Russia sanctions: What are the insurance industry’s compliance obligations?

The DFAT (Department of Foreign Affairs and Trade) website says its version is a consolidated list “of all persons and entities who are subject to targeted financial sanctions under Australian sanctions law.”

This large, downloadable excel sheet was likely updated on a monthly basis before Russia’s invasion of Ukraine, said Webster. Since then, the number of individuals and entities on the list has increased by more than 1,000 – the vast majority of them Russian citizens or businesses – and can go up by the day.

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At the time of writing, Oleg Boyko, president of Finstar Financial Group, was the latest Russian citizen on the list. He was the 7,659th addition.

Compliance with sanctions is a legal obligation for professionals in the insurance industry. However, unless you’re a big company paying for expensive software the only way to check the sanctions list and ensure you’re not selling insurance products to someone blacklisted is to open the Excel sheet and then manually complete any auditing requirements.

“You check against that sheet and then you’ve got to show the auditor that you’ve done the checks against the policies that you’re binding, that’s at the bottom end, really manual,” said Webster.

For a broker, MGA or insurer, said Webster, every single customer that is quoted and binded needs to be checked.

Enter SanctionsCheck.co, software developed by Webster together with Dylan Fogarty-MacDonald and Chad Olliffe.

“It came out of essentially scratching our own itch,” said Webster. “We had a problem that we needed to solve which was how to quickly and efficiently do sanctions checking to make sure that we were compliant, but then also provide the audit trail back to the auditors when we needed to show that we had completed the sanctions checking.”

Webster launched the software about 18 months ago but, with Russia’s invasion of Ukraine, the problem his creation solves is now more important for brokers, MGAs, insurance agencies and insurers.

He suggested the insurance industry could be vulnerable to sanctions violations if someone was to bind a policy and then get a refund and have that refund sent to a business that’s on the sanctions list.

Webster said it’s very hard to tell how often this could be happening.

“Essentially, what it is [SanctionsCheck.co], is making sure that you’re not binding a policy, or paying out a claim or refunding premium to someone who’s on the sanctions list,” he said.

The automated sanctions and money laundering checking options used by bigger companies, said Webster, can cost thousands of dollars to use, like LexisNexis and ComplyAdvantage.

“They charge you on a per search basis,” he said.

Webster said his system is a more cost effective and streamlined option designed for the insurance industry.

“So you can log into a dashboard and put in a single name and get a good result. You can paste in hundreds of names at once and get a result by hitting search,” he said.

You can also link it to Google, Excel or Office 365 sheets for row-by-row checks, he said.

“Or you can do it like we do. We have it embedded into our API (application programming interface). So every time we do a quote, we check against the list and return a result back to the person performing the quote,” said Webster.

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Since the uptick in sanctions against Russia he said there’s been a noticeable increase in the use of his software.

“So there’s been a huge number of entities and individuals added to the sanctions list in the last two or three months and so we are seeing increasing results,” he said.

SanctionsCheck.co, said Webster, aggregates all the publicly available lists.

“We also provide an audit trail that’s downloadable that you can then provide to auditors, to be able to say, ‘we’ve checked these people on these dates across these lists to show evidence that you’ve done it’,” he said.

For brokers, audits that would catch sanctions violations are not as common as they are for an MGA or an insurer.

“But for an MGA or a carrier the audits are mandatory,” he explained.

A medium sized underwriter or insurance business might have 10 audits a year, he said.

“Then we also have ASIC (Australian Securities and Investments Commission) audits as well that we have to comply with for our license conditions,” he said.

One recent occasion when audit checks caught out financial businesses in Australia, said Webster, was highlighted during the Banking Royal Commission that reported in 2019.

“Some of the banks recently at the Royal Commission got stung with some of their AML (anti-money laundering) practices because they weren’t doing those types of sanctions checks with their customers,” he said.

“All SanctionsCheck.co does is solve one issue really simply and does it in a cost-effective way and it’s blindingly fast,” he said.