[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 [www.gpo.gov]
[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 https://www.regulations.gov.
    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: https://ofac.treasury.gov.

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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