LITA Alert - US Sanctions - Iran

Dear All,

Below please find the Lloyds bulletin regarding the new legislative developments about the us sanctions.

Lloyd's International Trading Advice

Primary point of contact for advice and information on Lloyd's trading status worldwide

LITA ALERT

US SANCTIONS - IRAN

THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012

Legislative Developments

New legislation entitled The Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) expanding US sanctions on Iran (and Syria) was signed into law on 10 August 2012.  

The “core” US embargo of Iran prohibits “US persons” from engaging in trade or transactions involving Iran.  Most significantly, ITRA expands the application of this “core” embargo to non-US persons that are owned or controlled by US persons.  Lloyd’s is in the process of consulting the US Treasury’s Office of Foreign Assets Control (“OFAC”) to establish the exact scope of the legislation on non-US subsidiaries of US persons.  In due course, Lloyd’s will issue a comprehensive analysis of ITRA by way of a market bulletin.

ITRA amends existing US sanctions targeting Iran, particularly relating to its energy sector, to make it increasingly difficult for non-US companies to engage in business with Iran.  

ITRA additionally declares sanctionable the provision of underwriting services or (re)insurance to the National Iranian Oil Company (“NIOC”) and the National Iranian Tanker Company (“NITC”).  It also codifies sanctions already in place against human rights violators in Syria.

Impact on the Lloyd’s Market

Under the Iran Sanctions Act (“ISA”) as amended by CISADA (see Market Bulletin Y4409), non-US persons can be sanctioned by the US (in a number of ways) for engaging in business with Iran’s energy sector.  ITRA expands the types of activities that can lead to a non-US person being sanctioned and it also adds three new potential sanctions to the existing sanctions that can be imposed upon a non-US person for engaging in conduct defined as sanctionable by the ISA.   Further details will follow in the market bulletin.

As noted above, ITRA effectively requires that non-US subsidiaries of US parent companies comply with the Iranian Transaction Regulations (ITR) and related regulations.  The ITR are wider in scope than EU Regulation 267/2012, which means that managing agents with US parents are now subject to additional (re)insurance prohibitions relating to Iran. Lloyd’s is seeking clarification with respect to  insurance broking firms with US ownership or control and whether they will also be subject to the same (re)insurance prohibitions.  Penalties for violations by non-US subsidiaries will be against the US parent company.

The provisions within ITRA which relate to the (re)insurance industry will expand the scope of the ISA, which targets Iran’s energy sector, and allow the imposition of US sanctions against non-US entities (even when they are not owned or controlled by a US entity) that engage in activities related to Iran’s energy sector.

Next steps

Managing agents with US ownership or control should quickly assess any relevant contracts to establish if they could be considered sanctionable under the above, and act accordingly, seeking legal advice where appropriate.  Contractual clauses should also be examined to see if non-performance is enforceable or whether an OFAC licence may be available for the particular transaction.

Due to Lloyd’s direction of 2010, it is expected that managing agents will already be in compliance with the existing ISA provision which declares sanctionable (re)insurance of shipments of refined petroleum products (“RPP”) to Iran, but managing agents need to be aware this provision has been expanded to include the (re)insurance of barter transactions, by which RPP goods are exchanged for other goods.

Summary

In summary, there are a number of provisions which impact upon the (re)insurance industry.  Some of the provisions already fall under EU legislation or Lloyd’s Direction regarding RPP, and managing agents will therefore have procedures in place to ensure compliance.   Other provisions such as the extension of sanctions to US owned or controlled subsidiaries, may mean that transactions which fall outside of the EU regulations but within US sanctions legislation will need to be terminated for managing agents with US ownership or control, or licenses sought from OFAC to continue the business.  

If managing agents wish to discuss this alert, please contact:

Andy Wragg on 020 7327 6387 or andy.wragg@lloyds.com

Steve Payne on 020 7327 6538 or stephen.payne@lloyds.com

Rachael Penny on 020 7327 6380 or Rachael.penny@lloyds.com

Or

Lloyd's International Trading Advice
Lloyd's Desk, Ground Floor, Underwriting Room
Telephone: +44 (0)20 7327 6677
Email: LITA@Lloyds.com
www.lloyds.com/crystal

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