AIG OFAC enforcement decision: Lessons in self-disclosure and cooperation

The recent AIG OFAC Enforcement Notice (the AIG Notice) provides valuable insight into areas that international insurance and financial services organisations should be mindful of from a sanctions-risk mitigation perspective. The AIG Notice also presents some valuable lessons, in light of OFAC’s Economic Sanctions Enforcement Guidelines on some of the potential benefits of self-disclosure and co-operation.

What happened?

On 26 June 2017, the American International Group Inc. (AIG) agreed to remit USD 148,698 to settle its potential liability with the US Treasury Department’s Office of Foreign Assets Control (OFAC) for 555 apparent violations under the following OFAC programmes: (1) the Iranian Transactions and Sanctions Regulations (ITSR); (2) the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR); (3) the Sudanese Sanctions Regulations (SSR); and (4) the Cuban Assets Control (CACR).

From November 2007 to September 2012, AIG was alleged to be engaged in a total of 555 transactions totalling USD 396,530 in premiums and claims for insurance of maritime shipments of goods and materials destined for, or transited through, Iran, Cuba, or Sudan. OFAC identified 455 apparent violations with regards to Iran under the ITSR, 38 regarding Sudan under the SSRs, 29 regarding Cuba under the CACRs, and 33 regarding blocked vessels under the WMDPSRs.

The AIG Notice states that, whilst AIG had an OFAC compliance programme in place at the time, which recommended using exclusion clauses in open cargo or worldwide master insurance policies regarding coverage or claims that implicated US economic sanctions, it was found by OFAC that many such clauses were too narrow in their scope and application to be effective. Furthermore, it was found by OFAC that some single shipment policies had no exclusionary clauses.

The consequence for AIG

OFAC and AIG agreed on a settlement to relieve AIG of its potential civil liability. The relatively low settlement amount of USD 148,698 reflects the positive effect under OFAC’s Economic Sanctions Enforcement Guidelines of AIG’s voluntary self-disclosure of the violations once they had knowledge of them, and their remedial actions.

Aggravating factors in the AIG Notice include:

  • AIG’s participation in a pattern or practice over multiple years which violated multiple US sanctions programmes
  • AIG, as a New York headquartered financial institution incorporated in Delaware, issued policies and insurance certificates and/or processed insurance-related transactions that conferred economic benefit to sanctioned countries or persons, and
  • AIG is a large and commercially sophisticated financial institution.

However, mitigating factors OFAC considered include:

  • AIG not having received a penalty notice or a "Finding of Violation" from OFAC in the five years preceding the earliest apparent violation
  • AIG’s OFAC compliance program encouraged the use of sanctions exclusion clauses to prevent the company from processing transactions implicating US economic sanctions, and in the majority of cases made use of such clauses
  • AIG took remedial action and voluntarily self-disclosed the apparent violations, and
  • AIG positively co-operated with OFAC during investigations by submitting well-organised information to OFAC.

Lessons learnt

The AIG Notice provides a number of key learning points that international financial and commercial organisations should consider with regards to sanctions-risk mitigation:

  • The value of voluntary self-disclosure: where apparent OFAC sanctions violations have been identified, self-disclosure may assist in preventing the triggering of the "aggravating" factor of "Concealment" under the OFAC Economic Sanctions Enforcement Guidelines (General Factor A.3 - which is where there is an effort to hide or purposely obfuscate its conduct to mislead OFAC and other regulators). Similarly, self-disclosure is a key focus in "Cooperation with OFAC" (General Factor G of the OFAC Economic Sanctions Enforcement Guidelines).
  • The importance of well-organised records and a sanctions compliance programme: whilst the presence of a compliance programme is a key consideration in OFAC’s Economic Sanctions Enforcement Guidelines (General Factor E), which is made all the more important when considering the "Commercial Sophistication" of a subject person (General Factor D.1), being able to provide relevant information of any apparent violations adequately and in a timely manner is a key consideration when assessing "Cooperation with OFAC" (General Factor G).
  • The importance of properly drafted and executed exclusionary clauses within contracts/agreements to prevent the extension of a prohibited service that would violate sanctions.

Should you have any questions or concerns with regards to Iran-related sanctions or doing business in Iran in a sanctions-compliant manner, please feel free to contact us.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.