OFAC Compliance: A Background Primer
for Wholesale Insurance Professionals
Presented by: Linda Hohn, Esq.
Vice President & Associate General Counsel
Global Indemnity Group, Inc.
Member of the AAMGA Governmental Affairs Committee
December 12, 2013 – 11:00am
Disclaimer
 This webinar is being offered by the AAMGA
Governmental Affairs Committee
 It is not legal advice
 The webinar is for informational and background
purposes only
 Please consult with your compliance officer or
legal counsel for more details
WHAT DOES OFAC MEAN?
• OFAC stands for the “Office of Foreign
Assets Control”
• It is a subdivision of U.S. Department of
the Treasury.
• www.treasury.gov/ofac
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WHAT IS OFAC’s PURPOSE?
• Administers and enforces economic and trade
sanctions against certain foreign countries,
organizations and individuals based on the foreign
policy and national security strategy of the United
States.
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WHAT IS ITS HISTORY?
• The U.S. Department of the Treasury has been
managing economic sanctions against foreign entities
since the War of 1812.
• U.S. Secretary of the Treasury, Albert Gallatin
administered sanctions against Great Britain in retaliation
for the harassment of American sailors who were taken
from American ships and forced to serve in the British
Navy.
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WHAT IS ITS HISTORY?
• 1940:
“Office of Foreign Funds Control”
was established to control and prevent the Nazi’s
use and exchange of assets seized from countries
they occupied.
• 1950:
President Harry Truman
declares a national emergency and blocks
all Chinese and North Korean assets
subject to the jurisdiction of the United
States.
• Truman administration administered orders
and regulations to support their actions under
the Trading with the Enemy Act and OFAC was ultimately
created.
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HOW CAN OFAC DO WHAT IT
DOES?
OFAC’s authority comes from a
number of U.S. federal laws,
regulations and executive orders
addressing the blocking of terrorist
property, embargoes and economic
sanctions.
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WHAT DO THE REGULATIONS
AUTHORIZE OFAC TO DO?
• Regulate and restrict transactions with embargoed
countries and organizations.
• Restrict the transfer and exchange of goods and
services.
• Restrict commercial, industrial and financial
relationships benefitting blocked countries.
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WHAT DO THE REGULATIONS
AUTHORIZE OFAC TO DO?
• Restrict travel to countries such as Cuba subject to
certain exceptions.
• Prohibit any transactions with certain countries,
organizations and people.
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HOW DO WE KNOW WHO THE RESTRICTED
PARTIES ARE?
• OFAC maintains a list of SPECIALLY DESIGNATED
NATIONALS (SDNs) which is available on the OFAC
website. www.treasury.gov/ofac
• SDNs are individuals or countries owned or controlled
by or acting for or on behalf of targeted countries whose
assets are blocked.
• They are organizations and individuals with whom all
United States citizens and permanent residents are
prohibited from doing business.
• Thousands of names are on this list.
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WHAT’S THE DEAL WITH IRAN?
• Iran Threat Reduction and Syria Human
Rights Act of 2012 expands U.S.
sanctions on Iran and Syria.
• Act expands OFAC regulations, which
prohibit U.S. individuals and companies
from conducting business with Iranian and
Syrian interests, to non-U.S. affiliates owned or
controlled by those U.S. individuals or companies.
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WHAT’S THE DEAL WITH IRAN?
• Foreign affiliates must now comply with the prohibitions on
conducting business or otherwise engaging in transactions
with Iran or Syria.
• The impact of this expansion is particularly hard on
reinsurance companies affiliated with U.S. insurance
companies and agencies.
• Penalties for violations are issued against the U.S. parent.
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WHY SHOULD I CARE?
• Sanctions against those who do not comply are steep and include
penalties for corporations, its officers and even individuals.
• Sanctions enforcement is a strict liability approach – even
unintentional violations may result in civil penalties.
• Civil penalties can range from a minimum of $65,000 for each
underlying transaction that is a violation, up to $1,075,000 for each
transaction, depending on the nature of the violation.
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WHY SHOULD I CARE?
• Criminal penalties may include fines ranging from $50,000 to
$10,000,000 and imprisonment ranging from 10 to 30 years for
willful violations depending on the nature of the violation.
• More than $625,000 in civil penalties have been assessed against
the insurance industry since 2011.
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WHAT ARE SOME EXAMPLES OF
ENFORCEMENT ACTIONS?
• American Steamship Owners Mutual Protection and
Indemnity Association, Inc. agreed to pay $348,000 to
settle apparent violations in connection with its payment
of insurance claims involving Cuban, Sudan and Iranian
interests in May 2013.
• HSBC Holdings agreed to remit $375 million to settle
potential civil liability for apparent violations of Cuban,
Burmese, Sudanese, now-repealed Libyan, and Iranian
sanctions regulations in December 2012.
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WHAT ARE SOME EXAMPLES OF
ENFORCEMENT ACTIONS?
• ING Bank N.V. agreed to settle potential civil liability for
apparent violations of Cuban, Burmese, Sudanese, nowrepealed Libyan, and Iranian sanctions regulations for
$619 million in June 2012.
• Barclays Bank agreed to pay $170 million to settle
apparent violations in connection with the unintentional,
but systematic, transfer of funds to recipients involved
with Burma, Cuba, Iran and Sudan in August 2010.
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EXAMPLES OF PROHIBITED
INSURANCE TRANSACTIONS
• Binding or providing any insurance coverage or making
any payment (unearned premium/commission, claims,
vendor payments, payroll, etc.) to a person, entity or
organization on the SDN list is prohibited.
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EXAMPLES OF PROHIBITED
INSURANCE TRANSACTIONS
• Writing a Property policy for an international hotel chain
which covers hotels in a blocked country like Iran.
• Issuing an Aviation policy to a nonblocked foreign airline
which covers some aircraft making scheduled stops in
Cuba.
• Issuing a liability policy which covers the pharmaceutical
operations of a company in Columbia which has been
named as a Specifically Designated Narcotics Trafficker.
• Insuring imports of diamonds from Liberia.
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HOW CAN I PROTECT MY AGENCY?
• Create a compliance program to REGULARLY check
the SDN list and coverages insuring risks in sanctioned
countries.
• Review all new and renewal business for SDNs and
possible sanctioned risks.
• Appoint one person responsible for compliance.
• Perform internal audits periodically.
• Create written procedures.
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HOW CAN I PROTECT MY AGENCY?
• Keep up to date on developments in the law.
• Before committing to write a risk, examine
applications, proposals, slips and any other
documents available from prospective clients and
their brokers for clues of possible sanctions.
• Ask yourself – is anyone involved in the contract
currently on the SDN list or located in a sanctioned
country
• Go to the OFAC website or use an outside vendor.
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HOW CAN I PROTECT MY AGENCY?
• Ask yourself – could potential losses involve property
located in, goods originating from or destined for, or
persons or commercial activity in targeted countries.
• If yes, decline the risk or exclude risks located in those
countries.
• If you have bound a risk on the SDN list, contact
your insurance carrier so that the policy can be
blocked.
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HOW OFTEN SHOULD I CHECK MY
DATABASE AGAINST THE OFAC LIST?
• OFAC does not mandate specific timeframes for conducting checks
of your data against the SDN list.
• OFAC updates its lists frequently, so while a SDN may not be on the
list when you issue a policy, it may subsequently be added to the
list.
• Periodic scrubs of data are recommended so that not too much time
passes before data is checked.
• OFAC has stated that a quarterly scrub may be too infrequent.
• Consider the type of business you are writing and set your
procedures within that risk tolerance.
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HOW DOES THE SDN SEARCH
WORK?
• Using the process on the OFAC website or utilizing a
vendor, names are run against the SDN list.
• A score field indicates how close the matches are.
• You may set the score bar to indicate the level of match
you want to review. For example, a 100% match means
only an exact match will reflect a “hit”.
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HOW DOES THE SDN SEARCH
WORK?
• Lowering the threshold will produce a broader result set.
• OFAC does not provide guidance on where the threshold
should be set.
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WHAT DO I DO IF THERE IS A MATCH
AGAINST THE SDN LIST?
• OFAC has established a process for determining if the
match is a true match or just a “false positive”.
• See their Website at www.treasury.gov/OFAC.
• OFAC procedures walk you through the due diligence
process focusing on the following:
o How close are the:
Names (including aliases)
Addresses
Dates of birth
Social security numbers
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WHAT DO I DO IF THERE IS A MATCH
ON THE SDN LIST?
• If you have a true hit against the SDN or if in doubt call the OFAC
hotline - 1-800-540-6322.
• Some state insurance departments require notification as well.
• Contact your insurance carrier if binder or policy has been issued so
that coverage may be blocked.
• Federal OFAC regulations preempt conflicting state insurance laws
and regulations concerning cancellation/nonrenewal and payment of
claims. They are not federal insurance regulations, but rather are
promulgated under the President’s authority to exercise emergency
national and foreign affairs directives.
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IS IT POSSIBLE TO GET PERMISSION TO
ENGAGE IN BUSINESS WITH A COUNTRY OR
INDIVIDUAL ON THE SDN LIST?
• In some situations a license may be obtained to
transact business in a sanctioned country or with a
blocked person on the SDN list.
• Each case is fact specific.
• See OFAC website for specific license application
process or call 1-202-622-2480.
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WHO ELSE CAN HELP?
• Several vendors provide different levels of
service.
• Research the Internet or contact your
business partners for recommended
Compliance Vendors.
• See Department of Treasury website for
detailed information on OFAC at
www.treasury.gov/resourcecenter/faqs/Sanctions/Pages/answer.aspx
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HOW DO I CONTINUE TO MONITOR
OFAC UPDATES?
• Periodically check the OFAC website for
Treasury Department bulletins and news.
• Subscribe to services or organizations that
monitor updates to laws and additions to the
SDN list.
• Watch for notices from the AAMGA on
OFAC updates, and on the www.aamga.org
website
• Monitor the www.lloyds.com website
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Thank You
Linda C. Hohn
Vice President & Associate General Counsel
Global Indemnity Group, Inc.
Three Bala Plaza East
Suite 300
Bala Cynwyd, PA 19004
610.660.6862 phone
610.668-3385 fax
lhohn@global-indemnity.com
www.globalindemnity.ie
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