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Yes, OFAC Regulations Supersede State Insurance Statutes

Aug 08, 2017

Insurance companies must abide by state insurance statutes, but they must also sometimes “commit an ostensible violation of state insurance regulations to comply with OFAC regulations.”

OFAC Regulations Preempt State Insurance Regulations

The Office of Foreign Assets Control (OFAC) is an agency within the U.S. Department of Treasury charged with administering and enforcing trade restrictions or sanctions on foreign countries and companies registered in those countries. OFAC maintains databases and publishes information regarding current restrictions and sanctions to ensure that Americans – including insurance companies – do not engage in financial transactions or provide services to Specially Designated Nationals (SDNs) or others on one of OFAC’s sanctions lists.

OFAC Compliance Requirements for Insurance Companies

According to the Department of the Treasury, companies like State Farm, All State, Blue Cross Blue Shield, and Aetna are:

  • Under an obligation not to issue the policy if the applicant is an SDN
  • Required to block payment if the SDN sends a deposit along with the application
  • Barred from providing services to an SDN
  • Advised to “review the specific treatment prohibitions associated with that list carefully before taking any action” if they receive an application from a party on one of OFAC’s other sanctions lists.


OFAC Fines can be Substantial

Performing an OFAC search is a necessary first step for insurance companies when they receive an application. OFAC searches are a tool insurance companies can use to verify the identity of their applicants, and to ensure that they are not on the SDN list or any other OFAC sanctions list, before taking further action.

Failure to perform such a search can result in civil and criminal penalties, as was the case in Miami in 2014, when three health insurance providers were hit with a $129,000 fine for issuing policies to various individuals whom the Department of the Treasury had sanctioned under narcotics trafficking regulations. In addition to providing coverage for the sanctioned persons, OFAC said that the health insurance providers also issued support, including “a wide range” of marketing, administrative and operational services, including retention of agents, customer service and the issuance of claim and reimbursement checks.”

How to Avoid OFAC Violations

  • It is recommended to perform OFAC searches on new applicants to ensure they are not SDNs or on any other sanctions list.
  • It is also recommended that insurance companies scrub their databases of current policyholders every month to ensure that none have become SDNs or been added to another OFAC sanctions list.
  • Sanctioned individuals assets must be frozen immediately. Insurance companies that only scrub their databases every three months for OFAC compliance may be fined for taking too long to take action.
  • If you discover that a policyholder is or becomes a Specially Designated National (SDN), contact OFAC Compliance immediately. OFAC will work with you on the specifics of the case.


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