Glossary term
Blocking and Rejecting Transactions
Subject: Financial Crime, Sanctions
Also known as: Block or reject, Blocking vs rejecting
Blocking and rejecting are the two ways a firm handles a sanctioned payment: blocking freezes the funds and holds them, while rejecting refuses to process the payment and returns it or leaves it unprocessed.
Explanation
Which action applies depends on whether the sanctioned party has an interest in the funds. Where it does, the firm must block: place the money in a frozen account, make no payment and report to the authority. US rules, for instance, set out reporting deadlines for blocked property. Where no blockable interest exists but the payment would still breach a rule, the firm rejects it, which means refusing to process, and also reports. Other jurisdictions use different words but make a similar split. The choice has practical effects: blocked funds stay with the firm and may need an interest-bearing account, whereas rejected payments go back to the sender. Mistakes are costly either way. The wrong choice either breaches the law or leaves an innocent customer's money in limbo.
Example
A payments processor receives a payment for a company that is 60% owned by a listed person. The sanctions team decides the listed owner has an interest in the money, so it blocks the funds in a separate frozen account and reports it. A second payment, to a supplier in a country under country-wide sanctions, involves no listed party. It is rejected and returned to the sender.
Not to be confused with
- Asset Freeze
- An asset freeze is the wider legal status of a listed party's property. Blocking is the action a firm takes to apply it to a specific payment.