Keep your business from touching
Iran’s market or face tough U.S. and EU
Scott Sinder, Edward J. Krauland and Jack R. Hayes
Sanctions imposed by the United States and the European
Union restrict insurers, reinsurers and brokers from providing
services to embargoed countries, entities and
people—policyholders, owners and beneficiaries—who
are specially designated. Now the scope of these prohibitions,
as well as your regulatory compliance burdens, has changed.
The U.S. Treasury Department’s Office of Foreign
Assets Control, or OFAC, administers and enforces economics
sanctions regulations. OFAC restricts virtually all business,
including insurance-related business, with the Iranian
government and persons or entities in Iran. OFAC also prohibits
commercial dealings with Specially Designated Nationals, or
SDNs, such as terrorists, nuclear/weapons proliferators, and
narcotics traffickers. U.S. firms also must block access to any
SDN-owned property—or interest in such
property—that comes into their possession.
OFAC-restricted services include providing insurance or
reinsurance policies. Sanctions on services are quite broad,
covering many activities connected with insurance or
reinsurance, including broking, processing premiums or claims,
and other underwriting, actuarial or ancillary services.
Moreover, an insurance policy is considered property under
various OFAC regulations, and a beneficiary’s share is
considered an “interest in property” that could be
subject to blocking requirements if the beneficiary is an
Although OFAC sanctions generally apply only to U.S.
citizens or permanent residents, wherever located, and any
person in the United States, the U.S. Government has recently
brought significant criminal and civil enforcement actions
against foreign banks, including Lloyd’s TSB, Credit
Suisse, Royal Bank of Scotland and Barclays. Those firms were
cited for engaging in activities and transactions outside the
U.S. that caused U.S. businesses to process payments with
embargoed countries and SDNs—notably, Iran. These
financial services firms already have paid hundreds of millions
of dollars to settle these charges. Although no such serious
cases involve insurance or reinsurance, we understand that OFAC
continues to scrutinize the sector.
Additionally, the Comprehensive Iran Sanctions, Divestment,
and Accountability Act of 2010, which President Obama signed
into law July 1, authorizes sanctions against any foreign
person or firm who “knowingly” engages in certain
support, including insurance and reinsurance transactions, that
significantly contribute to exporting “refined petroleum
products” to Iran or enhancing Iran’s ability to
import such products. Any person who sells or provides to Iran
covered services or support of $1 million or more—or $5
million in total over a 12-month period—may now be
subject to sanctions by the U.S. government.
The definition of “services or support” includes
“underwriting or entering into a contract to provide
insurance or reinsurance for the sale, lease or provision of
such goods, services, technology, information or
The legislative report accompanying the law provides some
context, stating that “the provision is intended to cover
providing ships, vehicles, or other means of transportation to
deliver refined petroleum products to Iran or providing
insurance or financing services for such activities.”
The government has not yet imposed penalties under this
provision of the Iran Sanctions Act, so it’s not yet
known how the provision will be interpreted and enforced or how
it will apply to brokers. An exception does exist. If a firm
exercises due diligence establishing and enforcing policies,
procedures and controls regarding covered business, then the
president may decide not to impose sanctions.
Of course, the law does not specify what exactly constitutes
due diligence. But the legislative report indicates it would
include written procedures and controls to prevent underwriting
or entering into prohibited behavior and would include the
designation of someone to enforce the policy.
The EU imposed expanded economic sanctions against Iran,
including the provision of insurance and reinsurance, to be
more closely aligned with U.S. policy. The European Council
issued a final decision, effective back on Oct. 27,
establishing specific restrictions on providing insurance or
reinsurance to Iran or Iranian businesses, with limited
If your firm’s services include placing or arranging
insurance that could touch Iran or other SDNs, examine the
sanctions requirements carefully and seek guidance from legal
and compliance experts as appropriate. Although the development
and implementation of effective compliance strategies can be
challenging, the potential compliance risks may be mitigated
with appropriate diligence and safeguards.
Sinder, a partner at Steptoe & Johnson, is CIAB General
Krauland is Steptoe’s managing partner, International
Regulation and Compliance group.
Hayes is senior associate in Steptoe’s IRC group.