OGC Op. No. 04-01-16
The Office of General Counsel issued the following informal opinion on January 15, 2004, representing the position of the New York State Insurance Department.
Re: Trading with the Enemy Act and International Emergency Economic Powers Act
QUESTION PRESENTED
How should insurers comply with the Trading with the Enemy and International Emergency Economic Powers Acts when they receive assigned risk business?
Conclusion
The New York State Insurance Department has previously stated in Circular Letter No. 31 of 2001 that insurers and other licensees should become familiar with their obligations under the Executive Order President Bush issued effective September 24, 2001. All insurers, agents, and other licensees domiciled or residing in New York were advised to review their records for any information that may be relevant to these Executive Orders. All licensees were directed to the United States Department of the Treasury, Office of Foreign Assets Control (OFAC), website at www.treas.gov/ofac, which provides updated information regarding the requirements of Executive Orders blocking property and prohibiting transactions with persons who permit, threaten to commit, or support terrorism. Finally, Circular Letter No. 31 of 2001 advised that questions regarding transactions by United States persons with respect to blocked interests should be directed to OFAC. Therefore, the insurer should contact OFAC for information regarding the measures that insurers should take to ensure compliance with applicable laws.
Facts
No specific facts were provided.
Analysis
The New York State Insurance Department has previously stated in Circular Letter No. 31 of 2001 that insurers and other licensees should become familiar with their obligations under the Executive Orders President Bush issued effective September 24, 2001. All insurers, agents, and other licensees domiciled or residing in New York were advised to review their records for any information that may be relevant to these Executive Orders. All licensees were directed to the United States Department of the Treasury, Office of Foreign Assets Control (OFAC), website at www.treas.gov/ofac, which provides updated information regarding the requirements of Executive Orders blocking property and prohibiting transactions with persons who permit, threaten to commit, or support terrorism. Finally, Circular Letter No. 31 of 2001 advised that questions regarding transactions by United States persons with respect to blocked interests be directed to OFAC. Therefore, the insurer should contact OFAC for information regarding the measures that should be taken to ensure compliance with applicable laws.
The OFAC website states in pertinent part:
It is very important to note that U.S. businesses, individuals, and others subject to OFAC jurisdiction must comply with the full legal requirements of OFAC's programs which are set forth in the applicable statutes, Executive Orders, and implementing regulations found in Title 31 Chapter V of the Code of Federal Regulations and in Federal Register documents that update the regulations.
OFAC's regulations under the Trading with the Enemy Act and the International Emergency Economic Powers Act are based on Presidential declarations of national emergency and preempt state insurance regulations.
If an insurer receives an application from a Specially Designated National or Blocked Person ("SDN") for a policy, it is under an obligation not to issue the policy. Remember that when insurers are insuring someone, they are providing a service to that person. Insurers are not allowed to provide any services to an SDN. If the SDN sends a deposit along with the application, insurers must block the payment.
Upon discovery that a policyholder is an SDN, the first thing an insurance company should do upon discovery of such a policy is to contact OFAC Compliance. OFAC will work with the insurer on the specifics of the case. It is possible a license could be issued to allow the receipt of premium payments to keep the policy in force. Although it is unlikely that a payment would be licensed to an SDN, it is possible that a payment would be allowed to an innocent third party. The important thing to remember is that the policy itself is a blocked contract and all dealings with it must involve OFAC.
Conducting screening only before policy issuance is critical but would not likely achieve the desired level of compliance. After the policy issuance, the U.S. Government may designate an existing policyholder or a named beneficiary as a Specially Designated National or Blocked Person ("SDN"), or it may expand sanctions with respect to a particular country, or impose sanctions against a new country. If an existing policyholder or a named beneficiary became an SDN or otherwise subject to U.S. sanctions, the insurer may be required to "block" the policy, report such blocking to OFAC within 10 days of the SDN designation, place any future premiums into a blocked, interest-bearing account at a U.S. financial institution, and seek an OFAC license before making any payments under the policy. Consequently, routine screening of all policies in force against OFACs SDN list, as frequently updated, would enable the insurer to comply with the applicable OFAC regulatory requirements. It also is important to screen the policyholder and beneficiary prior to paying a claim.
The New York State Insurance Department maintains its position in Circular Letter No. 31 of 2001 and continues to direct all insurers, agents, and other licensees domiciled or residing in New York to OFAC for information regarding the measures that should be taken to ensure compliance with the Executive Orders and regulations concerning transactions by United States persons with respect to blocked interests. With respect to assigned risk business, regardless of measures the New York Automobile Insurance Plan and the Automobile Insurance Plans Services Office may take to comply, insurers remain obligated to comply with these Executive Orders and regulations.
For further information one may contact Special Counsel Athan Shinas at the Albany Office.