Deadline Approaching for Filing 2024 OFAC Annual Report of Blocked Property
The annual September 30 deadline for submitting the Annual Report of Blocked Property (ARBP) to the U.S. Department of Treasury Office of Foreign Assets Control (OFAC) is fast approaching. Under federal regulations, "all U.S. persons (or persons subject to U.S. jurisdiction …), who have in their possession or control any property blocked pursuant to this chapter, including financial institutions," are required to file an ARBP.[1]
In addition to submitting the ARBP by September 30, institutions must report blocked property as well as transactions rejected pursuant to OFAC regulations ("rejected transactions") within 10 business days from the date that property becomes blocked or the transaction is rejected. Rejected transactions are not reported annually like blocked property.[2]
A recent OFAC Interim Final Rule (Rule), published May 10, 2024, and effective August 8, 2024, implements several new requirements for the 2024 ARBP process and rejected transactions reporting.[3]
Annual Report of Blocked Property
All holders of "blocked property"[4] must file with OFAC by September 30 of each year a comprehensive report of all blocked property held as of June 30 of the reporting year.[5] The mandatory annual report form generally must be submitted through the OFAC Reporting System (ORS),[6] and requires entities submitting ARBPs to provide information regarding, among other things, the ownership, geographic location, value, and asset classification of the blocked property. Institutions may also review additional guidance and instructions published by OFAC on the Treasury Department's website.
Note that no ARBP need be filed:
- If an entity is not holding blocked property;
- Regarding property that has been unblocked by a general or specific license (even if the property has not yet been returned);[7]
- Regarding property that was blocked pursuant to a now-terminated sanctions program; or
- If the only property at issue is a certain type of Iranian account, which is restricted but not blocked.[8]
Pursuant to 2019 rule changes,[9] entities submitting ARBPs are required to:
- "[P]rovide a disaggregated list showing each blocked asset record contained within [omnibus] accounts" if they maintain blocked funds in such accounts; and
- "[R]eport the associated sanctions target(s) whose property is blocked, such as a Specially Designated National or other blocked person." Where the sanctions target is not evident, entities must "include a narrative description of the interest(s) of the target(s) in the transaction."[10]
An entity's failure to timely submit an ARBP constitutes a violation of 31 C.F.R. Part 501 and may subject the entity to substantial civil[11] and, at least in theory, criminal penalties.
Rejected Transaction Reports
In addition to the requirement to submit an ARBP, OFAC rules[12] also require the ongoing submission of rejected transaction reports within 10 business days of a rejected transaction.[13] Like ARBPs, rejected transaction reporting must be filed via ORS.[14]
The Rule revised and clarified the following rejected transaction reporting items:
- A "transaction," for purposes of rejected transaction reporting, "includes wire transfers, trade finance, transactions related to securities, checks, or foreign exchange, and sales or purchases of goods or services." The Rule clarified that securities, checks, foreign exchange, and goods and services "are not in and of themselves transactions, when not provided as part of a transaction."
- "U.S. persons" subject to rejected transaction reporting include all U.S. persons and not just U.S. financial institutions.
- Rejected transaction reports need only include the information available to the filer at the time the transaction was rejected. OFAC recognized that it would be burdensome and sometimes impractical for filers to seek out additional information about transactions that they have already rejected.
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Please let us know if you have any questions or need assistance in completing or submitting the Annual Report of Blocked Property or the rejected transac[1] 31 C.F.R. § 501.603(a)(1).
[2] 31 C.F.R. § 501.604.
[3] The Rule implements several new requirements not discussed in this article, including requirements related to "Compliance Release" requests for property blocked due to mistaken identity or other errors, the availability of information under FOIA, procedures for delisting entities from the Specially Designated Nationals (SDN) List administered by OFAC, and the reporting of certain transactions to aid in the identification of blocked property.
[4] Blocked property includes property blocked under OFAC sanctions programs and the SDN List. See 31 C.F.R. § 501.603(b)(2)(ii)(G). Financial institutions and shippers must review the SDN List to prevent the flow of funds or goods to or from a sanctioned nation, region, entity, or individual. When the property is blocked, the assets become frozen and are held by the financial institution or shipper. OFAC guidance explains that while title to blocked property remains with the targeted entity, the exercise of ownership rights over blocked property is prohibited without OFAC authorization.
[5] 31 C.F.R. § 501.603(b)(2).
[6] While ORS has been usable for many years on a voluntary basis, the Rule mandates its use as of August 8, 2024 (unless a submitter requests to submit reports in an alternative manner due to unique or extraordinary circumstances, such as lack of access to the internet, and OFAC grants the request). Because registration is required to access ORS, filers who have not yet registered should do so in advance of the September 30 deadline to ensure timely filing of their ARBP.
[7] Note, however, that the unblocking of property may require the submission of additional reports outside of the ARBP context. These reports "shall be submitted to OFAC within 10 business days from the date blocked property is unblocked or transferred." See 31 C.F.R. § 501.603(b)(3) and the Rule for more requirements applicable to the reporting of unblocked property.
[8] See 31 C.F.R. § 560.517.
[9] See 84 Fed. Reg. 29055 (Jun. 21, 2019).
[11] Failure to timely report blocked assets may result in a civil penalty of up to $3,550 if the report is filed within the first 30 days after the report is due, a penalty of up to $7,104 if filed more than 30 days after the report is due, and may include an additional $1,422 for every 30 days that the report is overdue, up to five years. 31 CFR Appendix A to Part 501 IV.B.
[12] 31 C.F.R. § 501.604.
[13] OFAC FAQ 36 distinguishes rejected transactions from blocked transactions as follows: "In some cases, an underlying transaction may be prohibited, but there is no blockable interest (i.e., that of a Specially Designated National (SDN) or blocked person or government) in the transaction. In these cases, the transaction is simply rejected, or not processed and returned to the originator."
[14] See Footnote 6.