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I understand blocking a transaction, but what is meant by rejecting a transaction? When should a transaction be rejected rather than blocked?
In some cases, an underlying transaction may be prohibited, but there is no blockable interest in the transaction. In these cases, the transaction is simply rejected, or not processed. For example, a U.S. bank would have to reject a wire transfer between two third-country companies (non-SDNs) involving an export to a non-SDN company in Sudan. Since there is no interest of the Government of Sudan or an SDN, there is no blockable interest in the funds. The U.S. bank cannot process the transaction because that would constitute a transaction in support of a commercial activity in Sudan, which is prohibited by the Sudanese Sanctions Regulations. Similarly, a U.S. bank could not be involved in the financing of a prohibited transaction. A U.S. bank cannot so much as advise a letter of credit if the underlying transaction is in violation of OFAC regulations. Please note that the Iranian Transactions Regulations contain no blocking provisions. The following examples may help illustrate which transactions should be blocked and which should be rejected. A U.S. bank interdicts a commercial payment destined for the account of XYZ Import-Export Co. at the Bank of Khartoum in Khartoum, Sudan. The Bank of Khartoum is wholly-owned by the Government of Sudan and, accordingly, is a Specially Designated National of Sudan. This payment must be blocked. A U.S. bank interdicts a commercial payment destined for the account of ABC Import-Export at Sudanese French Bank, Khartoum, Sudan. Unlike the Bank of Khartoum, Sudanese French Bank, Khartoum is a private sector entity so there is no blockable interest in this payment. However, processing the payment would mean facilitating trade with Sudan and providing a service in support of a commercial transaction in Sudan, therefore the U.S. bank must reject the payment. A U.S. bank interdicts a commercial payment originating from a commercial account on its books and destined for the account of the Tehran Computer Corporation at a French bank in Paris. The beneficiary’s address confirms that it’s a company in Iran. This payment must be rejected by the U.S. bank because of the prohibitions against facilitating trade with Iran. A U.S. bank interdicts a commercial payment from a corporate account on its books destined for the account of the French Computer Corporation at Bank Tejarat, in Paris through a correspondent account of Bank Tejarat on the books of a British bank. The beneficiary’s address confirms that it’s a company in France. However, this payment must be rejected by the U.S. bank because Bank Tejarat is owned by the Iranian government, and processing the payment would be facilitating trade with Iran. A U.S. bank interdicts a commercial payment destined for the account of the French Computer Corporation at Bank Tejarat, in Paris on the books of a U.S. bank. The beneficiary’s address confirms that it’s a company in France. However, this payment must be rejected by the U.S. bank because the account of Bank Tejarat is an “Iranian account” on the books of a U.S. bank and cannot be operated.
A U.S. bank interdicts an unlicensed commercial payment going to a private-sector entity in Cuba. Under the Cuban Assets Control Regulations, all property and property interests of Cuban nationals – defined to include any person or entity in Cuba - are blocked. As a result, this payment must be blocked. Rejected and blocked funds transfers must be reported to OFAC within 10 days. Questions about whether a transaction should be blocked or rejected should be directed to OFAC Compliance.bank in Paris.
Office of Foreign Assets Control (OFAC), U.S. Treasury Department
http://www.treas.gov/offices/enforcement/ofac/
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