Opinion: the burden of sanctions
The sanctions regime enforced by the Department of Treasury’s Office of Foreign Assets Control (OFAC), which bars or limits interaction with countries, entities or individuals that are determined to be sponsoring terrorism, is becoming increasingly complex.
Sanctions are currently being applied to various degrees with respect to Syria, Ukraine, Iran, Sudan and many others. These sanctions programmes continue to develop on an almost daily basis as international developments occur. Navigating the obligations and limitations imposed by US sanctions programmes adds to the growing complexity of the environment that exists for companies doing business internationally.
US trade controls—including sanctions—are far-reaching, complex, and aggressively enforced and can apply to companies not domiciled in the US but who do business in the US, have US citizens as employees and/or use US products. This can be particularly onerous in the insurance and reinsurance contexts, where contracts govern global businesses, and extend over long periods of time, and when claims take time to process even after the contract period expires.
“A property interest subject to blocking includes interests of any nature whatsoever, direct or indirect. Blocked property includes re/insurance premiums and claim payments.”
One aspect of the complexity found in the OFAC rules relates to blocked property. Property blocked pursuant to an Executive Order or regulations administered by OFAC is broadly defined to include any property or interest in property, tangible or intangible, including present, future or contingent interests. A property interest subject to blocking includes interests of any nature whatsoever, direct or indirect. Blocked property includes re/insurance premiums and claim payments.
Under OFAC rules, if an entity is added to the Specially Designated Nationals (SDN) list, then any subsidiary that is 50 percent or more owned by the parent company gives rise to blocked property for purposes of OFAC sanctions. The onus is on individual companies to make their own determination with respect to whether ownership of a particular entity implicates any blocking action or blocked property.
This is subject to requirements obliging companies to conduct due diligence on their own direct customers (including, for example, their ownership structure) to confirm that those customers are not persons whose property and interests in property are blocked.
New guidance
In August 2014, OFAC released revised guidance clarifying the 50 percent ownership rule, specifically relating to entities owned 50 percent or more in the aggregate by more than one blocked person, directly or indirectly. Pursuant to the guidance, any such entity constitutes blocked property and is subject to all applicable sanctions. The prior OFAC guidance relating to the 50 percent ownership rule had directly addressed only situations in which a single blocked person or entity owned 50 percent or more of another entity.
This is just one example of the increasing complexity of the US sanctions regime and one that requires careful consideration by companies doing business internationally.
Karalee Morell is assistant vice president and assistant general counsel at the Reinsurance Association of America (RAA). She is an advocate for reinsurance interests before state and federal regulators and legislators, and is also a resource for RAA’s members and affiliates on analyses of reinsurance statutes and case law nationwide, including preparing amicus curiae briefs on issues important to the industry. Before joining the RAA in 2011, Morell was a partner at Wiley Rein LLP where she specialised in insurance coverage disputes arising under property/casualty policies. She also routinely counselled clients on litigation, transactional and regulatory issues affecting the business of insurance and on issues concerning current efforts to reform insurance regulation. In addition, Morell represented trustees and other parties in complex commercial litigation involving bankruptcy.
