US Aviation Exports to Iran Still at Risk from Sanctions

As the U.S. encourages aircraft companies to seek licenses for exports to Iran, those companies face potential diversions of their product to the military and engagement with companies still under sanctions, exposing themselves to significant compliance risks, experts say.

Those risks, in the months since the Iran nuclear deal was implemented in January, have already come into stark relief: U.S. agencies have denied export privileges in one case, and imposed new sanctions designations in another.

The U.S. Department of Treasury’s Office of Foreign Assets Control issued a “statement of licensing policy” in January for the sale of civilian aircraft, and spare parts, allowed under the deal. The statement authorizes companies to seek a specific license for the sales, so long as they’re exclusively for civilian use. It “establishes a favorable licensing policy” for such sales, the statement said.

And last week, OFAC issued a general license authorizing transactions that allow for the negotiation of, and entry into, “contingent contracts” for activity allowed under the statement of licensing policy. Treasury said the general license “will allow for more efficient processing” of the specific licenses companies may seek.

Experts told Risk & Compliance Journal, though, that companies doing business in the aviation sector need to do extensive due diligence on their customers, and they need to ensure their exports don’t end up in the wrong hands.

Zachary Brez, a partner at law firm Ropes & Gray, said the exemption to the continued broad U.S. embargo on Iran for civil aviation sales “has a humanitarian bent,” because of the risk to passengers from the poor state of Iranian air safety.

However, he noted, aircraft parts are interchangeable between war planes and civilian planes, and that can pose problems for exporters because military use would breach sanctions. “A plane is a plane,” said Mr. Brez.

As a result, “U.S. companies are going to be careful” before they sign deals with Iranian airlines, he said.

The risks of failing to comply with the aviation-specific rules were already apparent by the end of January: The U.S. Department of Commerce’s Bureau of Industry and Security issued a temporary denial order against three people and two entities for attempting to sell aircraft to Caspian Airlines, which remains under U.S. sanctions. And last week, the U.S. imposed sanctions on a group of U.K.-based businessmen and companies for allegedly helping Mahan Air acquire aircraft engines and other mechanical parts.

Mahan Air, which also remains under U.S. sanctions, has been under the spotlight lately, noted Erich Ferrari, an attorney specializing in OFAC matters, in a post Monday on the Sanction Law blog. Members of some pro-sanctions groups are tracking its flights to Iraq and Syria, and a senior lawmaker pressed U.S. officials on enforcing sanctions on Mahan during a recent Congressional hearing, he wrote.

As a result, any interaction with Mahan Air is fraught with risk. Once under sanctions for doing business with Mahan Air, Mr. Ferrari wrote, it could be very difficult for a company or an individual to get them removed, due in large part to the political sensitivity surrounding the airline.

“OFAC would be hard pressed to remove parties allegedly tied to Mahan, as any delisting would be highly scrutinized by both Congress and pro-sanctions hawks in Washington,” wrote Mr. Ferrari.