Asset freezes under U.S. sanctions have affected numerous Russian companies, their owners, and a number of foreign partners. Despite the similarity of their current legal status, the mechanisms of asset freeze can vary significantly. These differences largely determine how favorably the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) will respond to your application for asset unblocking.

Individual or Company on the Sanctions List

The most challenging situation for subsequent asset unblocking arises when an individual or company is included on the U.S. sanctions list (OFAC SDN List). In such circumstances, an OFAC license cannot be obtained, in contrast to situations where non-sanctioned persons are subject to an asset freeze.

To unfreeze assets, one must first submit a petition for removal from the OFAC SDN List. Only after successful removal from the U.S. sanctions list does the possibility of unblocking assets arise.

Money Transfer Blocked by a Correspondent Bank

Asset freeze often occurs during payments involving a foreign counterparty in U.S. dollars, other Western currencies, or even some non-Western currencies if the payment passes through a U.S. correspondent bank. An American correspondent bank may block your funds for various reasons. The most common and straightforward reason is when the bank detects a possible connection between the funds and a sanctioned individual or entity. Even if neither the payer nor the recipient is on a sanctions list, if there is the slightest suspicion that the funds are somehow linked to a sanctioned party, the funds will likely be blocked.

Another common reason for an asset freeze by a U.S. correspondent bank is suspicion that the transaction underlying the payment violates U.S. sanctions. Such violations can include attempts to export goods or technologies prohibited from export from the U.S., shipments of products subject to sanctions regardless of their country of origin or destination, deliveries to countries on the so-called “blacklist,” shipments of dual-use goods, and similar cases.

Additionally, every American bank has strict internal compliance rules. Even the smallest breach of these rules can result in the immediate blocking of your funds. The challenge is that these internal compliance rules are not publicly available, neither in the mass media nor on the bank’s website. As a result, we can only speculate about the exact reason for the block.

Broker, Exchange, or Depository Listed on the OFAC SDN List

A relatively straightforward case of asset blocking occurs when a broker, exchange, or depository is added to the OFAC SDN sanctions list. For example, you invest funds in U.S. or other Western securities through a Russian broker. Suddenly, it turns out that either the broker itself, the exchange where it conducts trading operations, or the exchange’s depository has been included on the OFAC SDN list.

If you are not subject to sanctions, you can apply for an OFAC license, either on your own or with the help of your OFAC lawyer. Non-sanctioned persons have a good chance of obtaining such a license and having their assets unfrozen, provided the application is well-prepared with the correct factual and legal justification for the case.

Although OFAC issued General License No. 50, intended to provide a basis for unfreezing the funds of individuals whose brokers, exchanges, or depositories (not the individuals themselves) are subject to sanctions, in practice, it rarely works. The reason is that U.S. and other Western banks and depositories, in the course of their internal compliance reviews, often adopt an overly cautious approach, professionally referred to as ‘overcompliance.’ Accordingly, they refuse to unfreeze assets under the authority of General License No. 50 and instead require a specific (individual) OFAC license in each case.

Conclusion

Thus, the available paths to unfreezing assets and the likelihood of success depend largely on the specific circumstances of the asset freeze. While it’s sometimes suggested that you apply for an OFAC license on your own, this approach is generally only advisable when the amount of blocked assets does not justify the cost of professional assistance.

In most other cases, it’s safer to work with an OFAC lawyer experienced in licensing and client representation. This is particularly important given that the review process for a license application can take up to a year, and if your application is denied, appealing the decision becomes an even more complex and challenging procedure.