OFAC Penalty Highlights Key Lessons for Sanctions Compliance

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued another penalty, this time to American Life Insurance Company, a MetLife subsidiary. While the penalty amount of $178,421 may seem small, it underscores a critical lesson: with knowledge comes responsibility. The potential maximum fine for the violations was a staggering $858 million, illustrating the importance of robust compliance measures.

American Life Insurance Company voluntarily disclosed its errors to OFAC, offering valuable insights for others to learn from. Here are key takeaways, starting with a point that cannot be stressed enough:

1. Passing a sanctions screening does not guarantee compliance: Just because a name clears a screening process does not mean the transaction, person, or entity is not prohibited. Sanctions are often nuanced, and country-specific restrictions are not always as straightforward as the comprehensive sanctions against countries like North Korea.

2. Treat sanctions screening as a nuanced alert: Compliance teams must move beyond the mindset of simply clearing a name in the system. Instead, sanctions alerts should trigger an investigation to trace the data and determine if the transaction or entity is restricted. For example, in this case, Iranian government-owned schools were involved but were not listed among restricted entities. This kind of scenario requires a deep dive into the information trail. And remember, this isn’t unique to Iran—several countries have complex, layered sanctions frameworks. Always approach screening with an investigator’s mindset.

3. Insurance companies, check your documentation: Key information relevant to sanctions compliance is often buried within documentation that doesn’t lend itself to straightforward, automated screening.

4. Leverage other screening systems as leads for sanctions issues: In this case, the company’s Politically Exposed Persons (PEP) screening flagged the Iranian embassy, but the sanctions screening system did not. This demonstrates the importance of connecting dots across various compliance tools and adopting a holistic investigator’s mindset.

5. Consistency in sanctions compliance is crucial, especially with third-party service providers: For companies relying on third-party agents such as fintechs, brokers, or third-party administrators, sanctions compliance measures must be consistent throughout the process. Screening methods, documentation requirements, and frequency of reviews should align, regardless of what legal agreements between parties specify.

6. Develop internal processes to track rejected applicants: OFAC highlights an often-overlooked area of sanctions compliance: having a mechanism to flag and track applicants who are rejected for sanctions-related reasons. This is especially important for businesses with multiple customer onboarding channels.

Finally, there’s an operational gap many companies have yet to address: implementing the Treasury’s Framework for sanctions compliance. The author, who has spoken to roughly 1,000 people over recent months, notes that only one individual confirmed having operationalized the framework. “One. Uno. Hop to it y’all,” they emphasized, adding, “You don’t need a pricey consultant to get started on it.”

This penalty serves as a stark reminder for companies across sectors: robust, nuanced sanctions compliance is not optional, and lapses can have serious financial and reputational consequences.

By fLEXI tEAM