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Sanctions Violations Net Penalty, Caution to Use Risk Management Tools

Wednesday, June 28, 2017
Sandler, Travis & Rosenberg Trade Report

The Office of Foreign Assets Control reports that a U.S. insurance and financial services organization has agreed to remit $148,698 to settle its potential civil liability for 555 apparent violations of several sanctions programs. The transactions at issue included receiving premiums and processing claims for the insurance of maritime shipments of various goods and materials destined for, or that transited through, Iran, Sudan, or Cuba and/or that involved a blocked person.

OFAC states that this enforcement action highlights the important role that properly executed exclusionary clauses (which are designed to prevent the issuance of policies or processing of claims that implicate U.S. economic sanctions) and robust compliance controls play in the global insurance industry’s efforts to comply with U.S. economic sanctions programs. In this case the company’s OFAC compliance program included recommendations for when to use such clauses and a majority of its policies were issued with them. However, OFAC states that most of these clauses were too narrow in their scope and application to be effective and that some insureds sought single shipment policies that had no exclusionary clauses.

The total base penalty amount for the apparent violations was $198,266. Aggravating factors included that the company (1) engaged in a pattern or practice in apparent violation of multiple U.S. sanctions programs that spanned multiple years; (2) issued policies and insurance certificates and/or processed claims and other insurance-related transactions that conferred economic benefit to sanctioned countries or persons; and (3) is a large and commercially sophisticated financial institution. Mitigating factors included that the company: (1) has not received a penalty notice or finding of violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the apparent violations; (2) had an OFAC compliance program in place at the time of the apparent violations that included, in most instances, the use of exclusionary clauses; (3) took remedial action in response to the apparent violations; and (4) cooperated with OFAC’s investigation, including by voluntarily self-disclosing, submitting detailed and well-organized information to OFAC, and signing agreements that tolled the statute of limitations.

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