A Canadian exporter holds funds in a US correspondent account. The account is blocked following a routine OFAC screening alert. Simultaneously, the exporter's bank in Toronto has frozen the same transaction under Canada's autonomous sanctions regime. Two regulators. Two sets of rules. One pool of money that cannot move until both are satisfied.
The release of blocked funds (the process by which a holder of frozen assets applies to the relevant authority for authorisation to unblock or transfer those assets) follows materially different procedural tracks under OFAC and under Canada's sanctions regime administered by Global Affairs Canada (GAC). As of May 2026, the two regimes diverge on application form, evidentiary standard, processing timeline, the availability of general licences, and the consequences of holding obligations. A business operating across the US–Canada corridor must satisfy both authorities independently; satisfying one does not discharge the other.
This analysis maps each point of divergence, identifies the risk flags that most commonly delay or defeat a release application, and explains when cross-border counsel is indispensable.
Which legal instruments govern the release of blocked funds in each regime?
OFAC administers the US blocking programme under the authority of the International Emergency Economic Powers Act (IEEPA) and, for older programmes, the Trading with the Enemy Act (TWEA). Funds are blocked when they are held by, or for the benefit of, a person on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons) or an entity subject to a country-based blocking order. The holder of blocked property – the US bank, broker, or custodian – must report the blocked funds to OFAC and hold them in an interest-bearing account. Release requires either a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) or the benefit of a general licence (a standing authorisation that permits a defined category of transactions without a separate application).
Canada's sanctions regime derives from the Special Economic Measures Act (SEMA), the Justice for Victims of Corrupt Foreign Officials Act, and, for UN-mandated measures, the United Nations Act. GAC is the administering authority. Under the applicable country-specific SEMA regulations, a Canadian person who holds, controls, or deals with the property of a listed person must freeze that property. Unlike OFAC, Canada does not maintain a single consolidated list equivalent to the SDN List; instead, each SEMA order carries its own schedule of designated persons. GAC issues permits under SEMA to authorise dealings that would otherwise be prohibited. The permit is the functional equivalent of an OFAC specific licence, but the statutory gateway, the required showing, and the review timeline differ.
One structural divergence emerges immediately. OFAC's blocking obligation attaches at the moment of attempted transfer – the funds are blocked in the intermediary's hands. SEMA's freezing obligation is broader in concept: it applies to any dealing with the property of a listed person by a person in Canada or a Canadian person anywhere. That extraterritorial reach means a Canadian entity with a foreign subsidiary can face a Canadian freezing obligation even where OFAC has no direct jurisdiction over the transaction. In our cross-border practice, this asymmetry routinely surprises compliance teams who map obligations only at the point of payment.
How does the specific-licence application process differ between OFAC and GAC?
OFAC processes specific-licence applications through its online licensing portal; submissions are in a defined electronic format and must include the applicant's identity, the nature of the blocked property, the regulatory basis for the block, the proposed transaction, and supporting documentation establishing the legal and factual case for a licence. OFAC's published processing target is a significant but variable period; in our experience handling OFAC licensing matters, straightforward unblocking applications for clear humanitarian or legal-fee transactions have resolved within a matter of months, while complex or contested applications have taken considerably longer. OFAC may issue a licence subject to conditions, deny the application, or issue a no-action letter where the property is not in fact blocked.
GAC processes permit applications under SEMA through its Sanctions Bureau. The application must identify the designated person whose property is at issue, describe the dealing sought, and provide a factual and legal justification. There is no published statutory processing deadline equivalent to a regulated turnaround standard. In practice, GAC permit applications have historically taken a variable number of weeks to months, and the process is less transparent than OFAC's in terms of published guidance on processing times and evidentiary expectations. GAC may issue a permit with or without conditions, refuse, or seek further information.
The evidentiary standard is another point of divergence. OFAC's licensing guidance – published in detail for major programmes on the OFAC website – sets out the categories of information typically required and the policy basis on which licences are granted or denied. GAC has published less granular guidance, which places a greater premium on experienced practitioners who can calibrate submissions to current GAC practice rather than published checklists. We regularly advise clients that a well-framed GAC permit application is not simply an OFAC application translated into Canadian administrative form; the two require distinct structuring approaches.
The position above covers the standard case. Your facts – the counterparty, the goods, the route, the regime in play – change the analysis. For an assessment of your exposure under OFAC and Canadian sanctions, contact Calder & Vance at info@caldervance.com.
What role do general licences play, and where does Canada diverge from OFAC?
General licences are one of OFAC's most operationally significant tools for managing blocked-funds situations. OFAC issues general licences for a wide range of transaction categories: payment of legal fees, certain personal remittances, journalistic activities, humanitarian transactions, and wind-down periods following a new designation. A holder of blocked property can often release funds for specific purposes without a specific-licence application, provided the conditions of the relevant general licence are met exactly. Compliance with a general licence requires careful reading; the conditions are precise, the carve-outs are real, and reliance on a general licence that does not in fact cover the transaction is itself a violation.
Canada's equivalent – the ministerial permit – does not function in the same way. There is no standing Canadian general licence that automatically authorises categories of dealings with frozen property in the manner OFAC's general licences operate. Each authorisation under SEMA requires a positive permit decision by GAC, even for categories of activity that OFAC would cover automatically through a published general licence. This structural gap means that a transaction eligible for release under an OFAC general licence still requires active Canadian authorisation if a Canadian nexus exists.
The practical implication is that a cross-border business cannot rely on OFAC general-licence clearance as a proxy for Canadian compliance. In a recent matter, a financial institution operating in both jurisdictions identified that a payment fell within an OFAC general licence for wind-down purposes following a new designation. The Canadian nexus of the transaction required a separate and parallel GAC permit application. The institution held the funds while the Canadian application was pending – the legally required course of action, and one that the OFAC general licence alone could not resolve.
How do the ownership-and-control tests interact across the two regimes?
OFAC applies the 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked) on a mechanical, aggregated basis: if one or more SDN-listed persons own 50 percent or more of an entity in the aggregate, that entity is itself treated as blocked regardless of whether it appears on the SDN List. The test is purely arithmetic. Control, absent a formal control listing, does not independently trigger the rule under OFAC's published guidance.
Canada's approach under SEMA is grounded in the concept of ownership and control – the test for whether a non-listed entity is caught through its relationship to a listed person. SEMA regulations typically extend the freeze to property owned or controlled by a designated person. The control limb is not reducible to a single numeric threshold in the way OFAC's rule is. GAC's approach involves a more qualitative assessment of whether the listed person exercises control, whether directly, indirectly, or through influence over the entity's decision-making. That qualitative element introduces greater uncertainty in borderline cases.
The divergence has practical consequences when an entity sits between the two regimes. Consider an entity that is 40 percent owned by an SDN-listed person. Under OFAC's 50 percent rule, it is not automatically blocked – though OFAC can still take the position that the entity is operating for the benefit of a blocked person, and the blocked person's interest in the entity itself is blocked property. Under SEMA, the 40 percent stake, combined with contractual rights or board representation that amount to control, could be sufficient to extend the Canadian freeze. A compliance review that reaches different conclusions on the same counterparty is not an error; it reflects genuine legal divergence between the two regimes. The stricter prohibition governs for each jurisdiction separately.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com to discuss your position.
What are the reporting and record-keeping obligations for holders of blocked property?
OFAC imposes a mandatory reporting obligation on US persons who hold blocked property. The holder must file an initial report with OFAC within a short statutory window following the blocking, and must file annual reports thereafter for as long as the property remains blocked. OFAC's reporting requirements cover the identity of the blocked person, the nature and value of the blocked property, and the account or custody arrangement. Record-keeping obligations under OFAC require maintenance of relevant records for a period that, under the applicable regulations, extends for a defined number of years; practitioners should verify the current requirement but the standard for US sanctions-related records is well-established in OFAC guidance.
Canada's SEMA framework imposes its own disclosure obligations. A Canadian person who holds, controls, or has in their possession property that is subject to a freeze must disclose that fact to the Commissioner of the Royal Canadian Mounted Police (RCMP) and to GAC's Sanctions Bureau. The disclosure obligation arises on knowledge of the freeze; there is no equivalent of OFAC's defined initial-report window expressed in business days under the published Canadian statutory framework, though the obligation to disclose is immediate in practical terms. Record-keeping obligations exist under SEMA and the applicable regulations, and their scope differs from OFAC's.
Non-compliance with reporting obligations is itself a sanctionable violation in both regimes. An entity that has correctly frozen funds but failed to report faces enforcement exposure separate from any liability for the underlying transaction. In our experience, this reporting dimension is the element of the blocked-funds regime that in-house compliance teams most consistently underestimate – particularly in organisations that first identified the block through payment-system alerts rather than through a formal sanctions compliance programme.
What are the principal risk flags that delay or defeat a release application?
Applications for the release of blocked funds fail most often for predictable, addressable reasons. Understanding them in advance materially improves the prospects of a successful outcome.
The first risk is factual incompleteness. Both OFAC and GAC require a coherent factual narrative: who the designated person is, the nature of the property interest, how the property came to be held, and why the release is warranted. Applications that assert a conclusion without explaining how the facts support it are returned or denied. We have acted for businesses that submitted initial applications that described the transaction in payment-system terms rather than legal terms; resubmission after proper structuring was necessary in each case.
The second risk is jurisdictional overconfidence. A release obtained from OFAC does not bind GAC. A Canadian permit does not discharge OFAC's block. An applicant who presents a successful OFAC licence as evidence that the release is legally uncontested will find that GAC disagrees. The regimes are parallel, not hierarchical.
The third risk is the beneficial-interest question. OFAC and GAC will each assess whether the applicant is the true beneficial holder of the funds or is acting as a nominee for the designated person. Where the ownership chain between the designated person and the blocked property is not clearly documented, the application will draw scrutiny. Applicants should expect questions about the corporate structure, shareholding, and contractual relationships between all parties in the chain.
The fourth risk is timing. Both regimes impose obligations on holders of blocked property from the moment of blocking; delay in seeking release or in reporting can itself create enforcement exposure. Where a re-designation or a new programme order has expanded the scope of the block, the window for a wind-down or grace-period authorisation under OFAC general licences may be short. Acting before that window closes is critical.
A fifth, often overlooked risk is the secondary-sanctions dimension. For transactions that touch a US person or US-dollar clearing, secondary-sanctions exposure under OFAC's programmes can arise for non-US persons even where the primary designation is under a non-OFAC regime. A Canadian business whose transaction has been frozen only under SEMA must still assess whether the US correspondent bank in the payment chain has independent OFAC obligations that will survive any GAC permit.
When should a cross-border business involve specialist sanctions counsel?
Specialist counsel should be involved at the earliest practicable point once a block or freeze is identified. The preparation of a specific-licence application or a SEMA permit application is not a form-filling exercise; it is an exercise in legal and factual advocacy before a regulator with enforcement authority. The framing of the application, the selection of the legal basis, and the management of the regulator's information requests each affect both the outcome and the timeline.
A common myth among compliance teams is that the blocking of funds is a purely operational matter – a payment-system problem to be resolved by the treasury or operations function with standard back-office communications to the regulator. In our cross-border practice, this view consistently underestimates the legal dimension. The decision to block is a legal determination; the application for release is a legal submission; and a refusal has consequences – including potential enforcement action against the holder – that extend well beyond the delayed payment.
Specific indicators that counsel should be engaged immediately include: a block that the compliance team cannot clearly attribute to a specific designation; a discrepancy between OFAC and Canadian conclusions on the same counterparty; a request from the regulator for further information following an initial submission; any indication that the designated person has an interest in or contact with the applicant entity; a new or expanded programme order that affects property already under review; and any transaction that involves a US correspondent bank, a US-dollar clearing leg, or a US-person counterparty where the primary designation is under a non-OFAC programme.
Calder & Vance assists clients to scope the apparent violation, advise on voluntary self-disclosure, assess eligibility, prepare and submit the licence or permit application, and manage the regulator's queries across both the OFAC and Canadian tracks. Where the transaction has a UK or EU dimension, our practice covers those regimes in parallel; a cross-regime release strategy is often more efficient than sequential applications.
Related practices
- Frozen account management under BIS and the EAR – managing blocked and frozen accounts under US export-control authority
- OFAC vs OFSI: Release of blocked funds – comparing the US and UK release procedures for practitioners advising on cross-border transactions
- OFSI vs EU: Release of blocked funds – the divergence between UK and EU licensing routes for frozen assets