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Symposium 2016

OFAC Reinsurance Compliance: Keynote Speaker David Brummond Delivers ''Tough Love''

by ~ Melissa D’Alelio (Email) (Web Site)

Before our Lady Justice calm he stands
To have her grave, immutable commands; . . .
She holds the balance true, with steady hands
And strong, the little while wavereth.

--Edward Livermore Burlingame, Scribner’s Magazine, p. 35 (1888)

The image of Lady Justice balancing the scales of truth and fairness is a familiar one. Upon those scales, Lady Justice measures the strength of a case’s support and opposition. She is often seen carrying a double-edged sword in her right hand, symbolizing the power of reason, which may be wielded either for or against a party. David Brummond, Senior Sanctions Advisor at the Insurance Office of Foreign Assets Control (“OFAC) at the U.S. Treasury Department, candidly delivered a strong message during the MReBA’s Annual Symposium on October 6, 2011, stating that his job is not one of balancing and measuring—it is one of “law enforcement. Drummond was clear: OFAC compliance is not a topic where violators will be invited to set forth their case on the scales of justice or be invited to “work things out with the U.S. government. As Brummond remarked: “It is strict liability. Fortunately he understands the insurance and reinsurance industry, having been General Counsel of the National Association of Insurance Commissioners (“NAIC), and is willing to work with industry members to find solutions if they seek guidance before potentially violating OFAC regulations.  for example, by paying a claim under a reinsured marine insurance policy, where one of the recipients of the proceeds is an Iranian national.

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or economy of the U.S.. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under U.S. jurisdiction. Many of these sanctions are based on United Nations and other international mandates and involve cooperation with allied governments.

OFAC has a rich and interesting history. It is the successor of the Office of Foreign Funds Control (“FFC), which was established following the German invasion of Norway in 1940, at the outset of World War II. OFAC itself was formally created in December 1950, following the entry of China into the Korean War, when President Truman declared a national emergency and blocked all Chinese and North Korean assets subject to U.S. jurisdiction.

To say that the Treasury Department has a long history of dealing with sanctions is an understatement. Prior to the War of 1812, then-Treasury Secretary Albert Gallatin administered sanctions imposed against Great Britain for the harassment of American sailors. In 1977, the International Emergency Economic Powers Act expanded the ability to implement sanctions outside of a war-time setting. It gave the President the power to use sanctions as an “economic tool to use during “economic emergencies. This power has been wielded in numerous instances in the past few decades, including during the Iranian Hostage Crisis in 1979, Panama (Noriega) in 1988, Somalia in 2010, and Libya and Syria in 2011.

Brummond explained that there are presently 22 active sanctions programs. These programs involve a number of countries across the globe, including the Ivory Coast, Congo, Cuba, Iran, Iraq, Libya, Syria, Somalia, and Zimbabwe. Each program has slightly different sanctions language, making enforcement and application complex. Often these programs involve numerous different departments such as Homeland Security; local law enforcement agencies; the FBI; banking regulators such as the OCC, FDIC, and FRB; and the intelligence community. OFAC has great discretion in determining the appropriate response to sanctions violations, and looks at each violation as a prosecutor would. The response can range from no action to issuing a warning or cautionary letter, revoking a license, issuing civil penalties, or initiating criminal proceedings.

Brummond next discussed OFAC’s reinsurance case profile, stressing that since he assumed his position in July 2006, no area has been more confusing and highly debated than the intersection of OFAC and reinsurance. Since he began, Brummond has had a total of 254 insurance files, 36 of which were reinsurance files. Presently, 8 of these 36 reinsurance files remain open. Of these 8 cases, 2 involve enforcement, 5 involve licensing requests, and 1 involves an inquiry from a reinsurer faced with the competing need to uphold its policy obligations and comply with a sanctions program. Of the 28 closed reinsurance cases, 3 reinsurers received cautionary letters, 4 received “no action determinations, 6 received the guidance they requested on sanction compliance, 4 received license denials, 4 received licenses, 1 received a license renewal, and 2 received penalties. The 36 total reinsurance cases involved 9 different sanctions programs. Thirteen of the 36 violations involved the sanctions program enforced against Cuba.

Brummond’s closing remarks emphasized that reinsurers have a greater inherent OFAC risk than insurers, given that treaties are often broad and reinsurers, unlike insurers, don’t know as much about the insured or what may be going on in an underlying case. Brummond concluded by offering some compliance strategies for reinsurers: avoid sanctions contact, and seek to obtain a license (i.e., a grant of permission to conduct a transaction that would otherwise violate OFAC’s rules) when necessary. In order to avoid sanctions contact, reinsurers should decline sanctioned-related risks involving the 22 countries or entities listed. Alternatively, reinsurers can take the risk, but insert a well-worded policy exclusion expressly noting the sanctions program. Reinsurers should also consider employing interdiction software in order to aggressively track their businesses so they more readily know when they take on a risk whether it involves a sanctioned entity. Brummond suggested that, should a reinsurer find itself in a quandary, it could always attempt to seek a license from OFAC; however, Brummond warned that the process for obtaining a license is neither quick, nor easy.

At the end of the day, however, Brummond emphasized that reinsurers, as U.S. entities, are obligated not to violate sanctions  “Period. There will be no weighing of the scales of justice, no negotiating with the government to “work out violations, and no excuse for OFAC noncompliance.

Melissa D’Alelio may be reached at
 Robins, Kaplan, Miller & Ciresi, L.L.P. All rights reserved. The views and opinions attributed to speakers at the Symposium do not necessarily reflect the views of their respective companies, law firms, or clients, or any of their members, affiliates, shareholders, or outlet,rolex watches for sale,replica bvlgari watches and iwc replica can be found here.

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