For the past five years, non-US insurers have faced a growing array of US-Iran “secondary sanctions”. Most non-US insurers are keenly aware of the risks of violating these sanctions, including potentially having their US assets frozen and access to US banking cut off, thus preventing them from engaging in US dollar transactions. For insurers doing international business, this is tantamount to a death sentence.
US-Iran secondary sanctions target a wide range of conduct, including providing insurance for:
- Entities involved in the Iranian energy, shipping or shipbuilding sectors
- Sellers and suppliers to Iran of precious and certain non-precious
- metals (including steel and aluminum), and software used for integrating industrial processes
- Vessels used to transport Iranian crude
- Iranians named on the US blacklist
- Suppliers to Iran of goods that contribute to Iran’s proliferation of weapons of mass destruction or support for terrorism; and
- “Any activity with respect to Iran for which sanctions have been imposed”
The breadth and uncertain scope of these sanctions, and the potential for crippling penalties, have led most non-US insurers to all but close the door on Iran-related opportunities. Today, however, the scent of change is in the air.
Sanctions relief is promised in the Joint Comprehensive Plan of Action (JCPOA) announced in early April. While there is virtually no chance of a wholesale lifting of US secondary sanctions, there is a distinct possibility that they will be substantially eased when the final agreement, anticipated in June 2015, is inked.
Unfortunately, however, there are significant hurdles to surmount before sanctions relief becomes a reality.
First, the list of open items is a long one. It is not yet clear:
- When sanctions will be eased – will easing follow certification by inspectors of Iran’s compliance with JCPOA requirements, or will inspections be allowed only after sanctions are eased?
- Which sanctions will be eased – the White House says that non-nuclear-related sanctions against Iran – those concerning terrorism, ballistic missiles and human rights – will remain, but there is no obvious basis to distinguish between nuclear-related and other sanctions
- Whether the JCPOA will result in a more level playing field for US and non-US insurers. At the moment different sanctions regimes apply to US and non-US insurers, with greater restrictions being imposed on US insurers. JCPOA may ease both regimes or benefit one group more than the other
Second, if and when the open items are agreed, the US Congress will then have its say. Disagreements within Congress, or between Congress and the White House, could substantially slow, or even torpedo, the JCPOA process.
Third, once agreement is reached, Iran must then prove and maintain compliance with the JCPOA terms. According to the White House, upon a compliance failure the sanctions will “snap back” into place. Will insurers then be permitted to run off in-force policies or, as has often been the case in the past, will they be left in the untenable position of having policy obligations that they cannot honour?
Non-US insurers are right to anticipate and prepare for the opportunities that will flow from easing of US-Iran secondary sanctions. They should also brace for the possibility that such easing may be very limited and may not come at all.