Release of Blocked Funds
If financial organizations identify potential OFAC sanctions violations, they may freeze funds or account for funds released to entities otherwise in non-compliance with sanctions. OFAC Sanctions Programs are directed against individuals and entities engaged in activities that contradict the foreign policy or national security of the USA. Financial organizations are generally required to block such entities’ assets and transfer funds from them to a special frozen account until receiving instructions from OFAC.
Are you faced with asset freezing due to OFAC or sanctions regulations?
Our company is ready to offer comprehensive solutions to protect your interests and unblock funds. The complex US sanctions policy requires a deep understanding of legal norms and competent interaction with regulators and financial organizations — we have the necessary experience and expertise to assist you in this challenging process. Our team can help in preparing appeals to OFAC, clarifying the legality of transactions and the origin of funds, processing special licenses and permits, representing you in legal proceedings where needed, and negotiating with banks, brokers, and government agencies.
When does OFAC block funds?
Financial transactions violating OFAC sanctions are subject to strict control and authorization. If a bank, institution or payment system suspects that the money involved in a transaction is in violation of sanctions, prohibited or connected with individuals from the SDN List, they may temporarily give authorization or freeze the account or funds involved until their full legitimacy and authorization is established.
Let us consider the main reasons for the blocking of funds by OFAC:
- Violation of sanctions. If the transaction is directly or indirectly connected with those located in SDN List persons, it falls under prohibition or special restriction;
- Suspicious operations. Transactions causing doubts (unclear payment purpose, sudden surge of account activity, connection with high-risk regions) may be suspended by the bank until circumstances are clarified. Financial organizations are obliged to check clients according to AML/KYC procedures and respond to discrepancies;
- The absence of the correct license. In case a special license is required for a specific translation or trade operation. OFAC License and it was not received — the money may be blocked until the necessary documentation is provided.
The exact time of blocking the funds released is determined by the complexity of the situation and the degree of suspicion of the bank and the underlying transaction itself. If proof of the operation requires only minor clarifications, the funds can be released and unblocked relatively quickly (from a few days to a couple of weeks).
When it comes to a file for formal review by the OFAC office, the file and procedure can drag on for months, as the regulator and office thoroughly examine the file and all aspects involved, requiring documentation, proof, and explanations from the client.
How does OFAC block funds?
When it comes to international financial and business transactions, the Office of Foreign Assets Control plays a key role in enforcing economic sanctions. If your money or funds have been blocked in a bank account or payment system due to a violation of sanctions, it is important to understand how exactly this blocking of money or funds or violation of sanctions occurs, what further steps need to be taken, and under what conditions access to the money or violation of funds can be restored.
Banks and other financial organizations use automated monitoring systems that compare client data with sanction lists and analyze transactions for proof of compliance with sanctions regulations and any violation of foreign policy OFAC Compliance. Upon detecting a match, violation of sanctions regulations, or other signs of a violation of foreign policy, the institution or employees are required to suspend the transaction from operation and send a request for clarification.
A financial institution transfers money to a blocked account by mistake. In this case, the owner’s release of blocked funds loses the right to manage the assets until the situation is resolved. The institution sends a report to OFAC about the blocking mistake violation, specifying the transaction details involved in the mistake the grounds for the mistake violation, and its suspension.
In the process of review, OFAC may request additional information from the bank and the participants of the operation involved to determine whether the account or underlying transaction itself indeed violates sanctions. At the same time, the review may take from several weeks to several months.
If your assets have been frozen, you need to take the following actions:
- Establish the reason for the blockage: obtain an official notification from the bank stating that the transaction is blocked, clarify the grounds;
- Prepare the necessary documents: gather contracts, invoices, confirmations of the legal origin of funds, and the purpose of payment. The more convincing the evidence, the higher the chances of a positive decision;
- Seek legal assistance: lawyers specializing in sanctions law will help to formulate a comprehensive response for the bank and OFAC, which may expedite the unblocking;
- Consider the issue of a license: if the operation is potentially permissible, a special license may be required. In rare cases, a general license allows banks to independently unblock funds without individual permission.
General License allows certain categories of money and transactions to be legal without an individual request to OFAC. Even with proof of the presence of the money and a General License on file, a bank or financial organization may request additional licenses or confirmations to ensure the complete legality of the money or financial transaction itself.
Filing an Application for Unblocking with OFAC
If a financial organization has frozen funds from your own account or assets in accordance with OFAC, there is a possibility of unblocking them. One possible mechanism for challenging this is applying for unblocking funds released from your bank account under the procedure “31 CFR 501.806,” which is called “Request for Release in the Enforcement Compliance Context.”
After determining the reason for the blockage, analyzing and legally qualifying the case, it is necessary to collect the following documents:
- Copies of contracts, invoices, letters, or receipts confirming the legitimacy of the transaction.
- Documents proving the legality of the source of funds and the absence of connection with the Black List;
In the explanatory letter, provide a detailed description of the transaction and why you consider the blocking to complete the transaction to be unlawful or erroneous. Specify the full transaction, business purposes involved, participants of the transaction, and all important details confirming that the transaction does not violate sanctions.
The application for unblocking under 31 CFR 501.806 must have the following structure:
- Introduction: contact details and essence of Request for Release;
- Main part: clarify the situation with the blocking, describe the circumstances confirming the legitimacy of the operation;
- Attachments: include copies of documents (contracts, letters, bank notifications) as evidence.
After applying, you may receive a request for additional information. It is important to respond promptly and provide all information needed in supplementary materials. Any such mistake, inaccuracy, or mistake may delay the review of the application. Lawyers carefully prepare the document package and ensure the information provided is in compliance with all OFAC requirements. If clarifications or discussions of transaction details are necessary, the solicitors take responsibility for communication with OFAC inspectors, protecting your interests.
In the case of a positive result, OFAC will send an order to the bank account or institution to release the money, funds, or assets. However, if OFAC deems the grounds insufficient, a refusal will be issued with justification that the bank account or institution behind the money or the transaction in violation of sanctions laws.
In case of refusal of general license by the Office of Licenses, one can either file or attempt to submit a request with additional evidence or the Office of Licenses may consider obtaining a special license if the operation does not fall under general exceptions to licenses by the office of licenses.
Providing Evidence for Asset Unblocking
Despite the initial severity of OFAC’s sanction measures, it is possible to unfreeze assets if convincing evidence is provided regarding the correctness of operations or if the company has taken necessary measures to comply with sanction laws and regulations.
To unlock the assets, it is necessary to collect the following evidence:
- Contracts, invoices, and accounts: demonstrate the lawful nature of transactions and the actual recipients of funds;
- Registration certificates: if the company has licenses, executed agreements, and other documentation demonstrating the legitimacy of its activities;
- Financial reports: confirm the legal origin of funds, explain the movement of money, eliminate suspicions of circumventing sanctions;
- AML/KYC compliance: policies and internal control mechanisms confirming that the company has no intention of violating sanctions and that it checks counterparties, reports on conducted customer due diligence (CDD) checks, and employees.
In general, if there are doubts about the business owners, it is necessary to provide the authorities involved with control documents disclosing the ultimate beneficial owners (UBO), shareholders, and members of the business management to exclude any connection of those involved in the business transaction itself with sanctioned individuals or entities involved in the business transaction itself.
Our company attorney and office will help you file, prepare, and file all the necessary materials and arguments, competently interact with OFAC, and minimize the risk of prolonged asset freezing. Contact our attorney for legal support, and we will help you file and achieve a favorable resolution!
Who can apply asset unblocking?
According to 31 CFR § 501.801(b), the following categories of persons may submit a request for unblocking:
- The owner of blocked assets: the true proprietor of funds or property subject to OFAC sanction measures. The owner can be either an individual or a company whose accounts or other assets are frozen due to an alleged violation of sanctions;
- Legal representatives: if the owner cannot or does not wish to communicate with OFAC independently, they have the right to delegate this to their legal representatives. Such representatives may include lawyers, law firms, or other persons holding a power of attorney and specialized knowledge in the field of sanctions legislation.
Lawyers specializing in sanctions law will help the business to correctly compile the complete set of documents on file and formulate convincing arguments for any future interaction with OFAC. Any mistake or incorrect presentation of information provided on file can significantly delay the sanctions process.
What to Include in Unblocking Application OFAC?
When funds or property are blocked under OFAC sanction programs, generally the interested party has the right to apply for the release of blocked funds. However, generally, not everyone knows exactly what release of blocked funds should be released or specified, which documents to attach, and how long this procedure might take to complete.
The introduction of your statement should present your contact details and identify the beneficiary whose assets have been frozen. Additionally, it is important to reference the specific sanctions laws, including the relevant program or section under which the violation or asset blockage occurred.
Provide a detailed overview of the situation: how and why the funds were frozen, in which bank or financial institution the money, bank account, or assets are held, the amount of money or funds covered by sanctions regulations, and the freeze. Attach the transaction history or reasons for owning the money, bank account, or property that ended up under the sanctions list.
It is also necessary to specify the grounds for the authorization for unblocking the transaction. Perhaps the underlying transaction falls under one of the permitted exceptions to authorization or an incorrect authorization operation or authorization code was provided. If changes have occurred since authorization (the company has removed sanctioned individuals from management, a shareholder has changed, a special license has been issued), describe this. Clearly formulate the authorization request: “I request authorization to unblock the assets” and provide a brief summary of arguments in your favor.
Contact OFAC Lawyers
Our team of OFAC attorneys will assist in competently preparing a set of documents: from forming justifications for the legality of the transaction in question, and the origin of funds to drafting applications for obtaining special or other licenses or general licenses if necessary. We conduct a detailed audit of the entire chain of transactions, identifying at which stage an error could have occurred or doubts arose with the financial institution involved. Additionally, we represent clients’ interests in dialogue with banks and the regulator, promptly responding to additional requests, which often proves to be a critical factor in swift unblocking.
The key aspect of the whole foreign assets control policy on foreign assets control is not only to release the foreign assets control but also to keep foreign assets control and prevent repeated blockages of foreign assets control. For this, we help clients implement comprehensive compliance programs. Such a systematic approach significantly reduces risks in the future of foreign asset control.
If you are faced with frozen funds or want to proactively protect your funds and your future financial transactions from sanction risks, contact our front office, bank front office, or OFAC lawyers. We will handle all aspects of your transaction and interaction with the bank, OFAC, and financial institutions involved, ensuring the security and legality of your funds and your future transactions.
