Sanctions

The Office of Foreign Assets Control (OFAC), an agency of the United States Treasury Department, blocks assets and imposes trade restrictions to accomplish foreign policy and national security goals, targeting activities related to the proliferation of weapons of mass destruction and other threats to national security, foreign policy or the U.S. economy.  OFAC may impose direct or primary sanctions (i.e., against U.S. persons) or secondary sanctions (against non-U.S. persons doing business with U.S. persons).

OFAC is authorized to freeze assets under U.S. jurisdiction and impose controls on certain transactions.  In the insurance context, OFAC prevents companies from providing the benefits of insurance or reinsurance directly or indirectly to certain nations (e.g., Iran, Cuba, North Korea, Sudan), or to organizations, companies, vessels and individuals that appear on the "Specially Designated Nationals and Blocked Persons List" (the SDN List).  OFAC also provides that any monies in which an entity that appears on the OFAC target list has an interest must be "blocked." For example, premiums that involve a targeted entity or individual must be placed in an interestbearing account in a U.S. bank and claims cannot be paid.  Any exceptions are made only where an insurer obtains a license from OFAC.  (Re)insurers are incentivized to establish a compliance program, including the appointment of a compliance officer charged with knowing OFAC regulations and how they affect the company's business. Creating a written policy along with employee training, compliance audits and remediation of potential or actual violations is important to demonstrate commitment to OFAC's aims, and may reduce the severity of any penalty.

OFAC broadly takes the position that insurance or reinsurance policies that provide global coverage should include a sanctions exclusion, which would generally provide that any coverage that would be barred or unlawful under U.S. sanctions law is excluded.   This would apply to any policy issued by a U.S. person, including a non-U.S. subsidiary of a U.S. person, unless the sanctions program expressly states otherwise.  The impact of this requirement may vary based on the sanctions program in question, particularly whether similar sanctions have been imposed by other jurisdictions in parallel to the imposition of U.S. sanctions.  Where the U.S. is the sole jurisdiction imposing sanctions with respect to a particular country, U.S. companies may face competitive challenges with respect to such global business, because non-U.S. companies are not required to limit coverage in this manner unless the sanctions program also includes secondary sanctions.  The available recourse would be to seek a specific license from OFAC. 

The OFAC website provides specified information regarding each sanctions program, as well as a list of Frequently Asked Questions (FAQs), which is updated regularly as developments occur.  Click here  for a link to the OFAC home page and here  for a link to the list of FAQs.  Currently, OFAC has sanctions programs relating to 23 countries or regions as well as topic-specific programs (e.g., counter narcotics trafficking, cyber, non-proliferation).  Click here  for a complete list of OFAC's sanctions programs and specific information relating to each program.

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