A Bank Blocked Your Wire Under OFAC. Now What?

The notice usually comes from an intermediary bank the client has never dealt with: a payment has been "blocked" under regulations administered by the Office of Foreign Assets Control. Clients often assume the bank will reverse it once the mistake is explained. It will not, because it cannot.

Blocked is not the same as rejected

A rejected payment is refused and generally returned to the sender. A blocked payment is frozen because the bank believes a sanctioned person or entity has an interest in it. The bank places the funds in a blocked account and must report them to OFAC within ten business days (31 C.F.R. § 501.603). From that point, the money can be released only with OFAC's authorization.

Why payments get blocked

Sometimes the reason is real: a counterparty, or someone who owns or controls it, is on a sanctions list, or the transaction touches a sanctioned country or region. Sometimes it is a screening hit on a similar name, an address, a vessel or a bank in the payment chain. Ownership matters more than many businesses realize, because an entity owned 50 percent or more by blocked persons is treated as blocked even if it does not appear on any list.

Asking OFAC to release the funds

If no sanctioned party has an interest in the funds, the remedy is an application to OFAC asking for a license authorizing release. The application succeeds or fails on documentation. OFAC wants to understand the transaction from start to finish: who the parties are, who owns and controls them, what was bought or sold, where the goods went and why the payment was routed the way it was. Contracts, invoices, shipping records, corporate registration documents and ownership charts all belong in the submission, and gaps produce follow-up questions that add months.

Timing is the hard part to tell clients. Review commonly takes months, and there is no deadline OFAC has to meet. A complete, well-organized first submission is the single biggest thing that shortens it.

What not to do while you wait

Do not resend the payment through a different bank or route, and do not change the payment description to get past screening. Both can turn a false positive into a genuine violation. Respond promptly and accurately to any questions from the bank, which may be gathering information for its own report.

Businesses that move money across borders regularly should screen counterparties and their owners before transacting and keep payment details accurate. If a payment has already been blocked, talk to counsel before taking any further step with the bank or the counterparty.