OFAC Settles with "Support Services" Provider for Alleged Sanctions Violations | Practical Law

OFAC Settles with "Support Services" Provider for Alleged Sanctions Violations | Practical Law

The Department of the Treasury's Office of Foreign Asset Control (OFAC) has settled with three related entities for allegedly violating the Narcotics Trafficking Sanctions Regulations, the Foreign Narcotics Kingpin Sanctions Regulations and the Cuban Assets Control Regulations, by providing services for support functions to health insurance carriers that covered, and provided actual insurance coverage to, persons designated on the Specially Designated Nationals (SDN) list.

OFAC Settles with "Support Services" Provider for Alleged Sanctions Violations

Practical Law Legal Update 6-587-1325 (Approx. 4 pages)

OFAC Settles with "Support Services" Provider for Alleged Sanctions Violations

by Practical Law Commercial
Published on 06 Nov 2014 • USA (National/Federal)
The Department of the Treasury's Office of Foreign Asset Control (OFAC) has settled with three related entities for allegedly violating the Narcotics Trafficking Sanctions Regulations, the Foreign Narcotics Kingpin Sanctions Regulations and the Cuban Assets Control Regulations, by providing services for support functions to health insurance carriers that covered, and provided actual insurance coverage to, persons designated on the Specially Designated Nationals (SDN) list.
On October 29, 2014, the Department of the Treasury's Office of Foreign Asset Control (OFAC) announced a settlement with Bupa Insurance Company, Bupa Worldwide Corporation and USA Medical Services Corporation (collectively, Bupa). Bupa has agreed to remit $128,704 for its alleged violations of:
  • The Narcotics Trafficking Sanctions Regulations.
  • The Foreign Narcotics Kingpin Sanctions Regulations.
  • The Cuban Assets Control Regulations.
According to OFAC, Bupa misinterpreted the scope and application of the OFAC-administered regulations and did not monitor or screen health insurance policyholders, dependents or providers against the Specially Designated Nationals (SDN) list. This misinterpretation resulted in Bupa:
  • Providing insurance support services for healthcare policies that covered persons designated on the SDN list. Bupa provided services for support functions that included marketing, administrative and operational functions. The specific services included:
    • agent retention;
    • premium and claims processing;
    • underwriting;
    • claim review, adjudication and payment; and
    • customer service.
  • Issuing health insurance policies or otherwise providing health insurance coverage to beneficiaries that were designated on the SDN list.
OFAC considered the following to be aggravating factors against Bupa:
  • It acted with reckless disregard for US sanctions requirements and failed to exercise a minimum degree of care to avoid the conduct that led to the apparent violations.
  • It had actual knowledge or reason to know that the policyholders it insured were on the SDN list.
  • Its conduct resulted in harm to the objectives of US sanctions programs.
  • It did not appear to have had an OFAC compliance program at the time the apparent violations occurred.
OFAC considered the following to be mitigating factors in Bupa's favor:
  • It did not receive a penalty notice or Finding of Violation in the five years before the oldest transaction that gave rise to the apparent violations.
  • It has taken steps to implement more effective controls and procedures and remediate the apparent violations.
  • It cooperated with the investigation.

Practical Implications

All service providers providing services internationally, especially those in the insurance, securities and financial industries, should note this settlement agreement because the types of services involved had not previously been subject to OFAC enforcement actions. Before this settlement OFAC typically investigated and enforced alleged sanctions violations against service providers that provided services for essential functions (for example, investment selection during fund formation). However, the service provider in this case only provided services for support functions (for example, marketing and claims processing).
Especially considering the recent sanctions related to the Russia-Ukraine conflict, service providers should carefully screen their existing and potential future customers by taking account of individuals designated on the SDN list, newly implemented sanctions and OFAC rule changes, such as OFAC's policy change to its enforcement of the 50% Rule. For a recent update on OFAC's recently revised guidance on the 50% Rule, see Legal Update, OFAC Now to Aggregate Ownership Interests for the "50 Percent" Rule.