OFAC regulations require that blocked funds must be placed into an interest-bearing account , held separately, and reported to OFAC. This does not require preauthorization from OFAC.

However, no debits or credits may occur without OFAC authorization, including:

• settling standing bills or checks (A),

• charging interest or loan/corporate card fees (C),

• deducting credit-card service charges (B).

Only OFAC can authorize movement or use of blocked property.

Sanctions and Compliance Domains and regulatory authorities such as OFAC, EU, and OFSI require institutions to update sanctions lists as quickly as possible after a new designation or change is published.

Weekly, biweekly, or monthly cycles are insufficient and can result in missed designations. Financial institutions must adopt systems that update sanctions lists promptly to maintain compliance and avoid facilitating prohibited transactions.

Canadian sanctions law requires that Canadian persons ensure all commercial dealings comply with Canadian sanctions regulations, including those concerning Iran. Contracts involving sanctioned countries must incorporate compliance clauses reflecting applicable Canadian law.

The EU Blocking Statute does not apply to Canadian entities. Avoiding references to Iran is ineffective and does not eliminate sanctions exposure. USD payments may introduce US sanctions exposure and are not advisable in this context.

The OFAC 50% Rule states:

• Any entity owned 50% or more — directly or indirectly — by an SDN or SDN-owned entity is itself automatically blocked .

• Ownership is cumulative through all tiers .

Apply the rule:

✔ A – Blocked Person X has direct + indirect ownership in Entity C exceeding 50% → Blocked.

✔ C – Ownership cascades: SDN → A → B → C; each at 50%. Result: Entity C is blocked.

✔ D – Blocked Entity A ( > 50%) → owns B ( > 50%) → owns C ( > 50%). All downstream entities are blocked.

Not blocked:

• B = 25% + 25% = 50% but SDN does not directly own A or B — the SDN owns A and B, but A and B each are not blocked themselves because ownership is not aggregated across separate entities unless they hold shares. Therefore, C is not blocked.

• E = Only 25% flows into Entity C.

• F = Neither ownership chain reaches 50%.

Using a USD-denominated account creates a US nexus , because USD transactions must clear through the US financial system. Routing payments through USD accounts while obscuring the sanctioned jurisdiction or buyer is a known sanctions-evasion technique.

This is especially true in cases involving comprehensive sanctions (e.g., Iran, North Korea, Cuba), where attempts to hide identifying information in payment orders show intent to evade regulatory controls.

OFAC’s 50 Percent Rule requires aggregation of ownership by SDNs and entities owned 50% or more by SDNs.

Ownership breakdown:

• Entity X (SDN) → 30%

• Entity Y (owned 80% by an SDN) → treated as an SDN → contributes 25%

• Total SDN-derived ownership = 30% + 25% = 55%

Since aggregate SDN ownership exceeds 50% , ABC Industries is automatically considered a blocked entity , even though Entity Z is not sanctioned.

Options B and C are incorrect because explicit listing is not required—ownership triggers blocking. Option A is incorrect because one SDN at 30% alone is insufficient, but combined ownership is.

Sanctions and Compliance Domains provide that a financial institution must not execute a transaction when significant unresolved discrepancies exist, especially in high-risk transshipment regions. When:

• documentation does not match payment details, and

• the customer refuses to provide required information,

the institution cannot proceed. Without clarity, the transaction may involve diversion, routed shipments, or indirect dealings with sanctioned entities.

Rejection is appropriate because blocking only applies when a confirmed sanctions match exists. Reprimanding customers, forcing subpoenas, or engaging mutual legal assistance procedures are not required or appropriate steps in sanctions transaction handling.

References from Sanctions and Compliance Domains:

Requirements to reject a transaction when discrepancies cannot be resolved.

Need for customer cooperation in sanctions investigations.

Standards for handling high-risk transshipment-related alerts.

OFAC has designated:

• Hackers and cyber actors involved in cryptocurrency theft.

• Cryptocurrency exchanges facilitating illicit transactions or supporting sanctioned jurisdictions.

• Mixers (tumblers) known to anonymize blockchain transactions and facilitate laundering and sanctions evasion.

Software developers (D) are generally not designated unless directly linked to illicit activity. Credit unions and central banks are not typical OFAC digital-asset designations.

The Wolfsberg Guidance on Sanctions Screening emphasizes data quality as the most important factor when developing or maintaining a screening system. High-quality, accurate, complete, and consistently structured data is essential to ensure proper matching, reduce false positives, and avoid missed true matches.

Even with strong IT capabilities or defined risk appetite, a screening system will fail if the underlying data is incomplete or inaccurate.

Sanctions apply primarily to persons and entities within the jurisdiction of the issuing authority . For example:

• US sanctions apply to US persons, entities organized under US law, and persons physically located in the US.

• EU sanctions apply to EU nationals, persons within EU territory, and EU-incorporated entities.

Sanctions are not automatically global unless other jurisdictions adopt similar measures. International financial institutions must comply only when they operate within relevant jurisdictions.