Sanctions imposed by the United States and the European Union restrict insurers, reinsurers, and brokers from providing services to embargoes countries, entities, and people-policyholders, owners and beneficiaries-who are specially designated. Now the scope of these prohibitions, as well as your regulatory compliance burdens, has changed.
The U.S. Treasury Department's Office of Foreign Assets Control, or OFAC, administers and enforces economics sanctions regulations. OFAC restricts virtually all business, including insurance-related business, with the Iranian government and persons or entities in Iran. OFAC also prohibits commercial dealings with Specially designated Nationals, or SDNs, such as terrorists, nuclear/weapons proliferators, and carcotics traffickers. U.S. firms also must block access to any SDN-owned property-or interest in such property-that comes into their possession.
OFAC-restricted services include providing insurance or reinsurance policies. Sanctions on services are quite broad, covering many activities connected with insurance or reinsurance, including broking, processing premiums or claims, and other underwriting, actuarial or ancillary services. Moreover, an insurance policy is considered property under various OFAC regulations, and a beneficiary's share is considered an "interest in property" that could be subject to blocking requirements if the beneficiary is an SDN.
Although OFAC sanctions generally apply only to U.S. citizens or permanent residents, wherever located, and any person in the United States, the U.S. Government has recently brought significant criminal and civil enforcement actions against foreign banks, including Lloyd's TSB, Credit Suisse, Royal Bank of Scotland and Barclays.
Those firms were cited for engaging in activities and transactions outside the U.S. that caused U.S. businesses to process payments with embargoed countries and SDNs-notably, Iran. These financial services firms already have paid hundreds of millions of dollars to settle these charges. Although no such serious cases involve insurance or reinsurance, we understand that OFAC continues to scrutinize the sector.
Additionally, the Comprehensive Iran Sanctions, Divestment, and Accountability Act of 2010, which President Obama signed into law July 1, authorizes sanctions against any foreign person or form who "knowingly" engages in certain support, including insurance and reinsurance transactions, that significantly contributes to exporting "refined petroleum products" to Iran or enhancing Iran's ability to import such products. Any person who sells or provides to Iran covered services or support of $1 million or more-or $5 million in total over a 12-month period-may now be subject to sanctions by the U.S. government.
The definition of "services or support" includes "underwriting or entering into a contract to provide insurance or reinsurance for the sale, lease or provision of such goods, services, technology, information or support."
the legislative report accompanying the law provides some context, stating that "the provision is intended to cover providing ships, vehicles, or other means of transportation to deliver refined petroleum products to Iran or providing insurance or financing services for such activities."
The government has not yet imposed penalties under this provision of the Iran Sanctions Act, so it's not yet known how the provision will be interpreted and enforced or how it will apply to brokers. an exception does exist. If a firm exercises due diligence establishing and enforcing policies, procedures and controls regarding covered business, then the president may decide not to impose sanctions.
Of course, the law does not specify what exactly constitutes due diligence. But the legislative report indicates it would include written procedures and controls to prevent underwriting or entering into prohibited behavior and would include the designation of someone to enforce the policy.
The EU imposed expanded economic sanctions against Iran, including the provision of insurance and reinsurance, to be more closely aligned with U.S. policy. the European Council issued a final decision, effective back on Oct. 27, 2010, establishing specific restrictions on providing insurance or reinsurance to Iran or Iranian businesses, with limited exceptions.
If your firm's services include placing or arranging insurance that could touch Iran or other SDNs, examine the sanctions requirements carefully and seek guidance from legal and compliance experts as appropriate. Although the development and implementation of effective compliance strategies can be challenging, the potential compliance risks may be mitigated with appropriate diligence and safeguards.