Often times we get questions on how insurance providers should address issues arising from sanctions programs administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). Obviously, the first step is to have interdiction software in place to catch matches to the OFAC Specially Designated Nationals and Blocked Persons (“SDN”) List. Transactions should always be checked for matches against this list and if a match does occur it needs to be reviewed by a designated person or persons to determine whether it was an actual hit or a false positive.

In the event of an actual hit, the insurance provider should follow three (3) basic rules:

1. No Action: The insurer should not take any action in regards to the policy or claim without further instruction from OFAC. A call should be placed to OFAC compliance to determine whether or not the match signifies a mandated rejection of the transaction or if it requires a blocking of the premiums associated with the policy.

2. Where do Premiums go?: Premiums related to one of these actual matches to the OFAC SDN List should be placed into an escrow account. The rules for deducting fees from these blocked premiums is not necessarily as clear as they are for banks. OFAC should be contacted with any questions on such fees as the rules surrounding what to do in such a scenario are complicated.

3. Frozen Policies: If indeed an insurance policy is required to be frozen as a result of a match to the OFAC SDN List, then there can be no payment of claims under that policy without a license from OFAC. Even in these scenarios any license issued to authorize a transaction in relation to a frozen policy needs to be carefully understood and followed.

As is the case with many other types of industries, the insurance industry has their own set of considerations in relation to OFAC administered sanctions programs. If questions arise it may be helpful to contact either in house or corporate counsel to advise, but OFAC compliance should certainly be contacted if there is an issue which arises that does not have a clear cut answer.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.