Reporting, Procedures and Penalties Regulations

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Office of Foreign Assets Control</SUBAGY> <CFR>31 CFR Part 501</CFR> <SUBJECT>Reporting, Procedures and Penalties Regulations</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of Foreign Assets Control, Treasury. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective November 7, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Assistant Director for Licensing, 202-622-2480; Assistant Director for Regulatory Affairs, 202-622-4855; Assistant Director for Compliance, 202-622-2490. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> 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: §§ 501.601, 501.602, 501.603, 501.604, and 501.806. <HD SOURCE="HD1">Overview of Comments on the Interim Final Rule</HD> 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 <E T="03">https://www.regulations.gov.</E> 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 T="03">e.g.,</E> 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). <HD SOURCE="HD1">Summary of Comments and Changes From the Interim Final Rule</HD> <HD SOURCE="HD2">Reports of Unblocked or Transferred Blocked Property</HD> In the May 2024 Interim Final Rule, OFAC revised § 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 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 <E T="03">OFACReport@treasury.gov</E> or via ORS. Additionally, in revised § 501.603(d)(1), OFAC expanded the retention requirement previously in § 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 § 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 § 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 § 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 § 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 § 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. <HD SOURCE="HD2">Reports of Rejected Transactions</HD> In the May 2024 Interim Final Rule, OFAC amended § 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 § 501.6 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 24k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━