US and EU Iran sanctions lifted: how to proceed in the aviation sector?

19 January 2016

On 16 January 2016, the United States and the EU lifted certain sanctions against Iran in compliance with the Joint Comprehensive Plan of Action (JCPOA) agreed among Iran, China, France, Germany, the Russian Federation, the United Kingdom and the United States. 16 January 2016 was the day on which the International Atomic Energy Agency (IAEA) certified that Iran had met certain milestones set forth in the JCPOA toward dismantling the military aspects of its nuclear program. On the same day, the United States and the EU announced the lifting of sanctions consistent with the announcement of Implementation Day.

How does the lifting of sanctions affect the international aviation sector? The relevant changes are outlined below.

1. Overview of EU changes

As of 16 January 2016, all nuclear-related economic and financial EU sanctions against Iran have been lifted by the EU. The decision was taken by the EU following the presentation of the report by the Director-General of the IAEA to the IAEA Board of Governors and the United Nations Security Council confirming that Iran has taken the nuclear-related measures as agreed under the JCPOA.

The EU legislative acts listed below terminate and amend the provisions of the EU nuclear-related sanctions legislation against Iran as set out in Council Decision 2010/413/CFSP and Council Regulation (EU) 267/2012.

Further general information on the EU changes is provided in Section 5 of this note below.

2. Overview of US changes

On 16 January 2016, the US government lifted certain sanctions against Iran in compliance with the Implementation of the JCPOA. The sanctions lifted by the United States are limited to those set out in Section 17 of Annex V of the JCPOA, and relate mostly to “secondary sanctions,” meaning sanctions directed toward non-US persons for specified conduct involving Iran that occurs entirely outside of US jurisdiction. Most sanctions governing the conduct of US persons remain in place, with a few exceptions. US policy on transactions regarding aviation has also been liberalized, as outlined in Section 3 below.

Please note that the US has NOT dropped all its prohibitions; a licence from OFAC is still required for involvement in an Iran-related transaction of any aircraft having 10% (or more) US-origin by value.

Further general information on the EU changes is provided in Section 5 of this note below.

3. What does the lifting of the US and EU Iran sanctions mean for the world aviation sector?

Not all business in the aviation sector of Iran is permitted as of Implementation Day. The following table outlines the status of certain activities in the aviation sector permitted under the lifting of the EU and US Iran sanctions under the JCPOA.

Activities by EU companies

Permitted under EU sanctions?

Permitted under US sanctions?

Sale of a civil aircraft or civil Unmanned Aerial Vehicle to an Iranian person/entity?

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

 

YES if the item is not greater than 10% US-origin by value, no US persons involved, US financial system not involved, and no Specially Designated Nationals (SDNs) involved.

OFAC licensing considered case-by-case if greater than 10% US-origin by value, or US persons involved, or US financial system involved.

NO if SDNs are involved.

NO if an Unmanned Aerial Vehicle with US-origin content of 10% or greater by value.

Sale of spare parts, software and/or technology for a civil aircraft to an Iranian person/entity?

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

 

YES if the item is not greater than 10% US-origin by value, no US persons involved, US financial system not involved, and no Specially Designated Nationals (SDNs) involved.

OFAC licensing considered case-by-case if greater than 10% US-origin by value, or US persons involved, or US financial system involved.

NO if SDNs are involved.

Export of spare parts, software and/or technology for a civil aircraft to an Iranian person/entity?

YES* as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

 

*Note: where the good concerns a dual-use item, export is subject to prior authorisation.

 

YES if the item is not greater than 10% US-origin by value, no US persons involved, US financial system not involved, and no Specially Designated Nationals (SDNs) involved.

OFAC licensing considered case-by-case if greater than 10% US-origin by value, or US persons involved, or US financial system involved.

NO if SDNs are involved.

Brokering by a party in the EU regarding the sale of a civil aircraft or spare parts or technology to Iran?

YES* as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

 

*Note: where the good concerns a dual-use item, export is subject to prior authorisation.

 

YES if the item is not greater than 10% US-origin by value, no US persons involved, US financial system not involved, and no Specially Designated Nationals (SDNs) involved.

OFAC licensing considered case-by-case if greater than 10% US-origin by value, or US persons involved, or US financial system involved.

NO if SDNs are involved.

Discussing, sharing and transferring of technical information and/or providing technical assistance in the aviation sector of Iran in the form of technical support such as:

  • repairs
  • development and design construction
  • manufacture
  • assembly
  • testing
  • maintenance
  • instruction
  • training
  • transmission of working knowledge
  • skills
  • consulting services

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

YES if the technical information is not greater than 10% US-origin by value, no US persons involved, US financial system not involved, and no SDNs involved.

OFAC licensing considered case-by-case if greater than 10% US-origin by value, or US persons involved, or US financial system involved.

NO if SDNs are involved.

Transfer of funds to Iranian entities involved in the aviation sector of Iran?

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

YES if not involving goods or technology greater than 10% US-origin by value, no US persons involved, US financial system not involved, and no SDNs involved.

OFAC licensing considered case-by-case if greater than 10% US-origin by value, or US persons involved, or US financial system involved.

NO if SDNs are involved.

Establishing a joint venture with an Iranian person/entity in the aviation sector of Iran?

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

YES if no US persons involved, US financial system not involved, and no SDNs involved.

OFAC licensing considered case-by-case if US persons involved, or US financial system involved.

NO if SDNs are involved.

Opening of a branch, subsidiary or representation office in the aviation sector of Iran?

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

YES if no US persons involved, US financial system not involved, and no SDNs involved.

OFAC licensing considered case-by-case if  US persons involved, or US financial system involved.

NO if SDNs are involved.

4. Snapback

Be aware that under the JCOPA, both the EU and the United States can reintroduce the lifted sanctions at any time it appears that Iran is not fulfilling the commitments under the JCPOA.

The United States has taken the position that snapped-back US sanctions will apply as of the date of snap-back such that any activity under contracts entered into during the period when sanctions were lifted must be terminated.

By contrast, the EU takes the position that reinstated EU sanctions will not apply with retrospective effect or introduce any form of penalisation retrospectively. In that regard, the execution of any concluded contracts will be permitted in order to allow companies to wind down their activities.

5. Background: EU changes

In general, the EU has published an Information Note setting out the details of EU-Iran sanctions which are lifted under the JCPOA. A general overview and summary of activities permitted as of 16 January 2016 is illustrated here below.

Activities

Permitted as of 16 January 2016?

EU listed military items and certain listed Missile Technology Control Regime/MTCR related equipment, software and technology:

  • Sale, supply, transfer or export to Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran
  • Participation, joint venture or other form of partnership in Iran

NO

EU listed dual-use items:

i) Sale to Iran

ii) Export, re-export or transmission to Iran

iii) Brokering services related to sale, export, supply to Iran

i) YES

 

ii) & iii) YES subject to prior authorisation.

Nuclear-related goods and technology as listed in the remaining EU-Iran sanction regime:

  • Sale, supply, transfer or export to Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran

YES subject to prior authorisation.

Key equipment and technology relevant to the oil, gas and petrochemical industry:

  • Sale, supply, transfer or export to Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran

YES* as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

*Note: please do assess whether the item may be regarded as an EU listed dual-use item and/or is subject to listed items under the remaining EU-Iran sanction regime.

Key naval equipment or technology:

  • Sale, supply, transfer or export to Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran

YES* as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

*Note: please do assess whether the item may be regarded as an EU listed dual-use item and/or is subject to listed items under the remaining EU-Iran sanction regime.

Enterprise Resource Planning software for use in gas, oil, navy, aviation, financial and construction industries:

  • Sale, supply, transfer or export to Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran

YES as long as it does not involve i) ERP software for use in nuclear and military industries or ii) listed persons under the remaining EU-Iran sanction regime.

Crude oil, petroleum, gas, petrochemical products:

  • Sale, supply, transfer or export to Iran
  • Purchase, import or transport from Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

Gold, precious metals and diamonds:

  • Sale, supply, transfer or export to/from Iran
  • Purchase, import or transport from Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

Graphite and raw or semi-finished metals:

  • Sale, supply, transfer or export to Iran
  • Financing, financial assistance, technical assistance or brokering services to Iran

YES subject to prior authorisation.

Financing, banking and insurance:

  • Transfer of funds
  • Opening of branches, subsidiaries and representative offices
  • Granting of financial loan
  • Acquisition or extension of a participation in Iran
  • Creation of joint venture in Iran
  • Investment in Iran
  • Provision of insurance or re-insurance

YES as long as it does not involve listed persons under the remaining EU-Iran sanction regime.

 

Note: the UK Export Finance (UKEF) has reintroduced cover to support UK companies seeking to compete for business in Iran. Cover is available on a case-by-case basis in Pounds Sterling and Euros.

Transport:

  • Bunkering or ship supply services or other services to vessels of an Iranian person
  • Engineering and maintenance services to cargo aircraft of an Iranian person

YES as long as there is no involvement of i) EU military goods or ii) other goods prohibited or iii) listed persons under the remaining EU-Iran sanction regime.

6. Background: US changes

On 16 January 2016, the United States Department of Treasury, Office of Foreign Assets Control (OFAC) released a general guidance document regarding the lifting of US sanctions under the JCPOA. Selected highlights are outlined below:

Aviation: licensing policy liberalised

  • Pursuant to section 5 of Annex II and section 17.5 of Annex V of the JCPOA, the US government has established a new licensing policy allowing case-by-case licensing of export, re-export, sale, lease, or transfer to Iran of commercial passenger aircraft, and related parts and services, for exclusively commercial passenger aviation.

Sanctions lifted as to activities of non-US persons

Separately from the aviation licensing policy, the US government lifted the following sanctions as of 16 January 2016, as related to activities of non-US persons:

  • Financial and banking-related sanctions (sections 4.1 of Annex II and 17.1 of Annex V of the JCPOA);
  • Sanctions on the provision of underwriting services, insurance, or re-insurance in connection with activities that are consistent with the JCPOA (sections 4.2 of Annex II and 17.1 of Annex V of the JCPOA);
  • Sanctions on Iran’s energy and petrochemical sectors (sections 4.3 of Annex II and 17.1 of Annex V of the JCPOA);
  • Sanctions on transactions with Iran’s shipping and shipbuilding sectors and port operators (sections 4.4 of Annex II and 17.1 of Annex V of the JCPOA);
  • Sanctions on Iran’s trade in gold and other precious metals (sections 4.5 of Annex II and 17.1 of Annex V of the JCPOA);
  • Sanctions on trade with Iran in graphite, raw or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes, in connection with activities that are consistent with the JCPOA (sections 4.6 of Annex II and 17.2 of Annex V of the JCPOA);
  • Sanctions on the sale, supply, or transfer of goods and services used in connection with Iran’s automotive sector (sections 4.7 of Annex II and 17.1 of Annex V of the JCPOA); and
  • Sanctions on associated services for each of the categories above (see sections 4.1-4.7 of Annex II and 17.1-17.2 of Annex V of the JCPOA)
  • In addition, on Implementation Day, the United States removed over 400 individuals and entities from OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) and related sanctions lists (see sections 4.8.1 of Annex II and 17.3 of Annex V of the JCPOA). As of Implementation Day, non-US persons will no longer be subject to sanctions for conducting transactions with any of those individuals and entities so long as those transactions do not involve persons on the SDN List after Implementation Day or involve conduct otherwise prohibited by US law (e.g., conduct involving US persons, or conduct prohibited by remaining secondary sanctions).

Sanctions remaining in place as to activities of non-US persons:

The US government continues to impose sanctions on certain activities of non-US persons with respect to Iran, including the following:

  • Transactions with any of the more than 200 Iranian or Iran-related individuals and entities who remain or are placed on the SDN List, notwithstanding the lifting of secondary sanctions on categories and sectors as set out above. We note that the SDN List continues to evolve (as it always has). For example, on Sunday, 17 January 2016, the day after Implementation Day, 10 individuals and entities were added to the SDN List in connection with Iranian sanctions;
  • Transactions in or with Iran that involve US persons in violation of the remaining embargo;
  • Transactions with the Islamic Revolutionary Guard Corps (IRGC) and its designated agents or affiliates;
  • Certain activities related to trade in materials described in section 1245(d) of the Iran Freedom and Counter-Proliferation Action of 2012 (IFCA) that are outside the scope of the JCPOA and related waivers (e.g., graphite, raw or semi-finished metals such as aluminium and steel, coal, and software for integrating industrial processes, if the transaction is for use of such materials for purposes prohibited by the statute).

Treatment of activities by non-US persons involving aircraft and components

1. Non-US-origin aircraft: No OFAC licence needed. For aircraft that have no US-origin content or de minimis US content (defined as less than 10% US-origin content by value), the US government does not assert jurisdiction over those aircraft.

2. US-origin aircraft (including 10% or greater US-origin content by value): Need licence: Re-exports or other transactions by non-US persons involving any items with 10% or more US-controlled content to Iran are still subject to sanction, and require a licence from OFAC.

3. Favourable Licensing policy: Effective 16 January 2016, the US government has established a favorable licensing policy regime providing case-by-case authorisation to engage in transactions for the export, re-export, sale, lease, or transfer of commercial passenger aircraft and related parts and services to Iran, provided that the licensed items are used exclusively for commercial passenger aviation. Specific licenses issued pursuant to the new policy will include conditions prohibiting the transactions from involving any person on OFAC’s SDN List. According to some reports, several major players are seeking to consummate transactions with Iran, including for US-origin aircraft. Those transactions will require authorisation from OFAC to proceed.

4. Types of aircraft considered for licensing: The types of aircraft that may be approved under the new policy include wide-body, narrow-body, regional and commuter aircraft used for commercial passenger aviation. The types of aircraft that will not be eligible for licensing include cargo aircraft, state aircraft, unmanned aerial vehicles, military aircraft, and aircraft used for general aviation or aerial work.

6. Certain “Associated Services”:– OFAC licence not required. Under the new rules, OFAC authorisation is not required for non-US persons to provide services to Iranian parties, provided that the transaction does not involve US persons or US-origin items and the services are conducted outside US jurisdiction and do not involve the US financial system. It is important to remember that any transaction requiring the clearing of US dollars would be considered to involve the US financial system.

7. Certain other services:– OFAC licence required. OFAC will consider applications from non-US persons to provide associated services that would otherwise be prohibited by the Iran sanctions such as those involving the export or re-export of items from the United States to Iran or the re-export of US-controlled items from a third-country to Iran that require a license.

Services – US Persons

OFAC will consider licence applications from US persons to provide associated services otherwise prohibited by the Iranian sanctions. The services must relate to a specific export, re-export, sale, lease, or transfer of a commercial passenger aircraft or related parts and services. This means, for example, that OFAC will consider applications for a US financial institution to finance the sale of a particular commercial passenger aircraft, but not an application to provide aircraft financing services in general.

US-owned or -controlled entities

Prior to Implementation Day, all entities worldwide that are either owned or controlled by US person were subject to all the prohibitions applicable to US persons. On 16 January 2016, OFAC issued a “General Licence” authorising non-US entities that are owned or controlled by a US person (“US-owned or -controlled foreign entities”) to engage in activities otherwise prohibited by the US sanctions, so long as US persons are not involved. Several categories of activity remain prohibited by US-owned and -controlled foreign entities, including the following:

  1. Direct or indirect exportation or re-exportation of goods, technology, or services from the United States (without separate authorisation from OFAC);
  2. Any transfer of funds to, from, or through the US financial system
  3. Transactions with any individual or entity on the SDN List or any activity that would be prohibited by non-Iran sanctions administered by OFAC if engaged in by a US person or in the United States;
  4. Transactions with any individual or entity identified on the US Foreign Sanctions Evaders List;
  5. Activity prohibited by the US Export Administration Regulations (EAR) or a person whose export privileges have been denied
  6. Transactions involving any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran, or their officials, agents, or affiliates;
  7. Any activity that is sanctionable under US Executive Orders relating to Iran’s proliferation of weapons of mass destruction and their means of delivery; international terrorism; Syria; Yemen; and relating to Iran’s commission of human rights abuses;
  8. Any nuclear activity involving Iran that is subject to the procurement channel established pursuant to paragraph 16 of UNSCR 2231 (2015) and section 6 of Annex IV of the Joint Comprehensive Plan of Action of 14 July 2015 and that has not been approved through the procurement channel process.

Separately, the new General License authorises US persons to engage in certain activities otherwise prohibited by the remaining Iran embargo, related to the establishment or alteration of corporate policies and procedures to the extent necessary to allow US-owned or -controlled foreign entities to engage in transactions involving Iran that are authorised under the new General License.

* * *

If you have any questions or require legal advice regarding whether a certain activity is permitted under the current US and EU Iran sanctions as of 16 January 2016, please feel free to contact any member of our global aviation team.

Authors

Brian Mulier
Partner,
International Trade
The Netherlands
brian.mulier@twobirds.com
+31 (0) 70 353 8800

Paul Briggs
Partner,
Aviation & Aerospace
UK
paul.briggs@twobirds.com
+44 (0)20 7415 6000

J. Scott Maberry
Sheppard, Mullin
Partner, International Trade
USA
smaberry@sheppardmullin.com
+1 202 747 1909

See also:

Airlines in Iran and the effect of EU and US Sanctions (Post-Implementation Day)