On May 8, 2024, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued an interim final rule amending the Reporting, Procedures, and Penalties Regulations (the “Regulations”) under 31 C.F.R. 501 that was published in the Federal Register on May 10, 2024 (89 Fed. Reg. 40372) (“the Rule”). The amended Regulations require electronic filing of certain submissions to OFAC via the OFAC Reporting System (“ORS”) and describe and modify certain reporting requirements related to blocked property and rejected transactions. The Rule is effective August 8, 2024.
The Regulations enumerate a number of reporting and recordkeeping requirements, license application procedures, and other procedures relevant to OFAC’s economic sanctions programs. The Rule updates nine sections of the Regulations. We outline the impact of these changes below.
Electronic Filing of Submissions
As of August 8, 2024, OFAC will require use of ORS to submit initial reports of blocked property and Annual Reports of Blocked Property (pursuant to § 501.603(d)) and reports of rejected transactions (pursuant to § 501.604(d)). Filers with unique or extraordinary circumstances preventing them from making electronic filings may call OFAC to request permission to submit reports by alternative means (subject to a presumption of denial). Information on how to register for ORS is available on OFAC’s website.
The Rule also removes options for mail submissions of the following types of reports:
- § 501.603 – Reports on Unblocked or Transferred Property
- § 501.605(a) – Reports on Litigation, Arbitration, and Dispute Resolution Proceedings
- § 501.804 – Rulemaking
- § 501.805 – Rules Governing Availability of Information
- § 501.806 – Procedures for Unblocking property Believed to Have Been Blocked in Error
- § 501.807 – Procedures Governing Delisting from the Specially Designated Nationals and Blocked Persons List (“SDN List”) or Other OFAC Lists of Sanctioned Persons or Property
OFAC made these amendments to increase efficiency in receiving and processing reports and requests.
Reports of Unblocked or Transferred Blocked Property
Historically, OFAC only required reports related to “unblocking” of property at the specific request of OFAC under § 501.603(b)(3)(i). The Rule imposes a new reporting requirement for any blocked property that is unblocked or transferred pursuant to a general license, specific license, or via other means. Reports of unblocked or transferred property must be made within ten business days via ORS or email from the date of unblocking. For example, in the instance where a company receives an OFAC license when a bank erroneously blocked a payment related to the sale of medicine to Russia under the general license, the U.S. financial institution would be required to file a report at the time the funds are unblocked. This reporting requirement also covers property that is unblocked pursuant to an order issued by a U.S. government agency or court. Additionally, OFAC extended the retention requirement for Annual Reports of Blocked Property to initial reports of blocked property.
Reports of Rejected Transactions
OFAC clarified a number of requirements for reports relating to rejected transactions where a transaction is not blocked, but where processing or engaging in said transaction would still violate OFAC’s regulations. OFAC clarified that (1) securities, checks, foreign exchange, and the sales or purchases of goods or services are not considered a “transaction” under the Regulations and not subject to the reporting requirement where they are not provided as part of the rejected transaction; (2) the reporting requirement under the section applies to all U.S. Persons, including companies as well as financial institutions; and (3) the information required in the report is limited to information the filer had available at the time the transaction was rejected.
Compliance Release Requests for Property Blocked Due to Mistaken Identity or Other Similar Errors
The procedures for requesting the release of funds blocked due to mistaken identity (i.e., where a party has the same or a similar name as an SDN but is not actually designated themselves) under § 501.806 have been expanded to include property blocked due to “any typographical or similar errors leading to blocking.” At the same time, OFAC has narrowed these procedures to make them available only to the person that mistakenly blocked the property Others will have to continue to request unblocking through license applications.
Instructions to Report Certain Transactions
Under OFAC’s note to § 501.602, financial institutions may be required to provide reports on accounts or transactions that OFAC has reason to believe may involve the property or interests in property of a blocked person in order to aid OFAC in identifying blocked property. OFAC may issue instructions to financial institutions that provides information or criteria regarding the blocked property and require financial institutions to notify them prior to processing such transactions.
Next Steps
Interested parties should submit comments on the Rule by June 10. Companies that file initial reports of blocked property, Annual Reports of Blocked Property, and reports of rejected transactions should consider registering with ORS well in advance of the August 8, 2024 deadline to increase their familiarity with the system in anticipation of the Rule entering into force that day.
Hogan Lovells has extensive experience with submission of reports to OFAC (including reports related to blocked property and rejected transactions), and is familiar with the requirements and format of ORS. For further information, please contact any of the Hogan Lovells lawyers listed below.
Authored by Aleksandar Dukic, Beth Peters, Ashley Roberts, Julia Diaz, Deborah Wei, and Josh LaFianza.
