The Office of Foreign Assets Control (OFAC) is the federal agency that administers economic sanctions programs. A division of the U.S. Department of the Treasury, OFAC codifies economic sanctions regulations in the Federal Register and maintains the Specially Designated Nationals and Blocker Persons List (SDN list). OFAC is also the agency tasked with enforcing, administering, and implementing U.S. economic sanctions.
In most cases, U.S. persons are prohibited from conducting business or engaging in financial transactions with any person or entity identified on OFAC’s SDN list. Those in the insurance industry are among many who must exercise due diligence in checking the SDN list to ensure that the people and property they insure are not Specially Designated Nationals, which are excluded from engaging in business with U.S. insurers. Retaining well-qualified legal counsel can help you or insurance group maintain compliance and avoid the possibility of harsh civil and criminal penalties.
Insurance Industry Responsibilities
Under OFAC-administered sanctions regulations, U.S. persons are broadly prohibited from providing nearly any services to a person on the SDN list. Insuring a person on the SDN list is a direct violation of OFAC regulations and therefore punishable by civil and criminal penalties. Before issuing a policy, insurers must be sure the prospective policyholder is not a Specially Designated National and the property insured is not property in which an SDN has an interest.
However, checking the SDN list prior to issuing a policy is not enough to maintain compliance. After all, a person may not be on the SDN list when the policy is issued but may be added to the list at some point after the policy has been issued.
OFAC does not specify how regularly insurers must “scrub its databases” for OFAC compliance, but the agency notes that federal law requires assets of Specially Designated Nationals be frozen or blocked immediately. Because the SDN list is updated frequently, it is imperative that insurers scrub their databases frequently in order to block assets and insurance policies before they can be removed from United States jurisdiction. An insurers’ regulatory or compliance officer can establish a policy to be certain databases are regularly checked for compliance. They may also want to refer to the FAQ section related to the insurance industry on the U.S. Treasury Department’s website.
If an insurer discovers that a policyholder is an SDN or if the policyholder is designated as such after receipt of the policy, the insurance contract becomes a blocked contract. While a license may be granted from OFAC to allow the insurer to receive premium payments to keep the policy in force, the contract itself is still blocked and any dealings related to the policy must be handled through OFAC. Timely reporting of such a discovery to OFAC is critical for maintaining compliance.
Contacting OFAC’s Compliance Division in such a situation can be of tremendous help in determining the next steps in blocking the contract and notifying the policyholder that the policy has become blocked. No license is necessary to notify the policyholder that the account is blocked, and OFAC has indicated in its guidance that it is permissible to let the policyholder know that any subsequent premium sent will be placed in a blocked account and to contact the Treasury Department for more information.
Global Insurance Policies
In some situations, an insurance policy may cover potential risks in sanctioned countries. If a global insurance policy thus establishes coverage, payment of a claim may violate OFAC sanctions. The agency recommends that all global policies explicitly exclude risks that would violate United States sanctions law.
However, in a worldwide market, insurers from other countries may be willing to extend a global policy that does not exclude such risks. The OFAC regulations are not intended to penalize or cripple U.S. companies engaging in international business. Therefore, in some cases, an OFAC license may be granted for a specific license. In such a case, the insurer would also be required to obtain a separate license in order to pay claims arising under the global insurance policy.
Global travel insurance policies and travel related services in Cuba are only permissible through a general or specific OFAC license. Except for Cuba, travel related services are authorized in all other OFAC country sanctions programs. You can read more about OFAC licensing requirements and the insurance industry here.
Understanding how U.S. sanctions law applies to the insurance industry can be difficult. Civil and criminal penalties may be levied against United States insurers who violate OFAC regulations and United States sanctions. Compliance counseling from an experienced OFAC sanctions attorney may be able to assist with such matter.