MIB Set To Help Insurers Meet OFAC Requirements

By

Government rules aimed at cutting off terrorists and drug lords from accessing the private sector to shelter money will soon take effect, and life insurers are among those who will be expected to comply, legal experts agree.

Now MIB Group, Inc., a life insurance trade association in Westwood, Mass., says it stands ready to help life insurers stay on the right side of the law.

MIB, which checks life insurance applications for hundreds of life insurance companies, says it will soon start helping insurers comply with the USA Patriot Act of 2001. This legislation requires U.S. companies, including banks and insurers, to avoid doing business with drug dealers, terrorists, and other blocked individuals and groups listed with the federal Office of Foreign Assets Control, a division of the U.S. Treasury Department.

OFAC maintains a register of terrorists, foreign agents and drug traffickers banned from doing business with U.S. entities and their foreign subsidiaries.

Under the law passed in response to the Sept. 11 terrorist attacks, insurers, underwriters, brokers and agents are subject to OFAC requirements.

Jay Cook, CEO of MIB, points out that penalties for OFAC violations can include 12 years in jail and a $1 million fine, plus civil penalties and a whole lot of adverse publicity.

The rules barring companies from dealing with prohibited individuals and entities go into effect at the end of the second quarter 2002.

Starting in May, individuals and groups on the OFAC list will be incorporated into the MIB database, Cook says. MIB will then alert the insurer if its finds an applicant with a name similar to a group or person on the OFAC list. It will be up to the insurer to look more closely at flagged applicants to verify their identity, Cook notes.

In addition to individuals and groups listed as blocked by government, OFAC cites the following examples of prohibited insurance transactions:

–A health insurance policy for a resident of Cuba.

–A life insurance policy listing a resident of Cuba as a beneficiary.

–Return of a premium overpayment to a Cuban resident in France.

MIB will incorporate the names of individuals listed by OFAC in its checking service. The OFAC list identifies more than 5,000 specially designated nationals and blocked persons with whom U.S. companies cannot have dealings, including foreign agents, terrorists and narcotics traffickers.

Fran Marinelli, a spokesperson for MIB, says many insurance companies have been trying to figure out how to comply with the law.

MIBs new service offers a way to meet the requirements, she says. It will also take a load off the minds of agents and brokers who have been worrying about how to comply with the law, she adds.

Cook says MIB is also offering insurers a follow-up service that will automatically provide them with a two-year retrospective view of applicants they have searched in the MIB database.

MIB will eventually phase in additional steps to help companies check in-force blocks of business, says Cook. Subsequent phases would check names of all parties to insurance transactions, including beneficiaries.

“Given the breadth and depth of the OFAC list, there are a tremendous amount of names that need to be checked,” observes Cook. “What complicates it is that the government adds new names to the list on a daily basis. “

Dr. Michael P. Malloy, a visiting professor at Suffolk University Law School in Boston, notes that technically, anyone who deals with someone on the OFAC list has violated the law.

“The law doesnt say affirmatively that you have to check the list, but as a practical reality, to avoid compliance problems, you have to have internal control in place to check the list,” Malloy says. “The insurance company is in position to say they didnt violate the law, as long as they bothered to check.”

Its not clear at this point whether agents would be strictly held liable if they inadvertently processed a policy or annuity from someone who was later found to be part of a terrorist or narcotics network, says Malloy. He notes, however, that there are specific provisions in the law against individuals who facilitate transactions, and it could be argued that an agent who helped process an application is a facilitator.

The Department of the Treasury may rule that laws on aiding and abetting unlawful activities may apply, he says.

Victoria Fimea, senior counsel for litigation with the American Council of Life Insurers in Washington, says use of insurance products for money laundering has to be a concern to the government.

“It would take a sophisticated criminal syndicate to use insurance to launder money,” she says, “but whether we feel its necessary, the reality is Congress passed the [USA Patriot] Act. It will be interesting to see what software manufacturers develop for the insurance industry [for checking applications against the OFAC list], because there will definitely be a need.”

Insurers and agents who want to do their own checking can do so on the OFAC Web site at http://www.treas.gov/ofac/.


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.