When OFAC Sanctions Reach State Unclaimed Securities

On August 24, 2026, Treasury Secretary Scott Bessent launched “Operation Economic Outcast,” and the U.S. Office of Foreign Assets Control (OFAC) extended secondary sanctions on Iran into five additional sectors: aviation, digital assets, gold, shipping, and technology.

Nearly 60 individuals, entities, and vessels were added to OFAC sanctions lists. Some of those names, as well as previously sanctioned individuals and entities, could have an interest in assets held in a state unclaimed property program. For state officials responsible for unclaimed securities, this requires ongoing administrative vigilance. OFAC lists will almost certainly change over time if the securities remain in state custody.

How a Designation Can Affect Escheated Shares

A company or shareholder does not need to be sanctioned at the time shares are escheated. If the underlying owner or property is later added to OFAC’s List of Specially Designated Nationals and Blocked Persons, commonly known as the SDN List, the applicable sanctions will apply to the state’s unclaimed property portfolio.

Under OFAC regulations, targeted properties and property in which a blocked person has an interest generally must be frozen in place when they are within the United States or within the possession or control of a U.S. person. This can include stocks, bonds, dividends, and other financial instruments, not just cash.

A portfolio assembled over years or decades can therefore include securities and owners whose sanctions status changed long after the assets arrived.

Where SDN Designations Come From

OFAC, part of the U.S. Department of the Treasury, administers economic and trade sanctions in support of U.S. foreign policy and national security objectives. Those sanctions span more than 30 programs, ranging from broad country-based programs to restrictions targeting specific individuals, entities, or activities.

Recurring OFAC Reporting Obligations

OFAC’s Reporting, Procedures and Penalties Regulations (31 C.F.R. Part 501) establish reporting and recordkeeping requirements related to blocked property and certain rejected transactions.

These requirements can include:

• Initial blocking report: When property is blocked, the holder generally must notify OFAC within 10 business days.
• Rejected transaction reports: Certain transactions rejected because they would violate sanctions requirements may also be subject to reporting.
• Annual Report of Blocked Property: Persons or entities holding blocked property as of June 30 generally must file an annual report with OFAC by September 30 of that year using the required form (TD-F 90-22.50) or OFAC’s electronic Reporting System.

The specific reporting obligations will depend on the circumstances and the nature of the property, making it important for state programs to coordinate with their legal and compliance teams and the financial institutions managing their securities.

State Unclaimed Securities Programs

State officials rarely hold unclaimed securities directly. Instead, shares are commonly held for the state by specialized custodial banking institutions with unclaimed securities specialists or other service providers often supporting the program.

The custodian may handle certain operational and reporting responsibilities on the state’s behalf. That makes clear coordination important. State programs should understand which party is responsible for screening, identifying potential matches, freezing assets when required, submitting reports, and maintaining supporting records.

The interaction between state escheat requirements and federal sanctions can also create conflict situations that require careful review. State laws may require a holder to remit dormant property to the state, while federal sanctions requirements may restrict transactions involving either named assets or property in which a blocked person has an interest. When those state and federal requirements intersect, programs should work with counsel to determine how the applicable federal and state requirements apply to the specific circumstances.

Missing an applicable OFAC reporting deadline can also create a compliance issue separate from the underlying transaction or blocking requirement. Late filing of blocked-property reports can carry significant civil penalties. As of September 10, 2026, $284,145,655 in penalties has been assessed year-to-date. Failures that Treasury officials view as willful, conspiratorial, or displaying a purpose to evade sanctions can bring criminal penalties as well.

Key Compliance Considerations

Several factors make sanctions screening particularly relevant for state unclaimed securities programs:

• Designations can occur after escheatment. An owner or property may be added to the SDN List after shares have already entered state custody. The state or its service providers may therefore need processes for identifying changes in sanctions status over time.
• The underlying ownership interest can remain relevant. Escheatment changes who has custody of the property, but it does not eliminate the original owner’s interest for purposes of federal sanctions analysis. Whether a particular asset or owner is subject to blocking requirements depends on the facts and applicable OFAC rules.
• The SDN List changes over time. OFAC adds and removes names on an ongoing basis. Screening performed only when securities are initially received may therefore not identify later changes.
• Long-term holdings increase the need for ongoing processes. State programs may hold securities for years or decades, creating a need for documented processes that remain effective as portfolios, personnel, custodians, and sanctions lists change.

Recommended Compliance Practices

OFAC compliance is best approached as a structured ongoing process. Much of the operational work may already be handled by a state’s securities custodial bank or custody services provider. A goal for state programs is to make sure responsibilities are clearly defined and the appropriate controls are in place.

1. Establish ongoing SDN screening. Because the SDN List changes over time, programs and their custodial partners should establish an appropriate process for screening relevant holdings against the current sanctions lists.
2. Define procedures for potential matches. If screening identifies a property, an owner, or another person with a potential interest in shares appearing on the SDN List, the program and its service providers should have a documented process for reviewing the match and determining whether blocking or reporting requirements apply.
3. Understand annual reporting requirements. Programs should understand whether blocked property held as of June 30 each year is subject to the Annual Report of Blocked Property requirement and, if so, which party is responsible for filing it with OFAC by September 30. This remains relevant even when an initial blocking report was submitted earlier in the year.
4. Document responsibilities with custodial banks and service providers. Delegating operational work can help manage these OFAC reporting requirements, but state programs should maintain visibility into whether required processes are being performed.
5. Maintain appropriate records. OFAC’s recordkeeping requirements apply to records related to blocked property and other covered transactions. State programs should maintain documentation that supports their screening, decision-making, reporting, and coordination processes as required.

What This Means for State Programs

OFAC sanctions create ongoing compliance obligations for state unclaimed securities programs, particularly when portfolios contain OFAC-targeted assets or assets associated with owners whose sanctions status changes after escheatment.

The key consideration is to treat sanctions screening, blocking procedures, reporting, and recordkeeping as ongoing elements of securities administration. Clear responsibilities between the state, custodial institutions, and other service providers can help ensure that potential issues are identified and addressed appropriately.

For programs managing large or long-lived securities portfolios, having documented processes also provides a clearer record of how sanctions-related obligations are monitored and handled over time.

With screening, blocking, and reporting handled on a set cadence, the record largely builds itself. Neumo supports unclaimed property programs across the country with securities custody management services, system administration software, claims administration services, and exceptional unclaimed property expertise.

Note: This article is intended as a general overview and does not constitute legal advice. State unclaimed property programs should consult with counsel regarding their specific OFAC compliance obligations.