OFAC's Updated Reporting Regulations Causing 'Confusion,' AAEI Says

The Office of Foreign Assets Control’s amendments to its reporting, procedures and penalties regulations has caused a “great deal of confusion” among U.S. companies, the American Association of Exporters and Importers said in July 22 comments to the agency. AAEI said several of the updates are unclear, including OFAC’s new reporting requirements for rejected transactions and the update that expands the scope of transactions that must be reported.

AAEI said the regulations’s interim final rule, which OFAC issued on June 21 (see 1906200036), raises questions about what constitutes a rejected transaction. “If a U.S. exporter that is conducting due diligence for a potential sale receives a match to a party on OFAC’s Specially Designated Nationals List and chooses not to proceed with the sale, is that a ‘rejected transaction?’” the association said. AAEI said that scenario could be considered a rejected transaction because the U.S. company chose not to go through with the sales, but it could also be considered to not be a rejected transaction because the company did not formally reject a transaction. AAEI said this has led to confusion “among U.S. companies and their internal and outside counsel.”

AAEI urged OFAC for “clarity” and recommended they issue a definition for “rejected transactions,” saying there is no “formal definition” in “any of OFAC’s regulations.” OFAC has only issued clarifying information about rejected transactions in its Frequently Asked Questions, which does “not have the force of law and OFAC should not be making policy on these important issues via FAQs,” AAEI said. The association also requested -- in addition to seeking a clarification on whether an exporter must report a transaction that it chose not to proceed with -- that OFAC “provide further instructions on what specific information must be reported in which circumstances.”

AAEI said it is also unclear which U.S. sanctions programs are impacted by these amendments and if the amendments apply to a “majority-owned or controlled foreign subsidiary of a U.S. company.” AAEI said the amendments would conflict with the privacy laws and blocking statutes of “various countries.” OFAC should issue guidance “regarding the treatment of such conflicting obligations in this context.”

AAEI also said these new reporting requirements would “create a very large administrative burden if it applies to companies beyond financial institutions.” The association said “unintended consequences” would be avoided if the regulations were “limited to financial institutions, rather than all of U.S. industry.”

AAEI listed several questions for OFAC, asking the agency to define when an interaction officially becomes a transaction and to specify at which stage of the process a rejected transaction is deemed to occur. The association also asks OFAC to define “reject,” “rejection” and “transactions.” “The administrative burden to comply with the new regulations could vary significantly depending on how such terms are defined,” AAEI said.

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