The New York State Department of Financial Services (“DFS”) started an “investigation” of whether certain non-U.S. reinsurers that do business in New York may be violating the Iran sanctions by insuring companies involved in trading with Iran and Iran-related companies on the sanctions list. In late June, the DFS sent out an inquiry letter to around 20 non-U.S. reinsurers off the DFS’ Certified Reinsurer list, requiring a response by July 15, which was apparently extended to July 30. On July 24, the DFS issued Circular Letter No. 6 (2013), which requests similar responses from a group of around 20 non-US reinsurers on the DFS’ Accredited Reinsurer list. The due date for responding was August 16.
Violations of the Iran Freedom and Counter-Proliferation Act of 2012 and other sanctions regimes are under the jurisdiction of the U.S. Treasury Department's Office of Foreign Assets Control (“OFAC”). OFAC has investigated and sanctioned some reinsurers for reinsuring cedents who issued property insurance and other coverages to Iranian shipping companies. Sanctions against reinsurers are still fairly unique, but all reinsurers that do business in the United States via affiliates or otherwise, need to be mindful that international sanctions, especially U.S. sanctions on Iran, are being strictly enforced and investigated by OFAC. While it is possible to get a “license” to enter into a transaction in advance (essentially pre-clearance), it is not an easy process. Still, OFAC is willing to work with insurers and reinsurers to avoid sanctions where possible.
What the DFS is doing is another example of a state regulator/prosecutor, addressing an issue that is presumptively under federal jurisdiction. But the DFS has broad powers to investigate and obtain information from insurers and reinsurers doing business in New York so this probe will continue.
It may be that this is just the second round of information requests, which may be followed up by requests to U.S. domiciled reinsurers who do international business and who are either accredited or licensed in New York. Even if your company has not gotten a DFS letter yet, it does not mean that you are off the hook. And in any event, if you do any overseas business, through affiliates or otherwise, having a sanctions compliance program in place is necessary.