The Office of Foreign Assets Control (“OFAC”) today released its monthly civil penalty report for June. The report indicates that General Reinsurance Company (“Gen Re”) agreed to pay $59,130 to settle allegations that it had paid $309,740.65 in 2005 under a facultative reinsurance policy issued to Steamship Mutual Underwriting Association Limited (“Steamship”). The payment was made in connection with claims made against Steamship for losses between 1998 and 2002 covered by a policy issued by Steamship to the National Iranian Tanker Company (“NITC”). In reducing (somewhat) the base penalty of $131,424, OFAC cited a number of mitigating factors including the company’s entry into a tolling agreement, its voluntary disclosure of the violations, its cooperation in the investigation, its subsequent enhancement of its compliance program, and the absence of prior OFAC violations.

The discussion of the violation by OFAC might leave the misleading impression that the payment of the premium by General Reinsurance was the crux of the violation rather than the issuance of the reinsurance policy covering Steamship’s insurance policy for NITC in the first place. OFAC guidance to the insurance industry makes clear that the issuance of the reinsurance to Steamship for its NITC policy would itself have violated OFAC rules without regard to whether any claims were actually made or paid to Steamship.

The reason, however, for the focus on the payment was the five-year statute of limitations. Based on the claim dates involved, the reinsurance policy had to have been issued in 1998 or earlier and thus was well beyond the statute of limitations by the time that General Reinsurance voluntarily disclosed its payments under the reinsurance policy in 2005.

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