Blocked or rejected vendor payment: OFAC reporting within 10 business days, the annual report, blocked accounts and records

Blocking versus rejecting

Blocking is a freeze. OFAC's FAQ 9: “Blocking immediately imposes an across-the-board prohibition against transfers or dealings of any kind with regard to the property.” Blocked property is frozen, not seized: title stays with the blocked person, but the powers that normally come with ownership cannot be exercised without OFAC's authorization. OFAC defines property broadly, including money, checks, debt and other financial instruments, and present, future or contingent interests.

Rejecting is refusing to go ahead. OFAC's FAQ 36 explains that sometimes a transaction is prohibited “but there is no blockable interest (i.e., that of a Specially Designated National (SDN) or blocked person or government) in the transaction. In these cases, the transaction is simply rejected, or not processed and returned to the originator.” Its examples: a payment to an account at a bank owned by the Government of Iran must be blocked; a payment to an unblocked trading company in Tehran must be rejected, because processing it would export a service to Iran.

The test, in FAQ 5's words, is whether the transaction is prohibited and a blocked person has an interest. If yes, block; if prohibited and no SDN or other blocked person is involved, reject.

Which applies to a vendor payment

OFAC stresses that every program is different and the applicable regulations decide. Questions about whether to block or reject go to OFAC's Sanctions Compliance & Evaluation Division at OFACReport@treasury.gov (FAQ 36). Before the decision, the match itself must be worked through; see OFAC screening for vendor payments.

When does an AP team actually hold blocked property? FAQ 53 says a bank holds blocked property once it receives concrete instructions to send funds, not when a customer merely asks a question. For a payer, the analogous moment is an approved payment or funds set aside for a blocked vendor. How that applies to an open payable or a contract with a blocked party is a question for counsel, but the obligation is clear once property of a blocked person is in your possession or control: block it and report it.

Holding blocked funds

Blocked funds go into a blocked, interest-bearing account. OFAC's FAQ 5 describes it as “a qualifying, segregated, interest-bearing account located at a federally insured financial institution in the United States, from which only OFAC-authorized debits may be made.” The program regulations set the detail; the Global Terrorism Sanctions Regulations at 31 CFR 594.203 are typical. Any U.S. person holding blocked funds must hold them in a blocked interest-bearing account in the United States, which means one of:

• an account in a federally insured U.S. bank, thrift or credit union earning a commercially reasonable rate; or
• an account with an SEC-registered broker or dealer, invested in a money market fund or U.S. Treasury bills.

A rate is commercially reasonable “if it is the rate currently offered to other depositors on deposits or instruments of comparable size and maturity.” Instruments may not mature in more than 180 days, and the funds may not be held in a way that gives the blocked person any immediate benefit or access. Omnibus accounts are allowed as long as there is an audit trail to unblock specific funds with interest later (FAQ 32), and the annual report must break an omnibus account down item by item (31 CFR 501.603(d)). Banks may debit blocked accounts for normal service charges under most programs (FAQ 34).

If the vendor asks, OFAC's FAQ 41 says an institution may notify its customer that it has blocked funds in accordance with OFAC's instructions, and the owner has the right to apply for release.

The 10-business-day reports

Both outcomes are reported within the same window.

• Blocked property. Any U.S. person holding blocked property must report it. Under 31 CFR 501.603(b)(1): “Reports shall be filed within 10 business days from the date that property becomes blocked.” The report identifies the holder and a contact, the transaction and every party to it, the sanctions target and its interest, the property and its location, the blocking date, the value in U.S. dollars, the action taken (such as deposit into a blocked interest-bearing account), the legal authority, and a copy of the payment instructions, invoice or other documents. The legal authority must be the program, CFR part, Executive order or statute: the rule says the term SDN alone is generic and cannot be used.
• Rejected transactions. Under 31 CFR 501.604, any U.S. person that rejects a transaction which is not blocked but would violate OFAC's rules must report it within 10 business days. The term transaction is not limited to wires; it “includes wire transfers, trade finance, transactions related to securities, checks, or foreign exchange, and sales or purchases of goods or services.”

The rejected transaction requirement now reaches ordinary companies. OFAC's FAQ 819 explains that the June 21, 2019 amendment expanded it to all U.S. persons: “Previously, only U.S. financial institutions were required to submit reports to OFAC for rejected funds transfers.” If the payer does not hold every data element, FAQ 820 says OFAC “generally does not expect reporters to seek further information from their counterparty solely to obtain additional information,” but expects at minimum the submitter details, the date of rejection, the legal authority and any relevant documents.

Responsibility sits with the holder. A report can be filed for you by an attorney or agent, but primary responsibility rests with the actual holder of the property, and nobody is excused because someone else reported, unless they actually know of that report (31 CFR 501.603(a)(2)). A payer cannot assume its bank's report covers its own obligation.

How to report: the OFAC Reporting System

Initial blocking reports and the annual report must be filed electronically through the OFAC Reporting System (ORS) under 31 CFR 501.603(d), and rejected transaction reports through ORS under 501.604(d). OFAC's ORS page states: “All persons subject to OFAC's reporting requirements must use ORS to file initial reports on blocked property, reports on rejected transactions, and the Annual Report of Blocked Property (ARBP).”

• Register ahead of time. Access is by email to OFACReport@treasury.gov with the reporting institution's name, the primary contact's name and email, and any additional authorized filers. Registering when you set up your sanctions program avoids losing days of a 10-business-day window.
• Forms. Initial blocking and reject report forms are built into ORS; the annual report uses the TD F 90-22.50 spreadsheet, submitted through ORS.
• Exceptions. Alternative filing is allowed only for unique and extraordinary circumstances such as no internet access, and such requests are presumed denied and granted only in writing.
• Unblocking reports. Reports that blocked property was unblocked or transferred are also due within 10 business days, by email to OFACReport@treasury.gov or through ORS, on Form TD F 93.10 (501.603(b)(3) and (d)(2)). None is needed for unblocking explicitly authorized by a license (unless the license requires one) or after OFAC removes the person from the SDN List.

Keep a copy of every report; 501.603(d) says copies are retained for the submitter's records.

The annual report of blocked property

A payer that still holds blocked property in the summer files again. 31 CFR 501.603(b)(2): “A report on all blocked property held as of June 30 of the current year shall be filed annually by September 30.” It lists the number of items, each target and its interest, the property, the blocking date, the value as of June 30 and the legal authority. OFAC posts guidance for each year's filing on the ORS page, currently for the 2026 report. Rejected transactions are reported once; they do not go on the annual report, because nothing is held.

Licenses, releases and mistakes

Blocked funds move only with OFAC's authorization. General licenses, OFAC explains, are self-executing, meaning a transaction that meets their terms needs no application (FAQ 4). Otherwise a specific license is applied for through OFAC's online licensing portal under 31 CFR 501.801; applications to release blocked funds should include the ORS transaction and submission numbers where available. A denial can be reconsidered on new facts.

If you blocked by mistake, for example on a false positive later disproved, FAQ 1196 says you may unblock and file an unblocking report citing that FAQ, or ask for a Compliance Release under 31 CFR 501.806 by email to OFACReport@treasury.gov, with the section number and the words Request for a Compliance Release in the subject line. The warning that goes with it: “unblocking property in which a blocked person does in fact have an interest without authorization from OFAC could expose U.S. persons to civil penalties.” The Compliance Release is for mistaken identity and typographical errors only, not for property that was correctly blocked and whose status later changed, which needs a specific license.

Recordkeeping: now 10 years

31 CFR 501.601 requires every person engaging in a transaction subject to OFAC's rules to keep a full and accurate record of it, licensed or not, and “such record shall be available for examination for at least 10 years after the date of such transaction.” Holders of blocked property keep records for as long as the property is blocked and for at least 10 years after it is unblocked.

The period used to be five years. After Congress extended the statute of limitations for IEEPA and TWEA violations from five to 10 years in April 2024, OFAC issued an interim final rule on September 13, 2024, effective March 12, 2025, and adopted it without change in a final rule “extending certain recordkeeping requirements from five to 10 years” (90 FR 13286, March 21, 2025). For AP that covers the screening records, alert reviews, ownership information, the payment documents, and every report filed.

OFAC can demand records and reports at any time under 31 CFR 501.602, including emails, spreadsheets, invoices and bills of lading.

Penalty figures OFAC publishes

All figures below are from Appendix A to 31 CFR part 501 as it stands in the eCFR in October 2026, last adjusted for inflation by OFAC's rule of January 15, 2025 (90 FR 3687). OFAC's new Sanctions Penalties Regulations (31 CFR part 505, effective September 25, 2026) restate the IEEPA figure without change (91 FR 60821).

• IEEPA maximum per violation: the “greater of $377,700 or twice the amount of the underlying transaction.” Most OFAC programs rest on IEEPA. The Appendix also lists TWEA at $111,308 and the Kingpin Act at $1,876,699.
• Late reports: “The late filing of a required report, whether set forth in regulations or in a specific license, may result in a civil monetary penalty in an amount up to $3,550, if filed within the first 30 days after the report is due,” up to $7,104 if later, and for reports on blocked assets an additional $1,422 for every 30 days overdue, up to 10 years.
• Failure to furnish information under 501.602: up to $29,150, or $72,876 where the underlying transactions exceed $500,000, and it can be treated as continuing monthly.

Base penalties depend on whether the case is egregious and whether it was voluntarily self-disclosed. In a non-egregious case that is voluntarily self-disclosed, the base is one-half of the transaction value, capped at $188,850 per violation; without self-disclosure it is the schedule amount for the transaction size (from $1,000 for a transaction under $1,000 up to the IEEPA maximum at $200,000 or more), capped at $377,700. Substantial cooperation without self-disclosure generally reduces the base by 25 to 40 percent, and a first violation by up to 25 percent. How the compliance program itself is weighed is in the screening guide.

Questions people ask

Related in this round: OFAC sanctions screening for vendor payments and the OFAC 50 percent rule for vendors. For the industries where these stops happen most, see logistics and freight and marketplaces and gig platforms; for foreign payees' tax side, foreign vendors, W-8 and 1042-S.