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OFAC... Sanction screening Blocking v. Rejecting

The significant change in the regulations draws on the pre-existing distinction between transactions that are "blocked," as opposed to transactions that are "rejected." The more significant changes in the new regulations relate to rejecting, as opposed to blocking. When a transaction is blocked, it means that the property at issue must be frozen and held in place, e.g., the bank must hold onto the funds at issue until instructed otherwise by Office of Foreign Assets Control - OFAC. By contrast, when a transaction or transfer is "rejected," it is not held in place but is essentially returned to sender.

Some prohibited transactions must be blocked, while others need only be rejected. Property must be "blocked" when the transaction involves an entity that has been added to OFAC's list of Specially Designated Nationals (SDNs). But OFAC has many restrictions that do not involve SDNs. For example, transactions with Iranian businesses are almost uniformly prohibited, but not all Iranian businesses are SDNs. A bank processing a wire transfer to an Iranian business that is not on the SDN list must reject the transaction but it is not required to block the transaction.

The new regulations expand the reporting requirement both for blocking and rejecting, but significantly more in cases involving rejecting. Whereas in the past, OFAC reporting requirements had always been the most stringent in the context of blocking, the requirements have now become more stringent in context of rejecting. The amendments in the blocking context include a revision that specifies the specific types of information submitters must include in initial blocking reports, annual reports on blocked property, and reports on property that is unblocked.

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