Insurance Company Settles Alleged U.S. Sanctions Violations with OFAC

On August 6, 2015, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $271,815 settlement with a U.S.-based company that specializes in marine and related lines of insurance, professional liability insurance, commercial umbrella and primary and excess insurance. This enforcement action highlights the need for insurance and reinsurance companies to integrate economic sanctions into their compliance procedures.

The company agreed to settle potential civil liability for 48 alleged violations of various OFAC sanctions programs, including (i) the Foreign Assets Control Regulations, (ii) Executive Order 13466 of June 26, 2008 “Continuing Certain Restrictions With Respect to North Korea and North Korean Nationals” and OFAC’s North Korea Sanctions Regulations, (iii) the Iranian Transactions and Sanctions Regulations, (iv) the Sudanese Sanctions Regulations and (v) the Cuban Assets Control Regulations. OFAC determined that these alleged violations were, at least in part, caused by the company’s lack of an OFAC compliance program and misinterpretation of the applicability of OFAC sanctions regulations by personnel in its United Kingdom branch.

Between May 2008 and April 2011, the company issued global protection and indemnity (P&I) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that either occurred in or involved Iran, Sudan or Cuba, and which led to the payment of some claims. Specifically, the company:

• Provided insurance coverage to North Korean-vessels under 24 P&I insurance policies, collected $1,142,237 in premium payments and paid seven claims, totaling $12,236, in relation to these policies;
• Provided insurance coverage and processed 11 claims payments, totaling $72,962, that involved Iran;
• Provided insurance coverage and processed five claims payments, totaling $260,912, that involved Sudan; and
• Made a claim payment of $21,736 in which a Cuban national had an interest.

OFAC determined that the total base penalty amount for the violations noted above was $755,042.

According to OFAC, the case was aggravated by the fact that managers and supervisors knew, or had reason to know, that the majority of the insurance policies and payments involved sanctioned countries, that the company is a commercially sophisticated financial institution and that the company did not have a formal OFAC compliance program in place at the time that the alleged violations occurred. However, OFAC considered the fact that the case was mitigated by the company’s cooperation with the investigation, its clean record with OFAC for the five years preceding the first alleged violation and the company’s remedial actions taken in response to the alleged violations, including the implementation of a comprehensive compliance program.

The settlement with OFAC has broad applicability for the insurance industry, as it is indicative of sanctions issues and penalties that any insurance operation, whether inside or outside the P&I realm, could potentially face. All global insurance operations must ensure that they are not extending any prohibited services to sanctioned countries, entities or individuals by taking appropriate compliance-related steps, including, among others, incorporating comprehensive screening procedures in their business practices, adding exclusion clauses to global policies prohibiting violations of U.S. economic sanctions programs and applying for a specific license from OFAC when the inclusion of exclusion clauses is not possible or feasible.

OFAC has provided compliance guidance for the insurance industry.

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