Thursday, April 12, 2007
Not Complying With the OFAC Can Impact Your D&O Policy
Most organizations consider OFAC compliance to be just a routine issue but the Department of Treasury means business when it comes to doing any type of business with forbidden countries, business entities, and people. And, insurance carriers are beginning to translate this into policy and payout restrictions that could have a significant impact on an unsuspecting company or individual that just happens to stumble upon a long-term OFAC violation.
The Department of Treasury is quite clear that any delays in reporting any/all dealings with OFAC entities can result in serious consequences. Is a quarterly review of the OFAC list good enough... well, you be the judge. Here's what the Department of Treasury has to say within their FAQ:
DIRECTLY FROM THE U.S. TREASURY WEB SITE:
QUESTION: At what point must an insurer check to determine whether an applicant for a policy is an SDN?
ANSWER: If you receive an application from an SDN for a policy, you are under an obligation not to issue the policy. Remember that when you are insuring someone, you are providing a service to that person. You are not allowed to provide any services to an SDN. If the SDN sends a deposit along with the application, you must block the payment. [09-10-02]
QUESTION: What should an insurer do if it discovers that a policyholder is or becomes an SDN--cancel the policy, void the policy ab initio, non-renew the policy, refuse to pay claims under the policy? Should the claim be paid under a policy issued to an SDN if the payment is to an innocent third-party (for example, the injured party in an automobile accident)?
ANSWER: The first thing an insurance company should do upon discovery of such a policy is to contact OFAC Compliance. OFAC will work with you on the specifics of the case. It is possible a license could be issued to allow the receipt of premium payments to keep the policy in force. Although it is unlikely that a payment would be licensed to an SDN, it is possible that a payment would be allowed to an innocent third party. The important thing to remember is that the policy itself is a blocked contract and all dealings with it must involve OFAC. [09-10-02]
QUESTION: How frequently is an insurer expected to scrub its databases for OFAC compliance?
ANSWER: That is up to your firm and your regulator. Remember that a critical aspect of the designation of an SDN is that the SDN's assets must be frozen immediately, before they can be removed from U.S. jurisdiction. If a firm only scrubs its database quarterly, it could be 3 months too late in freezing targeted assets. The SDN list may be updated as frequently as a few times a week or as rarely as once in six months. [09-10-02]
posted by Zeleon @ 11:13 PM