Just days before the IUMI 2018 Conference the world changed for those with an Iranian exposure. Following the termination of the US participation from the Joint Comprehensive Plan of Action (JCPOA), on 5 August 2018 the first set of sanctions, primary sanctions addressing US persons, entered into force. Secondary sanctions addressing non-US persons with extraterritorial effect were to follow in November 2018.
But the European Union did not wait. On 7 August 2018 the delegated Commission Regulation (EU) 2018/1100 was published in the official journal of the European Union L 199 I/1. This Regulation amended the Council Regulation (EG) 2271/96 - the famous Blocking Regulation. This did not regard the articles of the Regulation, which remained untouched, it related “only” to the Annex of the Blocking Regulation. But the impact of this was a game changer for insurance in every way relating to Iran.
Up until 4 November 2018 EU persons had little to worry about regarding the Blocking Regulation as the US legislation referred to in the Annex did not contain extraterritorial sanctions for non-US insurers or insurance brokers. After 1996 the US introduced intensive extraterritorial sanctions against non-US persons. It was a common understanding that the reference in the Annex to certain US Acts was a so-called static reference, which did not extend to later changes and amendments of those Acts or of new Acts.
The Blocking Regulation thus did not prevent EU persons from complying with US sanctions law and this drastically changed on 7 August 2018 with regard to those extraterritorial sanctions that came into effect 4 November 2018. The Annex now refers to the latest set of sanctions law set in force, or reinforced, under the Trump administration. What previously was allowed now became a breach of the amended Blocking Regulation. The Blocking Regulation contains a mechanism to allow EU persons to abide by US sanctions law, but the procedure is complicated and time consuming. Practitioners regularly see clauses in the market which have been developed under the old EU Blocking Regulation but remain in use without any changes. Have you reconsidered your clauses?
In the brave new sanctions world insurers may even be more between Scylla and Charybdis when having to decide whether to breach their own EU law by following US sanctions, or whether to decide for the lesser evil and follow US laws breaching EU law. But this decision should be an informed decision. Insurers should not stumble into unexpected problems by the continued use of sanctions clauses which once were unproblematic but may not be so anymore.