What is the difference between blocking and rejecting a transaction under OFAC rules?

Block when a blocked person's interest is involved; reject when OFAC sanctions prohibit a transaction but no blockable interest exists. Both outcomes carry a report to OFAC within 10 business days.

What the rule says:

• If OFAC sanctions prohibit the transaction or activity but there is no blockable interest (no SDN or other blocked person is involved), the transaction must be rejected, meaning the activity should not proceed (OFAC FAQ 5).
• Blocking freezes property. A blocked person's property within the United States or within the possession or control of a U.S. person must be blocked (frozen, not seized) and may not be transferred, withdrawn, or otherwise dealt in. Title stays with the blocked person, but exercising ownership powers and privileges is prohibited without OFAC authorization (OFAC FAQ 9).
• Rejecting applies to a transaction that is not blocked but where processing it would still violate OFAC's regulations (31 CFR 501.604(a)(1)).
• An initial blocking report is due within 10 business days from the date the property becomes blocked (31 CFR 501.603(b)(1)(i)). A rejected transaction must be reported within 10 business days of the rejection (31 CFR 501.604(c)).

In practice:

• OFAC's chart treats SDN List parties, blocked governments, Iranian financial institutions, Cuba or certain Cuban nationals, and 50 Percent Rule entities as blocking scenarios. A sanctioned jurisdiction or sector with no blocked person is a rejection scenario. Each program is unique (OFAC FAQ 5).
• Blocked funds should go into a qualifying, segregated, interest-bearing account at a federally insured U.S. financial institution, from which only OFAC-authorized debits may be made (OFAC FAQ 5).
• Blocking has continuing duties. By September 30 each year, report all blocked property held as of June 30 (31 CFR 501.603(b)(2)(i)). Also report within 10 business days from the date blocked property is unblocked or transferred (31 CFR 501.603(b)(3)(i)), except for authorized debits for normal service charges; authorized transfers between blocked accounts in a financial institution's own branches or offices; unblocking or transfer explicitly authorized by a specific or general license, unless the license requires a separate unblocking report; and unblocking on OFAC's removal of a person from the SDN List. 31 CFR 501.604 provides for a single report on a rejection.
• For both actions, keep related records under OFAC's recordkeeping requirements (OFAC FAQ 5).

Check the specific sanctions program's regulations to confirm which action applies.

Sources

1. OFAC FAQ 9: https://ofac.treasury.gov/faqs/topic/1501
2. 31 CFR § 501.603(a)(1), (b)(1)(i)-(ii), (c), (d)(1): https://www.law.cornell.edu/cfr/text/31/501.603
3. 31 CFR § 501.604(a)(1), (a)(3), (b), (c), (d); OFAC FAQ 5: https://www.law.cornell.edu/cfr/text/31/501.604
4. 31 CFR 501.603 (eCFR): https://www.ecfr.gov/current/title-31/section-501.603
5. 31 CFR 501.604 (eCFR): https://www.ecfr.gov/current/title-31/section-501.604
6. https://ofac.treasury.gov/faqs/5: https://ofac.treasury.gov/faqs/5

This answer is general information, not legal advice. Forteris is not a law firm.