The Council’s Decision
Further to Council Decisions in January and March of 2012, on 16 October 2012, the Official Journal of the European Union published Council Decision 2012/635/CFSP. This has not yet been implemented but amends an earlier 2010 Decision concerning restrictive measures against Iran as outlined below.
Also published in the Official Journal was Council Implementing Regulation 945/2012, which extends the current asset freezing regime to a further 34 Iranian persons and entities. The Regulation is directly applicable in Member States and therefore effective from 16 October 2012.
EU Prohibitions - Where are we now?
- Ban on imports from Iran
The prohibition covers import, purchase or transport of crude oil, petroleum products, petrochemical products and natural gas from Iran.
- Ban on exports to Iran
The ban prohibits exports of:
- Key equipment and technology for the exploration and production of oil and gas, refining and liquefaction of natural gas, and petrochemical industries in Iran;
- Vessels designed for the transport or storage of Iranian oil or petrochemical products;
- Key naval equipment and technology for ship-building, maintenance and refit; and
- Materials that might be of relevance to Iran’s nuclear, military and ballistic programmes.
- Ban on investment in the Iranian oil and gas industries
The prohibition restricts direct and indirect financial and technical assistance for all transactions between the EU financial sector and Iranian banks, limiting credit, new investment in and joint ventures with companies in Iran (including derivatives) as well as insurance, reinsurance and brokering services.
Short term export credits, guarantees or insurance supporting trade with Iran will be prohibited, together with construction, or the provision of technical assistance or financing for the construction, of new oil tankers for Iranian persons or entities.
- Newly sanctioned entities
The current asset freeze in respect of persons and entities considered to be providing support to the Iranian regime has been extended to cover the oil and gas sector. Some of these are state entities but the majority are corporates, operating from London, the Channel Islands and elsewhere.
US – The current position
The Council Decision comes in the wake of legislative developments in the US. This summer saw the Iran Threat Reduction and Syria Human Rights Act 2012 (“ITRA”) become law. The “core” US embargo of Iran generally prohibits “US persons” from engaging in trade or transactions involving Iran. However, ITRA expands the application of this “core” embargo to non-US persons under US ownership or control. This means that foreign subsidiaries of US companies must comply with the Office of Foreign Assets Control’s (“OFAC”) Iranian Transactions Regulations, and may no longer “knowingly” deal with other Iranian entities under other OFAC sanctions programs.
ITRA also expands the types of activities that can lead to a non-US person being sanctioned under the Iran Sanctions Act (“ISA”) (as amended). The following 3 potential sanctions were added to the previous 9: (i) a prohibition on US investment in equity or debt instruments of a sanctioned entity; (ii) the denial of visa to, and exclusion from, the US of any corporate officer, principal or shareholder with a controlling interest in a sanctioned entity; and (iii) the imposition of sanctions against the principal executive officer or person performing similar functions of the sanctioned person.
In the words of the Department of the Treasury, “today Iran faces the most stringent, comprehensive, and effective sanctions programme ever implemented”.
How will these developments impact the insurance industry?
Who is sanctionable under the Council Decision?
EU nationals and entities, whether domiciled inside or outside the EU, are sanctionable under the new Council Decision. Brokers, (re)insurers and clients should also continue to be aware of the US sanctions regime, particularly as they have extra-territorial scope and far-reaching penalties.
What activities are sanctionable under the Council Decision?
EU insurers and brokers are prohibited from, directly or indirectly, providing insurance, reinsurance or brokering services related to the import, purchase or transport of Iranian oil, gas and petrochemical products. Insurers are also banned from entering into new short, medium or long term commitments to provide insurance or reinsurance of trade with Iran. The insurance market should particularly exercise care in relation to ongoing dealings on existing placements which pre-date the broadening of sanctions.
The impact of the Council Decision is most likely to be felt by brokers, insurers and reinsurers engaged in the insurance of risks in the oil, gas and petrochemical industries, as well as those involved in insurance of trade credit and the risk of financial instruments. The sanctions are now sufficiently broad that the market should assess carefully whether it is now possible to conduct any business involving Iranian risks lawfully in the light of these new developments.