Rule2024-23217
Reporting, Procedures and Penalties Regulations
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 8, 2024
Effective
November 7, 2024
Issuing agencies
Treasury DepartmentForeign Assets Control Office
Abstract
The Department of the Treasury's Office of Foreign Assets Control (OFAC) is issuing this final rule to amend the Reporting, Procedures and Penalties Regulations (the "Regulations"). OFAC published an interim final rule with a request for comments on May 10, 2024 ("May 2024 Interim Final Rule"). In this final rule, OFAC responds to public comments submitted in response to the May 2024 Interim Final Rule and amends the Regulations to add three exceptions to the reporting requirement for any blocked property that is unblocked or transferred.
Full Text
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<title>Federal Register, Volume 89 Issue 195 (Tuesday, October 8, 2024)</title>
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[Federal Register Volume 89, Number 195 (Tuesday, October 8, 2024)]
[Rules and Regulations]
[Pages 81358-81361]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-23217]
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DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 CFR Part 501
Reporting, Procedures and Penalties Regulations
AGENCY: Office of Foreign Assets Control, Treasury.
ACTION: Final rule.
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SUMMARY: The Department of the Treasury's Office of Foreign Assets
Control (OFAC) is issuing this final rule to amend the Reporting,
Procedures and Penalties Regulations (the ``Regulations''). OFAC
published an interim final rule with a request for comments on May 10,
2024 (``May 2024 Interim Final Rule''). In this final rule, OFAC
responds to public comments submitted in response to the May 2024
Interim Final Rule and amends the Regulations to add three exceptions
to the reporting requirement for any blocked property that is unblocked
or transferred.
DATES: This final rule is effective November 7, 2024.
FOR FURTHER INFORMATION CONTACT: Assistant Director for Licensing, 202-
622-2480; Assistant Director for Regulatory Affairs, 202-622-4855;
Assistant Director for Compliance, 202-622-2490.
SUPPLEMENTARY INFORMATION:
Background
The Regulations (31 CFR part 501), originally issued August 25,
1997 (62 FR 45098), set forth standard reporting and recordkeeping
requirements, license application procedures, and other procedures
relevant to the economic sanctions programs administered by OFAC. On
May 10, 2024 (89 FR 40372), OFAC published an interim final rule,
effective on August 8, 2024, amending the Regulations with a request
for comment. Public comments on the interim final rule were due by June
10, 2024.
In the May 2024 Interim Final Rule, OFAC amended the Regulations to
require electronic filing of certain submissions to OFAC and to
describe and modify certain reporting requirements related to blocked
property and rejected transactions. In particular, the rule required
the use of the electronic OFAC Reporting System (ORS) for submission of
reports related to blocked property and rejected transactions, removed
the mail option for certain other types of OFAC submissions, described
reports OFAC may require from financial institutions for transactions
that meet specified criteria, and added a reporting requirement for any
blocked property that is unblocked or transferred. Additionally, OFAC
clarified the scope of the reporting requirement for rejected
transactions, in part to respond to comments received on an interim
final rule OFAC published on June 21, 2019 (84 FR 29055), to amend the
Regulations.
Among other changes, the May 2024 Interim Final Rule modified the
procedures for requests relating to property that is blocked in error,
updated the Regulations with respect to the availability of information
under the Freedom of Information Act (FOIA) for certain categories of
records, and clarified that persons may submit a petition for
administrative reconsideration to seek removal of a person or property
from the List of Specially Designated Nationals and Blocked Persons
(``SDN List'') or any other list of sanctioned persons maintained by
OFAC. OFAC also added a description of reports OFAC may require
financial institutions to provide about transactions that meet
specified criteria to aid in the identification of blocked property.
Finally, OFAC made several technical and conforming edits.
As described further below, OFAC is responding to comments received
on five sections of the Regulations: Sec. Sec. 501.601, 501.602,
501.603, 501.604, and 501.806.
Overview of Comments on the Interim Final Rule
During the public comment period, OFAC received written submissions
on the interim final rule. All comments received by the end of the
comment period are available on the public rulemaking docket at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
OFAC considered each relevant comment submitted on the May 2024
Interim Final Rule and made certain revisions in this rule in response
to the comments. Some of the comments were general in nature, for
example, supporting OFAC's efforts and approach with respect to aspects
of the May 2024 Interim Final Rule. In contrast, another commentor
suggested that OFAC retract the interim final rule altogether either to
give time to incorporate the comments received or to give financial
institutions more time to incorporate the changes into their sanctions-
related programs, systems, and policies and procedures. Some comments
requested clarification of specific provisions, deadlines for certain
OFAC determinations, modifications to reporting requirements, and a
delay for the general requirements to use the ORS. One commenter
questioned whether OFAC has the authority to require persons that
submitted an erroneous blocking report to request OFAC's permission to
release funds that never should have been blocked (e.g., if a financial
institution mistakenly blocked the funds of a U.S. person based on a
``false hit'' name match with a name that appears on the SDN List).
Summary of Comments and Changes From the Interim Final Rule
Reports of Unblocked or Transferred Blocked Property
In the May 2024 Interim Final Rule, OFAC revised Sec.
501.603(b)(3)(i) to require reports within 10 business days of when
blocked property is unblocked or transferred, including pursuant to a
valid order issued by a U.S. Government
[[Page 81359]]
agency or U.S. court, as set out in that paragraph. This amendment
enables OFAC to ascertain the current status of blocked and unblocked
property. Filers must submit reports pursuant to this section
electronically, either via email to <a href="/cdn-cgi/l/email-protection#d79891969485b2a7b8a5a397a3a5b2b6a4a2a5aef9b0b8a1"><span class="__cf_email__" data-cfemail="2c636a6d6f7e495c435e586c585e494d5f595e55024b435a">[email protected]</span></a> or via ORS.
Additionally, in revised Sec. 501.603(d)(1), OFAC expanded the
retention requirement previously in Sec. 501.603(b)(2)(iii) for Annual
Reports of Blocked Property to extend to initial reports of blocked
property. In the May 2024 Interim Final Rule, OFAC indicated that
reports need not be submitted for credits of interest payments that
would not be transfers of blocked property or debits to blocked
accounts for normal service charges, in each case as authorized
pursuant to OFAC sanctions.
A commenter asked OFAC to modify Sec. 501.603(b)(3)(i) to require
reporting: (1) on an annual basis for any unblocking pursuant to an
action taken by OFAC, such as a specific license or general license;
and (2) within 10 business days only when unblocking is done pursuant
to an action not taken by OFAC, such as a court order. Another
commenter requested that OFAC amend Sec. 501.603 to clarify that no
reporting to OFAC is required should unblocking occur as the result of
OFAC removing a person from OFAC's SDN List or the termination of a
sanctions program. A third commenter asked whether funds that become
unblocked pursuant to a specific license--but are subsequently returned
to a financial institution by recipients--are still considered
unblocked assets. The commenter also asked if financial institutions
have 10 business days from the day a specific license is issued by OFAC
to submit an unblocking report, or 10 business days from the day the
property is unblocked by the institution. Commenters also requested
that OFAC clarify that internal transfers, such as authorized
administrative transfers between blocked accounts or transfers of
blocked property within the same financial institution, are not subject
to the new reporting requirement. One commenter requested clarity on
what ``transfers'' mean in the context of Sec. 501.603(b). The
commenter also asked whether ``OFAC licenses to unblock property
expire.'' One commenter asked whether OFAC will issue guidance on the
information it expects parties to provide as part of an unblocked
property report.
In response to these comments, OFAC is amending Sec.
501.603(b)(3)(i) to clarify that reports need not be submitted pursuant
to that section for: (1) authorized transfers of funds or credit by a
financial institution between blocked accounts in its branches or
offices or authorized debits for normal service charges; (2) blocked
property that is unblocked or transferred pursuant to a general or
specific license, unless the license includes a condition that requires
the submission of an unblocking report; or (3) blocked property that is
unblocked pursuant to OFAC's removal of a person from the SDN List.
OFAC is implementing these changes to reduce the reporting burden on
the public for unblockings about which OFAC generally does not have a
strong interest in obtaining additional information or for which
information is received via other reporting channels, while still
allowing for tracking the status of blocked property. OFAC declines to
make additional changes to Sec. 501.603(b)(3)(i) in order to retain
the ability to ascertain the current status of blocked and unblocked
property. No changes were made to the rule in response to the remaining
comments. OFAC considered the remaining comments, but the comments
related to individual scenarios or requested specific guidance that
were not within the intended scope of the rule. OFAC has provided
guidance on its website related to filing an initial report of blocked
property and an annual report of blocked property.
Reports of Rejected Transactions
In the May 2024 Interim Final Rule, OFAC amended Sec. 501.604(a)
to clarify the scope of the term ``transaction'' for purposes of that
section by specifying that the term includes transactions related to
securities, checks, or foreign exchange, as well as sales or purchases
of goods or services, thereby clarifying that securities, checks,
foreign exchange, and goods and services are not in and of themselves
transactions, when not provided as part of a transaction. OFAC
confirmed that the reporting requirement in Sec. 501.604(a) 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. OFAC amended Sec. 501.604(b) to
clarify that the information required therein must be reported only to
the extent the information is available to the filer at the time the
transaction was rejected.
One commenter stated that the revisions to the definition of
``transaction'' do not provide sufficient clarity on the scope and
types of actions that need to be reported to OFAC by non-financial
institutions, including when during a transaction the reporting
obligation arises. The commenter requested that the definition of
``transaction'' be further revised so that it encompasses only the act
of instructing, or otherwise attempting, a transfer of value or a
payment. OFAC declines to revise the Regulations in response to this
comment because, based on the agency's experience evaluating rejected-
transaction reports received over the last five years, it appears that
financial institutions and non-financial institutions are able to
identify rejected transactions with sufficient clarity to report them
to OFAC.
OFAC will assess whether any clarification, modification or
guidance related to Sec. 501.604(a) would be appropriate in the
future, and welcomes further feedback as we assess whether any
clarification, modification, or guidance related to Sec. 501.604(a) is
appropriate in the future.
Requests for a Compliance Release of Property Blocked Due To Mistaken
Identity or Other Similar Errors
In the May 2024 Interim Final Rule, OFAC revised the procedures at
Sec. 501.806 for requesting release of funds blocked due to ``mistaken
identity'' to extend to a broader category of any property blocked due
to ``typographical or similar errors leading to blocking.'' OFAC also
narrowed the procedures so they are available only to the person that
mistakenly blocked the property. In these cases, the person that
mistakenly blocked the property may request a ``Compliance Release''
from OFAC's Compliance Division. Others may continue to request
unblocking of property through license applications submitted to OFAC's
Licensing Division.
Commenters asked OFAC to clarify the circumstances that fall under
the ``similar error'' category of bad blocks. One commenter asked OFAC
to establish a deadline by which OFAC will respond to compliance
release requests (e.g., 30 days). Two commenters requested that OFAC
continue to allow any party to a transaction that results in the
blocking of funds to submit a request to OFAC for release of the funds,
and not to limit the procedures for a compliance release in Sec.
501.806 to persons that mistakenly blocked the property (in the vast
majority of circumstances, a financial institution). Furthermore, one
commenter questioned whether OFAC had the authority to require persons
to request permission from OFAC to release funds that never should have
been blocked, especially if no foreign country or national thereof has
any interest in such funds (e.g., if a financial institution blocked
the funds of a U.S.
[[Page 81360]]
person based on a false-hit name match with an SDN). One commenter also
asked OFAC to implement a process allowing a financial institution that
blocks funds in error to unblock those funds upon notice to OFAC,
without submitting a compliance release request. One commenter
indicated that in past practice a party could submit to OFAC a notice
withdrawing its erroneous blocking report explaining its error and
proceed with a contemplated transaction.
No changes were made to the rule in response to these comments.
OFAC does not require persons to use the compliance release procedures
in Sec. 501.806 for unblocking property believed to have been blocked
and reported in error due to mistaken identity or typographical or
similar errors. Persons can treat the property that was blocked in
error as not blocked in the event they determine that there was never
any valid blockable interest in the property, provided that they notify
OFAC of the change. OFAC plans to issue guidance regarding unblocking
property believed to have been blocked and reported in error due to
mistaken identity or typographical or similar errors. OFAC encourages
persons to develop screening and due-diligence procedures that
appropriately identify blocked property and, as needed, use the process
to request a compliance release, which can provide OFAC an opportunity
to confirm the factual assessment and help avoid situations where a
transaction is erroneously processed or released in violation of U.S.
economic sanctions laws. OFAC also encourages financial institutions to
conduct an investigation to determine whether a match is a true hit
prior to blocking property, consistent with longstanding OFAC guidance.
In addition, OFAC declined to specify a deadline for responding to
requests for a compliance release because each request is different and
may require a different review timeline. Finally, OFAC declined to make
the compliance-release procedure available to any party to a blocked
asset transaction because specific licensing procedures remain
available to those additional parties for release of the blocked funds.
OFAC Reporting System (ORS)
In the May 2024 Interim Final Rule, OFAC generally required filers
to use ORS for submission to OFAC of initial reports of blocked
property and Annual Reports of Blocked Property pursuant to Sec.
501.603(b)(1) and (2) and reports of rejected transactions pursuant to
Sec. 501.604(d).
Commenters indicated that OFAC should not mandate the use of ORS
until OFAC resolves its functionality and reliability. Similarly, one
commenter requested more engagement with OFAC regarding ORS due to
issues when using the reporting system. The commenter asked whether ORS
will be updated to allow for filing reports on unblocked property and
whether OFAC will issue guidance on what information it expects persons
to provide as part of a report of unblocked property.
No changes were made to the rule in response to these comments.
OFAC has not experienced issues with the functionality and reliability
of ORS and agrees it would be reasonable for OFAC to engage with the
public on identified issues when using the ORS and work to resolve
them. OFAC already works closely with filers to address any issues in
the ORS system, provide guidance and user guides, and answer questions.
This final rule does not incorporate any proposed changes to unblocking
reports, because the May 2024 Interim Final Rule did not require such
reports to be filed through ORS and already sets out the information
required for such reports. However, OFAC is planning to develop an
unblocking and transfer form in ORS and will notify the public once
this feature is deployed.
Instruction To Report Certain Transactions
In the May 2024 Interim Final Rule, OFAC added a note to Sec.
501.602 to describe reports OFAC may require financial institutions to
provide about accounts or transactions that meet specified criteria to
aid in the identification of blocked property. If OFAC has reason to
believe an account or transaction (or class of transactions) may
involve the property or interests in property of a blocked person, OFAC
may instruct the financial institution to report transactions that meet
specified criteria and to notify OFAC prior to processing such
transactions. Upon review, OFAC may determine that a reported
transaction involves the property or interests in property of a blocked
person and may take further action.
A commenter recommended that OFAC implement a deadline for a
determination as to whether a transaction is blocked (e.g., within 10
business days) to help manage customer expectations while waiting for
determination on transactions that may involve a blocked interest and
make the process more predictable for banks and their customers.
No changes were made to the rule in response to this comment due to
the volume of notifications OFAC may receive and the transaction-
specific analysis required for each determination. In addition, the
benefits of managing customer expectations are outweighed by the
national security and foreign policy risks of releasing blocked
property. Customers may also reach out to OFAC's Compliance Division
with questions about the status of their funds.
Recordkeeping Requirements
Section 501.601 requires every person engaging in any transaction
subject to the provisions of chapter V of title 31 of the Code of
Federal Regulations to keep a full and accurate record of each such
transaction engaged in, regardless of whether such transaction is
conducted pursuant to a license or otherwise, and make such record
available for examination for at least five years after the date of
such transaction. The 21st Century Peace through Strength Act, Public
Law 118-50, div. D, signed into law on April 24, 2024, extended the
statutes of limitation for civil and criminal violations of economic
sanctions programs under the International Emergency Economic Powers
Act, 50 U.S.C. 1701 et seq., or the Trading With the Enemy Act, 50
U.S.C. 4301 et seq., from five to 10 years.
A commenter indicated that OFAC should provide ample notice to the
public prior to revising the recordkeeping requirement from five to 10
years. On September 12, 2024, OFAC issued a separate interim final rule
updating the records and recordkeeping requirements in Sec. 501.601,
with a delayed effective date and an opportunity to provide comments
(89 FR 74832).
Electronic Availability
This document and additional information concerning OFAC are
available on OFAC's website: <a href="https://ofac.treasury.gov">https://ofac.treasury.gov</a>.
Public Participation
Because the amendment of the Regulations is a rule of agency
procedure and involves a foreign affairs function, the provisions of
Executive Order 12866 of September 30, 1993, ``Regulatory Planning and
Review'' (58 FR 51735, October 4, 1993), as amended, and the
Administrative Procedure Act (5 U.S.C. 553) requiring notice of
proposed rulemaking and opportunity for public participation are
inapplicable. Because no notice of proposed rulemaking is required for
this rule, the Regulatory Flexibility Act (5 U.S.C. 601-612) does not
apply.
[[Page 81361]]
Paperwork Reduction Act
Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3507),
the collections of information related to this rule have been approved
by the Office of Management and Budget under control number 1505-0164.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of
information displays a valid control number.
List of Subjects in 31 CFR Part 501
Administrative practice and procedure, Banks, banking, Blocking of
assets, Foreign trade, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the interim rule
amending 31 CFR part 501, which was published May 10, 2024 (89 FR
40372), is adopted as final with the following change:
PART 501--REPORTING, PROCEDURES AND PENALTIES REGULATIONS
0
1. The authority citation for part 501 continues to read as follows:
Authority: 8 U.S.C. 1189; 18 U.S.C. 2332d, 2339B; 19 U.S.C.
3901-3913; 21 U.S.C. 1901-1908; 22 U.S.C. 287c, 2370(a), 6009, 6032,
7205, 8501-8551; 31 U.S.C. 321(b); 50 U.S.C. 1701-1706, 4301-4341;
Pub. L. 101-410, 104 Stat. 890, as amended (28 U.S.C. 2461 note).
Subpart C--Reports
0
2. Amend Sec. 501.603 by revising and republishing paragraph (b)(3)(i)
to read as follows:
Sec. 501.603 Reports of blocked, unblocked, or transferred blocked
property.
* * * * *
(b) * * *
(3) * * *
(i) When reports are due. Except as provided in paragraphs
(b)(3)(i)(A) through (D) of this section, reports shall be submitted to
OFAC within 10 business days from the date blocked property is
unblocked or transferred. For example, such reports must be filed when
blocked property is unblocked or transferred pursuant to a valid order
from a U.S. Government agency or U.S. court, including pursuant to a
valid judicial order issued pursuant to section 201(a) of the Terrorism
Risk Insurance Act (Pub. L. 107-297, 116 Stat. 2322, 28 U.S.C. 1610
note) or a valid order of forfeiture by any U.S. Government agency or
U.S. court. Reports do not need to be filed under this section for:
(A) Authorized debits to blocked accounts for normal service
charges;
(B) Authorized transfers of funds or credit by a financial
institution between blocked accounts in its branches or offices;
(C) Unblocking or transfer of blocked property that is explicitly
authorized by a specific or general license, unless the specific or
general license includes a condition requiring the submission of a
separate unblocking report; or
(D) Unblocking of blocked property pursuant to OFAC's removal of a
person from OFAC's List of Specially Designated Nationals and Blocked
Persons (SDN List).
* * * * *
Lisa M. Palluconi,
Acting Director, Office of Foreign Assets Control.
[FR Doc. 2024-23217 Filed 10-7-24; 8:45 am]
BILLING CODE 4810-AL-P
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