OFAC Revises Reporting Regs, Mandating Electronic Filings

The Office of Foreign Assets Control soon will make a range of changes to its reporting, procedures and penalties regulations, including one that will require electronic-only filings of certain documents and others that will add or clarify reporting requirements for certain blocked property or rejected transactions. The agency also clarified its definitions for “transaction” and “U.S. persons” after public commenters told OFAC they were unclear, clarified the types of information that must be reported for rejected transitions, and more.

The changes, outlined in an interim final rule released May 8, will take effect Aug. 8. OFAC is accepting public comments on the rule through June 10.

OFAC said it will begin requiring filers of blocked property to submit those documents electronically instead of through mail. That requirement will apply to initial reports of blocked property, annual reports of blocked property, reports of rejected transactions and reports of unblocked or transferred blocked property, the agency said, adding that electronic submission improves “efficiencies in reporting and reviewing data, and thus reduces the overall burden on both filers and the U.S. government over the long term.”

The agency said “many filers” already use the electronic OFAC Reporting System to submit their blocked property reports but added that all filers should “become familiar” with that system and start using it to submit reports before the rule’s Aug. 8 deadline.

OFAC said it will allow filers to submit documents “in an alternative manner” if they can show “evidence of unique and extraordinary circumstances that would not permit the electronic filing of reports, such as lack of access to the internet.” Those requests will be reviewed under a “presumption of denial.”

The agency also will revise its regulations covering reports of unblocked or transferred blocked property to better “ascertain the current status of blocked and unblocked property.” Filers need to submit those reports within 10 business days of when the blocked property was unblocked or transferred, but they don’t need to submit reports “for credits of interest payments that would not be transfers of blocked property or debits to blocked accounts for normal service charges,” OFAC said. The agency also extended its record retention requirement for annual reports of blocked property to also apply to initial reports of blocked property.

OFAC also will revise its reporting requirements for rejected transactions to clarify that the term “transaction” includes transactions “related to securities, checks, or foreign exchange, as well as sales or purchases of goods or services.” This clarifies that “securities, checks, foreign exchange, and goods and services are not in and of themselves transactions, when not provided as part of a transaction,” the agency said. OFAC said it made this change after industry “requested clarity” on the scope and types of rejected transactions that nonfinancial institutions need to report to OFAC.

The agency also said it was asked to clarify whether the term “U.S. persons” includes U.S. persons other than U.S. financial institutions. “OFAC confirms that this reporting requirement applies to all U.S. persons, as identified in the relevant parts of this chapter (or in the case of part 515, persons subject to U.S. jurisdiction), not only U.S. financial institutions,” it said.

Other industry representatives asked OFAC to clarify the types of information that must be reported for rejected transactions. The agency said it recognizes that not all information required by OFAC is “readily available at the time a transaction is rejected,” and in many cases it’s “burdensome and sometimes impractical for filers to seek out additional information about transactions that they have already rejected.”

“In light of these concerns,” OFAC said it will clarify that information must be reported “only to the extent the information is available to the filer at the time the [transaction] was rejected.”

The agency received these comments in response to a 2019 interim final rule that expanded the scope of its reporting requirements for rejected transactions (see 1906200036). OFAC said public commenters at the time told it that the changes “would cause a large increase in the volume” of rejected transaction reports from nonfinancial institutions, which would be “overly burdensome for businesses to submit as well as for OFAC to review.”

But since the rule was released, the agency said it hasn't seen a “large” uptick in the number of reports from nonfinancial institutions as compared with the number of such reports from financial institutions. “OFAC does not expect the volume of reported rejected transactions to be overly burdensome for businesses, particularly given that OFAC is providing additional clarity on the scope of rejected transaction reporting through this rule,” the agency said.

It also noted that ​​some commenters “expressed concerns about the ability to identify all rejected transactions and provide all requested information in a timely manner without significant costs.” OFAC said it's addressing this concern with the interim final rule issued this week by requiring reports of “only the information that is available to the filer at the time the transaction is rejected.”

The agency said “many businesses already have systems to identify rejected transactions related to OFAC sanctions, so it would be less burdensome for those specific businesses to report those rejected transactions to OFAC.” But it also said it “recognizes that there may have been an up-front increase in burden and costs for other businesses, such as some non-financial institutions, that did not already have such a system to identify rejected transactions in place.”

The rule makes a host of other changes, clarifications and updates, including to the procedures by which people can ask for the release of blocked funds because of a “mistaken identity,” the agency’s rules for publicly available information, its procedures for sanctions delistings and the types of reports OFAC may require financial institutions to submit.