A financial institution holds funds in an account that OFAC has ordered blocked. The account-holder is pressing for release. The compliance team is unsure whether a general licence covers the transaction, whether a specific licence application is viable, or whether the block must simply stand. Getting this wrong – in either direction – carries material consequences.
Release of blocked funds under OFAC requires either a statutory authorisation, an applicable general licence (a standing authorisation permitting a defined category of transactions without a separate application), or a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) granted by OFAC on the merits of the individual case. As of June 2026, no blocked property may be released, transferred, or otherwise dealt with absent one of those three pathways. The consequence of an unlicensed release is a civil – and potentially criminal – enforcement action against the entity that released the funds.
This briefing explains the governing authority, the conditions for blocking, the three release pathways, how the US position compares with the UK and EU, the practical risk flags, and when to involve sanctions counsel.
Who administers the blocking of funds – and under what authority?
The Office of Foreign Assets Control (OFAC) administers the US economic-sanctions programmes under powers principally drawn from the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). When OFAC designates a person or entity – placing them on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons) – any property in which that person has an interest, and that is within US jurisdiction or in the possession or control of a US person, must be blocked immediately.
Blocking is not discretionary. The duty falls on the person holding the asset at the moment the designation takes effect. For a bank, that means the account is frozen the instant the relevant sanctions programme attaches. There is no grace period for ordinary releases, transfers, or withdrawals. The legal instrument creating the obligation is the underlying programme regulations, which implement each executive order; the mechanism is OFAC's regulatory and enforcement power to impose civil penalties and to refer matters for criminal prosecution.
What property is caught? The rule extends to any property or property interest – cash balances, securities positions, trade-finance instruments, letters of credit, and even unpresented cheques. The test is whether the SDN or a 50 percent rule (OFAC's rule treating entities owned 50 percent or more by blocked persons as themselves blocked, in the aggregate directly or indirectly) entity has any cognisable interest in the property. A deposit held in a joint account is caught if one co-holder is a blocked person, even if the funds originated entirely from the non-blocked party.
What conditions must be met before blocked funds can be released?
Before any release, three threshold questions must be answered affirmatively: first, is a valid general licence on point; second, if not, has OFAC issued a specific licence on this transaction; and third, is there a change in the legal status of the blocking trigger that OFAC has formally acknowledged?
The first pathway – general licences – covers a defined range of transactions that OFAC has pre-authorised across an entire programme. Common categories include payments for legal services, certain emergency medical payments, and transactions authorised to wind down pre-designation contracts. A general licence is self-executing: if the transaction fits its terms precisely, no application is required. But the terms must be read strictly. We regularly advise clients who assume that a general licence covers their situation when, in fact, a single fact – the nature of the counterparty, the destination of the funds, or the type of payment – places the transaction outside the licence's scope.
The second pathway – specific licences – is the primary route where no general licence applies. The applicant must demonstrate to OFAC that granting the release serves US policy interests, or falls within an established licensing policy for that programme. OFAC's licensing division reviews the application, may seek additional documentation, and issues (or denies) a licence at its discretion. OFAC is not required to give reasons for a denial, though in practice a well-structured application accompanied by a clear statement of the legal basis for the request tends to receive a more substantive response.
The third pathway – change in legal status – arises when the designation itself is revoked (through a delisting), when the underlying executive order is terminated, or when Congress removes the statutory basis. In those circumstances, OFAC issues guidance on how blocked property should be treated going forward. The guidance is binding; self-help release on the assumption that a delisting is imminent is not permitted.
How does a specific-licence application for release actually work?
A specific-licence application proceeds through OFAC's online licensing portal, accompanied by a memorandum of law and supporting factual documentation. The memorandum identifies the relevant programme, explains why no general licence applies, sets out the factual basis for the request, and maps the transaction onto OFAC's published licensing policies for the programme in question.
OFAC's published processing timelines are indicative rather than binding. In our experience, straightforward applications for humanitarian or legal-services payments tend to move more quickly than complex commercial releases involving multiple parties, layered ownership structures, or goods with dual-use characteristics. Applications that are incomplete at submission reset the clock; the most common cause of delay is inadequate documentation of the ownership chain behind the blocked funds.
What documentation does OFAC typically require? At minimum: identification of all parties with an interest in the funds; the source of the funds and the transaction history; corporate structure charts showing ownership back to the listed person; and the proposed disposition of the released funds, including the identity of the ultimate beneficiary. Where the funds have been commingled with non-blocked property, a forensic account of the commingling is expected.
After submission, OFAC may issue a "return without action" if the application is inadequate, a denial if it does not meet the licensing standard, or a licence with conditions. Conditions frequently require the licensee to file post-release reports with OFAC confirming that the funds were applied in accordance with the licence terms. Non-compliance with a licence condition is itself a sanctions violation.
For matters involving a specific-licence application in parallel with a delisting petition, the two proceedings are managed separately by different OFAC teams, but a favourable licensing determination does not substitute for a delisting and vice versa. Practitioners should plan both tracks independently. Our practice frequently manages them in parallel, since the evidentiary record assembled for one often serves the other.
For a detailed examination of the specific-licence process, see our briefing on specific-licence applications under OFAC, which sets out the procedural steps in full, and the companion analysis at OFAC specific-licence applications: advanced issues.
How does the OFAC position compare with the UK OFSI and EU approaches?
The cross-regime comparison matters because a blocked account at a dual-jurisdiction bank – operating under both US and UK or EU authority – may carry simultaneous obligations under OFAC and OFSI or the relevant EU Council regulation, and those obligations do not always align.
Under the UK regime, OFSI (the Office of Financial Sanctions Implementation) administers financial-sanctions blocking. OFSI's licensing regime is structured around similar categories to OFAC's, but the statutory basis is the Sanctions and Anti-Money Laundering Act (SAMLA) and the relevant thematic regulations made under it. A key divergence is the ownership-and-control test. Where OFAC applies the mechanical 50 percent rule, OFSI – and the EU – apply an ownership and control test (the UK and EU test for whether a non-listed entity is caught through a listed person), which can capture entities where a listed person exercises effective control at a level below 50 percent. This means a structure that is unblocked under OFAC may be caught under OFSI or EU rules.
Under the EU regime, blocking obligations flow from the relevant Council Regulation, and the licensing authority is ordinarily the competent national authority of the Member State where the asset is held. There is no single EU "OFAC equivalent"; a licence granted by one national authority does not automatically authorise a release in another Member State if the same funds are held across jurisdictions. This creates a practical coordination problem that a single US-only OFAC analysis will miss entirely.
A further divergence concerns the treatment of prior obligations. Both OFSI and the EU regulations contain provisions addressing contractual obligations that pre-dated the designation. OFAC's approach to "pre-existing contracts" is managed through general licences and the specific-licence process, but the substantive scope of what is permitted differs between regimes. Where a party is seeking release of funds held under a trade-finance instrument that spans jurisdictions, the strictest prohibition across all applicable regimes governs the transaction in practice.
For businesses managing frozen-account issues that touch both US and non-US regimes, a co-ordinated approach that maps each regime's blocking trigger, release pathway, and licence conditions simultaneously is essential. Our frozen-account management service addresses exactly this multi-regime coordination challenge.
What are the principal risk flags practitioners encounter?
Unlicensed releases and erroneous blockings are the two poles of enforcement risk, and both arise in practice with striking regularity. The more common error is a bank that releases funds – often on the basis of a misread general licence, an expired licence, or an informal instruction from legal counsel that was never verified against OFAC's published guidance – without having confirmed that an authorisation exists. OFAC's civil-penalty structure is transaction-based; each unlicensed release is a separate apparent violation.
The second common error runs the other way. A firm over-blocks: it freezes assets that are not in fact subject to the sanctions programme because it has misidentified the account-holder, applied a false positive from a name-screening tool, or incorrectly applied the 50 percent rule to a structure where the blocked person's interest falls below the threshold. Over-blocking exposes the holding institution to liability from the account-holder. It also produces a compliance record that, if OFAC later reviews the institution, can reveal systemic screening failures.
A third risk flag is the management of proceeds accruing on blocked property. Interest, dividends, and distributions that accrue on blocked property are themselves blocked. They must be credited to a segregated blocked account, not co-mingled with unblocked funds, and reported in the annual blocked-property report that OFAC requires. Failure to maintain segregation is treated as a dealing in blocked property.
Record-keeping is a further discipline. OFAC regulations require that records relating to blocked transactions are retained for a defined period. Practitioners advising on OFAC matters note that inadequate records are one of the most commonly cited aggravating factors in civil-penalty proceedings, precisely because they prevent the institution from establishing the good-faith reliance that might otherwise reduce the base penalty amount.
A fourth risk is the interaction with AML and suspicious-activity-reporting obligations. A bank that blocks funds is not relieved of its obligation to file a suspicious-activity report if the underlying transaction independently triggers that obligation. The two reporting regimes run in parallel. Equally, a release under OFAC licence does not sanitise a transaction for AML purposes; the institution must satisfy itself independently that the release does not constitute money-laundering facilitation under the applicable anti-money-laundering rules.
When should a business involve sanctions counsel – and what can counsel do?
Counsel should be involved at the point of identification, not after a decision has been made. The analysis is time-sensitive in both directions: a delayed blocking creates a record of unlicensed dealing that OFAC will scrutinise, and a delayed licence application for a lawful release prolongs commercial harm to the account-holder.
In a recent matter, a mid-size trade-finance house identified that a confirmed letter of credit had been opened in favour of a beneficiary whose ultimate parent was on the SDN List. The house had already confirmed the credit. We assessed the ownership chain against the 50 percent rule, identified the correct programme, determined that a general licence partially covered the return of the credit instrument but not the negotiated funds, and prepared a specific-licence application covering the residual amount. The matter proceeded to a licensed resolution. No outcome of that type can be guaranteed; the facts of each case determine what OFAC will authorise.
What can sanctions counsel do in practice? We assess eligibility, prepare and submit the licence application, and manage OFAC's queries throughout the review period. Where a delisting is relevant to the release, we run that process in parallel. Where the account is held across jurisdictions, we co-ordinate with local counsel in the relevant jurisdiction to map the OFSI or EU obligations simultaneously. We also advise the holding institution on its own compliance record – the blocking report, the segregated-account obligations, and the record-keeping requirements – so that its position is defensible throughout.
A common objection we hear from in-house teams is: "our general counsel has reviewed the general licence and says we're covered." That may well be correct. But general licences are programme-specific and fact-specific. The myth that a general licence is always sufficient for a release – without a transaction-by-transaction assessment of whether the precise facts fit the licence terms – is one of the more consistent sources of apparent violations we encounter in this practice area.
Related practices
- Frozen-account management (BIS/EAR service) – managing blocked and frozen accounts across US export-control and sanctions regimes
- Specific-licence applications under OFAC: explained – step-by-step procedural guide for OFAC specific-licence submissions
- OFAC specific-licence applications: advanced issues – handling complex, multi-party and cross-regime licence applications