Subject: Sanctions Circular to Assureds (no 007 2010) Background Assureds will be aware that there are currently significant complications involved in trading with Iran or Iranian interests. From a charterers perspective this can lead to serious problems in the export to Iran of cargoes that might be subject to sanctions, or in chartering a vessel to or from an Iranian party that is blacklisted. The position is further complicated by the fact that there are different sanctions regimes in force, the most relevant being the UN sanctions because they have the widest global application amongst the UN Member States. The United States is leading the charge in sanctions directed at Iran and the US Sanctions regime has recently been augmented by the Comprehensive Iran Sanctions, Accountability, and Divestment Act which we comment on later. The US Office of Foreign Assets Control OFAC publishes a blacklist of individuals, the Specially Designated Nationals (SDN) list. US Citizens or permanent residents are prohibited from doing business with parties named on the SDN list. This can cause a problem in the payment of hire or freight in US dollars, where funds are always required to clear though the US banks. We have experienced problems where US dollar denominated freights have been unable to clear through the US banks on the grounds that a party in the transaction was on the OFAC SDN list. On 9 July BIMCO issued its latest recommended charterparty rider clause for Time Charter Parties which covers the issue of sanctions; the drafting of this clause was prompted by recent developments and originally intended to deal specifically with sanctions against Iran, however, the clause as finally issued, deals with sanctions at a general level. We would advise Assureds against incorporating this new BIMCO clause into any charterparty in its unamended form further commentary on this matter can be found at the end of this circular. The UK Position on Iranian sanctions On 10th June 2010, the UK Government issued further sanctions against individuals and entities ('sanctioned targets') in Iran that are deemed to be assisting in Iran s nuclear development. This is as a result of a new United Nations Security Council resolution that was passed on 9th June 2010. This new release, which is now in force, has considerably expanded the existing blacklist. The first link below will take you to the UK treasury listing of new Iranian sanctioned targets and the second is a link to the full current listing: http://www.hm-treasury.gov.uk/d/fin_sanctions_iran100610.pdf http://www.hm-treasury.gov.uk/d/iran.htm
In particular this new sanctions release includes amongst others manufacturing and construction entities, banks (one which is based in Malaysia), shipping entities (including Irano Hind, South Shipping Lines Iran and IRISL based in Antwerp, Belgium) and oil and gas entities. Some Iranian entities, particularly in the shipping industry, are re-domiciling and registering in other jurisdictions to try and avoid these sanctions and therefore extreme care should be taken when fixing vessels with such parties. The Latest US Position On 1st July 2010, President Obama signed into law the House of Representatives Bill 2194, known as the CISAD (the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010). CISAD expands the previous sanctions against Iran contained in the (Iran Sanctions Act of 1996). Under this new legislation sanctions can be imposed against persons providing goods, services, technology, information, or support that could directly and significantly contribute to the enhancement of Iran s ability to import refined petroleum products. Such goods, services, technology, information, or support could conceivably extend to those insuring cargoes or ships or providing shipping services to Iranian companies. The CISAD legislation has widened the scope of sanctions; however the US Administration pursuant to their 1996 Act had already established a very wide ring of individuals and companies that could be liable to sanctions. The US Treasury Dept Office of Foreign Assets Control publishes a list of Specially Designated Nationals and Blocked Persons (OFAC SDN). http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf (NB: Please note that this is an extensive list and will take some time to download. The list does not exclusively deal with Iran and there are other regimes and individuals mentioned on the list.) General Considerations: The whole issue of sanctions against Iranian interests is a fluid and dynamic area where it is very difficult to give clear guidance. Contracting with companies or individuals whose provenance might be Iranian is clearly potentially fraught given the existence of the UN sanctions regime and the current, hostile and proactive, stance of the United States. In addition to the OFAC SDN list and the recent CISAD Act, there are also lists published by other US government agencies, such as the denied persons list and the entity list, which more specifically address the issue of exports. The position is further complicated by the ease with which Iranian interests can set up and hide behind companies based outside of Iran, for example in countries such as Sri Lanka or Dubai. Iranian Ships It is our understanding that some of the Iranian fleet have renamed, reflagged or changed ownership. There is a specific section of the OFAC SDN List in relation to vessels (search on vessels ) which provides information on vessels thought to be Iranian controlled. It is worth
noting that freight or hire payments through the US banking system made in relation to these vessels may be intercepted. The Iranian fleet cannot be insured in the International markets and are now being insured for the most part by MOALLEM (an Iranian insurance company); if this name comes up in the pre-fixture check for P&I this will be a very strong indicator that she is an Iranian ship or an ex Iranian ship. Position with regard to Club Cover Firstly, from the Clubs perspective, the cover that we offer to our Assureds is to indemnify them against liabilities that they might incur arising out of contracts involving the carriage of goods by sea as well as the legal costs that may be involved in pursuing or defending a commercial claim under such contracts. To this extent we are effectively providing insurance and support to protect our Assureds against the shipowner, so it can hardly be said that we are providing insurance or services to the vessel or the shipowner, when we are doing the exact opposite. In the light of the above, we take the view that it is the Assured s sole decision as to which vessels he charters and from whom. Additionally, the Assured is responsible for taking all reasonable steps to ensure that he is not engaged in unlawful trading as this will contravene the conditions of insurance with the Club. For the purposes of general guidance we would advise clients as follows: The Club will not provide cover to any party for any loss of any nature arising directly or indirectly in circumstances where the carriage of the cargo itself is a breach of any US, UK or UN sanctions in force at the material time; The Club will not provide cover to any Charterer as an Assured if that company or individual is on any sanctions related US, UK, EU or UN blacklists ; Until further notice the Club will not provide cover for voyages that involve the carriage of petroleum products, general cargo or containerised cargo, to and/or from Iran, unless the Assured has obtained the specific written agreement of the Club Underwriters prior to concluding the fixture; Until further notice the Club will not provide cover for voyages involving the carriage of petroleum products on vessels that the Assured knew, or should have known, to be owned or controlled by Iranian interests; In the event that an Assured agrees to the incorporation of the new BIMCO sanctions clause see below then the Assured must ensure that he complies fully with the provisions of this clause. Subject to the provisos stated above, the Club will continue to provide cover to Assureds however we would stress to clients the need to exercise extreme caution when chartering a vessel which may be owned or controlled by Iranian interests. Whilst some of these ships are undoubtedly very good value for money in terms of hire or freight they can cause serious complications in practice, for example; An Assured might legally be able to charter in a ship from a party that is on the OFAC SDN list; but if the freight or hire is payable in US dollars then at some point the
funds will have to clear through New York, at which stage the payment might be rejected by the US correspondent bank; Entering into a contract with a banned party might in itself be seen as engaging in an illegal trade, potentially invalidating the Assured s Club cover; The Club could find itself restricted in its ability to, or prohibited from, negotiating directly with, or settling any amounts directly to, the owner. We strongly recommend that Assureds do not contract with any party, whether a company or a private individual, that is on any blacklists, or enter into a contract for the use of a vessel that is on such a list. An Assured that does so takes the risks outlined above and must accept that whilst the Club will use reasonable endeavours to help a client, we might find that we have our hands tied and are legally and practically unable to assist. The new BIMCO Clause The BIMCO Clause is attached to this circular as Appendix A In our opinion the BIMCO clause is seriously deficient because it fails to deal adequately with the position from the Charterers perspective. Charterers could find themselves in a long charterparty chain and it is important for them to ascertain who is above their disponent owners (if relevant). We would strongly advise Assureds against agreeing to the BIMCO Clause unless the owner is prepared to incorporate the following clause (e): (e) Owners shall be liable for any loss (including loss of time or delay), damage, liability or expense whatsoever and howsoever arising which Charterers may sustain by reason of the Owners and/or any owner above the owner in the charterparty chain, including all affiliated or associated companies, being the subject of any sanctions, prohibitions or blacklists imposed on any country, state, government, corporate entity or individual and which are imposed by any State, Supranational or International Governmental Organisation and Owners shall indemnify Charterers and hold them harmless in respect of any such loss (including loss of time or delay), damage, liability or expense. Conclusion Iran is not the only country against which sanctions are in force and the OFAC SDN list is general in nature and not just restricted to Iranian interests. We expect Assureds to maintain strict and up to date internal compliance procedures to ensure that their trading and shipping activities are legitimate This should extend to diligent research of any applicable sanctions that might apply to the intended carriage of any cargo, together with thorough checks to ensure that neither the direct counterparty, nor others in the contractual chain are on any blacklists that might be relevant in the circumstances. As a matter of general policy, with regard to any fixture involving US Dollar payments, and regardless of the cargo being carried and the load and discharge ports involved, we would urge Assureds to check that nobody in the chain is named on the OFAC SDN list. As a Club we must also comply with the various regimes and blacklists ourselves, which may prohibit our ability to handle and manage a claim. For example, if despite a client s best efforts, a blacklisted party appeared above them in a charterparty chain, we may not legally be in a position to have any dialogue with that party, or to make any payments to them by way of a legitimate claims settlement.
The issue of sanctions is a very complicated topic and other than the points made regarding the scope of Club cover and the BIMCO Clause, this Circular is just a very general guide on an area that must remain the responsibility of the Assured. Should you have any queries in relation to this circular please contact your usual claims handler at the Club. Michael Else and Company Limited, as Managers Dated London 26 July 2010
Appendix 1 - The BIMCO Clause Sanctions Clause for Time Charter Parties (a) The Owners shall not be obliged to comply with any orders for the employment of the Vessel in any carriage, trade or on a voyage which, in the reasonable judgement of the Owners, will expose the Vessel, Owners, managers, crew, the Vessel s insurers, or their reinsurers, to any sanction or prohibition imposed by any State, Supranational or International Governmental Organisation. (b) If the Vessel is already performing an employment to which such sanction or prohibition is subsequently applied, the Owners shall have the right to refuse to proceed with the employment and the Charterers shall be obliged to issue alternative voyage orders within 48 hours of receipt of Owners notification of their refusal to proceed. If the Charterers do not issue such alternative voyage orders the Owners may discharge any cargo already loaded at any safe port (including the port of loading). The Vessel to remain on hire pending completion of Charterers alternative voyage orders or delivery of cargo by the Owners and Charterers to remain responsible for all additional costs and expenses incurred in connection with such orders/delivery of cargo. If in compliance with this Sub-clause (b) anything is done or not done, such shall not be deemed a deviation. (c) The Charterers shall indemnify the Owners against any and all claims whatsoever brought by the owners of the cargo and/or the holders of Bills of Lading and/or subcharterers against the Owners by reason of the Owners compliance with such alternative voyage orders or delivery of the cargo in accordance with Sub-clause (b). (d) The Charterers shall procure that this Clause shall be incorporated into all sub-charters and Bills of Lading issued pursuant to this Charter Party.