1. 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

2. 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

3. WHAT DOES OFAC MEAN?
OFAC stands for the “Office of Foreign Assets Control”
It is a subdivision of U.S. Department of the Treasury.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.
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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. WHAT ARE SOME EXAMPLES OF ENFORCEMENT ACTIONS?
ING Bank N.V. agreed to settle potential civil liability for apparent violations of Cuban, Burmese, Sudanese, now-repealed 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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”.

24. 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.

25. 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
OFAC procedures walk you through the due diligence process focusing on the following:
How close are the:
Names (including aliases)
Addresses
Dates of birth
Social security numbers

26. 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
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.

27. 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

28. 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

29. 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 website
Monitor the website

30. Thank You Linda C. Hohn Vice President & Associate General Counsel
Global Indemnity Group, Inc.
Three Bala Plaza East
Suite 300
Bala Cynwyd, PA 19004
phone
fax