On July 23, 2019, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued an Iran-Related Civil Aviation Industry Advisory (the “Advisory”) that provides cautionary guidance to the civil aviation industry on compliance with US sanctions measures targeting Iran. The Advisory articulates the following key messages: (i) both US and non-US parties in the civil aviation industry remain at risk of US enforcement actions and economic sanctions for engaging in or supporting unauthorized transfers of aircraft or related goods, technology, or services to Iran or to designated Iranian airlines; (ii) the international civil aviation industry stakeholders – including airlines, charter operators, travel distributors and ticket agents, OEMs, suppliers, and service providers – must be on alert for certain deceptive practices used by Iran-related parties to circumvent US sanctions; and (iii) parties should be aware of certain aspects of US sanctions targeting Iran that relate specifically to the civil aviation industry.
Civil Aviation Industry and US Sanctions Risks
Over the years, several Iranian civil aviation companies have been added to the Specially Designated Nationals List (“SDN List”) by OFAC for their support of Iran’s weapons of mass destruction proliferation activities, international terrorism, and human rights abuses. These companies include, but are not limited to: Mahan Air, Caspian Air, Meraj Air, Pouya Air, Dena Airways, Al-Naser Airlines, Syrian Air, Dart Airlines, Khors Aircompany, Kyrgyz Trans Avia, Qeshm Fars Air, and UM Air. Mahan Air has been under particular scrutiny by OFAC in recent years for its support of the Islamic Revolutionary Guards Corps (“IRGC”). Mahan Air is alleged to have transported foreign fighters and weapons on behalf of the IRGC.
US Persons (i.e., entities organized under US law and their non-US branches, parties physically located in the US, and US citizens and permanent resident aliens wherever located or employed) are generally prohibited from engaging in transactions involving any person that has been designated as an SDN. In addition, Non-US Persons risk the imposition of US secondary sanctions measures for engaging in significant transactions involving an Iranian person on the SDN List (other than a party designated solely pursuant to Executive Order 13599) or a person designated as an SDN in connection with Iran’s support for international terrorism or proliferation of weapons of mass destruction.
The Advisory emphasizes that parties engaged in the civil aviation industry, including general sales agents (i.e., third parties that provide services to an airline under its brand) and other entities that provide services to Iranian airlines, are at risk of US sanctions for engaging in a number of seemingly benign and routine activities, even where such activities have no US nexus. The Advisory notes that such services can include:
- Financial services
- Reservations and ticketing
- Freight booking and handling
- Procurement of aircraft parts and equipment maintenance
- Airline ground services
- Interline transfer and codeshare agreements
- Refueling contracts
The Advisory highlights that since early 2018, OFAC has designated ten entities to the SDN List in connection with their support of Mahan Air. The designated entities include: (i) front companies procuring spare aircraft parts for Mahan Air; (ii) general sales agents in Malaysia, Thailand, and Armenia acting for Mahan Air; (iii) and Qeshm Fars Air, for its support of Mahan Air in connection with the IRGC.
Examples of Deceptive Practices
The Advisory highlights a number of deceptive practices employed by Iranian persons that are designed to evade US sanctions in connection with the provision of services to the Iranian civil aviation industry, and the procurement of aircraft and aircraft parts or components, in violation of US law. Some of the deceptive practices identified in the Advisory are as follows:
- Use of front companies in third countries (e.g., countries in Europe, the Middle East, Africa, and Asia) for diversion of products and goods to Iran. OFAC recently discovered that certain Turkish front companies procured US-origin aircraft parts and components for diversion to Mahan Air.
- Use of accounts in third countries to remit payments in connection with Iran-related sales.
- Misrepresentations to suppliers, dealers, and brokers that US sanctions against Iran have been lifted.
- Claims of OFAC authorization for certain activities without providing copies of OFAC licenses purportedly held by the parties making the claims.
- Sourcing from third countries known to have strong reputations for aircraft maintenance, repair, and overhaul operations, but limited export control or sanctions enforcement capabilities.
- Use of trade firms located in free trade zones that do not ordinarily deal with civil aviation to place orders for aircraft parts and components.
- Ordering from companies in one country for delivery to freight forwarding or logistics companies in a second country.
Participants in the civil aviation industry should be on the watch for falsified or fabricated documentation and information related to OFAC licenses, aircraft registration, insurance data, and overflight movements when engaged in transactions that might have an Iranian nexus. Market participants should also be aware of other deceptive practices that are intended to conceal the identities of the ultimate end-users of aircraft and aircraft parts and components where delivery involves Iranian overflight or stopovers.
Additional Guidance Relating to JCPOA Statement of Licensing Policy
OFAC reiterated that the United States has ceased its participation in the Joint Comprehensive Plan of Action, which means, among other things, OFAC’s Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (“JCPOA SLP”), as well as specific licenses that had been issued pursuant to the JCPOA SLP, are revoked. OFAC further clarified that both: (i) the safety of flight statement of licensing policy found in the Iranian Transactions and Sanctions Regulations at 31 C.F.R. § 560.528, and (ii) General License J-1, which authorizes reexportation to Iran of certain civil aircraft on temporary sojourn, remain in effect.
The authors thank Jennifer Trock and Michael Bailey for their contributions to the blog.