Blocked Funds - Explained
What are Blocked Funds?
Written by Jason Gordon
Updated at April 18th, 2022
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
What is a Blocked Fund?
A blocked fund is defined as money or capital realized when a foreign operation involving the transfer of funds is blocked as a result of regulations imposed by the government of the country where the money was generated. When a fund is suspected to be generated from illegal activities or criminal acts, the government can impose certain regulations hindering the money from being be transferred. The fund then becomes a blocked fund.
Back to:BANKING, LENDING, & CREDIT INDUSTRY
How Does a Blocked Fund Work?
There are quite a number of reasons why foreign operations involving the transfer of funds may be blocked, thereby becoming blocked funds. The major reasons are trade violations, criminal or illegal activities, political reasons and regulations in foreign currencies. When a nation is faced with a situation of emergency, blocked funds might occur, political reasons can also motivate regulations imposed on foreign operations resulting in blocked funds. A financial institution might be mandated to hold particular funds if they are suspected to be generated from criminal activities. Questionable transactions are investigated but funds involved are held until investigations are complete. For example, recently, the Justice Department in the U. S asked Visa and PayPal to block fund transfers to offshore gambling Web sites until it is satisfied that no illegality has occurred. Funds can also be restricted when trade violations occur. If the government of a nation decides a certain funds should be blocked, financial institutions in charge of the funds are contacted to effect this. The institution then freezes the funds until investigations are complete and it is certain that no illegality occurred. However, during this period, the funds are put in interest-bearing accounts where they can generate interests which are returned to the holder of the funds once they are unfrozen or unblocked. Some professionals specialize in trading blocked funds, they are mostly banks and brokers. They trade these funds in exchange for profits, they often request discounts or make profits through currency conversion rates.