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Many in the insurance industry are blind to the fact that the Office of Foreign Assets Control (OFAC) is hiding in the shadows. The federal agency of the US Department of the Treasury responsible for the administration, implementation and enforcement of economic sanctions programs, OFAC is on the lookout for bad actors – oppressive governments, drug traffickers, terrorists and others. Specially Designated Nationals and Stranded Persons (SDNs) who threaten our national security.
But what does OFAC’s interest in these criminals have to do with insurance-related entities? The answer to this question is clearly addressed in OFAC regulations, which prevent brokers, agents, insurers and reinsurers from issuing insurance policies and reinsurance contracts involving OFAC targets.
A little background
Several different federal laws, including the International Emergency Economic Powers Act and the Trading with the Enemy Act, authorize OFAC to administer and enforce economic sanctions against a long list of countries and League of Nations – those associated with the governments of countries. sanctioned.
As a general rule, it is strictly forbidden to engage in commercial or financial transactions with any person identified on the SDN list of OFAC. This applies to players in the insurance industry, who are required to exercise due diligence to ensure that they do not insure people and property designated as SDNs.
OFAC regulations prevail over state insurance laws
Those who work in the insurance industry may believe that only state insurance laws govern what they can and cannot do in terms of placing coverage and paying claims. But this is not the case when it comes to the authority of the OFAC in matters of insurance operations.
The issue of preemption was addressed almost two decades ago in written FAQs published by the Treasury Department. Indeed, on September 10, 2002, the following question was formally asked regarding compliance for the insurance industry:
âState insurance laws regulate an insurer’s ability to withhold payment of claims, cancel policies, or refuse to enter into policies. In some cases, insurers must make an apparent violation of national insurance regulations to comply with OFAC regulations. Does OFAC have a position as to whether OFAC regulations prevail over national insurance regulations in this context? “
In response, the Treasury Department explained:
âOFAC’s regulations under the Trade with the Enemy Act and the International Emergency Economic Powers Act are based on Presidential Declarations of National Emergency and on national regulations for assurance. OFAC regulations are not federal insurance regulations, they are national emergency regulations and powers. [Emphasis added.]”
Under this federal preemption, carriers must follow certain OFAC compliance procedures to ensure that policyholders and potential claimants are not on the SDN list or that the goods to be insured are not goods in which a SDN has an interest.
Screening: First step for any insurance company (1) preparing to issue an insurance policy, (2) making a change to an existing policy, or (3) reviewing a claim is a list review SDN. This must be done upon receipt of a proposal, claim or request for a change of named insured.
The screening requirement lasts for the life of a policy and must also be implemented before paying a claim. This is due to the possibility of changes occurring during a policy period resulting in the inclusion of an SDN which triggers OFAC regulations. Therefore, insurers should periodically check existing policyholders, claimants and beneficiaries against the SDN list.
Blocking and reporting: Then, if a match found on the SDN list is confirmed to be correct after proper investigation, the carrier must immediately notify OFAC and cease all transactions involving that identified person or entity, in which case the police will be considered ” well blocked. “
Likewise, the payment of any claim due to an SDN, or to be deposited or transferred through a bank on the SDN list, should be frozen. In addition, premium payments, interest payments on policy loans and repayments of policy loans related to blocked insurance policies must be credited to an “interest-bearing escrow account” established in the books of the company. an American financial institution.
There is more. OFAC regulations require insurers to report blocked assets to OFAC in a timely manner within 10 days of the blocking of such assets. In addition, carriers must file a full annual report on all goods stranded as of June 30 of the current year (deposit is due by September 30).
Rule violations and self-report: Failure to adhere to OFAC regulations (read: issuing policies or paying claims to those on the SDN list) results in significant civil and criminal penalties that can exceed several million dollars. That being said, insurance companies that have not complied with OFAC’s filtering, blocking or reporting requirements are encouraged to voluntarily disclose past violations.
OFAC considers such self-disclosure to be a mitigating factor in civil sanction proceedings. And while OFAC does not have an amnesty program, it does review all of the circumstances surrounding any violation, including the quality of a carrier’s OFAC compliance program.
Through OFAC regulations, insurers are responsible for doing their part to minimize threats to national security here in the United States. They can do this with the available OFAC compliance software and by implementing comprehensive OFAC compliance plans.
Originally posted by Insurance Journal.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.