In other words, economic sanctions are administered and enforced under the Treasury Department by the Office of Foreign Assets Control.
Examples include freezing assets belonging to those individuals or entities that violate U.S. laws, or when such acts pose a threat to national security.
Knowing what constitutes blocked assets, how they are identified, and the legal mechanisms for their release is an essential requirement of persons working through U.S. sanctions regulations.
What are Blocked Assets?
Blocked property includes all property and interests in property that U.S. persons are prohibited from transferring, withdrawing or otherwise dealing in because such property is subject to OFAC sanctions. Examples of these assets include bank accounts, real estate, securities, and other financial instruments.
Immediately after designating an individual or organization, OFAC freezes the named entity’s assets that are under US jurisdiction. The blocked funds of OFAC cannot be transferred without a specific license from OFAC. The result is to deny access to the economic resources needed by the sanctioned party to execute unlawful or hostile activities.
OFAC Rule Fifty Percent: What the 50% Rule Means
The OFAC 50 rule expanded blocking to reach entities not explicitly designated by OFAC but owned 50% or more by one or more designated persons or other entities. This rule is intended to help prevent sanctioned persons from avoiding their penalties by shifting the ownership of an organization to subsidiaries or business partners.
For example, if two SDNs each own 25% of an entity, then cumulatively their ownership is at least 50%, and the assets of that entity would also be treated as blocked. U.S. persons must therefore perform adequate due diligence to uncover indirect ownership and hence avoid prohibited transactions.
What type of assets could be frozen?
Blocked assets run the gamut in property type but most often consist of bank accounts of designated persons or entities held in U.S. financial institutions. Once these funds are frozen, they cannot be accessed, transferred, or otherwise used without specific authorization from OFAC.
Equity interests are also blocked: shares in public or private corporations, if they are 50% or more owned by a designated person or entity, are considered to be blocked, including all dividends, voting rights, or other benefits that accrue as a result of ownership. Real estate and tangible property, such as vehicles, art, or inventory, are also blocked if they are within the territory of the United States or related to a sanctioned party.
The OFAC regulations reach not only titleholders but also beneficial ownership, thus casting a wider net of enforcement.
Even less obvious property may be subject to blocking under certain conditions, such as intellectual property rights, contractual claims, and insurance payouts. The major factor is whether a sanctioned party has a direct or indirect interest in the asset.
The wide and constantly expanding range of enforcement raises the importance of compliance in making sure companies or individuals involved in cross-border transactions conduct due diligence to avoid falling prey to OFAC penalties.
How can blocked assets be unblocked?
Applications for licenses from OFAC are usually the route through which blocked assets are unblocked. Petitioners must file a detailed request as to why that asset should be unblocked, often accompanying such requests with documentation showing change of ownership, legal errors, or humanitarian reasons.
Sometimes, the assets cannot be released until the person or organization has gone through a separate petition for delisting process and been removed from the SDN list; that may take some months or more.
The OFAC issues general licenses, allowing certain transactions in certain circumstances. The process requires legal guidance, since applications filed without enough preparation may be subject to delays and even refusals.
Legal Assistance in Working with OFAC
Understanding the OFAC regulations and methods of release for blocked assets is a complex legal issue. Lawyers specializing in sanctions law are able to advise on proper ownership structures, file license applications, and answer questions from OFAC, as well as file requests for delisting when appropriate.
Such blocked OFAC funds fall under rule OFAC 50, in which legal assistance is highly relevant since indirect associations with the overall list of sanctioned individuals can lead to asset freezes.
Timely, strategic legal action by the affected parties is their best chance of recovery over the blocked property in question and access to the key resources being restored to them.
