CONCERNS RE: EXPORTING AIRCRAFT AND AIRCRAFT PARTS TO EMBARGOED COUNTRIES
March 3, 2014
The Export Administration Regulations (the “EAR”), administered by the Bureau of Industry and Security of the U.S. Department of Commerce (“BIS”), and the Foreign Assets Control Regulations (the “FACR”) administered by the Office of Foreign Assets Control of the U.S. Department of Treasury (“OFAC”), are the two primary sets of regulations governing the export and re-export of U.S.-origin goods and technology. Although most cross-border transactions involving the sale or lease of civilian aircraft will not require a license under U.S. law, transactions involving countries subject to U.S. embargoes must be scrutinized closely to determine whether the transaction in question is permitted by U.S. law.
Transactions Subject to U.S. Jurisdiction
Under U.S. law, the re-transfer of U.S.-origin goods from one foreign country to another (the “re-export”) of U.S.-origin goods and technology are subject to the EAR and, potentially, the FACR, even if the transaction is between foreign persons and the subject goods are manufactured abroad. U.S.-origin goods are goods which contain more than a de minimis amount of U.S.-source content. With respect to certain countries subject to U.S. embargoes, foreign manufactured goods must contain less than 10% US-source content to be considered de minimis. For example, a Brazilian entity’s sale to an Iranian entity of a foreign manufactured aircraft containing more than 10% U.S.-source content is subject to U.S. law, because the transaction is a re-export of U.S.-origin goods. When evaluating potential transactions, it is important to note that for purposes of the EAR and FACR, title to the aircraft does not have to change hands for the transaction to be considered a re-export of a U.S.-origin good. (i.e. a wetlease of an aircraft with more than 10% U.S.-source content to foreign operator could in some cases require a BIS license).
Special Rules for Embargoed Countries and Specially Designated Nationals
Exports and re-exports of U.S.-origin goods or technology to countries subject to U.S. embargoes are generally prohibited by the FACR. Iran, Cuba, Syria, Sudan, and North Korea are subject to almost total U.S. embargoes, and any transactions (including dry leases and wet leases/ACMI leases) involving those countries must be carefully scrutinized to ensure compliance with U.S. law.
Further, U.S.-origin goods may not be exported or re-exported to Specially Designated Nationals (“SDN”). The SDN list is a list of individuals, groups, and entities subject to economic sanctions by OFAC. The SDN list is maintained by OFAC. More information on the SDN list can be found here: https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx
There has been some loosening of sanctions against Iran recently. OFAC will now consider license applications on a case-by-case basis for transactions which are specifically intended to ensure the safe operation of commercial civil aircraft in Iran. Activities which will be considered for licensing include, but are not limited to, the exportation and re-exportation of (i) services related to the inspection of commercial aircraft and parts in Iran or another country, (ii) services related to the repair or servicing of commercial aircraft in Iran or another country, and (iii) goods or technology, including spare parts, to Iran or a third country.
Should you wish to engage in a transaction involving Iran in light of the change in policy it is highly recommended that you check with U.S. counsel who can advise regarding the likelihood of obtaining a license.
This Eckert Seamans Aviation Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions, please contact Evelyn Sahr (esahr@eckertseamans.com, 202-659-6622) or Drew Derco (dderco@eckertseamans.com, 202-659-6665).
The Export Administration Regulations (the “EAR”), administered by the Bureau of Industry and Security of the U.S. Department of Commerce (“BIS”), and the Foreign Assets Control Regulations (the “FACR”) administered by the Office of Foreign Assets Control of the U.S. Department of Treasury (“OFAC”), are the two primary sets of regulations governing the export and re-export of U.S.-origin goods and technology. Although most cross-border transactions involving the sale or lease of civilian aircraft will not require a license under U.S. law, transactions involving countries subject to U.S. embargoes must be scrutinized closely to determine whether the transaction in question is permitted by U.S. law.
Transactions Subject to U.S. Jurisdiction
Under U.S. law, the re-transfer of U.S.-origin goods from one foreign country to another (the “re-export”) of U.S.-origin goods and technology are subject to the EAR and, potentially, the FACR, even if the transaction is between foreign persons and the subject goods are manufactured abroad. U.S.-origin goods are goods which contain more than a de minimis amount of U.S.-source content. With respect to certain countries subject to U.S. embargoes, foreign manufactured goods must contain less than 10% US-source content to be considered de minimis. For example, a Brazilian entity’s sale to an Iranian entity of a foreign manufactured aircraft containing more than 10% U.S.-source content is subject to U.S. law, because the transaction is a re-export of U.S.-origin goods. When evaluating potential transactions, it is important to note that for purposes of the EAR and FACR, title to the aircraft does not have to change hands for the transaction to be considered a re-export of a U.S.-origin good. (i.e. a wetlease of an aircraft with more than 10% U.S.-source content to foreign operator could in some cases require a BIS license).
Special Rules for Embargoed Countries and Specially Designated Nationals
Exports and re-exports of U.S.-origin goods or technology to countries subject to U.S. embargoes are generally prohibited by the FACR. Iran, Cuba, Syria, Sudan, and North Korea are subject to almost total U.S. embargoes, and any transactions (including dry leases and wet leases/ACMI leases) involving those countries must be carefully scrutinized to ensure compliance with U.S. law.
Further, U.S.-origin goods may not be exported or re-exported to Specially Designated Nationals (“SDN”). The SDN list is a list of individuals, groups, and entities subject to economic sanctions by OFAC. The SDN list is maintained by OFAC. More information on the SDN list can be found here: https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx
There has been some loosening of sanctions against Iran recently. OFAC will now consider license applications on a case-by-case basis for transactions which are specifically intended to ensure the safe operation of commercial civil aircraft in Iran. Activities which will be considered for licensing include, but are not limited to, the exportation and re-exportation of (i) services related to the inspection of commercial aircraft and parts in Iran or another country, (ii) services related to the repair or servicing of commercial aircraft in Iran or another country, and (iii) goods or technology, including spare parts, to Iran or a third country.
Should you wish to engage in a transaction involving Iran in light of the change in policy it is highly recommended that you check with U.S. counsel who can advise regarding the likelihood of obtaining a license.
This Eckert Seamans Aviation Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions, please contact Evelyn Sahr ( esahr@eckertseamans.com 202-659-6622) or Drew Derco ( dderco@eckertseamans.com 202-659-6665).