Sanctions Implementation for the Insurance Industry David J. Brummond Senior Sanctions Advisor - Insurance

Presentation Outline OFAC Overview OFAC Enforcement Process Insurance Case Profile Evolving Iranian Sanctions

OFAC Mission OFAC Overview To administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against selected targets

OFAC Overview Sanctions History Secretary Gallatin – Embargo Act of 1807 “Trading with Enemy Act” (TWEA) Civil War The Great War (WW I) Roosevelt Bank Seizures (1933) Nazi Germany (WW II) North Korea/China (1950) Cuba Missile Crisis (1963) “International Emergency Economic Powers Act” (IEEPA) Peacetime Sanctions – “Economic Emergencies” Presidential Implementation - Executive Orders Iranian Hostages (1979) Panama Noriega (1988) Yugoslavia (1998) Libya (2011)

OFAC Overview OFAC PROGRAMS SANCTIONS Defense ODNI State State David J. Brummond - OFAC OFAC Overview THE PRESIDENT Defense ODNI Secretary of the Treasury National Security Council State Under Secretary Terrorism Finance Intelligence (TFI) SANCTIONS PROGRAMS OFAC Commerce State Homeland Security Banking Regulators (FRB, FDIC, OCC, State) Intelligence Community Local Law Enforcement Justice (FBI, US Attorneys) IRES Foundation - National School on Market Regulation

Presentation Outline OFAC Overview OFAC Enforcement Process Insurance Case Profile Iranian Sanctions - Insurance

OFAC Enforcement Process Economic Sanctions Enforcement Guidelines 74 FR 57593 (November 9, 2009) Scope All Sanctions Programs All U.S. Persons OFAC Enforcement Goals Flexibility to Achieve Appropriate Result Predictability/Equity in OFAC Response

OFAC Enforcement Process Sanctions Enforcement Options No Action Cautionary Letter Finding of Violation Civil Penalty Criminal Referral

OFAC Enforcement Process Enforcement Guidelines General Factors Willful or Reckless Violation Awareness of Conduct Harm to Sanctions Program Objectives Individual Characteristics of Subject Person Compliance Program / Remedial Response Cooperation with OFAC

Base Penalty Calculation OFAC Enforcement Process Egregious Case Base Penalty Calculation No Yes (1) One-Half Transaction Value ($125k Cap) (3) One-Half Statutory Maximum Yes Voluntary Self-Disclosure (2) Applicable Schedule Amount ($250k Cap) (4) Statutory Maximum No

OFAC Enforcement Process Insurance Penalty Settlement Cases 2011 Aon International Energy $ 36,000 HCC Insurance Holdings $ 38,448 McGriff Seibels & Williams $ 122,408 Gen Re Corporation $ 59,130 Metropolitan Life $ 22,500 2013 America Steamship Mutual P&I $ 348,000

Presentation Outline OFAC Overview OFAC Enforcement Process Insurance Case Profile Iranian Sanctions - Insurance

Insurance Case Profile OFAC Insurance Case Files (January 1, 2006 – July 1, 2013) Resolved/Concluded 253 Pending _78 Total 331

Insurance Case Profile Insurance Case Categories License Requests 177 Enforcement Actions 100 Inquiries 54

Insurance Case Profile OFAC Insurance Cases - Line of Business Profile Commercial Lines P&C 132 Individual L&H 52 Reinsurance 55 Personal Lines P&C 54 Group L&H 36 All Lines 2

Insurance Case Profile Sanctions Programs Insurance Case Profile Country-Based Programs 187 Cuba (98) Iran (52) Sudan (28) Syria (9) List-Based Programs 81 Narcotics (47) Somalia (15) Terrorism (6) WMD (13) Regime-Based Programs 30 Burma (15) Libya (8) Other (7) All Programs 33

Presentation Outline OFAC Overview OFAC Enforcement Process Insurance Case Profile Iranian Sanctions - Insurance

Iran Sanctions - Insurance “Primary” Sanctions Iranian Assets Control Regulations, 31 C.F.R Part 535, November 14, 1979 International Security and Development Cooperation Act of 1985 (“ISDCA”) PL 99–83 (S 960) August 8, 1985 Section 505 – Delegated authority to impose trade restrictions EO – 12613 Prohibit Imports From Iran (October 29, 1987) EO – 12957 Prohibit Development of Iranian Petroleum Resources (March 16, 1995) EO - 12959 Prohibit Exports to Iran (May 7, 1995) Iranian Transactions Regulations, 31 C.F.R. Part 560, September 11, 1995 IACR – IEEPA Authority ITR – Insurance Services § 560.206 – US person service transaction to Iran § 560.208 - US person facilitates transaction by foreign person that is prohibited by US person

Iran Sanctions - Insurance Related Executive Orders EO-13224 Global Terrorism (Sept. 23, 2001) EO-13382 Proliferation of Weapons of Mass Destruction (WMD) (June 29, 2005) * * * * Iranian Transaction And Sanctions Regulations, 31 C.F.R., Part 560 (October 22, 2012) Blocking Order Explained Language borrowed from TWEA Primarily banking institution transaction EO-13224 Designations Entity - Hezbollah Individual - Kassim Tajideen – US life insurer policies in Lebanon EO-13382 Designations Entity - Islamic Republic of Iran Shipping Lines (IRISL) IRISL was designated by Treasury in September 2008 for its provision of logistical services to Iran's Ministry of Defense and Armed Forces Logistics (MODAFL), the arm of the Iranian military that oversees its ballistic missile program. Entity – Aerospace Industries – US property insurer insuring California business location

Iran Sanctions - Insurance “Secondary” Sanctions Iran and Libya Sanctions Act of 1996 (“ISA”), Pub.L. 104-172, August 5, 1996 Background Scope: Any Person, i.e., Foreign Persons Section 5 – Sanctions Trigger Section 6 – Sanctions Menu ISA Rationale EO-12959 (May 7, 1995 - exports to Iran) not followed by US allies. In November 1995 Iran opens its energy sector to foreign investment. To accommodate Iran’s philosophy to retain control of its national resources, Iran developed a “buy-back” investment program in which foreign firms recoup their investments from the proceeds of oil and gas discoveries but do not receive equity stakes. ISA Section 5(c) “a person” includes all foreign persons, including (A) a successor entity , (B) a parent or subsidiary if that parent or subsidiary, with actual knowledge, engaged in the activities or (C) an affiliate of the person if that affiliate, with actual knowledge, engaged in the activities and if that affiliate is controlled in fact by the person. Section 5(d) Publish names in federal register ISA Section 5(a) the President shall impose 2 or more of the sanctions described in paragraphs (1) through (6) of section 6 if the President determines that a person has, with actual knowledge, made an investment of $40,000,000 or more in any 12-month period that directly and significantly contributed to the enhancement of Iran's ability to develop petroleum resources of Iran. ISA Section 6 DESCRIPTION OF SANCTIONS (1) No credit extension, guarantee or insurance from US EXPORT-IMPORT BANK (2) Deny or restrict specific license required for any export transaction (3) Prohibit any US financial institution (FI) from making loans or providing credits (4) Prohibit foreign FI from being repository of or dealing in US debt instruments (5) Prohibit procurement of goods or services by USG from the person (6) Prohibit any import “with respect to” the person

Iran Sanctions - Insurance “Secondary” Sanctions: Integrated & Expanded Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”) Pub. L.111–195, July 1, 2010 Section 102(a) – Expanded ISA Sanctions Trigger Section 102(b) – Expanded ISA Sanctions Menu * * * * Section 104(c) – Correspondent or Pay-Through Accounts of Foreign Financial Institutions Section 104(d) – Persons Owned or Controlled by Domestic Financial Institutions Expand ISA Section 5(a) Trigger Activity (1) Knowingly make investment to develop petroleum resources (>$20 million) (2) Knowingly provide goods, services, technology, information or support that facilitates Iran’s domestic production of refined petroleum (FMV > $1million) (3) Knowingly provide refined petroleum products or services that contribute to Iran’s ability to import refined petroleum products, including insurance (FMV > $ 1) million Add 3 new Sanctions Options to ISA Section 6(a): (1) – (5) Remain the same, redesignate ISA section 6(a)(6) as new 6(a)(9) (6) Prohibit any transaction in foreign exchange subject to US jurisdiction (7) Prohibit payments by, through or to any US financial institution (8) Prohibit acquisition, holding, use, or transfer of any property subject to US jurisdiction with respect to which the sanctioned person has an interest Restrict “Foreign Financial Institution” from opening or maintaining a correspondent account in US if: Facilitate GOI or IRGC activities – WMD or terrorism Facilitate activities of persons on UN sanctions list Facilitate “significant transaction” or provide “significant financial services” for IRGC or a financial institution on OFAC SDN list Prohibit affiliates or subsidiaries of “Domestic Financial Institution” (includes insurer) from knowingly engaging in transaction with IRGC or its affiliates

Iran Sanctions - Insurance “Secondary” Sanctions: Integrated & Expanded2 Iran Threat Reduction and Syria Human Rights Act of 2012, Pub.L. 112–158, Aug. 10, 2012 (“TRA”) Section 202 - Insurance for Transport of Crude Oil from Iran Section 204 - Add 3 New Sanctions Options to ISA Section 6 Section 211 - Insurance for Transport of Goods that Contribute to NPWMD/Terrorism Section 212 - Insure or Reinsure NIOC or NITC * * * * Section 218 - US Parent Liability for Foreign Subsidiaries Section 219 - US “Issuer” – Report Iranian Activities TRA Observations Mixed treatment of US and non-US provisions Mixed delegation of enforcement between State and Treasury Different language than prior EO’s or EU sanctions TRA Provisions Section 202: Add to ISA Section 5(a) new subsections (7) Transport of Crude Oil and (8) Concealing Iranian Origin of Crude Oil / prohibit persons from insuring a vessel that was used to transport crude oil from Iran Compare: Council Regulation (EU) No. 267-2012, Article 11(d): provide, directly or indirectly, insurance and reinsurance related to the transport of crude oil and petroleum products of Iranian origin or that have been imported from Iran Section 204: Add to ISA Section 6(a) new subsections (9) Ban on Investment in Equity or Debt of Sanctioned Person, (10) Exclusion of Corporate Officers, and (11) Sanctions on Principal Executive Officers. Section 218 – Very significant for London insurance market; US insurers own and control corporate members and managing agents at Lloyds and often place business through Integrated Lloyds Vehicles. Section 219 - Add new Section 13(r) to Securities & Exchange Act of 1934

Iran Sanctions - Insurance “Secondary” Sanctions: Integrated & Expanded3 Iran Freedom and Counter-Proliferation Act of 2012 “IFCA” National Defense Authorization Act for Fiscal Year 2013 Pub. L. 112-239, Subtitle D – Iran Sanctions, signed January 3, 2013 Section 1244(c): Blocking of Property of Entities in Energy, Shipping and Shipbuilding Sectors Section 1246(a): Imposition of Sanctions With Respect to the Provision of Underwriting Services or Insurance or Reinsurance for Activities or Persons with Respect to Which Sanctions Have Been Imposed IFAC Section 1244(c)(2) … the President shall block and prohibit all transactions in all property … of any person …if the President determines that the person … (C) knowingly provides … financial … or other support to … or goods or services in support of any activity or transaction on behalf of or for the benefit of (i) a person determined … to be a part of the energy shipping or shipbuilding, (ii) a person determined … to operate a port in Iran; (iii) an Iranian person included on the list of specially designated nationals and blocked persons maintained by the Office of Foreign Assets Control. IFAC Section 1246(a)(1) … the President shall impose 5 or more sanctions described in section 6(a) … with respect to a person if … the person knowingly … provides underwriting services or insurance or reinsurance – (A) for any activity with respect to Iran for which sanctions have been imposed under any … provision of law relating to the imposition of sanctions with respect to Iran, (B) to or for any person … with respect to, or for the benefit of any activity in the energy, shipping or shipbuilding sectors of Iran for which sanctions have been imposed under this subtitle; (C) to or for any Iranian person included on the list of specially designate nationals and blocked persons maintained by OFAC Delegation Memorandum of June 3, 2013 (78 FR 35545, June 13, 2013) 1244(c) - Treasury in consultation with State 1246(a)(1)(A) – State and Treasury commensurate w/respective areas responsibility 1246(a)(1)(B)(iii) - State and Treasury commensurate w/ respective area responsibility

Sanctions Implementation for the Insurance Industry David J. Brummond - OFAC Sanctions Implementation for the Insurance Industry David J. Brummond david.brummond@treasury.gov 202-622-7255