International Program Restrictions Know the Regulations Before They Know You
October 2015 • Lockton ® Companies
Along with today’s economic expansion continuing into SHAWN BURNSWORTH International Leader 404.460.0712
[email protected]
foreign territories at a rapid pace, so are the complexities of doing business cross-border. These range from day-today transactional challenges to an awareness of regulatory requirements both domestic and abroad. Some of the newest regulatory requirements include the Foreign Account Tax Compliance Act (FATCA), and some of the oldest include Office of Foreign Asset Control (OFAC) sanctions and embargoes. And just because it’s an old requirement doesn’t necessarily mean it is any simpler to manage. If you aren’t familiar with
Some of the newest regulatory requirements
OFAC and OFAC restrictions, not only
include FATCA, and some of the oldest include
is your company at risk for being
OFAC sanctions and embargoes.
subject to fines and penalties, but your company could also find your insurance contracts null and void in those instances.
L
O
C
K
T
O
N
C
O
M
P
A
N
I
E
S
Let’s take a closer look. OFAC represents the US
In 2014, Red Bull North America was found in violation
Treasury Department’s Office of Foreign Assets and
of OFAC sanctions against Cuba. A penalty just under
Control division. This division is responsible for the
$100,000 was subsequently assessed that resulted from
oversight of various economic sanctions and embargoes
the seven violations alleged. Its breach? Representatives
against persons, entities, organizations, etc., reflected on
of the company traveled to Cuba for a documentary
the Specially Designated Nationals and Blocked Persons
and failed to secure the proper OFAC licensing prior
“SDN” list. This list is regularly maintained and updated.
to the trip. Further, there was speculation of Red
Persons, entities, organizations, companies, countries,
Bull’s awareness and intentional avoidance of OFAC
and more appear on this list and are specifically excluded
restrictions.
from interaction by any US person, entity, organization, company, etc.; the exclusions are as far-reaching as applying to those that may be a foreign person or entity while in the US (and its territories and possessions).
Why does this matter to your company? OFAC restrictions prohibit insurance and reinsurance contracts to be issued in violation of these sanctions. This extends to coverage of foreign exposures,
Typically, penalties are assessed per violation, whether
premium payments, claims adjustments, and more.
intentional or not, and can include criminal charges in some instances, especially those deemed intentional.
OFAC restrictions also apply to foreign branches of US
Some sanctions or embargoes could be specific to a
to OFAC sanctions and embargoes can only be issued
particular product or service, and in other instances, they
through a license by the US Treasury’s OFAC office upon
could be blanketed across a country. You can view the
approved application by a person, entity, or company.
persons/entities rather than a subsidiary. Exceptions
specifics in full detail at the US Treasury Department’s website.
Most insurance contracts today contain language or
Earlier this year, PayPal was found in violation of OFAC
and embargoes are violated. This means your insurer
sanctions against Cuba, Iran, and Sudan. A penalty of
may choose or be required to refuse to extend coverage
more than $7,000,000 was lodged against PayPal. More
to your foreign operation or deny a claim if determined
than 400 violations by PayPal occurred over a multiyear
there is a breach of any OFAC sanction or embargo.
provisions that exclude coverage, where OFAC sanctions
period upon its failure to properly scrutinize payments processed.
2
October 2015 • Lockton Companies
And the restrictions are not unique to the US either.
Dated and dangerous language in an insurance contract
Various countries around the world have their own
will state “. . . coverage excluded in countries subject to
approach to prohibiting their domestic persons and
OFAC sanctions and embargoes . . .” Current and more
entities from engaging with prohibited persons,
modern language in an insurance contract will state
entities, or countries. For example, the EU has its own
“. . . coverage is provided except as prohibited by an
sanctions and embargoes across the region applicable
OFAC sanction or embargo . . .” A subtlety in language
to EU persons, entities, and companies. Like US
but the former excludes any interaction with a person,
OFAC sanctions and embargoes, there are penalties for
entity, or country impacted by OFAC restrictions—even
violating these restrictions. There is also a provision
though you may have a license that grants your company
that acknowledges US OFAC restrictions and holds
exception to the OFAC restriction. The latter recognizes
EU resident persons, entities, and companies negligent
those interactions with a person, entity, or country where
for failing to comply with those specific US restrictions
your company may have an OFAC license that grants
identified. Penalties vary by nation within the EU
exception to the OFAC restriction.
regardless of whether or not the violation is intentional or unintentional. Violations are on the rise across the US, and the US Treasury Department is increasingly enforcing
In summary, new and existing regulations are only becoming more complex. It is incumbent on any person or entity with any foreign business, trade,
restrictions. It is incumbent on persons and organizations
or customer base to be aware of these changing
to be aware of these restrictions wherever there is
and complex requirements. OFAC is one long-
any cross-border activity—even as simple as a PayPal transaction. So what can you do?
standing regulatory requirement that has only become more and more significant as globalization increases.
First, become familiar with the US Treasury Department’s OFAC website and restrictions as they relate to your interaction with any foreign person or entity. Ensure your organization is properly operating within the confines of those restrictions. Second, closely review your insurance contracts for provisions that address violation of OFAC sanctions and embargoes.
3
Our Mission To be the worldwide value and service leader in insurance brokerage, risk management, employee benefits, and retirement services
Our Goal To be the best place to do business and to work
R I S K MA NA G E ME NT | E M PLOYE E B E N E FITS | RE T IRE ME N T S E RV ICE S
www.lockton.com
© 2015 Lockton, Inc. All rights reserved.
