Australia: Aircraft Leasing In Embargo Times - The European Union (EU)’S Position

Legalflyer
This article is part of a series: Click The Zero-Rating Of Aircraft for the previous article.

The issue of embargoes is having an increasing impact on the aviation business. The impact of embargoes is particularly being felt more and more keenly in aircraft leasing where those embargoes have an impact in the jurisdiction in which either the lessee or the lessor are located or the leasing arrangements otherwise have a close link to a country subject to restrictive measures. As the EU is one of the key players in respect of setting embargoes, this article will focus on how the embargo system works in the EU and how the EU's restrictive measures may in particular affect aircraft leasing. It will then also consider how lessors or lessees may mitigate the risks arising from the circumstances when an embargo situation exists.

How are embargoes established in the EU?

The EU (i.e. the European Parliament and the Council) adopt EU Regulations, imposing economic and financial restrictive measures against third countries (the EU Embargo Regulations).

In the past years, the EU has adopted restrictive measures either on an autonomous basis or by implementing binding Resolutions of the Security Council of the United Nations.

What do embargoes cover?

Embargo is a generic concept which refers to sanctions against third countries. The sanctions vary in severity.

Total bans on trade are extremely rare, for example the total embargo against Iraq/Kuwait in 1990. The more common cases involve a prohibition to supply, sell, transfer, or procure specific goods or technologies (e.g. nuclear related).

Flight restrictions have been used in the past in respect of air traffic, including the 1998 embargo against Yugoslavia - Serbia and Montenegro. In the EU's recent practice, flight restrictions are not frequently met, unless they pertain to the cargo transport of restricted goods (e.g. weapons).

Targeted (smart) financial sanctions are increasingly used. The EU has often imposed sanctions designed to target specific responsible persons, groups and entities. The most common type is the fund freezing. The envisaged persons are typically enumerated on lists annexed to the EU Embargo Regulations (the Black Lists). In recent times this has included a Zimbabwe Black List of a number of European companies associated with Mugabe's regimes. Individuals on the Black List have had assets frozen and been barred from travelling within the EU.

How specific can the EU sanctions be in connection to aircraft leasing?

Restrictions in respect of aircraft leasing will commonly be implicit in the general measures imposed. For example, a total ban on trade with a specific country would include the leasing of aircraft to or from entities operating in that jurisdiction. It is unlikely that there will be specific provisions relating to aircraft leasing but the ban will be inferred.

There may though be an explicit total ban in relation to aircraft, for example during the Serb-Croat conflict when "all vessels, freight vehicles, rolling stock and aircraft in which a majority or controlling interest was held by a person or undertaking in or operating from the Federal Republic of Yugoslavia"1 shall be "impounded by the competent authorities of the Member State"2.

In relation to restrictions of leasing operations, some common strands can be found from current embargoes in force (for example in relation to Iran, North Korea, Sudan, Somalia and Libya), namely:

  • although used in the past and not excluded as an option, currently it is less common to find a general ban imposed on trade or flights and as a consequence on leasing in general;
  • lease agreements may however be restricted where a connection can be established between the leasing operation and one of the "critical areas" covered by the embargo (e.g. leasing of aircraft used for military purposes or to transport cargo of banned products);
  • there may be an issue where the leasing involves transfer of funds to or from persons or entities on a Black List (e.g. Farasakht Industries or Aerospace Industries Organization in Iran). If an EU lessor is on the Black List an EU lessee cannot make payments to an account in a jurisdiction where the embargo does not apply as this would circumvent the freezing order. Any lessee payment to the blacklisted lessor can only be made into a blocked account i.e. one from which the lessor is not able to withdraw funds; and
  • there may also be an issue where an EU lessor receives payments from a lessee on the Black List where payments relate to frozen funds.

Scope of EU embargoes

As a general rule, economic and financial restrictive measures, including targeted financial sanctions, have to be applied by all persons and entities doing business in the EU, including nationals of non-EU countries, and also by EU nationals and entities incorporated or constituted under the law of an EU Member State when doing business outside the EU.

In the Bosphorus Airways case for example, a Turkish air carrier (lessee) was operating 4 aircraft under a dry lease agreement with a Yugoslavian company (lessor). One aircraft was arrested at Dublin airport for having breached the embargo against Yugoslavia. The ECJ held that the restrictions applied to an aircraft owned by an undertaking based in or operating from the country under embargo (i.e. Yugoslavia), even though the owner had leased it to another undertaking which had no connection (i.e. location or shareholding related) with that country.

Conclusion

The EU establishes sanctions on a case-by-case basis and it is unlikely that the EU would directly target aircraft leasing. These types of agreements may nonetheless be affected if, given their specific object, they fall under an area of restriction. The following steps are therefore recommended in each case of a new contract:

  1. Check whether the lessor or the lessee or one of their controlling shareholders is located in a country under embargo, or if the leased product is designed for use in the country under embargo.
  2. Check the provisions of the applicable EU Embargo Regulations. Pay particular attention to the list of natural persons and legal entities on the Black Lists.
  3. Avoid entering into lease agreements in any one of the following circumstances:
    • where there is a total ban on the trade or financing activities with a third country;
    • where there is suspicion that the leased aircraft may be used in connection with banned products or operations under the EU Embargo Regulation (e.g. weapons, nuclear material);
    • where one of the parties (lessor or lessee) is a person enumerated on the Black Lists or controlled by such person.

Where leasing contracts are already being performed prior to an embargo entering into force, the EU Embargo Regulations will often contain provisions exempting the contracts already in existence for the purpose of the imposed sanctions.

Michael Jürgen Werner is a partner and Raluca Marian is a consultant in the Antitrust, Competition & Regulatory team, Norton Rose LLP, Brussels.

Notes:

1. Federal Republic of Yugoslavia (Serbia and Montenegro).

2. Art. 8 of Council Regulation (EEC) No 990/93.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

This article is part of a series: Click The Zero-Rating Of Aircraft for the previous article.
Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.