The legal regime of freezing remains in effect until one of two events occurs. The first is a radical change in the political situation, which leads to the cancellation of the sanctions program itself (for example, the lifting of sanctions from a country). The second is an individual administrative decision by OFAC to remove a person from the SDN list or issue a license to unblock assets. Until these events take place, funds may remain in a blocked account for decades. History knows examples where assets remained frozen for more than 30-40 years (as in the case of sanctions against Cuba or Iran). Therefore, relying on the problem resolving itself over time is legally unfounded.
Is it possible to contest or lift an OFAC block?
The procedure for disputing a blocking (what implies OFAC removal) exists, but it represents a complex administrative-legal process rather than a lawsuit in the classical sense. The owner of the blocked assets has the right to submit a petition to OFAC demanding a review of the decision or removal from the sanctions list.
To successfully lift the blockage, it is necessary to prove the error in identification (if a namesake was blocked) or demonstrate a significant change in circumstances. The latter implies that the individual has eliminated the reasons for which the sanctions were imposed: for example, sold their share in the disputed company, left the board of directors, ceased supplying prohibited goods, or provided evidence of no ties with the regime.
An alternative way is obtaining a Specific License. This document does not lift sanctions from the individual but allows a specific transaction with blocked funds: for example, paying for legal services, settling a debt incurred before the sanctions were imposed, or closing accounts with the withdrawal of the remaining balance to a non-prohibited jurisdiction. Obtaining the license requires thorough justification as to why this transaction does not contradict the foreign policy objectives of the United States.
