Insurers Take Notice: Don’t Become a Casualty of Trade Sanctions Violations!

The U.S. Department of Commerce’s Office of Foreign Assets Control (OFAC) announced that Navigators Insurance Company, which is headquartered in New York and specializes in marine insurance and related lines of business, professional liability insurance, and commercial umbrella and primary and excess casualty businesses, has agreed to pay $271,815 to settle potential civil liability for 48 apparent violations of U.S. trade sanctions laws arising from its issuance, processing, claims-paying and collection of premiums under insurance policies that provided coverage to North Korean-flagged vessels.  The action highlights to insurers, financial institutions and all other businesses required to comply with U.S. trade sanctions the importance of having, and applying, adequate compliance programs.

According to OFAC’s release, over a period of three years, Navigators and its U.K. branch issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that occurred in or involved Iran, Sudan and Cuba, each of which is the subject of comprehensive U.S. trade sanctions.  Navigators provided coverage, processed and paid claims, and collected $1,142,237 in premium payments. OFAC stated that these actions constituted apparent violations of the Foreign Assets Control Regulations, 31 C.F.R. part 500, and Executive Order 13466 (June 26, 2008), and various other U.S. trade sanctions laws, which prohibit U.S. persons from owning, leasing, operating or insuring any vessel flagged by North Korea.

The base penalty amount for all of the alleged violations was determined by OFAC to be $755,042.  Applying its General Factors and the Economic Sanctions Enforcement Guidelines, OFAC found the following to constitute aggravating factors: (1) Navigators’ managers and supervisors knew or had reason to know that the majority of the insurance policies and claims payments at issue involved OFAC-sanctioned countries; (2) Navigators is a commercially sophisticated financial institution; and (3) Navigators did not have a formal OFAC compliance program in place at the time the apparent violations occurred.  But OFAC also found there to be mitigating factors, including: (1) Navigators self-disclosed the apparent violations; (2) Navigators had not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the apparent violations; (3) Navigators took appropriate remedial action in response to the apparent violations, including the formation and implementation of a comprehensive OFAC compliance program; and (4) Navigators cooperated with OFAC’s investigation.

Insurers, like other financial institutions, need to (1) be aware of the applicability of U.S. trade sanctions to all lines of their business, (2) have, and apply, robust export and trade sanctions compliance programs, (3) screen insureds, agents, representatives, co-insurers and other business partners against applicable barred-persons and entities lists, and (4) train employees, agents and representatives who are on the front-line in dealing with foreign customers and business partners.  Failure to do so could make an insurer a casualty of U.S. trade sanctions.