EU - Iran: Dealing in the aviation sector until (expected) extensive relief of sanctions

11 September 2015

Goran Danilovic, Brian Mulier

On July 14 2015 the Joint Comprehensive Plan of Action (JCPOA) was signed by the E3/EU+3 countries and Iran. The United Nations Security Council endorsed the JCPOA by enacting UN Resolution 2231 (2015). The JCPOA comprises a monitoring system, timetable and steps to be taken by Iran with regard to their Nuclear Program as well as the commitments of the United States (US) and European Union (EU) to provide relief of their current sanctions regimes against Iran.

JCPOA Implementation

The JCPOA provides for a phased implementation of the agreement as shown below. Taking into account that that the implementation process is prone to political sentiment, certain dates provided in the below matrix should be considered as estimates.

JCPOA Implementation (EU perspective)

Phases

Date/expected

Effects for EU business

Finalization Day

 

14 July 2015

 

NO, considering that the current EU sanctions regime remains in place.*

Adoption Day

 

(est.) 18 October 2015 (or earlier if agreed by E3/EU+3 and Iran)

NO, the current EU Sanctions regime remains in place. EU will enact an EU regulation, terminating and suspending all nuclear-related economic and financial EU sanctions, taking effect on Implementation Day.

Implementation Day

 

 

Expected 6 months after Adoption Day

(est.) early/mid 2016

 

YES, large parts of nuclear-related economic and financial EU sanctions will be terminated and suspended. Numerous UN Security Council resolutions will be terminated subject to re-imposition in the event of significant non-performance by Iran of JCPOA commitments. Specific restrictions, including restrictions regarding the transfer of proliferation sensitive goods will apply.

Transition Day

(est.) October 2023 (or earlier based on IAEA report and supporting UN Security Council)

 

YES, further relief of EU sanctions regime by terminating and suspending certain EU sanctions provisions still in place.

Termination Day

 

 

(est.) October 2025

 

YES, EU will terminate all remaining EU sanctions.

 

* Following the signing of the JCPOA agreement and the subsequently adopted UN Resolution 2231 (2015) endorsing the deal, the EU has enacted Regulations (EU) 2015/1327 and 2015/1328 amending and supplementing certain aspects of the EU sanctions regime in order to allow for Iran to meet its first obligations under the JCPOA as regards its nuclear program.

In addition, it is noted that EU sanctions lifted following Implementation Day of the JCPOA agreement can be reversed. UN Resolution 2231 (2015) and JCPOA provide for a so called "snap back" option which, when evoked, would reinstate the EU sanctions regime. If reinstated, the EU sanctions would not apply with retroactive effect to contracts signed between any party and Iran or Iranian individuals and entities prior to the date of its application, taking into account that these activities are consistent with the JCPOA and UN Resolution 2231 (2015) and previous UN resolutions. The "snap back" liability should be taken into account when doing business in Iran, e.g. by including anticipatory contractual provisions.

Can EU companies engage in the commercial aviation sector in Iran prior to the extensive relief of the sanctions under the JCPOA?

As illustrated above, the main EU commitments as set forth in the JCPOA have not been implemented by the EU yet. This means that, at this stage, Iran is still subject to an extensive EU sanction regime regime prohibiting a vast amount of activities, including those related to the aviation sector. Upon reaching agreement on the JCPOA, the EU did prolong the existing EU temporary sanction relief that will continue to be in force until 14 January 2016. In that regard, the EU temporary sanction relief (encompassing relief on certain provisions dealing with petrochemicals, shipping and insurance and funds transfer controls) remains the main playground drawing for doing business with Iran.

Following comments set forth in the above matrix, it can be derived that undertaking any (exploratory) activities in the aviation sector in Iran until the expected lifting of the EU sanction regime by Implementation Day in 2016 is to be handled cautiously. The foregoing means that any (exploratory) activities must be compliant with the (still) existing extensive EU sanction regime, including the earlier mentioned EU temporary sanction relief. Such compliance is to be fully substantiated by the underlying facts and circumstances of activity concerned or, in case of non-compliance, demonstrate that there was no knowledge or reasonable cause to suspect that such (exploratory) activity would infringe any of the provisions of the current EU sanction regime against Iran.

In short, exploring any activities in the aviation sector related to Iran must be weighed against the current EU Iran sanction regime (and possibly US Iran sanction regime) and undertaken in compliance therewith. For example:

(Exploratory) Activities by EU companies in Iran

Possible under EU sanction regime?

Travel to Iran.

YES

Engage in transactions incidental to such travel.

YES

The sale of civil commercial aircraft to and from Iran.

 

NO

Initiating brokering services or negotiating a contract or transaction aimed at leasing or selling an aircraft.

 

NO

Hold a general presentation marketing expertise and experience of the company.

 

YES - refrain from sharing in-depth knowledge / do's and don'ts.

Hold a presentation covering general topics such as:

-    transfer of title/ownership

-    mortgage

-    registration requirements

-    sale, leasing and financing transactions

-    title insurance

-    bank financing

-    escrow agents (management, etc.)

 

YES provided that the information is not made available to or for the benefit of a currently sanctioned listed entity, body or individual in Iran.

TIP: start your presentation with a general remark that you will refrain from commenting on any questions on actual real-life transaction attendees may ask you including in-depth discussion or sharing of knowledge.

Discussing and sharing of technical information and/or  providing technical assistance in the form of technical support related to:

-     repairs

-     development

-     manufacture

-     assembly

-     testing

-     maintenance

-     instruction

-     advice

-     training

-     transmission of working knowledge

-     skills

-     consulting services

 

NO, if it relates to technical information and assistance regarding military or dual-use items or items listed in the EU sanction regime.

If it does not concern a military or dual-use item or item listed in the EU sanction regime, refrain from making the information available to or for the benefit of a currently sanctioned listed entity, body or individual in Iran.

TIP: check whether the technical information contains US content and, if so, consult US Iran sanction regime provisions. Do also bear in mind that services activities are very broadly defined under the US Iran sanction regime.

Discussing potential sale of goods (e.g. aircraft parts) to be used in the commercial aviation sector.

 

YES, to the extent it does not concern the sale of a military or dual-use item or an item listed in the EU sanction regime or the sale to a listed person.

TIP: check whether the item to be sold contains US content and, if so, consult US Iran sanction regime provisions. Do also bear in mind that services activities are very broadly defined under the US Iran sanction regime.

Discussing potential supply of services to be provided to the commercial aviation sector.

 

YES, to the extent the services do not relate to a military or dual-use item or an item listed in the EU sanction regime or will be supplied to a listed person.

TIP: Bear in mind the interplay with US Iran sanction regime if the supply of services includes involvement of a US person or the supply of items with US content.

Hire local council in Iran.

YES, to the extent the envisaged activities for which council is requested do not fall foul to the EU sanction regime.

Transfer of funds involving EU persons, entities or bodies, including EU financial and credit institutions, and Iranian persons, entities or bodies, including Iranian financial and credit institutions.

YES, to the extent that the transfer of funds is not connected to an activity prohibited under the EU sanction regime.

If the transfer of funds relates to an activity not prohibited under the EU sanction regime, subsequent notification and authorization requirements exist depending on amount concerned.

TIP: Although the EU sanction regime provides for the formal possibility of transferring funds, practice has shown that EU financial and credit institutions will not process transfers of funds in relation to Iran as to avoid any exposure.

Provide or brokering insurance or re-insurance to an individual.

NO.

If an individual is acting in private capacity and is not one of the listed persons by the EU sanction regime, insurance or re-insurance, including health and travel insurance, is authorized.

Provide or brokering insurance or re-insurance to non-Iranian legal persons, entities or bodies for activities conducted in Iran.

NO.

If the activities in Iran comprise loading, unloading or safe transit of an aircraft temporarily in Iranian airspace, insurance or re-insurance is authorized.

Furthermore, bear in mind that the US sanction regime against Iran may also be applicable where among others your company is regarded as a US person or the underlying (exploratory) activity has content of US origin or involves an activity falling under the scope of the US Iran sanction regime. We do note that the US has set in place a favourable licensing policy regime through which specific authorization can be obtained in order to engage in transactions to ensure the safe operation of Iranian commercial passenger aircraft, including transactions involving Iran Air, but excluding all other sanctioned and listed Iranian airlines.

In conclusion, Iran remains a challenging place to do business as any preliminary (re-)engagement in the aviation sector in Iran is still subject to the current EU sanction regime against Iran until the expected relief in 2016. Notably, the EU sanction regime is and will be enforced by competent authorities in the EU. This means that compliance should remain on top of the agendas of businesses. In that regard manuals and screening procedures as currently in place within many EU companies must continue to be lived up to whilst contemplating and/or conducting any preliminary (exploratory) activities in the aviation sector in Iran.

Authors

Image of Goran Danilovic

Goran Danilovic

Associate
Netherlands

Call me on: +31 (0)70 353 8800
Image of Brian Mulier

Brian Mulier

Partner
Netherlands

Call me on: +31 (0)70 353 8800