On 6 August 2015, Navigators Insurance settled with the US Treasury’s Office of Foreign Assets Control (OFAC) following allegations that the company violated multiple economic sanctions programmes. Its penalty – less than $275,000 – pales in comparison with the hundreds of millions OFAC has levied in its big bank cases. However, Navigators is an indication that OFAC is increasingly looking beyond banks to enforce violations in other industries – and the insurance sector could be at the top of that list.

OFAC’s concentration on banking – present both in its formal blacklisting of financial institutions and its enforcement of sanctions violations against banks – was a logical tactic employed in support of an innovative sanctions strategy. It is the continuation of this strategy that most strongly points to insurance as a next front in enforcement.

Over the past decade, one of the most far-reaching advancements in sanctions practice has been governments’ focus on restricting access for sanctioned parties to the often-unseen underpinnings of international trade (tools such as US dollar-clearing, correspondent accounts, trade finance, swaps, etc.) rather than on simply limiting physical trade in goods and services. Banks are the gatekeepers for many of these financial tools and companies, countries, and even individuals that are shut out of the formal banking system often lack access to these tools and quickly find cross-border commerce at any significant scale untenable. This is a reality seen in Iran, Syria and even with respect to individual targets of sanctions. It is the power of these banking sanctions – and their importance to this still-nascent sanctions strategy – that helps explain OFAC’s concentrated attention on the sector.

It is this strategy’s success that has made OFAC’s move beyond banking inevitable – the global finance sector is now keenly sensitised to sanctions and has ‘de-risked’ on a massive scale. Unsurprisingly, this has led to a decreasing number of substantial banking targets. As such, other industries, especially insurance, will come into focus. Insurance and finance, after all, share several key characteristics – most importantly, insurers are also foundational players in global commerce, serving in parallel roles to banks in providing critical tools that allow international trade to occur.

Oct-Dec 2015 Issue

Gibson, Dunn & Crutcher, LLP