2 March 2011 TO ALL MEMBERS Dear Sirs Trade Sanctions and their effect on P&I Cover During the course of 2010 the Association issued three circulars (5:403, 5:410 and 5:411) informing Members of trade sanctions legislation introduced in the USA and Europe in relation to Iran. Following the adoption of Resolution 1929 by the United Nations Security Council in June 2010, other States have also been expanding their sanctions regimes and no doubt Members will wish to ensure they comply with whatever legislation may be applied by their Flag States and in any other States whose jurisdictions they are subject to. Members will also wish to be mindful of the fact that even if they are not obviously subject to US jurisdiction, the US sanctions referred to in circulars 5:403 and 5:410 are designed to apply not only to US companies, but also to have extra-territorial effect, so assets and financial transactions of non-US members, involving the USA may nevertheless be vulnerable to the sanctions. It should be borne in mind that dollar and even some other currency payments that do not seem to involve the USA may pass via banks in that country. It should also be noted that in addition to applying sanctions in respect of specific trades, an increasing number of States are taking action in accordance with Resolution 1929 and prohibiting their citizens and corporations from engaging in transactions with listed persons and entities said to be assisting Iran. Members should be aware that sanctions applied by some States are not only targeted at Iran. For example, in the case of the USA the list of “designated” entities (which can be found via: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx ) is geographically extensive. It is clear from Resolution 1929 that the Security Council believes that hampering access to insurance is a particularly effective means of exerting pressure on Iran. The earlier Circulars explained that the Association would be potentially affected by the US sanctions and although there was initially some uncertainty over whether the EU sanctions anticipated at the time would concern insurers, it later emerged that the Association would be affected by pre-existing EU legislation prohibiting payments to a growing list of “targeted” Iran-related entities. - 2 That would not only prevent the Association from giving guarantees in the event of a Member incurring a claim from a targeted entity, but an indirect payment by means of indemnification, under the Rules, of such a Member who has paid a claim of such an entity might also be prohibited. Accordingly it became clear to the Committee that a new Rule would need to be introduced excluding cover in respect of claims that, if paid, would put it in breach of the legislation and result in sanctions being imposed on the Association. Other Club members of the International Group have also been addressing similar issues that arise in their own circumstances, but the Group has needed, in addition, to do so collectively, because the necessarily diverse reinsurers of its claims pooling system are also potentially affected by the sanctions, in some cases more extensively, if they are subject to US law and are prohibited from making payments indirectly to the geographically much wider range of entities designated by the USA. This mismatch between sanctions applicable to Clubs themselves and to their reinsurers is also not necessarily limited to those of the latter who are su