My prompt:
ok… let’s open the aperture a bit. Explain what a compliant firm is supposed to do, for the US, UK, EU, Canada, Australia and Switzerland, in the following 2 scenarios – assuming we’re talking blocking/freezing sanctions only: Scenario A: You receive instructions to make a payment that involved a sanctioned party. Scenario B: You receive funds that involve a sanctioned party. For each scenario, also denote whether the answer is different in the case you are the beneficiary bank or an intermediary bank. Phrase this for a sanctions novice, but feel free to quote text (not full regulatory sections) – like “make economic resources available”, for example. Assume that my goal is to eventually, once I refine the response, make a “Burning Questions” post out of this
Claude responded:
This is exactly the kind of question that makes a good Burning Questions piece, because the honest answer isn’t “six jurisdictions, six rules” — it’s one rule almost everyone agrees on, and one narrow but consequential place where the US breaks from the rest.
Two moves, and two roles, defined simply
A compliant firm facing a sanctioned party has two different levers available, and confusing them is the single most common mistake:
- Freeze/block: take the resource into your own custody, lock it away from everyone — including the customer who originally owned it — and report it. Nobody gets it until a regulator says otherwise.
- Refuse/reject: simply decline to carry out the instruction. The money never leaves the paying customer’s account, so there’s nothing to freeze.
And two roles matter for how this plays out:
- Beneficiary bank: the bank holding the account of the person or entity who’s supposed to end up with the money.
- Intermediary (correspondent) bank: a bank in the middle of the chain, routing the payment onward, with no account relationship to either the sender or the ultimate recipient.
Scenario A: you receive instructions to make a payment that involves a sanctioned party
Picture a customer who isn’t sanctioned asking you to send money to someone who is.
| Jurisdiction | What you do | Beneficiary vs. intermediary bank |
|---|---|---|
| US (OFAC) | Block. Take the funds into a blocked, interest-bearing account. Don’t send them, and don’t hand them back to the customer either. | No difference in principle — blocking applies regardless of whether it is the originating or intermediary bank in the chain. A purely blind intermediary with no account relationship to a non-listed related party gets a narrow pass on investigating what it has no way of knowing, but the moment it knows or should know a designated person is involved, it blocks too. |
| UK (OFSI) | Refuse. Don’t execute the payment; the customer’s own funds are untouched. | Same principle for any bank in the chain — but correspondent banks caught mid-chain have created a genuine practical headache here (see below). |
| EU | Refuse — going ahead would mean making economic resources available to the designated person, which every EU regulation prohibits directly or indirectly. | Same in principle for whoever in the chain is asked to move the money. |
| Switzerland (SECO) | Refuse, for the same reason — Swiss ordinances closely mirror the EU wording, prohibiting third parties from making economic resources available to a listed person. | Same in principle. |
| Canada | Refuse — completing the payment would breach the ban on making any goods available to a designated person, or providing services to their benefit. | Same in principle, though published Canadian guidance addressing intermediary banks specifically the way the US and UK have could not be located. |
| Australia (DFAT/ASO) | Refuse — a person commits an offence if they make assets available to a designated person or entity. | Same in principle. |
The one country that flips the answer is the US, and it’s worth pausing on why. OFAC treats a designated person’s status as intended beneficiary of a payment as itself an “interest” in the funds, so the moment the firm has possession or control of the money for the purpose of sending it their way, it’s already blockable property — even though it started out as the customer’s own money and never actually reached anyone. Everyone else in this table requires the resource to actually belong to, or be held or controlled by, the designated person before the freeze duty exists — and a payment instruction that hasn’t been executed yet doesn’t meet that bar. So the divergence isn’t really about freeze versus reject as competing philosophies; it’s about how early each regime decides a sanctioned party has acquired an interest in money that hasn’t arrived yet.
Scenario B: you receive funds that involve a sanctioned party
Now flip it: money has actually arrived, or is already sitting in an account, where a designated person has a real, present interest — as the account holder, or as the completed beneficiary of an inbound transfer.
| Jurisdiction | What you do | Beneficiary vs. intermediary bank |
|---|---|---|
| US (OFAC) | Block, and report within 10 business days. | No difference — whoever’s possession or control the funds come within, blocks, subject to the same narrow intermediary safe harbor as above. |
| UK (OFSI) | Freeze, and report. | The beneficiary bank freezes without question. An intermediary bank is generally fine to keep routing a payment onward provided the funds aren’t owned, held, or controlled by a designated person at the point it’s dealing with them — which gets complicated fast if a designated bank sat somewhere upstream (see below). |
| EU | Freeze, and report to the national competent authority. Notably, a bank is explicitly permitted to credit an incoming third-party payment into a frozen account without needing prior authorization for that specific act — the funds simply join the frozen pool once they land. | Same logic as the UK: a true intermediary that never holds the designated person’s resources has nothing to freeze; a beneficiary bank freezes on receipt. |
| Switzerland | Freeze, and report to SECO. | Same principle as the EU. |
| Canada | Freeze (functionally, by disclosing the property to the RCMP and being barred from dealing with it) — firms must report property in their possession or control that is owned or controlled by designated persons and freeze such property. | Same principle, applied to whoever holds it. |
| Australia | Freeze, and notify the Australian Federal Police. | Same principle for whoever is holding the asset. |
This is really the headline finding: on receipt, all six jurisdictions land in the same place. The freeze duty is nearly universal once a designated person actually has a stake in the resource — the interesting divergence lives entirely in Scenario A, where the US alone extends that duty backward to cover an unexecuted instruction.
Two wrinkles worth knowing for intermediary banks specifically
US: OFAC’s own guidance draws the safe-harbor line precisely. An intermediary bank with no account relationship to a non-listed party referenced in a wire, and no actual or constructive knowledge of a blocking issue, isn’t expected to go digging — but the instant it has information suggesting blocked status, the duty to block attaches regardless of its position in the chain.
UK: because the UK (unlike the EU generally) has designated entire banks, correspondent banks kept finding themselves holding payments that had passed through a now-designated bank somewhere upstream, with no clean way to either complete or return them — the industry calls these “trapped payments.” OFSI’s analysis turned on whether the designated bank still had a right of countermand over the funds at that point in the chain: if it had already discharged its role and lost any right to pull the funds back, the funds were no longer considered owned, held, or controlled by that designated bank, so the freeze duty didn’t travel downstream with it. That general licence has since been superseded by later amendments, so it’s an illustration of the reasoning rather than current operative guidance — worth pulling OFSI’s live Russia guidance before citing the mechanism itself.
Self-check
- US: OFAC FAQ 36 (reject example), FAQ 116 (intermediary safe harbor), and 31 CFR 501.603 (blocked-property reporting) pulled directly from ofac.treasury.gov.
- EU: Regulation 36/2012 Article 14 template and the Council’s July 2024 Best Practices document, both previously verified.
- UK: OFSI’s general guidance and reporting pages (gov.uk, ofsi.blog.gov.uk) plus the Trapped Payments general licence publication notice — flagged above as superseded, useful for the reasoning, not for current citation.
- Canada: Global Affairs Canada’s own “Dealings prohibition and asset freeze” and disclosure pages — solid primary sourcing, but nothing found specific to intermediary-bank treatment; that’s a gap in published guidance, not a claim made by extension.
- Australia: DFAT/Australian Sanctions Office guidance notes, all primary and current (2024–2025 dated).
- Switzerland: sourced mainly through a Swiss press account describing the ordinance language rather than a direct ordinance or SECO FAQ pull — worth swapping in the exact ordinance article, and worth checking whether SECO’s FAQs address this reject/freeze point directly before publishing.
- The “when does an interest attach” framing that ties the whole piece together is an original synthesis of the sourced material above, not a line any one source states outright.
Leave a Reply