A mid-sized trading company receives a wire transfer from a long-standing counterparty. The funds clear the correspondent bank – then stop. The receiving institution reports that the originating party matches a name on OFAC's SDN List (OFAC's list of Specially Designated Nationals and blocked persons). The account is frozen. The trading company has done nothing wrong, yet it cannot access money it is owed for goods already delivered. What happens next, and how long does this take to resolve?
A release of blocked funds under OFAC requires either a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) or a demonstration that the block was made in error. Neither route is automatic. The governing authority is OFAC, operating under IEEPA and the relevant programme regulations. In our experience, matters of this type turn on how quickly and completely the applicant frames the factual record – not on the merits alone.
This case comment walks through an anonymised matter involving blocked funds, the legal questions it raised, the options we considered, and the lessons it produced for businesses in similar positions. It also draws comparisons with the UK and EU positions, where the release mechanism differs in important procedural respects.
The situation: a payment blocked mid-route
A trading company in the logistics sector – call it the Client – received a payment for completed services. The originating party was a corporate entity whose ultimate beneficial owner had been added to the SDN List some months earlier. The Client had not dealt with that individual. It had contracted with an operating company that appeared clean on every screening the Client had run.
The correspondent bank froze the funds and reported the block to OFAC, as required. The Client discovered the freeze not from OFAC but from its bank, which sent a brief notice citing the relevant programme. The Client had a short statutory window in which to act before the matter became more complicated. Its in-house team immediately contacted us.
Three questions arose at the outset. First, were the funds lawfully blocked – that is, did the ownership chain actually bring the originating entity within the 50 percent rule (OFAC's rule treating entities owned 50 percent or more in the aggregate by blocked persons as themselves blocked)? Second, if the block was correct, what authorisation route existed to release the funds to the Client, which was an innocent payee? Third, what were the obligations of the holding institution in the meantime?
Was the block correct? Testing the ownership chain
The first task was to verify whether the originating entity was itself a blocked person or whether it had been caught by attribution through the 50 percent rule. This is not a formality. We have seen matters where the initial block rested on a name-match that did not survive ownership analysis. Resolving this question early can shorten the entire matter considerably.
In this case, the beneficial owner's stake in the originating entity was confirmed above the threshold. The block was lawful. That finding closed one door and opened another: the question was no longer whether the block should stand, but whether an authorisation existed to release the funds to a party that had no connection to the designated individual.
This distinction matters enormously. OFAC's licensing regime is designed, in part, for exactly this situation – a non-sanctioned party holding a legitimate claim against blocked property. The analysis under OFAC differs from the UK position under OFSI, where ownership and control (the UK and EU test for whether a non-listed entity is caught through a listed person) follows a dual test that can produce different results at the margin. Had the Client been dealing with a UK-licensed institution as well, the licensing routes would have needed to be run in parallel.
The OFAC licensing route for releasing blocked funds
OFAC issues specific licences to permit transactions that would otherwise be prohibited, including the release of blocked funds to innocent payees. The application must be submitted directly to OFAC and must set out the facts with precision: the identity of all parties, the basis of the claim, the evidence of the block, and the relief sought.
There is no published processing guarantee. In our cross-border practice, straightforward matters of this type – where the applicant has no SDN connection and the facts are well-documented – tend to move more quickly than contested ownership questions. But the timeline is entirely within OFAC's discretion, and every gap in the factual record creates a query that delays the outcome.
We structured the application around three pillars. First, a clear statement of the Client's position in the transaction – goods supplied, payment owed, no relationship with the blocked owner. Second, a documented ownership analysis showing that the Client itself was not within the 50 percent rule's reach. Third, a certified set of the underlying commercial documents: the contract, the delivery records, the invoice, and the bank's blocking notice.
The application also addressed what the Client intended to do with the funds once released. OFAC's practice in licence applications is to consider how the authorised transaction will be structured to avoid any benefit flowing to the blocked person. In this matter, the funds originated from a sale the Client had made – not an advance or a loan to the blocked entity. That distinction simplified the benefit-flow analysis considerably.
The position above covers the standard case. Your facts – the counterparty, the ownership structure, the goods or services involved, and the programme in play – will change the analysis. For an initial assessment of your options under OFAC, contact Calder & Vance at info@caldervance.com.
Cross-border dimensions: how OFSI and the EU handle blocked assets
A release of blocked funds under OFAC is not the same exercise as a release under OFSI or the EU Council regulations, and businesses operating across jurisdictions need to understand where the mechanisms diverge. In this matter, the Client had subsidiary operations in an EU member state, which meant we had to consider whether the EU position was engaged as well.
Under OFSI, the licensing process also operates on a specific-licence basis. OFSI may issue licences on a range of grounds, including to release funds to a person who has a legitimate claim against blocked property. The evidentiary standard and the form of application differ from OFAC's. Critically, OFSI operates on a ground-by-ground framework: you must identify which statutory licensing ground applies, and the application is assessed against that ground alone. OFAC's process is more discretionary in form, though no less demanding in practice.
The EU Council regulations contain their own licensing mechanism, administered at the member-state level in most programmes. The competent authority varies by member state and by programme. A business holding a claim against EU-frozen assets may need to engage two or three competent authorities simultaneously, depending on where the blocked funds sit and where the parties are established.
The UN Consolidated List adds a further layer. Where a designation flows from a Security Council resolution, the domestic regime that implements it cannot grant a licence that contradicts the UN-level prohibition without engaging the relevant Security Council committee. In this matter, the underlying designation was a US autonomous programme designation rather than a UN-mandated one, which kept the authorisation route cleaner. That is not always the case.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. For a confidential review of a blocked-funds matter across OFAC, OFSI, or the EU, contact us at info@caldervance.com.
Risk flags that complicated this matter – and what to watch for
Several features of this matter created friction that a better-prepared client might have reduced. They are worth recording as practical guidance.
The first risk flag was the absence of beneficial ownership screening at the point of contract. The Client screened the operating company but had not run the screening tool against the full ownership chain. Had the SDN-listed beneficial owner been identified at onboarding, the Client could have sought a licence before the transaction rather than after. Pre-transaction licensing is almost always faster and less disruptive than post-block relief.
The second risk flag was the delay between the blocking notice and legal advice. The Client received the bank's notification and spent several days attempting to resolve the matter directly with the correspondent institution. Correspondent banks have limited ability to assist in this situation: once a block is reported, the institution's obligation is to hold the funds and notify OFAC, not to intervene in the licensing process. Those days were not fatal to the outcome, but they narrowed the window for certain procedural steps.
The third flag was the documentary record. The Client's delivery documentation was complete, but its invoicing records used a slightly different entity name to the contracting party name in the commercial agreement. OFAC's application process requires internal consistency across all documents. We had to obtain certified clarifications from both parties before the application could be submitted cleanly. This is a common problem in supply-chain transactions where operating names and legal names diverge.
A fourth consideration – relevant in this matter though not ultimately determinative – was the treatment of interest accrued on blocked funds during the period of the freeze. The rules on this point vary by programme and institution. We addressed it in the licence application to avoid ambiguity about what the Client was seeking.
When should a business involve counsel in a blocked-funds matter?
The answer is: earlier than most clients do. We regularly advise businesses that have already spent weeks attempting to resolve a blocked-funds position without specialist input. By that point, the factual record is often less clean than it would have been, and some procedural options are no longer available.
Counsel should be involved at the moment a blocking notice is received – or, better, at the moment of any adverse screening hit during counterparty due diligence. The two scenarios call for different responses, but both benefit from early legal analysis of the ownership structure, the programme in play, and the authorisation options that exist.
Do you know which OFAC programme is the source of a block, and whether a general licence or a specific licence application is the appropriate route? That distinction shapes the timeline and the documentation burden materially. In our experience, clients who engage counsel before submitting an application produce a cleaner record and avoid the delays that come from OFAC querying incomplete submissions.
The position is similar before OFSI and the EU competent authorities. The grounds and documentary requirements differ, but the principle is the same: a well-constructed application, submitted promptly, gives the best prospect of a timely outcome. We make no promise of result – OFAC, OFSI, and the EU authorities retain full discretion – but preparation and precision are the variables that counsel can directly improve.
The resolution and what it means for similar businesses
In this matter, OFAC granted a specific licence authorising release of the blocked funds to the Client. The licence was narrowly drawn: it permitted the single transaction necessary to release the identified funds to the Client's account, subject to conditions that ensured no value was transferred to the SDN-listed beneficial owner. The Client received the funds it was owed. The matter concluded without any finding of liability against the Client.
Several lessons apply directly to businesses in comparable positions. First, beneficial ownership screening must reach the full ownership chain, not only the immediate counterparty. Second, when a blocking notice arrives, the first call should be to sanctions counsel, not only to the bank. Third, pre-transaction licensing – where a sanctions exposure is identified before a deal closes – is a materially less disruptive route than post-block relief.
The cross-border dimension also matters. A business operating in the United States, the United Kingdom, and the EU simultaneously may face three separate licensing obligations arising from a single block. Those obligations are not coordinated across regimes. Each authority administers its own list, its own grounds, and its own process. We have acted for clients where the OFAC licence was in place but the EU competent authority had not been engaged, leaving part of the funds still frozen. Managing all three in parallel requires a practitioner who can work across each regime.
Related practices
- Frozen account management and BIS/EAR licensing – managing export-licence requirements alongside blocked-account relief across US regimes.
- Specific licence application – cross-border matter – a practitioner account of a specific-licence application spanning multiple jurisdictions.