Insurance brokers worldwide are subject to increasing scrutiny by the US Office of Foreign Assets Control, Department of the Treasury ("OFAC”), which administers the wide range of US sanctions programs. OFAC is the principal enforcement agency responsible for the US sanctions applicable to such countries as Cuba, Iran, North Korea, Sudan and Syria, as well as applicable to hundreds of entities and individuals designated as Specially Designated Nationals, as a result of their association with sanctioned countries or their involvement in civil destabilization, narcotics trafficking, terrorism and other sanctioned activities.
In recent years, OFAC has paid growing attention to parties, whether in the US or abroad, that induce or cause US parties to violate US sanctions laws. For example, hundreds of millions of dollars in penalties have been assessed on foreign financial institutions that have failed to disclose to their US counterparties (e.g., confirming banks) that particular funds transfers were related to Cuba, Iran or other countries or parties subject to sanctions. ABN Amro and Lloyds Bank are among the notable financial institutions that have been penalized when it was found that they omitted from SWIFT messages or other transactional documentation the information that would have disclosed to US financial institutions that transactions violated US sanctions.
Now this same OFAC focus is being directed at insurance brokers, including brokers based outside the US. OFAC officials have indicated informally that they are engaged in a far-reaching investigation of the insurance and reinsurance industries, with particular attention to the extent to which brokers have disclosed (or failed to disclose) to insurers and reinsurers any information that would have indicated that sanctioned parties might be covered by or benefit from insurance or reinsurance policies. Violations of sanctions laws could occur where claims payments were made that benefited a sanctioned party, or where treaties were entered into that covered sanctioned party losses. Where a broker was aware that coverage might be extended to sanctioned parties (e.g., a sanctioned country airline) or that a claim arose from a sanctioned party loss, and where the broker failed to inform the insurer or reinsurer of that information, the broker could find itself subject to OFAC penalties. OFAC may seek to penalize foreign brokers on the grounds that they caused US insurers or reinsurers to violate the sanctions laws.
Given both the globalization of sanctions laws in the US, Europe and elsewhere and the very substantial penalties that can be imposed, brokers should consider whether to adopt sanctions compliance policies and procedures. In particular, documenting the timely disclosure that a broker has made to an insurer or reinsurer about possible sanctioned party coverage or claims would be advisable. Brokers should brace themselves for possible OFAC inquiries, before the storm clouds clear.