OFAC updates sanctions guidance on blocked funds, rejected transactions and reporting obligations
The U.S. Treasury amended 11 sanctions FAQs covering blocking and rejecting transactions, handling frozen funds and reporting obligations, including the distinction between a customer inquiry and an instruction to transfer money.
WASHINGTON, Oct. 26, 2026 — The Treasury Department's Office of Foreign Assets Control (OFAC) announced multiple amendments as part of its ongoing review of published sanctions guidance. The revisions address financial institutions' obligations when processing transactions involving sanctioned parties, maintaining blocked accounts and submitting regulatory reports. The announcement updates existing guidance rather than introducing new sanctions designations or restrictions.
A central element of the revised guidance concerns the distinction between blocking and rejecting transactions. OFAC explains that financial institutions must block property when a sanctioned individual, entity or government has a legally relevant interest in the funds. However, transactions prohibited under US sanctions that do not involve a blockable interest must generally be rejected and returned to the originator. The guidance illustrates these distinctions through transactions involving Iran and the Crimea region of Ukraine, emphasizing that rejected payments must not be forwarded to their intended beneficiaries.
The amendments also clarify reporting requirements under 31 CFR §§ 501.603 and 501.604. Financial institutions must report blocked property and rejected transactions through OFAC's Reporting System within 10 business days, accompanied by relevant supporting documentation. US persons holding blocked property as of June 30 must submit their annual reports by Sept. 30 using the prescribed spreadsheet format. Institutions maintaining omnibus blocked accounts must provide disaggregated information identifying individual blocked assets.
Additional guidance addresses the treatment of blocked funds, including requirements to maintain segregated, interest-bearing accounts and pay commercially reasonable interest. OFAC also confirms that institutions may generally deduct authorized normal service charges and explains circumstances in which customers may be notified of blocked property. Importantly, the updated FAQs distinguish preliminary customer inquiries from actual payment instructions, clarifying that merely asking whether a prohibited transfer is permissible does not itself trigger blocking or rejection reporting obligations.
The revisions provide updated operational guidance for banks and other institutions subject to US sanctions jurisdiction, particularly regarding transaction screening, payment processing, recordkeeping and regulatory reporting. They reinforce the importance of correctly distinguishing blocked property from rejected transactions and maintaining sufficient documentation to demonstrate compliance with OFAC requirements.