OFAC Requirements for Blocked Property
Last Friday, the Office of Foreign Assets Control (OFAC) released a noticereminding credit unions and other financial institutions that the annual report of blocked property is due by September 30th. As the annual filing is only one of the multiple OFAC requirements for blocked property, we thought it would be helpful to break down the other steps a credit union must take to meet its regulatory requirements.
In general, OFAC regulations require that credit unions block accounts and other property as well as reject unlicensed trade and financial transactions of certain countries, entities, and individuals. See, FFIEC BSA/AML Examination Manual, pp. 147. Aside from that, you may remember that NAFCU bloggedearlier this year and noted that OFAC takes a risk-based approach to compliance so credit unions will have the flexibility of determining when and how to run transaction names through OFAC lists. So what happens once the credit union identifies property subject to a blocking program?
Place Funds in Interest-Bearing Accounts
Once the credit union has determined that funds need to be blocked, the blocked property must be placed into an interest-bearing account from which only OFAC-authorized debits may be made. See, 31 C.F.R. § 515.205(a). OFAC defines an interest bearing account as "a blocked account earning interest at no less than the maximum rate payable on the shortest time deposit in the domestic bank where the account is held: Provided however, That such an account may include six-month Treasury bills or insured certificates, with a maturity not exceeding six-months, appropriate to the amounts involved." 31 C.F.R. § 515.205(g).
If the phrase "interest-bearing account" raises a red flag for federal credit unions, it is because NCUA’s Truth in Savings rule prohibits federal credit unions from offering interest-bearing deposit (as defined in in the rule) and may instead offer dividend-bearing deposit accounts. See, 12 C.F.R. § 707, Supp. I, cmt. 707.2(i)-1.
OFAC and other Treasury regulations are written in a bank-centric manner, so sometimes the language in these regulations have inadvertent construction issues. As there is no carve-out exception for federal credit unions in the section of the regulation that requires placing blocked funds in interest-bearing accounts, many credit unions have interpreted this requirement to mean a dividend-bearing account. To clarify this requirement, NAFCU contacted OFAC's compliance helpline and they agreed with the interpretation that depositing blocked property into dividend-bearing accounts would meet the requirement. However, it would be great to see this glitch clarified by NCUA or OFAC in actual guidance documents such as the NCUA AIRES Exam Questionnaire, OFAC FAQs, or the FFIEC BSA/AML Examination Manual so that federal credit unions could feel more comfortable relying on this interpretation.
As for whether the credit union has to create individual blocked property accounts or one account for all blocked property, OFAC does not have a preference as long as the credit union maintains an audit trail that allows it to determine specific ownership interest of blocked property. See, OFAC FAQs: Sanctions Compliance, Q.32.
Credit unions are also required to file a report of blocked property within 10 business days from the date that property becomes blocked. The report should detail the blocked property and also include information pertaining to payments or transfers that are rejected by the credit union because of a blocked program. See, 31 C.F.R. § 501.603(b)(1)(ii). In the initial report, the credit union must also certify that the blocked funds have been deposited into a blocked account. See, 12 C.F.R. § 501.603(b)(1)(ii).
To ensure all pertinent and required information is included in the initial report, credit unions can use the form provided by OFAC and electronically transmit it to: firstname.lastname@example.org or mail it to: Office of Foreign Assets Control, Compliance Programs Division, U.S. Treasury Department, 1500 Pennsylvania Avenue NW.—Annex, Washington, DC 20220. Credit unions should be aware that there is a separate form for rejected transactions that follows the requirements of section 501.604.
Finally, OFAC requires that credit unions provide a comprehensive list of all blocked property held as of June 30 of the current year by September 30. See, 31 C.F.R. § 501.603. The term blocked property only applies to property that is blocked pursuant to OFAC regulations and does not include property that has been unblocked by general or specific license even if it has not yet been returned to the owner. This means that if the credit union unblocked property on June 29th and returned this property by July 1st, it should not include information on the unblocked property in its annual report. However, note that the regulation also establishes record keeping requirements for all blocked transactions for a period of 5 years after the date of the transaction. See, 12 C.F.R. § 501.601.
The annual reports must be filed using Form TD F 90-22.50, Annual Report of Blocked Property and the form should be sent to OfacReport@treasury.gov. In case of additional questions, OFAC recently updated its guidance on filling out the annual blocked property report. The guidance is especially helpful for credit unions with 20 or more blocked accounts as it allows for a spreadsheet instead of a PDF or word document to complete part B of the form.
There you have it— next time you get an OFAC hit subject to a blocking order, you hopefully won't have to go through the entire bank-centric regulation to figure out OFAC's requirements.