New York's finance regulator is setting his sights on the
world's reinsurance companies, alleging some of them may be
involved in practices that won't comply with pending U.S. laws
against doing business with Iran.
A yearlong probe by Benjamin Lawsky, superintendent of New
York's Department of Financial Services, has uncovered evidence
that at least three non-U.S. firms insured shipments to Iran,
according to people with knowledge of the investigation. As a
result of the probe, Mr. Lawsky last week wrote to 20 non-U.S.
reinsurance companies requesting detailed information on their
dealings with entities or people connected to Iran, according to a
copy of the letter reviewed by The Wall Street Journal.
Mr. Lawsky's office sent the letter to some of the world's
largest reinsurance companies, including Swiss Re AG (SREN.VX),
Hannover Re SE and Lloyd's of London. However, the letter didn't
name the three firms that allegedly insured the shipments.
Reinsurance companies provide backup protection to insurance
companies seeking to offset their risk.
A Lloyds spokeswoman said the company "will comply with any
applicable sanctions, as it always has done." A Swiss Re spokesman
in the U.S. wasn't able to get comment from headquarters. Hannover
Re didn't respond to requests for comment.
President Barack Obama in January signed an expanded sanctions
law that bans any financial firm that does business in the
U.S.--including reinsurers--from providing services to companies
that trade with Iran. The law was designed to cripple Iran's
energy, shipping and shipbuilding sectors, which contribute to the
country's nuclear-proliferation activities. The shipping industry
relies heavily on insurance and reinsurance companies to reduce the
risk of a major loss of ships and cargo.
The new law, which goes into effect Monday, applies to any
foreign company doing business in the U.S., even if the activities
aren't in violation of rules in the firm's home country or region.
Mr. Lawsky's letter stated that a firm found to be in violation of
the law would be subject to U.S. sanctions. A ban from conducting
business in the U.S. would be the most extreme punishment. The
firms also could be fined or pushed to reform operations.
The three firms that allegedly insured the shipments to Iran
would be in violation of the new law only if the insurance policies
extended beyond July 1, when the law goes into effect, said the
people familiar with the probe.
The new law could put billions of dollars at stake. Non-U.S.
reinsurance firms issued $400 billion of premiums last year and 40%
to 60% of that business came from the U.S., according to
reinsurance broker Aon Benfield.
Mr. Lawsky plans to expand his investigation in the next few
months to include U.S. reinsurance companies, said people familiar
with his plans. He also plans to ask other regulators to join his
effort, they added.
The evidence that Mr. Lawsky obtained on the three firms
allegedly ties the reinsurers to deals for shipments of alumina to
Iran by trading firms Glencore Xstrata PLC (GLEN.LN, GLNCY) and
Trafigura Beheer BV, according to the people familiar with the
probe.
A Glencore spokesman said the company complies with laws and
regulations regarding sanctions, and is monitoring all legal
developments. A Trafigura spokeswoman said the company is
"compliant with national and international law where
applicable."
The letter said Mr. Lawsky's office has evidence of a claim for
a metal-products shipment submitted by a company based in Iran to a
company based in Europe. The policy was issued by a group of
European firms, the letter said. "While any claim under the policy
may not violate the sanctions regime in relevant countries, the
policy and resulting claim payment would likely violate" the new
U.S. sanctions law, the letter stated.
The letter, sent on June 25, requests that all 20 companies
provide by July 15 detailed copies of all policies issued to
Glencore Xstrata and Trafigura. It asks that the firms explain in
detail their policies for complying with the new sanctions, and
that the firms list all instances in which they denied a policy
because it didn't comply with sanctions.
As well, the letter requests a list of any insured firm that any
company officials suspect may be doing business with Iran or a
person affiliated with Iran.
Mr. Lawsky's department regulates banks and insurance companies
that do business in New York state and are licensed by the
department. He has the power to rescind a license from an
institution the department finds is in violation of the law.
-Erik Holm contributed to this article.
Write to Shayndi Raice at shayndi.raice@wsj.com
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