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

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

3. 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

4. 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)

5. 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

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

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

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

9. 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

10. 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

11. 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

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

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

14. Insurance Case Profile
Insurance Case Categories
License Requests
Enforcement Actions 100
Inquiries

15. Insurance Case Profile
OFAC Insurance Cases -
Line of Business Profile
Commercial Lines P&C
Individual L&H 52
Reinsurance
Personal Lines P&C 54
Group L&H
All Lines

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

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

18. 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 – Prohibit Imports From Iran (October 29, 1987)
EO – Prohibit Development of Iranian Petroleum Resources (March 16, 1995)
EO 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
§ – US person service transaction to Iran
§ US person facilitates transaction by foreign person that is prohibited by US person

19. Iran Sanctions - Insurance
Related Executive Orders
EO Global Terrorism (Sept. 23, 2001)
EO 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 Designations
Entity - Hezbollah
Individual - Kassim Tajideen – US life insurer policies in Lebanon
EO 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

20. Iran Sanctions - Insurance
“Secondary” Sanctions
Iran and Libya Sanctions Act of 1996 (“ISA”),
Pub.L , August 5, 1996
Background
Scope: Any Person, i.e., Foreign Persons
Section 5 – Sanctions Trigger
Section 6 – Sanctions Menu
ISA Rationale
EO (May 7, 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

21. 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

22. 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 Insurance for Transport of Crude Oil from Iran
Section Add 3 New Sanctions Options to ISA Section 6
Section Insurance for Transport of Goods that Contribute to NPWMD/Terrorism
Section Insure or Reinsure NIOC or NITC
* * * *
Section US Parent Liability for Foreign Subsidiaries
Section 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 , 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 Add new Section 13(r) to Securities & Exchange Act of 1934

23. 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 , 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

24. Sanctions Implementation for the Insurance Industry
David J. Brummond - OFAC
Sanctions Implementation for the Insurance Industry
David J. Brummond