Blocking vs rejecting crypto transactions: what a sanctions hit requires in the US and Canada
Blocking and rejecting crypto transactions are different sanctions outcomes, with different rules on holding, returning and reporting the asset. This guide explains what OFAC requires after a confirmed wallet screening hit, how Canadian law and FINTRAC reporting treat the same hit, and what the case file should show.
What is the difference between blocking and rejecting crypto transactions?
Blocking means the firm holds the virtual currency, denies every party access to it and reports it to OFAC, because a blocked person has an interest in it. Rejecting means the firm refuses to process a prohibited transaction in which no blocked person holds a blockable interest, returns it to the originator and reports the rejection.
OFAC's FAQ 560 (2018) confirms that sanctions obligations are the same whether a transaction is in digital currency or fiat. The mechanics differ: a confirmed on-chain deposit already sits in an address the firm controls, so any return is a new outbound transfer. Our guide to on-chain sanctions screening covers how a result becomes a disposition; this article covers the disposition itself.
| Aspect | Blocking | Rejecting |
|---|---|---|
| Applies when | A blocked person has an interest in the asset | The transaction is prohibited and no blockable interest exists |
| The asset | Held, access denied to all parties | Not processed forward; returned to the originator |
| Return | Only under an OFAC authorization | Return is the outcome |
| OFAC report | Within 10 business days, then annually | Within 10 business days |
When must a US firm block virtual currency?
A US person must block virtual currency when a blocked person has an interest in it. That includes an address listed on an SDN entry, an unlisted address the firm believes is owned by or associated with an SDN, and virtual currency of an entity owned 50 percent or more, in aggregate, by blocked persons.
OFAC's FAQ 562 (2018) says its digital currency address listings are not likely to be exhaustive, and that a firm identifying a wallet or address it believes is owned by or associated with an SDN should block the relevant digital currency and report it, listed or not. FAQ 560 describes the ownership rule commonly called the 50 Percent Rule.
Two shortcuts are worth ruling out. A tracing percentage is not an ownership threshold: 20% exposure to a listed source has nothing to do with the 50 Percent Rule, as our article on haircut and poison tracing explains. And hop count is not the test, which is why direct and indirect exposure are analytical labels, not legal categories.
What does OFAC FAQ 646 require once crypto is blocked?
Under OFAC's FAQ 646 (2021), once virtual currency must be blocked, the US person must deny all parties access to it, report it to OFAC within 10 business days and annually afterwards, and keep holding it. It may be unblocked and returned to its owner only pursuant to an OFAC authorization.
FAQ 646 lets the firm block each wallet separately or consolidate blocked holdings in an omnibus wallet, and it does not require conversion to fiat or an interest-bearing account.
Blocking is not sending it back
The instinct after an inbound hit is to bounce the deposit to its source. Where the asset must be blocked, blocked virtual currency may be returned only under an OFAC authorization, so sending it back is not an option on the firm's own initiative. A sound practice is a pre-approved procedure for moving blocked assets into a controlled wallet, recording each transaction hash, amount and timestamp.
When should a crypto transaction be rejected instead of blocked?
Reject when the transaction is prohibited but no blocked person has an interest in the asset. OFAC's FAQ 36, amended in October 2026, says such a transaction should be rejected and returned to the originator, must not be processed forward to the beneficiary, and is reported to OFAC within 10 business days.
FAQ 36 was written for payments generally, so applying it to crypto takes operational judgment:
- Outbound withdrawals. If screened before broadcast, the firm simply declines to send.
- Inbound deposits. A confirmed deposit cannot be declined on-chain. A return is a fresh transfer that needs its own screening, and a blockable interest rules it out.
- The originator's address. It may belong to a custodial exchange. We recommend confirming the return destination with the originating service, using travel rule data where available.
What does a crypto sanctions hit require in Canada?
Canada applies its own statutes, so a hit is assessed under the United Nations Act, SEMA, JVCFOA, the Criminal Code and related laws, which bind persons in Canada and Canadians abroad. Where a disclosure duty arises, FINTRAC requires a Listed Person or Entity Property Report immediately, and suspected sanctions evasion goes in a suspicious transaction report.
Global Affairs Canada lists the Canadian sanctions statutes. OFAC's blocking and rejecting vocabulary does not carry across automatically, so an OFAC outcome needs a separate Canadian analysis:
- Indirect dealings. Most SEMA and JVCFOA regulations prohibit entering into or facilitating a transaction related to a dealing with a listed person even indirectly, such as through a third party.
- Property reporting. FINTRAC's LPEPR guidance (2025) requires the report when the firm must make a disclosure under section 83.1 of the Criminal Code, the UN Act regulations, the SEMA regulations or the JVCFOA. It is due immediately, and no transaction is needed: the existence of the property is the trigger.
- Sanctions evasion. Since August 19, 2024, FINTRAC requires reports on completed and attempted transactions where there are reasonable grounds to suspect sanctions evasion, in one report where ML/TF is also suspected, filed as soon as practicable.
FINTRAC's virtual currency indicators (2021) include addresses matching recognized watch lists such as OFAC's, so an OFAC-only listing still matters. Which regimes apply to a firm active in both countries is a legal question for counsel. See our VASP compliance primer for Canada.
How do US and Canadian outcomes compare for common crypto hits?
The same hit can require different actions in each country. In the US, the question is whether a blocked person has an interest, which decides between blocking and rejecting. In Canada, the questions are whether a Canadian prohibition applies, whether a disclosure and LPEPR are triggered, and whether there are reasonable grounds to suspect sanctions evasion.
The scenarios below are illustrative starting points, not legal conclusions.
| Scenario (illustrative) | United States | Canada |
|---|---|---|
| Deposit from an address on an SDN entry | Block and report; no return without authorization | Check Canadian listings; LPEPR if a disclosure duty arises; assess an STR |
| Withdrawal to an unlisted address attributed to an SDN | Do not send; treat as blockable | Assess Canadian listings and indirect-dealing prohibitions; attempted transactions count for STRs |
| Prohibited transfer, no blockable interest | Reject, return to originator, report | Apply the matching Canadian prohibition; STR if evasion is suspected |
| Exposure two transfers from a listed address | Hop count alone does not decide; investigate attribution | An indicator to assess with facts and context |
How should a block or reject decision be documented?
Record the decision as a chain an outside reviewer can follow: the hit and its source, the evidence that a blocked person does or does not have an interest, the legal provision applied, the action taken with transaction hashes and timestamps, and each report filed with its date. The file alone should be enough to rebuild the outcome.
- The alert: network, asset, address, transaction hash, list entry or label, list version and effective designation date.
- Attribution evidence, kept separate from the analyst's inferences.
- Provisions considered in each jurisdiction, and why each applied or not.
- The action taken and the wallet now holding the asset.
- Each report filed, with dates and references, plus the reviewer and approver.
Keep a register of blocked holdings for the annual report. For hits that do not support a block, see our article on the limits of crypto address screening.
Sources
These are the primary regulatory documents this guide relies on, each checked against the published text in November 2026. OFAC and FINTRAC revise their guidance from time to time, so confirm the current version of each document before relying on it in a policy, procedure or case decision.
- OFAC FAQ 560 (2018)
- OFAC FAQ 562 (2018)
- OFAC FAQ 646 (2021)
- OFAC FAQ 36 (amended 2026) and the October 26, 2026 FAQ batch
- Global Affairs Canada: sanctions legislation
- Global Affairs Canada: indirect dealings
- FINTRAC: LPEPR guidance (2025)
- FINTRAC: suspected sanctions evasion (2025)
- FINTRAC: suspicious transaction reports
- FINTRAC: virtual currency indicators (2021)
FAQ
Is blocking a crypto transaction the same as rejecting it?
No. Blocking applies when a blocked person has an interest in the virtual currency: the firm holds it, denies all parties access, reports it to OFAC within 10 business days and annually afterwards, and may return it only under an OFAC authorization. Rejecting applies when a transaction is prohibited but no blockable interest exists: the firm does not process it forward, returns it to the originator and reports the rejection within 10 business days.
Can a firm send blocked crypto back to the sender?
Not on its own initiative. OFAC's FAQ 646 says blocked virtual currency may be unblocked and returned to its owner only pursuant to an OFAC authorization. Until then, the firm denies all parties access and holds it in a separate or omnibus blocked wallet. Returning funds to the sender fits a rejected transaction, where no blocked person has an interest, and the return transfer should itself be screened.
How quickly must blocked or rejected crypto be reported to OFAC?
Within 10 business days in both cases. FAQ 646 sets that deadline for blocked virtual currency and adds annual reports while it stays blocked. FAQ 36 applies the same 10 business day deadline to rejected transactions, under 31 CFR 501.603 and 501.604. Firms should run the clock from the date of blocking or rejection and keep a register of blocked holdings for the annual report.
Do Canadian firms have to block crypto that matches an OFAC-listed address?
Canada applies its own sanctions statutes, so the first question is whether the address owner is caught under a Canadian regime. If a Canadian disclosure duty arises, FINTRAC requires a Listed Person or Entity Property Report immediately. An OFAC-only listing still matters: FINTRAC's virtual currency indicators include matches against watch lists such as OFAC's, which feed the decision on a suspicious transaction report for sanctions evasion.
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