Blocked Property and Assets

Blocked Property and Assets

Having your property or assets blocked can be a confusing and stressful situation. This article aims to provide an overview of blocked property and assets, reasons they may be blocked, reporting requirements, and potential impacts.

What is Blocked Property?

Blocked property refers to assets or funds that have restrictions placed on them, preventing the owner from freely using, transferring or accessing them. The restrictions are imposed by the Office of Foreign Assets Control (OFAC), which is part of the US Department of Treasury. OFAC has the power to block property and assets of individuals, organizations or countries that are subject to economic sanctions or are deemed a national security threat [3].

When property is blocked, the title remains with the owner but they cannot exercise normal privileges of ownership without authorization from OFAC. The property is effectively “frozen” – no transfers, payments or dealings can occur without a license from OFAC [3].

Reasons Property May be Blocked

There are several reasons OFAC may decide to block property or assets:

• The owner is subject to U.S. sanctions, such as individuals, companies or organizations in countries like Iran, North Korea, Syria.
• The owner is engaged in or supports terrorism, drug trafficking, proliferation of weapons of mass destruction, transnational organized crime.
• The property is tied to blocked persons, for example funds transfers involving a blocked party.
• The property is connected to a prohibited transaction or activity, like exporting restricted goods.

OFAC publishes a list called the Specially Designated Nationals (SDN) list which identifies blocked individuals and companies. If property or assets are connected to anyone on this list, they can be blocked [3].

Reporting Requirements

If you hold blocked property, you must file reports with OFAC:

• Initial Blocking Report – within 10 business days of blocking [4]
• Annual Report – by September 30 each year [2]
• Unblocking Report – within 10 days of release of blocked property [4]

These reports must provide detailed information on the blocked property, including description, location, value, reasons for blocking and any licenses issued [4].

Failure to comply with reporting obligations can result in significant civil penalties from OFAC [1].

Impacts of Blocked Property

Having your property or assets blocked can significantly disrupt normal activities and create many challenges:

• Loss of control – cannot access or use blocked property without OFAC license.
• Financial constraints – blocked funds not available for expenses or transactions.
• Business disruption – blocked inventory, equipment, bank accounts impact operations.
• Contract defaults – may breach contracts if unable to make payments.
• Criminal liability – violating OFAC regulations has severe penalties.
• Reputational damage – stigma of being connected to sanctions or prohibited activities.

Obtaining an OFAC license to release blocked property can be extremely difficult. Licenses are discretionary and releasing property counteracts the intended effects of sanctions. Violating OFAC blocking orders can result in criminal charges, massive fines and imprisonment [3].

Defenses and Challenges

There are limited defenses available if you believe OFAC wrongfully blocked your property:

• Administrative challenges – submit evidence the block was incorrect, should be narrowed or licenses granted.
• Court injunctions – argue 4th Amendment violations or lack of procedural due process.
• Lawsuits – claim OFAC blocking exceeded authority, though courts generally defer to OFAC.

However, courts give OFAC great discretion in asset blocking, so challenging is difficult and often unsuccessful. Obtaining a specific license from OFAC is usually the only way to get blocked property released [3].

Avoiding Blocked Property

Here are some tips to avoid having your property blocked by OFAC:

• Screen all customers, partners, vendors against OFAC SDN list.
• Review all transactions and flows of money/goods for OFAC red flags.
• Know your supply chain and business affiliates to identify hidden risks.
• Implement an OFAC compliance program with training, policies, audits.
• Conduct due diligence on high risk transactions, countries, parties.
• Seek legal counsel if you receive an inquiry from OFAC.

Blocked property causes significant hardship, so prevention is critical. Proactive compliance and risk management reduces chances of assets being frozen [6].

Getting Help

Having your property blocked can be overwhelming. Seek assistance from professionals experienced with OFAC regulations:

• Legal counsel – advise on reporting, licensing, challenges.
• Compliance consultants – assess risks, develop compliance programs.
• Tax advisors – manage tax implications of blocked property [5].

Thorough reporting, developing a strong compliance program, and seeking expert guidance provide the best ways to avoid and manage blocked property situations.