The enactment of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2009 (the “Iran Sanctions Act”), signed by President Obama in the first week of July, threatened the status quo regarding the insurance and reinsurance by international insurance firms of risks relating to the Iranian petroleum industry, including cargos of oil and petrochemical equipment. Signals that the current US administration was seeking to aggressively implement the extraterritorial reach of its new sanctions regime against foreign banks and insurers with U.S. affiliates raised the heat on reinsurers and insurers, particularly those with investments in and commitments to the US market, to comply with the Iran Sanctions Act in their wholly-offshore affiliates and businesses.
The adoption of the Iran Sanctions Act followed the failure of the Security Council to significantly expand the UN’s Iranian sanctions regime beyond the nation’s nuclear industry and possible efforts to build a nuclear bomb. A link to the Security Council’s June 9, 2010 resolution is here.
The Iranian Sanctions Act calls for the U.S. Secretary of the Treasury to adopt regulations under the Act within 90 days. The Treasury Department’s Office of Foreign Asset Control (“OFAC”) has not to date adopted any new regulations as to Iranian sanctions. Developments can be monitored on the OFAC’s website.
As we noted in an earlier blog, reportedly the Iran Sanctions Act has already impacted Iran’s oil industry because cargos have become difficult to insure. While many leading international insurance companies have refused to comment, others have expressed concern about the impact of the law on existing insurance contracts and some, such as Lloyd’s, have indicated an intention to comply, perhaps because of the more aggressive US posture towards financial services firms.
On Monday, July 26, 2010, U.S. Secretary of State Clinton and Secretary of Treasury Geithner announced agreements had been reached with Canada and the European Union on tougher Iranian sanctions. See their joint statement here. The Council of the European Union adopted more restrictive sanctions against Iran in a Council Decision of the same date. See its decision here.
Notably, the EU imposed sanctions on Iran’s oil industry that parallel to a significant degree restrictions found in the Iranian Sanctions Act, including prohibiting insurance or reinsurance of Iranian entities, individuals or entities acting on their behalf or entities controlled by them and providing for the freezing of assets.
Australian Foreign Minister, Stephen Smith, announced on August 29, 2010 that Australia will impose an Iranian sanctions regime similar to the EU sanctions discussed above. See the Foreign Minister’s press release here.
These latest developments have addressed worrisome inconsistencies among US, Canadian, Australian and EU Iranian sanctions. It remains to be seen, however, if the new regulations OFAC issues will re-open old issues or create new problems. For the time being Australian, Canadian and European insurers and reinsurers with major US businesses and dealings with Iran will have a legal framework in their home jurisdictions providing authority and support for their compliance with the US-led approach to sanctions, the adequacy of which will bear revisiting once OFAC acts.
We will continue to monitor and report on Iranian sanctions and their impact on the global insurance industry.