LONDON (Reuters) - The reluctance of foreign banks to deal with Iran
could complicate any compensation payments resulting from the collision
last week of an Iranian oil tanker and a Chinese cargo ship, sources
is seen from Panama-registered Sanchi tanker carrying Iranian oil that
caught ablaze after it collided with a Chinese freight ship in the East
China Sea, in this January 9, 2018 handout picture released by China's
Ministry of Transport. China's Ministry of Transport/Handout via
The tanker Sanchi, carrying
136,000 tonnes of highly flammable condensate oil, collided with the
Chinese dry cargo vessel CF Crystal on Saturday in the East China Sea,
causing an oil spill and a blaze that is still raging four days later.
has yet to be established but lawyers and insurers say wherever the
fault lies compensation payments risk getting bogged down or even
blocked because the tanker and most of its crew were from Iran.
potential hitches stem from U.S. restrictions on financial transactions
with Iran still in place despite the lifting of international sanctions
against the country in 2016 following its nuclear deal with world
powers, lawyers say.
The Sanchi’s $60 million cargo of
ultra-light crude oil spilled into the ocean and caught fire after the
collision in international waters some 160 nautical miles (300 km) off
While the CF Crystal has returned safely to port with its
crew, dozens of rescue boats from China and South Korea have been
battling strong winds, high waves and poisonous fumes to try to find 31
sailors from the Sanchi and tame the fire.
Rahul Khanna, global
head of marine risk consulting with German insurer Allianz, said losses
from the collision could be in the hundreds of millions of dollars.
value of the cargo and the value of the hull itself would be one major
impact, but I think the oil pollution liability aspects are probably the
largest element,” he said.
He said the environmental impact
would be less severe than for a heavy crude spill, however, as
condensate evaporates quickly and would not cause a major oil slick.
lawyers said there would be payment problems whether Iranian parties
were the beneficiaries of any compensation, or if they were found
Nigel Kushner, chief executive of law firm W Legal and an
Iran specialist, said any compensation process would be complex as
there were four different insurance issues at play: the ship itself, or
the hull, the cargo, pollution and the deceased.
Thirty of the
Sanchi’s crew are from Iran and two are from Bangladesh. One body has
been recovered from the sea but the rest are missing. The vessel
(IMO:9356608) is run by Iran’s top oil shipping operator, NITC.
“It will probably be perfectly legal for insurers to pay, but in practice near impossible,” Kushner said.
insurers will be involved requiring multiple payments,” he said. “I
have seen lengthy and frustrating delays for clients previously with
respect to insurance payments coming out of the Lloyd’s (insurance)
market when payments are delayed or blocked.”
sanctions, U.S. financial institutions and are prohibited from any trade
with Iran, despite the nuclear deal struck in 2015, known as the JCPOA.
While non-U.S. banks can do business with Iran, lawyers say
transactions involving U.S. dollars can be problematic as they must not
involve the U.S. financial system in any way and that can be difficult
Banks and individuals are still restricted from
trade with individuals or entities that remain on a U.S. blacklist,
adding to further caution over any business with Iran.
in other currencies are allowed, but lawyers say large Western banks,
for example, are wary of dealing with Iran in case they fall foul of
existing U.S. sanctions.
“As a general matter, despite the
sanctions relief contained within the JCPOA, there is still great
difficulty in Western banks processing payments to Iranian
counterparties, no matter the currency,” said Matthew Oresman, a partner
with Pillsbury Winthrop Shaw Pittman, who advises companies on Iran
“For this specific incident, depending on the source
of the insurance funds and the process by which it is to be delivered to
Iranian recipients, there could be difficulties for the policy holders
or other beneficiaries,” he said.
recent years, compensation claims for major oil pollution incidents have
largely been handled by the International Oil Pollution Compensation
Funds (IOPC Funds) inter-governmental body. It typically steps in to
provide compensation for disasters over and above insurance company caps
Maritime officials say compensation this time would
fall under China’s far smaller scheme known as the COPC Fund, partly
because the oil in question is condensate which is not covered by IOPC
Jun, a Beijing-based environmental lawyer, said the Chinese government
would calculate the losses arising from pollution to the environment and
Protection and Indemnity (P&I) clubs - owned
by shipping companies - insure the world’s ocean-going tonnage against
pollution and injury claims, typically the biggest costs when a vessel
sinks. Separate hull and machinery policies cover vessels against
In the case of the Panama-flagged Sanchi, it is insured for P&I by Steamship Mutual based in London.
vessel is entered with the Club and we have been very busy over the
weekend with our emergency response. Clearly a major incident and we are
doing all we can to support the members,” Steamship said.
percent of the value of Sanchi itself is covered by 11 international
insurers, led by Norway’s Skuld, with the other 30 percent covered by
Iranian insurers, according to Skuld Chief Executive Stale Hansen.
also covers the Hong Kong-flagged CF Crystal (IMO:9497050) for
protection and indemnity while the vessel’s hull is covered by a Chinese
“The major issue with this case is going to be the
banking issue,” said a shipping source familiar with the incident.
“There is a degree of paralysis among banks.”
Iranian government official acknowledged that when it came to the
collision involving Sanchi there may be banking issues, though he was
optimistic a solution could be found.
“Major banks still refuse
to do money transactions with Iran but there are tens of smaller banks
willing to do such businesses,” the official said.
“Also, this is
an extraordinary situation ... Asian banks, especially Chinese banks,
will surely help. There are several methods, including using local
currencies or paying Iran’s debts somewhere else,” he said.
Chinese banks, however, have become more reticent about doing some business with Iran.
media reported in October that some had closed accounts of certain
Iranian nationals in China due to tougher enforcement by Chinese banks
of money laundering rules. FATF, an international body that monitors
money laundering worldwide, has kept Iran on its blacklist of high-risk
Andrew Bardot, executive officer of the
International Group of P&I Clubs - the umbrella association for ship
insurers that provide cover for pollution and injury claims - said any
problems with compensation payments from the incident would stem from
the banking sector rather than issues about legality.
said, there are banks who have been and are able to facilitate Iranian
related payments, which in the recent experience of the (International)
Group have proved effective,” he said.