The state Department of Financial Services is asking the insurers about their procedures to avoid violations of the Iran Freedom and Counter-Proliferation Act of 2012, according to a letter from the department obtained by Bloomberg News.
The department, led by Superintendent Benjamin Lawsky, said it learned that several insurers issued coverage that applied to trades made with Iran, including one policy issued by a group of European domiciled companies, according to the letter. The policy and the resulting claim payment “would likely violate the IFCPA,” the department said, referring to the act.
“Swiss Re is aware of its legal obligations and has a robust program in place to assure full compliance,” Michael Gawthorne, a spokesman for the Zurich-based company, the world’s second-biggest reinsurer, said in an e-mail. “Any suggestion that Swiss Re is in violation of trade sanction laws against Iran is without merit.”
Lawsky almost a year ago broke ranks with other regulators and threatened to rescind Standard Chartered Plc (STAN)’s banking license in New York over money transfers involving Iran.
Standard Chartered had been in negotiations with the Federal Reserve, the U.S. Treasury’s Office of Foreign Assets Control, the Manhattan district attorney’s office and the state Financial Services Department to resolve allegations that it violated U.S. sanctions on transferring money to and from Iran.
Frustrated with the slow pace of the investigation, Lawsky issued a catalog of Standard Chartered’s alleged misconduct last August, saying the bank executed 60,000 wire transfers involving $250 billion through its New York branch on behalf of Iranian clients.
Lawsky’s pre-emptive strike angered the other regulators, and cast a harsh light on the bank, which saw its share price drop 16 percent in response to the threat that the bank might lose its license to operate in New York.
The bank agreed to pay $340 million to the state to settle the matter. It subsequently agreed to pay an additional $327 million to the other regulators investigating its conduct.
In the June 25 letter to the insurance companies, the department said it is seeking information about insurers’ plans for compliance and due diligence to avoid violations of the law. The act was signed into law by President Barack Obama in January. The sanctions related to insurance services took effect today.
“We believe a robust due diligence regime is required to ensure than an insurance company is fully advised of the risks it is taking,” the department said. “Because an insurer may violate the IFCPA by engaging in conduct it should have known was improper, incautious due diligence could expose an insurer to the imposition of sanctions.”
The regulator asked the companies for a copy of every policy issued to Glencore Xstrata Plc (GLEN) or Trafigura that will remain in force after today, according to the letter.
The department cited news reports of “a pattern of trades” made by Glencore and Trafigura with Iranian entities. At least one trade involved Glencore’s shipment of alumina to the Iranian Aluminum Co. in exchange for processed aluminum.
Century Aluminum Co. (CENX) said in a regulatory filing in March that affiliates of Glencore entered into sales contracts last year with entities controlled by Iran. Non-U.S. affiliates of Glencore, Century’s largest shareholder, entered into sales contracts for wheat and coal and sale and purchase contracts for metals and metal oxides, the company said.
“Lloyd’s will comply with any applicable sanctions, as it always has done,” said a spokeswoman, Caroline Harris-Gibson, at Prosek Partners.
Besides Lloyd’s and Swiss Re, companies contacted by the Financial Services Department include Hannover Re Ltd., XL Insurance Ltd. and Assured Guaranty Re Ltd. Assured said it wasn’t contacted by the regulator. Representatives for the other companies couldn’t be reached for comment.
The probe was reported earlier by the Wall Street Journal.