Cryptocurrency Frozen or Seized for Alleged OFAC Sanctions Violations

Discovering that your cryptocurrency has been frozen is one of the most alarming events a digital asset owner can experience. Whether you are an individual investor, a cryptocurrency trader, an over-the-counter (OTC) broker, a business accepting digital assets, or a Virtual Asset Service Provider (VASP), the inability to access your funds can have immediate financial and legal consequences.

In many cases, the wallet owner receives little or no explanation beyond a generic statement that the assets have been restricted due to sanctions compliance or an ongoing investigation.

Increasingly, wallet owners receive notices from cryptocurrency exchanges, stablecoin issuers, or other service providers indicating that their accounts have been frozen because of concerns related to sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).

Others discover the problem when attempting to transfer stablecoins such as USDT or USDC, only to learn that the tokens have been frozen at the smart contract level.

Some receive a brief response directing them to OFAC or informing them that the company cannot provide additional information. In many cases, the affected wallet owner is left with no clear understanding of why the assets were restricted, whether a government agency is involved, or what legal remedies may be available.

One of the most common responses received from both cryptocurrency companies and government agencies reflects the uncertainty surrounding these cases. For example, OFAC has advised individuals that token issuers and exchanges may independently make risk-based decisions to refuse transactions or restrict customer accounts to ensure compliance with U.S. sanctions laws.

Attorney for Frozen or Seized Digital Assets for OFAC Sanctions Violations

Contact an attorney at Sammis Law Firm to learn how how OFAC sanctions intersect with cryptocurrency, why wallets become frozen, how blockchain analytics companies identify potential sanctions exposure, the legal distinction between sanctions blocking and asset forfeiture, and the practical steps cryptocurrency owners should take if they discover that their digital assets have been frozen or seized.

Whether the restriction involves USDT, Bitcoin, Ethereum, or another digital asset, understanding the legal framework governing these actions is the first step toward protecting your rights and determining the appropriate strategy for recovering your property.

OFAC does not have a general administrative claim process through which a person can challenge every wallet freeze. Instead, depending on the circumstances, an attorney may:

• submit an application for a specific license authorizing a prohibited transaction;
• file a petition for administrative reconsideration or delisting if the client has been designated as an SDN or otherwise sanctioned;
• request interpretive guidance regarding the application of OFAC regulations;
• communicate directly with OFAC regarding the status of blocked property;
• engage with the entity that imposed the restriction (such as Tether or an exchange) to seek release of the assets.

If the freeze is the result of a government seizure rather than an OFAC blocking action, the attorney’s remedies are found in the applicable forfeiture statutes and court rules—not through an OFAC licensing or petition process.

The attorneys at Sammis Law Firm understand the overlapping issues of sanctions law, administrative law, constitutional due process, blockchain tracing, and forfeiture procedure. Few practitioners are experienced in navigating all of these areas together, making it an emerging and highly specialized field.

Call 813-250-0500.

Problems with the OFAC-related Freeze

OFAC has also explained that it generally will not require a private company to process a transaction that the company has independently determined presents unacceptable sanctions risk. Likewise, stablecoin issuers such as Tether may decline to provide additional information and instead direct customers to OFAC or another government agency.

These responses often fail to identify any legal basis for the restriction or explain whether the assets have actually been blocked under U.S. sanctions laws, frozen pursuant to a private compliance decision, or seized as part of a criminal or civil asset forfeiture investigation.

One of the biggest misconceptions in this area is the assumption that every cryptocurrency freeze involving OFAC means the wallet owner violated U.S. sanctions laws. That is simply not true. A wallet may be restricted for many different reasons, including:

• the actions of another person;
• the use of blockchain analytics software that identifies potential sanctions exposure;
• a request from law enforcement;
• an exchange’s internal compliance policies; or
• transactions involving wallets that investigators believe are associated with sanctioned individuals or jurisdictions.

In some situations, entirely legitimate cryptocurrency holders find themselves unable to access their digital assets because their wallets received funds that previously passed through a sanctioned address or because a transaction triggered an automated compliance review. The existence of an OFAC-related freeze should never be viewed as proof that the wallet owner knowingly violated U.S. sanctions laws.

The Legal Process for OFAC Blocking Actions

It is also important to distinguish between an OFAC blocking action, a private compliance freeze, and a federal seizure. These terms are frequently used interchangeably by the media and even by experienced practitioners, but they describe very different legal processes.

An OFAC blocking action generally involves property that is required to be blocked because of U.S. sanctions regulations. A private compliance freeze may occur when a cryptocurrency exchange or stablecoin issuer independently decides that a wallet presents an unacceptable sanctions risk, even without a direct order from OFAC.

Unlike a token issuer such as Tether, OFAC generally does not have the technical ability to freeze cryptocurrency on a blockchain. Instead, OFAC administers sanctions regulations that require U.S. persons to block property or prohibit certain transactions, while private companies implement those obligations through their own compliance programs.

A federal seizure, by contrast, generally occurs when a law enforcement agency obtains legal authority—often through a seizure warrant issued by a federal court—to take control of property that is alleged to be connected to criminal activity or subject to forfeiture. The legal rights, procedural protections, and available remedies differ substantially depending upon which of these circumstances applies.

The distinction is especially important because many agencies may become involved in cryptocurrency investigations. Depending upon the facts, an investigation may include the Department of Justice, the Federal Bureau of Investigation (FBI), Homeland Security Investigations (HSI), the Drug Enforcement Administration (DEA), the Internal Revenue Service Criminal Investigation Division (IRS-CI), the United States Secret Service, the Financial Crimes Enforcement Network (FinCEN), or OFAC itself.

Each agency operates under different statutory authority, pursues different objectives, and employs different investigative tools. A freeze imposed to comply with sanctions regulations is fundamentally different from a seizure conducted under federal civil or criminal forfeiture laws, even though the practical effect on the wallet owner may initially appear to be the same.

Stablecoins, particularly USDT issued by Tether, have become one of the most visible examples of sanctions-related cryptocurrency restrictions because Tether possesses the technical ability to freeze tokens associated with a specific wallet address.

Unlike decentralized cryptocurrencies such as Bitcoin, where no central authority can directly prevent transfers on the blockchain, Tether can blacklist wallet addresses and prevent frozen USDT from being transferred. As a result, many publicly reported sanctions cases involve frozen USDT.

Nevertheless, sanctions-related investigations are by no means limited to Tether. Bitcoin, Ether, USDC, Solana-based assets, exchange accounts, custodial wallets, and other digital assets may all become the subject of sanctions investigations, compliance restrictions, or federal seizure actions.

If OFAC Has Actually Blocked the Property

If the property is blocked under OFAC regulations because the client has been designated or the property is considered blocked property, an attorney may apply for a specific license. Under OFAC’s licensing regulations, an attorney may submit an application requesting authorization for a transaction that would otherwise be prohibited. For example, an attorney can submit an application for a specific license that would permit legal fees to be paid to the attorney.

If the client has actually been placed on OFAC’s Specially Designated Nationals (SDN) List, counsel may submit a petition requesting removal from the sanctions list. The process might include providing evidence and financial evidence and requesting interpretive guideance.

But most wallet freezes do not involve SDN designation. Although relatively uncommon compared with ordinary compliance freezes, a person or entity that has been designated by OFAC may petition for administrative reconsideration under OFAC’s regulations. An attorney can request guidance from OFAC explaining:

• whether a transaction is prohibited;
• whether a wallet is considered blocked;
• whether proposed conduct requires a license.

This article was last updated on Friday, July 24, 2026.