US and EU Sanctions: How are Insurers Affected?

1 US and EU sanctions : How are Insurers affected ? Matthew Getz, Debevoise & Plimpton Konstantin Bureiko, Debevoise & Plimpton US and EU sanctions : How are Insurers affected ? Matthew Getz Konstantin Bureiko 19 June 2015. Agenda 1. Introduction to sanctions 2. Overview of EU and US sanctions 3. sanctions Enforcement 4. Key sanctions Regimes Affecting Insurers : 1. Iran 2. Russia 3. Cuba 5. Other sanctions Risks 6. Dealing With sanctions Risks 1. Systems and Controls 2. sanctions Clauses 7. Future Developments 2. INTRODUCTION. 3. Main Objectives of sanctions Induce change by governments disfavoured by international community. For example: Force Iran to stop developing nuclear weapons Foster regime change in Syria Stop Russia undermining the territorial integrity of Ukraine Cut off resources to terrorists, drug traffickers, nuclear proliferators, human rights violators and others 4.

2 Applicable sanctions Regimes Sanctioned territory United States European Union Afghanistan . Belarus . Bosnia and Herzegovina * . Burma/Myanmar . Central African Republic . China . Cote d'Ivoire (Ivory Coast) . Cuba . Democratic Republic of Congo . Egypt . Eritrea . Guinea-Bissau . Haiti . Iran . Iraq . Lebanon . Liberia * . Libya . Moldova . North Korea . Republic of Guinea . Russia . Serbia & Montenegro/Federal Republic of Yugoslavia * . Sierra Leone *. Somalia . South Sudan . Sudan . Syria . Tunisia . Ukraine . Venezuela . Western Balkans *. Yemen . Zimbabwe . 5. EU sanctions 6. US sanctions 7. Overview of US and EU sanctions 8. EU sanctions Generally sanctions are formulated and promulgated by the EU, with direct effect in Member States Enforcement by Member states Criminal / Financial / Insurance Regulators Broad jurisdictional reach, including: EU citizens and companies anywhere in the world Any business that takes place in the EU.

3 Prohibitions of circumvention or facilitation Licences sometimes available 9. Types of EU sanctions 1. Asset freezes 2. Targeted sanctions . : Oil industry in Iran Named Russian banks 3. Export controls 4. Fund transfer restrictions 5. Restrictions on admission / travel bans 10. US sanctions Generally sanctions are imposed by US President through Executive Orders or by US. Congress through legislation Administered and enforced by US Treasury Department's Office of Foreign Assets Control ( OFAC ) (other government agencies also involved). Recent significant enforcement actions against foreign companies Broad jurisdictional reach: US citizens, permanent residents and US companies, anywhere in the world Any business that takes place in US. Secondary sanctions can reach non-US companies Prohibitions on US persons facilitating restricted transactions or entering into transactions with intent or effect of evading sanctions Licences sometimes available 11.

4 Types of US sanctions 1. Blocking sanctions 2. Country-wide embargoes 3. Transaction-based or activity-based restrictions Oil industry in Syria Sectoral sanctions against trade in long-term debt or equity of designated Russian companies 4. Export controls 5. Secondary sanctions , applied to Iran and Cuba only: Non-US companies can be sanctioned for engaging in certain types of material transactions with Iran, or involving property nationalised by Cuba 12. sanctions Enforcement 13. Penalties for OFAC Violations (US). For primary sanctions violations Civil fines up to $250,000 or twice the amount of the transaction, whichever is greater For willful violations, criminal fines up to $1,000,000 and imprisonment up to 20 years US enforcement appears to target overseas entities Of around $16 billion in sanctions -related fines imposed since 2009 on the finance sector, only $90 million applied to US firms US imposed record penalty of $ billion on BNP Paribas in July 2014.

5 14. US Enforcement Actions: Financial Sector Entity Location Sanction Regimes Breached Year Fine BNP Paribas France Cuba, Iran and Sudan 2014 $ billion HSBC1 UK Burma, Cuba, Iran, Libya, Sudan 2012 $ billion Commerzbank2 Germany Burma, Cuba, Iran and Sudan 2015 $ billion Standard Chartered UK Burma, Iran, Libya, Sudan 2012 $667 million ING Netherlands Burma, Cuba, Iran, Libya, Sudan 2012 $619 million Credit Suisse Switzerland Iran 2009 $536 million ABN Amro3 Cuba, Iran, Libya, Sudan 2010 $500 million Barclays UK Burma, Cuba, Iran, Libya, Sudan 2010 $298 million Clearstream Banking Germany Iran 2014 $152 million Royal Bank of Scotland UK Burma, Cuba, Iran, Sudan 2013 $100 million 1 Case also involved lack of money laundering controls 2 Part of Commerzbank's fine related to AML failings 3 ABN Amro was taken over by Royal Bank of Scotland in 2007.

6 15. US Enforcement Actions: Insurers Insurers are not safe! Entity Location Sanction Regimes Breached Year Fine The American Steamship Owners Mutual Protection and US Cuba, Iran and Sudan 2013 $348,000. Indemnity Association, Inc AIG US Cuba 2014 $279,038. BUPA Florida US Cuba 2014 $128,704. HCC Insurance Holdings, Inc US Iran 2011 $38,448. 16. UK Regulation Violations prosecuted in criminal courts Criminal penalties Unlimited fines Imprisonment (up to 7 years). Financial Conduct Authority can punish violations of its Principles of Business: vital to have proportionate systems and controls in place Willis: million fine for failure to implement controls to prevent financial crimes, including sanctions (2011). RBS: million fine for failure to implement sanctions controls (2010).

7 17. UK Regulation (cont'd.). Lloyd's of London takes proactive role in overseeing sanctions compliance for its members Sets standards of behaviour for Insurers through guidance Lloyd's International Regulatory Affairs Team undertakes reviews of insurer sanctions compliance (most recent review completed end of 2014). Provides tools and training for Insurers to assist with sanctions compliance 18. Key sanctions Regimes Affecting Insurers - Iran 19. Iran Nuclear Deal Some sanctions affecting insurance industry already suspended/repealed Many more to be suspended from 30 June 2015 under Joint Plan of Action if IAEA approves Iran nuclear progress 20. EU Iran sanctions : Overview Currently most comprehensive EU sanctions regime in place, consisting of: Asset freezes Express prohibition on insuring Iranian legal persons Various sectoral and finance restrictions (many of which target the Iranian energy industry).

8 Fund transfer restrictions All energy industry sanctions and many asset freezes may be suspended from 30 June 2015. 21. EU Iran sanctions : Asset Freezes EU Asset Freezes affect listed individuals and entities EU Asset Freeze list available at EU Asset Freezes mean persons are prohibited from Dealing in funds or economic resources that belong to or are controlled or held by the listed individuals and entities Making funds or economic resources available to the listed individuals and entities, whether directly or indirectly 22. EU Iran sanctions : Asset Freezes (Cont'd). Indirectly benefiting: No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural or legal persons, entities, bodies listed . There is a presumption that funds or economic resources provided to: Persons owned more than 50% by listed persons Persons controlled by listed persons are for the benefit of the listed persons and thus in violation UNLESS.

9 Taking all circumstances into account, it can be reasonably demonstrated that the funds or economic resources will not be used by or be for the benefit of the listed person Distribution of profits to listed shareholder is not in itself a violation 23. EU Iran sanctions : Transfer Restrictions Authorisation needed if transfer to or from Iran of EUR 100,000 for transfers in general EUR 400,000 for transfers regarding personal remittances EUR 1,000,000 for transfers regarding foodstuffs, healthcare, medical equipment, or for agricultural or humanitarian purposes Requirement to notify a competent authority of any transfer above EUR 10,000 if made for personal remittances or regarding foodstuffs, healthcare, medical equipment, or for agricultural or humanitarian purposes Different limits apply for transfers not between an EU financial institution and Iranian financial institution Current authorization limits are temporary may revert to previous, lower levels 24.

10 EU Iran sanctions : Insuring Iranian Legal Persons Prohibition on providing or brokering insurance or re-insurance for Iranian legal persons Exceptions for: Iranian natural persons (except where they are acting at the direction of the Iranian government or Iranian companies). Compulsory or third party liability insurance for Iranian persons based in the EU. Insuring Iranian diplomatic or consular missions in the EU. Limited additional exceptions for insuring activities undertaken by Iranian natural persons acting at the direction of the Iranian government or Iranian companies Prohibition on extension or renewal of insurance and re-insurance agreements concluded before 27 October 2010. 25. EU Iran sanctions : Pre-October 2010 Policies HMT's Guidance 27 October 2010.