The recent conflict in Ukraine has brought about quite the disruption in several industries, including due to the introduction and adoption of several sanctions which were imposed within a relatively short time span. The insurance industry has not been spared from this and all insurance undertakings and intermediaries (''Entities'') would be wise to be aware of the obligations and prohibitions that arise out of the introductions of these sanctions.
To help Entities adjust to the freshly issued sanctions and ensure that they are complying with the new measures, the Financial Intelligence Analysis Unit (the ''FIAU'') has published a Guidance Note on the Sanctions adopted in response to the current situation in Ukraine (the ''Guidance Note''). At the onset, the Guidance Note refers to the obligations arising out of the National Interest (enabling powers) Act (Chapter 365 of the Laws of Malta) (the ''NIA'') which holds inter alia that persons or entities are obliged to ensure that they adhere to all the freezing measures issued by Regulations of the Council of the European Union.
The Guidance Note further holds that in instances where an Entity identifies targeted property, the Entity is under an obligation to immediately notify the Sanctions Monitoring Board (''SMB'') of same, and this obligation extends to any attempts to carry out transactions involving the identified target property. On this front, Entities must be careful to only notify the activity to the SMB if they are classified as subject persons in terms of the Prevention of Money Laundering and Funding of Terrorism Regulations (SL. 373.1). An Entity which isn't classified as a subject person may find itself breaching its obligations under professional secrecy rules if it jumps the gun and notifies the SMB of an ongoing transaction, without having an obligation to do so, or unless it is permitted, authorised, compelled or justified to do so as further set-out in terms of the Professional Secrecy Act (Chapter 377 of the laws of Malta). If doubts arise, Entities should reach out and seek adequate advice.
The SMB has also published a Guidance note on the imposition of EU sanctions concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty, and independence of Ukraine (the ''SMB Guidance Note''). The SMB Guidance Note provides a concise breakdown of the industries which have been caught by the wide net cast by the newly enacted EU sanctions considering the situation in Ukraine.
Amongst others, the SMB Guidance Note tackles the voluminous financial restrictions that the EU is constantly imposing in dealing with natural or legal persons, entities or bodies in Russia.
Where do insurance undertakings and intermediaries come in?
Entities should specifically be aware of the provision under Council Regulation (EU) 2022/328 that specifically targets the provision of insurance and reinsurance and of maintenance activities concerning aircraft or components in relation to such listed goods and technology to any natural or legal person, entity or body in Russia or for use in Russia which is now prohibited.
Entities should also keep in mind their ongoing obligations that arise out of Article 17(6) of the NIA which apply to Entities which are subject persons. Subject persons are reminded that they are obliged to keep abreast with the relevant sanctions lists and ensure that their clients are screened on a regular basis.
Given that the situation in Ukraine is an ever evolving one, the Guidance Note stresses the importance that Entities classified as subject persons to regularly screen their clients at times such as these, given that sanctions lists are being constantly updated.
Even the most rigorous of Entities may find themselves in default of their screening obligations, therefore they are well-advised to have in place robust internal controls and procedures which must be effectively implemented in their day-to-day activities. On this matter, the Malta Financial Services Authority (the ''MFSA'') has also published a public notice reminding license-holders that they must have in place sanction screening systems which are operating correctly and are correctly calibrated where 'fuzzy' logic is utilised. Entities which opt to outsource their sanction screening function will remain fully responsible for the obligations that arise under the NIA and where the sanction screening function delivers a positive hit, the onus to inform the SMB remains on the Entity concerned and not on the third party carrying out the outsourced function.
Entities must furthermore head caution when being approached by persons which are caught by the sanctions imposed by the NIA. Where Entities find themselves in such a situation, they will be under a prohibition from making property, or financial services or other related services available, directly or indirectly available to sanctioned persons. In practice, this means that if an Entity is approached by a sanctioned individual for any assistance such as share transfers, issuance of shares or other similar transactions, then they are under a strict prohibition to refrain from assisting and must duly notify the SMB. Hefty penalties and even jail time will be imposed on any Entities which refuse to adhere to the sanctions imposed under the NIA. Entities may also risk having their licensed suspended or cancelled by the MFSA if they fail to observe their obligations that arise out of the NIA.
It is highly doubtful that the newly issued sanctions will be the EU's last word on this matter. Entities are advised to keep their ear to the ground and keep a lookout for what's to come to ensure that they do not fall foul of the law and sanctions and risk potential irreversible consequences.
This article was featured in the March 2022 issue of Ganado Advocates' Insurance newsletter.
Originally published March 25, 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.