Iran- U.S./U.K. current and pending legislative action targeted at trading activities involving Iran

1 March 2010 No.09-019

The International Group (the Group) has been monitoring current and pending legislation in the US and the UK which would impose sanctions in relation to dealings with Iran and/or Iranian entities. There have been a number of recent developments which impact or will potentially impact on Members and on Club (P&I insurance); the following is summarized explanation for Members' guidance.

1. Current situation in respect of US/UKlegislation

a)US Legislation-in respect of the refined petroleum products to Iran
Even at the present moment, pursuant to the Iranian Transaction Regulations, unless licensed by the Office of Foreign Asset Control, goods, technology or services may not be exported, re-exported, sold or supplied from the US by US persons or companies wherever located to Iran or its government. Pursuant to US Executive Order EO13382, US persons and companies are prohibited from dealing with (including supply of the insurance) a number of Iranian shipping companies, including the Islamic Republic of Iran Shipping Lines ("IRISL"), which became Specially Designated National (SDN) designated by the US government authority. But such prohibition is targeted at the activities of identified Iranian companies and their vessels and does not extend to the wider shipping community.

Of great concern is, in addition to the above restrictions, proposed legislation named "Iranian Refined Petroleum Sanctions Act"(=IRPSA, House Bill HR2194, and Senate Bill S908). These bills, if enacted, impose new trade sanctions focused specially on the exportation of refined petroleum products to Iran. Sanctions would apply in relation to the any vessel(s), regardless of country of flag/registry/beneficial ownership, trading refined products into Iran even where, as a matter of the law governing the relevant contracts of carriage, the adventure is lawful. Sanctions would be imposed on the persons (both US & non-US persons) who provide goods, service, technology, information or support relating to the shipping or other transportation of refined petroleum products to Iran and sanctions would be also imposed on the persons (both US & non-US persons) who provide insurance or reinsurance for such activities. Possible penalties could include barring sanctioned persons/companies from access to US financial institutions and the blocking of assets and dollar transactions. These bills (IRPSA) have been already passed at the House of Representative and the Senate respectively and the wording of the bills is now being fine-tuned by both the House and the Senate for finalization. IRPSA will be soon submitted to the President and will come into effect unless the President exercises the veto.

b)UK Legislation
The UK Financial Restrictions (Iran) Order 2009 came into effect onOctober 2009. Because of this restriction, UK-based P&I clubs stopped providing insurance cover to IRISL. In Bermuda the similar act named the Anti-Terrorism (Financial Restrictions Iran) Order 2010 came into effect on 15 January 2010. There does not seem to be any further intended actions by UK government in relation to trading to Iran, but such possibility can not be ruled out depending on the developments in US.

2. Influence on P&I Clubs

The influence of the UK law is as what we stated in the above 1. b). As far as the US legislation is concerned, it is not yet certain that the proposed "IRPSA" legislation will be in fact enacted, nor if it is, precisely how it will be implemented and applied. What is clear, however, is that the Club who provide insurance cover, the Clubs who are involved as pool contributors and the re-insurers who join the re-insurance program would be exposed to the sanctions by US government. If the Clubs should be imposed the sanctions and be prohibited from doing the dollar transaction etc, the Clubs actually would not be able to continue to act as insurer.

In order to cope with the above situation, to protect the interests of the Clubs and their members, IG is now considering and recommending the Clubs to change Club rules to the following effect:

"... the Club shall terminate the insurance contract or cease the cover if a Member's trade or employment of a ship in fact exposes the Club to the risk of sanctions by a certain government".

3. Our Club

As far as our Club is concerned, when the above US legislations should become the act, and if think it necessary, we will take the necessary steps, i.e. to submit the proposal to change our Club Rules to such effect as above 2 to the directors' meeting.

To cope with the anticipated sanctions as above, it is said that some Clubs have already adopted the resolution at the general meeting or the extra ordinary directors' meeting that a special authority be given to the Managers to change the Club rules in case of emergency to protect the interests of the Club and their members.