Under a family of related federal laws intended to support U.S. foreign policy and national security goals it is a violation for an insurer to issue a policy, engage in a transaction (including receipt of premiums and payment of claims), or facilitate a transaction with an OFAC Target. These laws are administered by the Office of Foreign Assets Control (OFAC). OFAC prohibits companies and individuals from issuing insurance policies, reinsurance contracts or claim payments involving individuals, companies, organizations, orothers on their watchlist.
OFAC is an agency of the U.S. Department of the Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Violations of OFAC can result in both civil and criminal penalties, and may be considered a breach of foreign policy and national security. Even unintentional violations may result in civil and criminal penalties. OFAC requires that any funds in which an OFAC Target has a direct or indirect interest must be “blocked,” i.e., deposited into a US bank in a separate interest bearing account, and a report must be filed within 10 days. There are also penalties for failing to file reports on time. Criminal prosecution involving fines and imprisonment can be initiated when the violation is intentional, resulting from a deliberate corporate policy, with the knowledge of senior management.
Generally speaking, insurers are required by OFAC to search its customer data files and claimant files to identify individuals and organizations OFAC designates on watchlists. Claims cannot be adjusted or paid to an individual or company on the OFAC watchlist.
Many organizations use software to help them compare their customers’ names to watchlists. However a software solution is not simple in its execution and management. For example, LexisNexis, one of many well-regarded OFAC software solution providers, discusses in their literature that when using a software solution to compare thousands of names for OFAC compliance, there is an inherent false positive problem. A false positive is when the customer information you searched generates possible matches against watchlists, but the customer is not, after investigation, found to be the individual or organization on the watchlist. The cost of researching for false positives remains a concern for companies implementing their OFAC compliance solution. The risks of non-compliance can be significant and the costs for effective solutions can be meaningful. Insurers are well-advised to have a compliance officer responsible for researching, implementing and overseeing a process for OFAC compliance.
This blog is intended to provide general information only and is not intended to provide legal advice or solutions to specific issues.
Copyright © 2014. The Nash Group LLC.