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36. 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 (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.
For example, a U.S. financial institution would have to reject a wire transfer between two third-country companies (non-SDNs) involving an export to a company in Iran that is not otherwise subject to sanctions. Since there is no interest of the blocked person (e.g., the Government of Iran, and Iranian financial institution, or an SDN), there is no blockable interest in the funds. However, the U.S. financial institution cannot process the transaction because that would constitute...
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1) See e.g. Wachovia Bank (2007) for an enforcement action based on the rejection of a wire transfer that should have been blocked.
2) FAQ amended on Aug. 11, 2020 "to reflect that Sudan has not been a comprehensively sanctioned country since October 12, 2017" (see https://web.archive.org/web/20221207223105/https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20200811).
The original FAQ read as follows:
36. 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 company in Sudan...