International Court Requires U.S. to Sell Aircraft Parts to Iran

The International Court of Justice (ICJ) has ruled that the United States must remove all sanctions that would prohibit the export of aircraft parts to Iran.  The ruling also directs the United States to “ensure that licences and necessary authorizations are granted and that payments and other transfers of funds are not subject to any restriction in so far as they relate to the goods and services.”

The Iranian Complaint in this matter was bought on or about July 16.

The Decision was issued on October 3.  It is a preliminary ruling in the case.  The court describes it as a “provisional measure[] responding to humanitarian needs [that] would not cause irreparable prejudice to any rights invoked by the United States.”  This is analogous to preliminary injunctions issued by U.S. courts (including a finding of irreparable harm, likelihood of success on the merits, and a weighing of the equities).

In response, the United States announced that it would withdraw from the Treaty of Amity that serves as the legal basis for the Iranian claim.  Article XXI of that agreement explicitly granted jurisdiction over US-Iranian disputes to the ICJ.

What effect will this ICJ ruling have?  In the United States, the Administration has already been critical of the decision, and has announced plans to withdraw from treaties that serve as the legal basis for elements of the court’s jurisdiction over the matter.  This is a strong signal that the US intends to ignore the ICJ ruling.  For US exporters, this is likely to mean that US law will continue to apply sanctions prohibiting export of aircraft parts to Iran.  But there is a stronger likelihood that the United States may stand alone in these sanctions, and other nations will continue to follow the Joint Comprehensive Plan of Action (JCPOA) that permitted nations to begin exporting certain aircraft parts to Iran.  US exporters will have to be especially vigilant about compliance in international transactions, to ensure that they are not inadvertently made parties to exports with a forbidden final destination.

For now, US exporters should continue to forbear from exporting aircraft parts to Iran unless the exporter has a valid export license covering the transaction, from the United States government.

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Doing Business With Iran Under a JCPOA License? Get Your Transactions Completed by August 6, 2018.

As we reported on May 8, the United States’ decision to end the JCPOA agreement with Iran means that existing JCPOA-based licenses will be revoked on August 6.  A number of ASA members have these export licenses, which permit aircraft-parts-business with the specified Iranian parties.

On May 8, the President announced his decision to discontinue the United States’ participation in the Agreement with Iran, and to reimpose sanctions against Iran.

The Treasury has published a document explaining the wind-down process, including answers to frequently asked questions.  The wind-down document explains that the United States government plans to revoke JCPOA-related authorizations, such as the aircraft and aircraft parts-related export licenses that were issued pursuant to the US-Iran Agreement.  Those export licenses are scheduled to be terminated as of August 6, 2018.

Those ASA members who hold JCPOA export licenses (which are being terminated) may consider applying for replacement licenses under the safety of flight statement of licensing policy found in 31 C.F.R. § 560.528. That provision permits licenses on a case-by-case basis for exporting to Iran in order to ensure the safety of civil aviation and safe operation of U.S.-origin commercial passenger aircraft.  Historically, the United States government has not issued many of these licenses, but if the transaction is valuable to the United States then the transaction might be considered for licensing.

Business With Iran – Grinding to a Halt?

Several ASA members have looked into doing business with Iranian air carriers and other Iranian customers.  Some have even applied for export licenses to support such business.  But those efforts appear to be wasted as the US prepares to begin enforcing sanctions against Iran, once again.

Today (May 8, 2018), the President announced his decision to discontinue the United States’ participation in the Agreement with Iran, and to reimpose sanctions against Iran.

The Treasury has published a Frequently Asked Questions document explaining the upcoming process for Iranian sanctions.  The FAQ, consistent with the President’s announcement, requires the Secretaries of State and of the Treasury to take immediate steps to re-impose all United States sanctions lifted or waived in connection with the JCPOA, including those under the National Defense Authorization Act for Fiscal Year 2012, the Iran Sanctions Act of 1996, the Iran Threat Reduction and Syria Human Rights Act of 2012, and the Iran Freedom and Counter-proliferation Act of 2012.  These steps shall be accomplished as expeditiously as possible, and in no case later than 180 days from May 8, 2018.

As part of this process, the U.S. government plans to revoke JCPOA-related authorizations such as the aircraft and aircraft parts-related licenses issued pursuant to the US-Iran Agreement; expect to see these permits terminated as of August 6, 2018,

Applicants whose pending license applications are denied may resubmit their applications for consideration under the safety of flight statement of licensing policy found in 31 C.F.R. § 560.528. That provision permits licenses on a case-by-case basis for exporting to Iran in order to ensure the safety of civil aviation and safe operation of U.S.-origin commercial passenger aircraft.

Treasury Continues to Clarify Policy on Iran

U.S. Treasury Department licensing policy with respect to Iran continues to gain clarity as the Office of Foreign Assets Control issues new licenses.  On March 24, 2016, OFAC  issued under the Iranian Transactions and Sanctions Regulations General License I – Authorizing Certain Transactions Related to the Negotiation of, and Entry into, Contingent Contracts for Activities Eligible for Authorization under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services.

In relevant part, the General License states

U.S. persons are authorized to enter into, and to engage in all transactions ordinarily incident to the negotiation of and entry into, contracts for activities eligible for authorization under the [policy for commercial aviation exports to Iran], provided that the performance of any such contract is made expressly contingent upon the issuance of a specific license by [OFAC] authorizing the activities to be performed.

In layman’s terms, the General License permits the ancillary processes that go into negotiating and finalizing a contract. The caveat is that the performance of the contract itself must be made conditional on issuance by OFAC of a Specific License covering the terms of the deal.

The benefit of General License I is to allow parties to bid on contracts and attempt to hammer out deals without having a Specific License already in place. But they must remember to make clear that the execution of any agreed-to contract is contingent upon issuance of a Specific License by OFAC.

Remember, General Licenses are those licenses that apply to everyone without any additional action required as long as you stay within the scope of the General License.

It remains important to exercise additional diligence in undertaking transactions with Iranian customers; but we can expect transactions to get easier as both Treasury and industry gain experience and familiarity with the process.  And as always, if in doubt, consult an export compliance attorney.

 

Iran Sanctions are Still Active!

Iran has reached Implementation Day – but what does this mean? We’ve been receiving a number of inquiries about Iranian sanctions.

The news media has been reporting that US sanctions against Iran have been eliminated. This is not (yet) true.  Conversations with European companies have suggested that Europe is permitting unfettered trade with Iran, and in fact Airbus announced a plan to sell 100 aircraft to Iran as soon as sanctions are formally lifted.  Iranian Transport Minister Abbas Akhoondi announced that Iran would buy 114 aircraft from Airbus.

In the U.S., there are still live sanctions against Iran (like 31 C.F.R. Part 560) that continue to preclude the sale of aircraft parts without a license.  The Treasury Department is the lead US organization for Iran sanctions.  U.S. Treasury Department regulations still prohibit the export, sale, or supply of any services to Iran, unless there is a specific exception in the regulations that permits that export, sale, or supply.  31 C.F.R. §§ 560.204, 560.204(a)(2), 560.410; see, e.g., Guidance Relating to the Lifting of Certain U.S. Sanctions Pursuant to the Joint Comprehensive Plan of Action On Implementation Day, p. 3, fn 4 and p. 38 (published jointly by U.S. Department Of The Treasury and U.S. Department Of State January 16, 2016) (reminding the reader of the general prohibition on provision of goods and services to Iran except where explicitly permitted).  So, until the restrictive regulations are removed, we should expect the government to issue specific exceptions on an occasional basis.

Treasury has published their initial plan for the abatement of sanctions – the first set of exceptions.  This abatement plan is available for public review but it is not valid until published in the Federal Register!  But the plan is primarily focused on importing food items and carpets from Iran so it is of little use to aircraft parts distributors.

Under the post-Implementation Day plan, we should not expect free trade in aircraft parts to Iran.  Instead, aircraft parts will be subject to a favorable licensing policy, similar to what they’ve enjoyed in recent years.

“[L]icenses may be issued on a case-by-case basis to authorize U.S. persons and, where there is a nexus to U.S. jurisdiction, non-U.S. persons to (1) export, re-export, sell, lease, or transfer to Iran commercial passenger aircraft for exclusively civil aviation end-use, (2) export, re-export, sell, lease, or transfer to Iran spare parts and components for commercial passenger aircraft, and (3) provide associated services, including warranty, maintenance, and repair services and safety-related inspections, for all the foregoing, provided that licensed items and services are used exclusively for commercial passenger aviation.”

This new licensing program is effective immediately under the new licensing policy.  Under the new licensing program, there will be an expectation of controls to prevent re-transfer of goods to parties on the Specially Designated Nationals (SDN) list.  The US has warned that if aircraft, goods, or services licensed for export to Iran are used for purposes other than exclusively for commercial passenger aviation, or have been transferred to SDNs, then the United States could view this as grounds to cease performing its commitments under the agreement with Iran.

Sanctions are not going away, totally.  The fact that there is a favorable licensing policy shows that the US will maintain a presumption against trade that must be overcome with licenses.  And new sanctions are always a possibility: on Sunday, the Treasury Department announced new sanctions against parties involved in Iran’s ballistic missile program (who will be added to the SDN list).

So really, for aircraft parts distributors it remains ‘business as usual.’  Treasury licenses will still be necessary for aircraft parts transactions to Iran that are subject to US jurisdiction.

US Easing Iran and Cuba Sanctions

The United States continues to ease sanctions against Iran and Cuba by small increments.

Sellers of commercial aircraft parts (subject to US jurisdiction) are able to apply for U.S. licenses for exporting commercial aircraft parts to Iran and Cuba. For all commercial aircraft parts transactions to these two jurisdictions,  export licenses are still required from the U.S. government (currently you may not freely ship aircraft parts on a ‘No License required’ basis to either of these jurisdictions).

Licenses for exporting aircraft parts to Iran are issued by the Treasury Department’s Office of Foreign Asset Control (OFAC).  Licenses for exporting aircraft parts to Cuba are issued by the Commerce Department’s Bureau of Industry Security (BIS).

Recently, the United States has started to remove Cuban nationals from the list of Specially Designated nations, which will make it easier to obtain licenses to do business with the Cuban aviation community.

US-Iran Trade Possibilities Continue to Move Forward

On July 14, 2015, the United States, the European Union, and other negotiators concluded a deal with Iran called the “Joint Comprehensive Plan of Action” (JCPOA).  The purpose of this deal was to ensure that Iran’s nuclear program will be exclusively peaceful, and to open up trade with Iran.

Yesterday, Sunday October 18, 2015 was the “Adoption Day” under the JCPOA.  This is the day on which the JCPOA becomes effective.  Starting today, US government officials are acting to make the necessary preparations for implementation of their JCPOA commitments.

In connection with Adoption Day, yesterday, the President issued a memorandum directing the Secretary of State, the Secretary of the Treasury, the Secretary of Commerce, and the Secretary of Energy to take all appropriate preparatory measures to ensure the prompt and effective implementation of the U.S. commitments set forth in the JCPOA upon Iran’s fulfillment of the requisite conditions.  In particular, the President directed the agencies to take steps to give effect to the U.S. commitments with respect to sanctions described in the JCPOA beginning on Implementation Day, which will occur only once the IAEA verifies that Iran has implemented key nuclear-related measures described in the JCPOA.

In addition, on October 18, 2015, the Secretary of State issued contingent waivers of certain sanctions provisions.  These waivers are not currently in effect and will only take effect on Implementation Day.

Until Implementation Day is reached, it is still possible to use Treasury Department licenses to ship aircraft parts to Iran.

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