Re/insurers ponder reputation around sanctions
As compliance with international sanctions becomes both a more complex and high-profile issue, more re/insurers are considering the impact a failure to comply – perceived or otherwise – could have on their reputations.
Jamie Rogers, a senior associate at law firm Hogan Lovells, said a combination of companies having a greater awareness of reputation risk generally and regulators’ increased interest in compliance with sanctions is making this an increasingly important issue.
“The consideration of reputational risk has increased over the last five years and is likely to further increase, particularly in the US where multiple federal and state agencies may take an interest in sanctions compliance and where increased disclosures as to sanctions compliance are required in the normal course of business,” he said.
“Not only will the offending company be in criminal violation of the law, but any enforcement activity may well be publicised—for example, some of the punishments for breach of The Iran Freedom and Counter-Proliferation Act of 2012 (IFCPA), are by their nature very public. Considering the degree of politics at play, there is certainly the risk that public announcements surrounding enforcement action will be widely publicised.”
The IFCPA, which came into force on July 1 2013, prohibits the provision of insurance for any activity relating to Iran for which sanctions have previously been imposed under a series of different acts. It also brings in further restrictions on trade with Iran relating to energy, shipping, Iranian ports, raw and semi-finished metals and more.
Strengthening of legislation such as the IFCPA has led to increased public scrutiny which has changed the way that the industry reacts to mishaps. However, as Rogers explains, the efficiency of social media is not to be blamed for poor management of risks.
“There is no doubt that social media enable the rapid and mass dissemination of publicity,” he said. “But the criminal and reputational exposure sanctions create is a separate issue. Compliance programmes should focus on complying with the law, not avoiding being found out. The fact that information can become public and be disseminated quickly should not change that. Sensible companies do not operate on the Fawlty Towers motto of ‘what the eye doesn’t see, the chef gets away with!’
“We assist clients in understanding the points at which disclosures about their sanctions compliance programmes may be required and the perception their activities may have within regulations or at large,” said Rogers.
