Thinking | 17 August 2022

Are your insurance services ‘sanctioned services’?

By Chris Sacré and Kendall Messer

A fine art policy, specialty equine risk or superyacht insurance: these are definitely some of the more interesting insurance services to provide. Did you know providing such insurance could be a risk of sanctions breach? Read on…

In part one of our sanctions awareness series we discussed Sanctioned Supply, Import and Export and the risk of sanctions breach for engaging in the supply, import, and export of certain specified goods with Russia, and an even greater range of sanctioned trades with Crimea, Sevastopol, Donetsk and Luhansk.

Remember:

Sanctioned Export includes the export to Russia of luxury goods such as wine, pearls, lobster, and works of art.
Sanctioned Import includes any goods originating from Sevastopol, Crimea, Donetsk and Luhansk.
Sanctioned Supply includes supply to Sevastopol, Crimea, Donetsk and Luhansk of items related to transport, telecommunications, energy, and the exploitation of oil, gas and mineral reserves.

As an insurance provider, you may not be directly involved in the trade of goods within the scope of Sanctioned Supply, Import, or Export. However, the Australian Autonomous Sanctions also prohibit the provision of insurance and reinsurance services if it assists with, or is provided in relation to a Sanctioned Supply, Import or Export, this is known as a Sanctioned Service.

Insurance means an undertaking or commitment under which a person is obliged, in return for a payment, to provide a person, in the event of materialisation of a risk, with an indemnity or a benefit as determined by the undertaking or commitment.

Reinsurance means:

the activity of accepting risks ceded by an insurance undertaking or by another reinsurance undertaking; or
for the association of underwriters known as Lloyd’s – the activity of accepting risks, ceded by any member of Lloyd’s, by an insurance or reinsurance undertaking other than the association of underwriters known as Lloyd’s.

Sanctioned Service also includes the provision of insurance or reinsurance if it assists with or is provided in relation to:

the manufacture, maintenance or use of an export sanctioned good for a Specified Ukraine Region;
engagement in a sanctioned commercial activity for the Specified Ukraine Region; or
military activity in Russia or the manufacture, maintenance or use of arms or related material for Russia.

Despite the fact that certain services, such as reinsurance, can be quite distant from the Sanctioned Supply, Import, or Export, it may be a Sanctioned Service and at risk of committing an offence with penalties including imprisonment of up to 10 years, and significant fines.

It is a defence to a sanctions prosecution if a corporation can show that it took reasonable precautions and exercised due diligence to avoid the sanctions contravention.

Our next update will discuss the risks of providing financial services and commercial activities in contravention of the Australian Sanctions Regimes.

Do not hesitate to contact Chris Sacré, Kendall Messer or your usual Hall & Wilcox contact if you require any assistance in this area.