May 5, 2011
Written By: Michael J. Kurtis and Susan T. Stead
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In a case that serves as another cautionary tale for insurers and reinsurers, HCC Insurance Holdings, Inc. (HCC Holdings), has paid $38,448 in settlement of allegations that its subsidiary, Houston Casualty Company (HCC), violated sanctions implemented by the Office of Foreign Asset Control (OFAC) restricting financial transactions with Iran in connection with an aviation insurance policy. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states, organizations and individuals.
The Iranian Transactions Regulations (ITR) were promulgated pursuant to the International Emergency Economic Powers Act and are administered by OFAC. In this instance, OFAC alleged that HCC violated the ITR when it participated in a specialty aviation insurance policy that covered commercial flight operations in Iran from April 2005 - April 2006. HCC participated in the hull portion of an aircraft hull and liability insurance placement by a foreign broker that insured a foreign-owned commercial airline that leased aircraft to an air charter company operating in Iran.
HCC voluntarily disclosed the matter to OFAC, and the alleged violation was deemed a non-egregious case. The base penalty for the alleged violation was $56,960. However, the Guidelines authorize the adjustment of the base amount of the penalty to reflect certain "General Factors," which may be considered mitigating or aggravating, resulting in a reduced or increased penalty amount. Here, although the aviation insurance provided by HCC was contrary to the objectives of the sanctions program and that the policy referenced that some of the insured's aircraft would be operated in Iran, OFAC considered HCC's lack of any prior violations and cooperation during the investigation. HCC's participation in the policy has since lapsed and it no longer provides insurance coverage for the air charter company that operated in Iran.
Although not a new issue for insurers and reinsurers, concern over OFAC compliance is increasing due to the spate of movements for social and political change in the Middle East and North Africa. Insurers and reinsurers that may transact business with connections to Iran or other restricted countries must enact internal protocols to ensure compliance with OFAC's complex regulatory scheme. Organization-wide processes designed to screen insurance and reinsurance programs for OFAC compliance should be implemented.
For further insight on domestic and international insurance and reinsurance issues, please contact Michael Kurtis at 215.358.5139 or via email at mkurtis@nldhlaw.com or Sue Stead at 614.456.1628 or via email at sstead@nldhlaw.com.
