What is Denied/Restricted Party?
Compliance Digest
In this post, we will we review some recent examples of non-compliance with U.S. export control regulations regarding denied and sanctioned entities, specifically enforcement cases over AXA Life Insurance Company, Humana, Inc. and Compass Bank.
Both AXA Equitable Life Insurance Company and Humana were involved in the same violation and received findings from OFAC regarding violations of the Foreign Narcotics Kingpin Sanctions Regulations.
Let’s focus on the AXA case a little bit:
Last year OFAC has issued a Finding of Violation to AXA for violations of the Foreign Narcotics Kingpin Sanctions Regulations, that are codified in 31 C.F.R. part 598. AXA issued one health insurance policy back in 1992 that provided coverage for two individuals, and a separate health insurance policy that provided coverage for one another individual. In December 2009, when OFAC designated these three individuals and added them to the List of Specially Designated Nationals and Blocked Persons (SDN List), AXA or the Third Party Administrator did not screen the names of the policyholders serviced by the administrator and, as a result, both companies failed to identify and block the policies and premium payments in which one or more of the above-referenced SDNs had an interest.
Humana, Inc. is the parent company of Kanawha Insurance and received a Finding of Violation of the Foreign Narcotics Kingpin Sanctions Regulations. At the time of the designations, Kanawha was serving as the Third Party Administrator for a series of insurance policies issued by a separate, unaffiliated company, Kanawha provided various functions in connection with these policies, which included servicing the policies, collecting premiums, maintaining policy records, and answering general inquiries from insured parties. While Kanawha screened the names of insurance providers in connection with servicing these policies, it did not screen policyholders against the SDN List.
Here is another recent example;
Compass Bank was found guilty of violating the Foreign Narcotics Kingpin Sanctions Regulations. A few years back, OFAC designated two individuals as narcotics traffickers. At the time of OFAC’s designations, Compass maintained separate accounts for and on behalf of these individuals. Compass then failed to identify and block these accounts following OFAC’s designation of the account holders due to a misconfiguration in the bank’s sanctions screening software.
Almost a year later the bank identified one of these persons as an accountholder because they had more than enough information to compare within the bank’s branch in Texas but did not take any actions at that time to review or otherwise block this person’s account. They did it however right after they were contacted by U.S. government agency. U.S. Government considered Compass causing potential harm to a U.S. economic sanctions program. Thereafter, OFAC issued an administrative subpoena to Compass regarding the accounts it maintained for these specially designated nationals.
In conclusion, U.S. Government takes the regulations, sanctions programs, denied and restricted party lists very seriously and enforcement has always high priority for BIS, OFAC, DDTC and other agencies. As seen in above cases, companies might find themselves in multi-million dollar fines and settlements. For MNCs and large size global businesses revocation of export privileges can also cause enormous financial loss.
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