OFAC blocked property reporting: what to freeze, what to file, and when

A sanctions hit is not the end of the work. It is the start of it. OFAC blocked property reporting is the part most firms meet late, usually inside the ten business days after a payment stops moving. Screening tells you that a name matched. Blocking tells you what you must now do with the money. The reporting tells OFAC what you did, and it runs on a clock.

This article sets out what blocking means, how it differs from a rejection, what each filing requires, and what changes when the settlement leg runs on a public blockchain. It is general information, not legal advice.

What is OFAC blocked property reporting, and how does it differ from screening?

Screening is a detection control. It compares a name, a country or a wallet against a list and raises an alert. OFAC blocked property reporting is a separate obligation, and it begins once that alert is confirmed.

When a firm holds property in which a sanctioned person has an interest, that property is blocked by operation of law. The firm does not choose to block it. The designation does. Blocked means frozen in place. The property cannot be paid, transferred, withdrawn, exported or otherwise dealt in without authorisation from OFAC.

The reporting rules for blocked property sit in 31 CFR Part 501, OFAC's Reporting, Procedures and Penalties Regulations. They apply on top of whichever programme regulation caused the block in the first place.

Two features catch firms out. First, OFAC sanctions work on strict liability for United States persons, so a violation does not require intent or even knowledge. Second, the duty attaches to the property, not to a customer relationship. One inbound payment from a counterparty you never onboarded can create a blocking and reporting duty on its own.

When is a payment blocked, and when is it only rejected?

This is the first decision, and it picks the filing. The test is possession or control.

A transaction is blocked when blockable property reaches the firm's hands. An inbound wire sitting in a suspense account. A stablecoin balance received at an address the firm controls. In each case the firm now holds value tied to a sanctioned interest, so it freezes that value and reports it.

A transaction is rejected when the firm declines an instruction and no blockable property ever arrives. A payment order refused before funds move is a rejection. A request to add a designated beneficiary is a rejection. Nothing is frozen, because nothing was held.

Both carry a report. 31 CFR 501.603 governs blocked property and 31 CFR 501.604 governs rejected transactions, and OFAC's 2019 amendments to Part 501 extended the rejected transaction report beyond financial institutions to all United States persons.

Getting the call wrong hurts in both directions. Rejecting what should have been blocked hands value back to the sender and may itself be a violation. Blocking what should only have been rejected freezes a client's money with no legal basis. Where the position is genuinely unclear, hold the payment, do not return it, and ask OFAC.

What does OFAC blocked property reporting require, and by when?

Three filings carry the duty, and the deadlines are short.

The initial report of blocked property is due within ten business days of the blocking under 31 CFR 501.603. It identifies the property, the party with the interest, the amount, the date and the authority relied on.

The annual report of blocked property closes the OFAC reporting year. Every holder files once a year by 30 September, covering holdings valued as of the preceding 30 June. It is a holdings report, so property blocked and then released during the year appears in the initial filing but not in the annual one.

The rejected transaction report under 31 CFR 501.604 is also due within ten business days. It carries the parties, the amount, the date and the reason for the rejection.

Two duties sit alongside the filings. Blocked funds must be held so that they stay identifiable and separate from the firm's own property, and several OFAC programme regulations direct that they be placed in an interest bearing account. And dealing with blocked property at all needs authorisation, either a general licence that already permits the act or a specific licence the firm applies for. Returning the money to the sender is a dealing. It is not a neutral act.

How do you block a stablecoin balance you may not control?

The obligation does not change on a blockchain. The mechanics do. OFAC blocked property reporting assumes the holder can freeze the asset, and that assumption needs testing on each rail.

Start with control. If the stablecoin sits at an address whose keys the firm holds, or in a custodial account under its control, the firm holds the property. It stops the outbound transaction, marks the balance blocked in its ledger, and leaves the value where it is. If the value sits at a client's self-custodied address, the firm holds nothing, cannot freeze anything, and is looking at a rejection plus its other obligations.

Two other actors matter. The issuer can freeze tokens at the contract level, independently of the firm, and Circle has blacklisted USDC addresses following OFAC designations. The chain itself cannot, and it will not reverse a settled transfer.

OFAC also designates specific digital currency addresses and lists them inside SDN entries alongside names and other identifiers. Its October 2021 Sanctions Compliance Guidance for the Virtual Currency Industry states that sanctions obligations apply to virtual currency as they do to any other property. So addresses belong in the screening index, not only names.

The practical consequence is a release control. Where confirmed settlement cannot be recalled, the only moment a block is possible is before the transfer is signed.

On a correspondent rail you can often chase a payment after it leaves. On a settled chain you cannot. The screening decision and the release decision have to be the same decision.

What does a blocking runbook look like, step by step?

A reviewer tests a block by asking what happened in the first ten business days. The sequence below produces that evidence as the work is done.

• Freeze first, analyse second. Stop the outbound leg the moment a match touches it, before deciding whether the hit is true.
• Confirm against the list entry itself, not the alert summary. Record the entry, the programme and the identifiers you relied on.
• Classify the event as blocked or rejected, and write down why. That single call picks the filing and the deadline.
• Segregate and label the property. A blocked balance needs its own ledger marking, a frozen status no routine job can clear, and an interest bearing account where the programme requires one.
• File the initial report inside ten business days, and diarise the annual report for the following 30 September.
• Tell the designated compliance officer at once, and take advice before telling the counterparty anything beyond that the payment cannot proceed.
• Apply for a licence before doing anything with the property, a return included.
• Keep the whole run in one file as you go. Reconstructing it months later is where firms fail.

What evidence does a reviewer read after a blocking?

Examiners rarely start with the policy. They pick one event and read it end to end. Six items answer most of a review.

The alert and the confirmation note, with the time each happened. The classification decision and its reasoning. The initial report as filed, with its submission record. The ledger entry showing the property identified as blocked and segregated. Any licence application and OFAC's answer. The annual filing for the relevant year.

Two gaps appear more often than the rest. The first is timing. A confirmation on day one and a filing on day fifteen is a missed deadline even though the money never moved. The second is release. A blocked balance left in an account that a sweep, a reconciliation adjustment or a batch payout job can still touch is not frozen, whatever the spreadsheet says.

Retention is part of the obligation too. 31 CFR 501.601 requires records of blocked property to be kept for at least five years. The records that matter are the ones that show the decision, not only the balance.

The duty is not only American. A firm in Canada that determines it holds property owned or controlled by a listed person reports to the RCMP and CSIS and files a terrorist property report with FINTRAC under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. In the United Kingdom, relevant firms must inform OFSI as soon as practicable after they know or suspect that a person is designated. A single corridor can trigger more than one of these.

Where StableNet fits

StableNet, built by SpendTheBits, is a cross-border B2B payment and settlement platform for banks, credit unions, licensed money service businesses, exchange houses and remittance fintechs. Settlement runs in regulated stablecoins such as USDC and USDT on public blockchains and completes in minutes with on-chain auditability, so the screening and release decisions sit in one place. KYB and KYC onboarding, KYT, sanctions and PEP screening, FATF Travel Rule data in IVMS101 form, a compliance workbench and a tamper-evident audit trail let a reviewer hold a payment before the transfer is signed and leave a record of why. Because the platform is ISO 20022 native, with pacs.008 customer credit transfers, pacs.009 interbank legs, pacs.002 status reports and pacs.004 returns tracked end to end by UETR, the frozen payment and the message trail behind it stay joined.