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US Insurer Covers Oil Tankers Suspected Of Violating Iran, Russia Sanctions

Bloomberg
Total Views: 6695
February 9, 2024

(Bloomberg) —

Last June, a rusting tanker named Sincere 02 picked up oil at an Iranian port and steamed across the Persian Gulf on its way to the United Arab Emirates.

US sanctions forbid Western companies from knowingly doing business with Iran. But for the next seven months, long after an advocacy group publicized Sincere 02’s voyage, the ship continued to carry proof of insurance from a surprising place: New York City.

That’s the home of American Club, the smallest of the 12 companies that cover most of the world’s oceangoing ships against spills and accidents, and the only one based in the US. American Club provides insurance for 21 vessels suspected of having moved Iranian oil, more than any of its peers, according to a Bloomberg News analysis of a list provided by the group, United Against Nuclear Iran (UANI).

That’s 6% of the tankers American Club covers — even after the company recently culled its client list. Since December, when the insurer’s name came up at a congressional hearing and Bloomberg began asking questions, American Club has dropped coverage for Sincere 02 and 18 other vessels accused by UANI of having carried Iranian oil. Many of them had been under suspicion for years but continued to ply the seas, and American Club continued to collect premiums.

American Club says its compliance program is top-notch and that it would never knowingly insure a ship that violates sanctions. It says it’s investigating allegations against two of the 21 that still have coverage and is in the process of dropping three others. As for the rest, it couldn’t substantiate the accusations or found that the ship’s current owners had no connection to past sanctioned activity.

“When we have enough evidence to suspect something is not right,” said Daniel Tadros, the company’s chief operating officer, “we cancel.”

Tadros said the recent flurry of cancellations had nothing to do with media or government inquiries. Some were dropped because of long-running internal investigations, he said, and others because of routine reviews ahead of Feb. 20, when annual policies normally expire. 

Oil tankers need to show proof of liability insurance against spills and accidents to enter major ports. That makes insurers crucial gatekeepers for the world’s shipping industry.

At a congressional hearing in December, Representative Zach Nunn, an Iowa Republican, pressed a US Treasury Department official about American Club’s outsize role in insuring ships suspected of carrying Iranian oil. “What have you done to hold them accountable?” Nunn asked. 

Treasury, which enforces sanctions, later sent Nunn a statement that his concerns were misplaced as they were based on “incorrect” information about insurance coverage. It declined to comment to Bloomberg about American Club. One official, speaking on condition of anonymity, said the department seeks to strike a balance between enforcing sanctions and ensuring that coverage is widely available. Treasury hasn’t taken any public regulatory action against an insurer in years.

US sanctions aim to discourage Iran’s nuclear program and its support for militia groups across the Middle East by starving the regime of oil revenue. Researchers at UANI, a New York-based nonprofit dedicated to backing these efforts, pore over ship-location data and satellite feeds to spot vessels carrying the country’s crude. When they suspect a sanctions violation, they notify insurers, ship registries and other service providers.

“Most of them are quick to confirm our findings and withdraw coverage, typically within 48 hours,” said Claire Jungman, chief of staff of the group, which was founded by a former George W. Bush administration official. “We provide all of the same information to American Club. Sometimes they do withdraw their coverage, and sometimes they do not.” 

Shipowners often produce fake bills of lading and other documents to convince their insurers they’re not handling Iranian cargo, Jungman said. Sometimes, she said, “American Club chooses to believe that, versus the satellite image provided to them.”

Anyone tracking Sincere 02 last June would have noticed something odd. All tankers are required to broadcast their location by radio to avoid collisions. From June 10 to June 14, according to Sincere 02’s broadcasts, it was moving around and around in a suspiciously perfect circle. And, impossibly, its path repeatedly passed through an offshore Iraqi oil terminal — a giant platform fixed in place in the sea. The 600-foot tanker would have collided with it.

In reality, Sincere 02 wasn’t anywhere near the Iraqi terminal, according to a satellite photo of the area taken on June 11. The vessel was reporting a false location, a common tactic for sanctions evaders and one the US has told insurers to look out for. The satellite photo showed a similar-looking ship about 60 miles away at an oil terminal in Iran. Not long after the picture was taken, analysts at UANI determined it was Sincere 02.

In July, UANI notified the Kiribati Ship Registry, where Sincere 02 was flagged, as well as American Club. Kiribati, a tiny Pacific island, deregistered the ship within a day. American Club moved more slowly.

In January, Tadros, a gregarious lawyer with cufflinks shaped like pink sailboats, invited Bloomberg reporters to visit the company’s offices in Lower Manhattan to discuss the handling of Sincere 02 and other suspect ships. From a 31st-floor boardroom with sweeping views of New York Harbor, he clicked through a slide presentation as ferries and barges crisscrossed the waters below. “Our compliance and our due diligence programs have been around longer than our competitors’,” Tadros said. “We’re considered one of the most stringent.”

American Club belongs to a 12-member consortium called the International Group, whose members provide protection and indemnity, or P&I, insurance to most of the world’s oceangoing ships. 

To comply with sanctions laws, International Group insurers put a clause in their policies invalidating coverage if a ship is found to be carrying illicit oil. But Treasury asks them to go further — monitoring customers for possible violations, even if shippers try to hide what they’re up to.

Tadros showed detailed chronologies of a number of ships that UANI said had carried Iranian oil. He said determining the truth is difficult and time-consuming, and that UANI’s accusations are sometimes off base. Insurers communicate with customers through brokers; documentation is provided in different languages; and ship managers can take elaborate steps to conceal vessels’ true owners and activities. He said American Club’s four-person compliance department is stretched thin.

In the case of Sincere 02, the chronology showed that the insurer didn’t contact the ship’s representatives until more than a month after hearing from UANI. Through a broker, the representatives provided documents purporting to show the ship had loaded oil in Iraq, just as the ship’s transponder had reported.

What about the implausible route Sincere 02 claimed to take, plowing through the side of an oil terminal? Tadros said the company wasn’t aware of it, and even if it had been, it wouldn’t have been enough to make the insurer doubt its customer’s story.

Then in December, three months after getting Sincere 02’s story, American Club asked a contact in Iraq to check it out. The word came back quickly, Tadros said: The Iraq visit was a lie.

On Jan. 10, American Club started the process of canceling coverage for the vessel. Two days later Treasury announced it was imposing sanctions on Sincere 02, saying it was part of a network linked to Sa’id al-Jamal, an Iran-based financier of the Houthi rebels in Yemen. Houthi rocket attacks in the Red Sea are now sowing chaos in the global shipping industry. 

The tanker’s legal owner is a Marshall Islands company with an address in a skyscraper in Dubai. No sign of its offices could be found during a recent visit there. Tadros said that al-Jamal was not on any paperwork American Club saw. “We don’t have the means, like the government does, to find out there’s a Houthi guy behind an enterprise like this,” he said.

The chronologies provided by American Club show that investigations into Sincere 02 and at least five other ships languished for months before a sudden surge of activity on Dec. 20. Tadros said it’s a coincidence that the activity began one day after Bloomberg first contacted American Club and informed him of Nunn’s comments at the congressional hearing.

Over the next few weeks, American Club dropped coverage for 19 ships on UANI’s list. It said eight of these were for sanctions-related reasons. On average, the allegations against those ships were more than a year old.

At the meeting in January, Tadros described another investigation, one that he said showed allegations linking his customers to Iranian oil sometimes could be mistaken. 

In September, UANI said a tanker called Elysia had picked up Iranian crude from another vessel in Malaysia. American Club asked Elysia’s representatives, who confirmed the transfer but provided a document showing the oil was from Malaysia. Satisfied, American Club closed the investigation. “We have to believe these documents,” Tadros said. 

But a review of public shipping records casts doubt on the Malaysia story. They show the ship that transferred oil to Elysia had reported picking it up in Iraq, not Malaysia, and that it arrived for the meeting with Elysia straight from the Persian Gulf, where its movements were masked for several days while it broadcast a phony location. UANI says it suspects that a satellite image taken Aug. 5 shows that ship taking on oil from an Iranian vessel in the Gulf. Elysia’s manager didn’t respond to an email. 

American Club also insures ships that transport Russian crude. The US, the UK, the European Union and others imposed sanctions on that country after its invasion of Ukraine in 2022. The policy banned the use of Western services on shipments of crude priced above a $60-a-barrel cap. It was intended to cut Russian revenue without crimping global supply.

That led the country to rely, as Iran does, on what’s come to be known as the “dark fleet,” a group of 500 or so aging tankers, mostly owned by opaque companies. Many ships in the dark fleet don’t claim to have insurance. Others rely on Russian or Iranian carriers. About one-quarter get coverage from International Group members, all of which are based in Europe, the US or Japan, and recognize Western sanctions.

Market prices of Russian oil frequently climb above the cap. Shipping data analyzed by Bloomberg show that 15 vessels insured by American Club — about 4% of its tanker customers — have loaded at Russian ports at times when published prices exceeded $60 a barrel. That’s a greater proportion than any other Western insurer.

“They have obviously got a specialized market in these tankers,” said Michelle Bockman, a senior analyst at the shipping news and data service Lloyd’s List Intelligence in London. She said her own data also show that American Club has a high share of this market.

But determining the price paid for any particular shipment is difficult. The sanctions only require that insurers ask shipowners for a signed form promising they will follow the price-cap rules. Tadros said American Club always does so.

“Bottom line is the US government and the world governments don’t want to disrupt and cause this world to go into a tremendous energy crisis,” Tadros said.

American Club’s financial condition is the weakest of the 12 International Group members, according to Standard & Poor’s. Its capital reserves dipped so low in 2022 that last year the New York State Department of Financial Services demanded the company raise additional capital, regulatory filings show.

The department declined to comment. Tadros said that as a mutual insurer, owned by its customers, American Club’s goal is to break even, not to run a large surplus. He said the company’s capital position improved last year and its finances are sound. 

Tadros denied that the insurer’s financial condition would give it an incentive to be less picky about its customers. “I don’t know why we have a bigger percentage of these vessels,” he said. One reason might be that American Club has many Asian customers, he said, and most of the ships that get dropped for sanctions reasons are Asian-owned. Another, he offered, might be that American Club works with small shipowners whose backgrounds leave less of a public paper trail.

On Jan. 25, two days after Bloomberg’s interview with Tadros, UANI’s Jungman said she spotted a ship named Riqueza loading Iranian oil from another ship near Indonesia and posted a satellite photo on social media platform X. Riqueza’s insurer? American Club.

An email to Riqueza’s manager bounced. Asked about the vessel days later, Tadros said he hadn’t seen Jungman’s post or been alerted to any suspicious activity. 

“Since you brought this matter to our attention,” Tadros said in a subsequent email, “we commenced an investigation.” —With  Kyle Kim, Julian Lee, Ben Bartenstein and Daniel Flatley

  1. MethodologyTo determine each International Group insurer’s exposure to tankers suspected of carrying Iranian oil, Bloomberg News consulted a Bloomberg database of about 14,000 vessels categorized as crude oil tankers, oil products tankers and the like. The database contains information on insurance coverage. We tallied how many tankers had coverage from each insurer, including each insurer’s fixed-premium affiliate, and how many of these tankers also appeared on UANI’s “ghost armada” list as of Feb. 1. For each tanker that met both conditions, we double-checked insurance coverage on the insurer’s website. If coverage was not confirmed — typically because coverage was dropped recently — we removed the tanker from each company’s count. We also checked other insurance company websites in case coverage was recently transferred to another International Group member. For Russian shipments, we tracked tankers carrying three common grades of crude during times in 2023 when the reported market price of the grade was above the price cap. We followed the same methodology as above to confirm insurance coverage directly with insurer web sites.

© 2024 Bloomberg L.P.

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