Frozen Assets? Here’s What You Need to Know
Frozen assets (or blocked property) refer to funds, real estate, or bank accounts that are subject to restricted access by government authority. Asset freezing typically results from violations of economic sanctions, anti-money laundering (AML) regulations, or national security measures.
These actions are enforced by bodies like the U.S. Office of Foreign Assets Control (OFAC) or the EU Council, under legal frameworks such as the International Emergency Economic Powers Act (IEEPA). Blocking is a critical tool for preventing illegal activities, ensuring compliance with international law, and maintaining financial stability.
Risks: Why You Cannot Ignore Frozen Assets
For both individuals and corporate entities, understanding the legal nuances of blocked assets is crucial. Ignoring sanctions laws can lead to designation on the OFAC SDN List (Specially Designated Nationals).
Consequences include:
- Total Asset Block: Immediate freezing of all US-jurisdiction assets.
- The 50% Rule: Any entity owned 50% or more by a blocked person is automatically blocked.
- Civil & Criminal Liability: Fines can exceed $368,136 per violation or twice the value of the transaction.
- Operational Paralysis: Inability to conduct USD transactions or use SWIFT.
What happens to frozen money, property, and bank accounts under OFAC?
When assets are a subject to being frozen, owners of a subject to frozen assets generally won’t be able continue to manage them. You won’t be able to continue to carry out transactions, withdraw funds, or transfer ownership of frozen assets. The presence of assets as a subject to a freeze generally indicates involvement in illegal activities – for example money laundering, financing terrorism, or failing to comply with sanctions imposed elsewhere.
Most countries adopt laws at the national level in this regard in order to support, defend, prevent, protect, and comply with international obligations. In the European Union, for example, Regulation No. 2580/2001 establishes measures for blocking and freezing assets in support of the fight against terrorism. The United States has passed a law that expands the powers of government agencies to prevent, defend, protect, and combat terrorism financing and money laundering, including asset freezing.
Asset and asset-freezing orders can be temporary or permanent. The duration of either an asset freezing order or a debt order depends on the outcomes of investigations and court decisions. During a freeze, assets may be under the control of government agencies or appointed administrators. In some cases, assets can be confiscated and turned over to the state treasury by court order. This is particularly important and relevant for complex financial structures, for example, where the assets of individuals or a trust wallet are frozen, potentially leading to prolonged legal disputes.
How can OFAC subpoenas, investigations, or violations impact a person’s immigration status?
When assets are blocked (frozen), title to the property remains with the owner, but the exercise of ownership rights is suspended. You cannot transfer, withdraw, export, or withdraw funds.
Why does this happen? A freeze generally indicates a connection to sanctioned regimes, terrorism financing, or narcotics trafficking. However, false positives (mistaken identity) also occur during bank screening.
Global Context:
- European Union: Measures are governed by regulations like Council Regulation (EU) No 269/2014 (territorial integrity of Ukraine) or No 2580/2001 (terrorism).
- United States: The USA PATRIOT Act and IEEPA grant broad powers to intercept assets involved in money laundering or sanctions evasion.
Asset Freezing Orders: Freezing orders can be temporary (pending investigation) or indefinite.
- Blocking: Assets are held in an interest-bearing account; they cannot be moved without a license.
- Forfeiture: In rare criminal cases, assets may be confiscated by the state via a court order (civil or criminal forfeiture). This is particularly complex for trusts and cryptocurrency wallets, where tracing ownership requires forensic accounting.
What common mistakes can lead to receiving a summons?
Failing to comply with laws and regulatory acts is typically the victim or primary victim or reason for receiving and paying an OFAC summons court, or paying a court amount. Common mistakes include:
- Failing to conduct comprehensive due diligence on counterparties. Not thoroughly vetting clients, partners, or counterparties can lead to collaboration with individuals who are under sanctions or involved in illegal activities;
- Violation of anti-money laundering (AML) requirements. Failure to report suspicious transactions that exceed established thresholds, or breaches of internal control procedures, can be considered as non-compliance with AML laws;
- Ignoring sanction lists. Failing to update information on sanction lists, such as the OFAC SDN list or the EU consolidated list, can lead to unintentional violations of sanction regimes;
- Inadequate control over exports and imports. Violating export control laws, including the transfer of dual-use technologies or goods without the appropriate licenses, can lead to serious legal consequences;
- Untrained staff. The lack of training for employees on compliance requirements and regulatory acts increases the risk of errors and violations;
- Failure to comply with reporting and document retention requirements. Non-compliance with documentation standards can complicate the audit process and raise suspicions of information concealment;
- Participation in dubious financial schemes. Engaging in transactions with opaque ownership structures or offshore companies without a clear business purpose can raise suspicions of money laundering or tax evasion.
To protect assets and mitigate risks, it’s recommended to implement effective compliance programs that meet international standards. These programs serve to help ensure adherence to requirements and avoid issues such as third parties being unable to access funds, for example, when access to assets in a particular wallet is frozen.
Regular training for bank staff on sanctions issues helps to increase awareness. This can help reduce and prevent the risk of non-compliance, allowing the bank and you to reduce and avoid asset freezing, and blocking of trust wallet assets, transaction blocks, and more.
Using specialized business tools, for example, software for monitoring transactions and vetting counterparties makes it easier for businesses to comply with regulatory requirements. Consulting with experts—legal and business compliance specialists—can provide businesses with valuable advice on complex issues of international law and regulatory requirements, for example, helping businesses avoid situations where a business’ bank account gets frozen.
Top triggers for OFAC enforcement:
- Poor Due Diligence: Failing to screen the ultimate beneficial owners (UBOs) of a counterparty against the SDN List.
- Ignoring “Sectoral” Sanctions: Violating complex restrictions (SSI List) involving debt or equity of energy/defense sectors.
- Export Control Violations: Shipping dual-use goods (EAR99 vs. controlled) without BIS licenses.
- Inadequate AML Controls: Failing to file Suspicious Activity Reports (SARs) for transactions exceeding $5,000 or $10,000 thresholds.
- “Stripping” Wire Transfers: Removing references to sanctioned countries (e.g., Iran, Syria) from SWIFT messages to bypass bank filters. This is a criminal offense.
Steps to unfreeze assets under OFAC sanctions
Unblocking assets is a formal legal process, not a negotiation. There are two primary paths:
1. Applying for a Specific License If the funds were frozen due to a compliance error or if you need to access funds for authorized purposes (e.g., legal fees, winding down business), you must submit a License Application to OFAC.
Note: Decisions can take months. You must prove the transaction meets US foreign policy goals.
Petition for Removal (Delisting) If a person or entity was wrongly added to the SDN List, they must file a petition under 31 C.F.R. § 501.807. You must provide evidence that the original basis for designation was insufficient, or that circumstances have changed (e.g., you left the sanctioned company).
Warning: This process requires Administrative Reconsideration and is legally complex.
Actions to take if you receive a subpoena
If you receive a Section 602 Administrative Subpoena, it means OFAC is investigating a potential violation.
- Do Not Ignore It: Failure to respond is a separate violation under 31 C.F.R. § 501.602.
- Preserve Documents: Issue a “Litigation Hold” immediately to stop the deletion of emails or logs.
- Analyze the Scope: Determine if the request concerns a blocked transaction or a broader systemic failure.
- Request an Extension: If the deadline is tight, your counsel should negotiate a “Tolling Agreement” to extend the time for response.
- Privilege Review: Ensure you do not accidentally hand over privileged attorney-client communications.
How can a lawyer help with frozen assets?
Our lawyers can assist in the process of freezing assets and unfreezing frozen assets, by providing legal advice and preparing all necessary documents. We also represent clients before the court and relevant sanctioning authorities and can challenge unlawful asset freezes in court. Additionally, an attorney can help file applications for licenses to use the frozen assets. Our legal team offers guidance and support on complying with sanction requirements, helping clients avoid future violations.
FAQ
What are frozen assets under OFAC regulations?
Frozen assets under OFAC regulations are financial funds or property that have been blocked due to sanctions. Such frozen assets cannot be used or transferred without authorization from U.S. authorities. Asset freezes are implemented to prevent illegal activities, including terrorism financing and violations of international sanctions.
How long does it take to unfreeze assets?
The process of an asset freezing order unfreezing frozen assets, for example, can take anywhere from several weeks to several months, depending for example on the complexity of asset freezing order and the situation. It is necessary to present and provide all required documents and information for the purpose of justification and purpose of the request in order to be reviewed. The final decision is made by the sanctioning authorities and may depend on various factors. Sometimes the process can be delayed due for example to the need for additional checks or licenses.
What are frozen assets?
Frozen assets are any financial funds, property, and economic resources to which access is temporarily or indefinitely restricted by the decision of a sanctions authority. These can include bank accounts, securities, real estate, shares in companies, vessels, and vehicles.
Such assets are not confiscated, but they cannot be disposed of without special permission from OFAC or another sanctions authority.
