The Export Control Order 2008 is intended to restrict the international movement of arms or other military goods, and penalties for breaching these trade controls can be severe and include an unlimited fine as well as a prison sentence of up to 10 years. Insurers and brokers are caught by the Order if they are involved in insuring, or arranging insurance, in relation to actions prohibited under the terms of the Order.

The Export Control Order is enforced by H.M. Customs & Excise and came into effect on 6th April 2009. Insurance companies and brokers will be expected to comply with the Order, and must have structures in place to ensure that the Order is not being breached. Breaches of the Order can result in criminal penalties being imposed on individual underwriters and brokers as well as their employers, including imprisonment for up to 10 years or unlimited fines.

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The Export Control Order 2008 is intended to restrict the international movement of arms or other military goods, and penalties for breaching these trade controls can be severe and include an unlimited fine as well as a prison sentence of up to 10 years. Insurers and brokers are caught by the Order if they are involved in insuring, or arranging insurance, in relation to actions prohibited under the terms of the Order. The Export Control Order is enforced by H.M. Customs & Excise and came into effect on 6th April 2009. Insurance companies and brokers will be expected to comply with the Order, and must have structures in place to ensure that the Order is not being breached.

The Order

The Order prohibits any persons within the UK, or a UK person anywhere in the world, from supplying or delivering, agreeing to supply or deliver or doing any act calculated to promote the supply or delivery of any goods subject to trade controls from one third country to another third country that is an embargoed destination.

This catches not only the persons involved in the physical movement of goods, but also any persons doing acts "calculated to promote the supply or delivery" of such goods, which includes insuring or reinsuring such goods, or "arranging" insurance or reinsurance – this covers both brokers and underwriters.

The Order controls trade of certain goods to specific "embargoed destinations", which, for these purposes, are:

Armenia, Azerbaijan, Burma (Myanmar), Democratic People's Republic of Korea, Democratic Republic of the Congo, Iran, Ivory Coast, Lebanon, Sudan, Uzbekistan and Zimbabwe.

Goods that are subject to trade controls are defined as 'Category 'A' goods, Category 'B' goods or Category 'C' goods':

  • Goods included in the definition of 'Category A' are the most serious and potentially dangerous goods, including, for example, goods that are designed for execution or torture. Being involved in trading these goods between any overseas countries (and not just the embargoed destinations) is prohibited under the Order.
  • 'Category B' goods consist of items such as small arms, light weapons, missiles, grenades and ammunition, including components for these items.
  • 'Category C' goods include all items within the military and policing equipment not contained within categories A and C, such as grounds vehicles and constituent components or body armour and helmets.

Suggested Action

Underwriters and brokers need to ensure that they have systems in place to avoid breaches of this Order (and other similar Orders imposing other forms of sanctions).

Underwriters approached to write new business covering any of the countries or any of the categories of goods listed above, whether as a lead or as part of the following market, and any broker placing such business, should hesitate before getting involved. It may be prudent to refer such risks to compliance officers or to seek legal advice.

Licences to trade in the goods referred to above can be obtained on application to the Deportment of Business, Innovation and Skills and insurers/brokers must ensure licences are in place if they are involved in such transactions.

Underwriters and brokers may also need to review existing business effective from 6th April 2009 to ensure they are not in breach of the Order. Questionable transactions must be reported.

The Order is enforced by HM Revenue & Customs and the Serious Organised Crime Agency, and criminal penalties can be imposed on individual underwriters and brokers as well as their employers, including imprisonment for up to 10 years or unlimited fines.

By undertaking appropriate due diligence, insurers and brokers may also be able to ensure compliance with other sanctions regimes. For example, US sanctions apply to a number of countries not covered by EU or UN sanctions.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/09/2009.