United States: US And EU Iran Sanctions Lifted: How To Proceed In The Aviation Sector?

On January 16, 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. January 16, 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 January 16, 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 U.S. changes

On January 16, 2016, the U.S. 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-U.S. persons for specified conduct involving Iran that occurs entirely outside of U.S. jurisdiction. Most sanctions governing the conduct of U.S. persons remain in place, with a few exceptions. U.S. policy on transactions regarding aviation has also been liberalized, as outlined in Section 3 below.

Please note that the U.S. 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) U.S.-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 U.S. 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 U.S. Iran sanctions under the JCPOA. Click here to view the table.

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 U.S. 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 January 16, 2016 is illustrated here.

6. Background: U.S. changes

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

Aviation: licensing policy liberalized

  • Pursuant to section 5 of Annex II and section 17.5 of Annex V of the JCPOA, the U.S. 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-U.S. persons

Separately from the aviation licensing policy, the U.S. government lifted the following sanctions as of January 16, 2016, as related to activities of non-U.S. 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-U.S. 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 U.S. law (e.g., conduct involving U.S. persons, or conduct prohibited by remaining secondary sanctions).

Sanctions remaining in place as to activities of non-U.S. persons:

The U.S. government continues to impose sanctions on certain activities of non-U.S. 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,  January 17, 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 U.S. 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-U.S. persons involving aircraft and components

  1. Non-U.S.-origin aircraft: No OFAC license needed. For aircraft that have no U.S.-origin content or de minimis U.S. content (defined as less than 10% U.S.-origin content by value), the U.S. government does not assert jurisdiction over those aircraft.
  2. U.S.-origin aircraft (including 10% or greater U.S.-origin content by value): Need license: Re-exports or other transactions by non-U.S. persons involving any items with 10% or more U.S-controlled content to Iran are still subject to sanction, and require a license from OFAC. Favourable Licensing policy: Effective January 16, 2016, the U.S. government has established a favorable licensing policy regime providing case-by-case authorization 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 U.S.-origin aircraft. Those transactions will require authorization from OFAC to proceed.
  3. 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.
  4. Certain "Associated Services":– OFAC license not required. Under the new rules, OFAC authorization is not required for non-U.S. persons to provide services to Iranian parties, provided that the transaction does not involve U.S. persons or U.S.-origin items and the services are conducted outside U.S. jurisdiction and do not involve the U.S. financial system. It is important to remember that any transaction requiring the clearing of U.S. dollars would be considered to involve the U.S. financial system.
  5. Certain other services:– OFAC license required. OFAC will consider applications from non-U.S. 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 U.S.-controlled items from a third-country to Iran that require a license.

Services – U.S. Persons

OFAC will consider license applications from U.S. 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 U.S. financial institution to finance the sale of a particular commercial passenger aircraft, but not an application to provide aircraft financing services in general.

U.S.-owned or -controlled entities

Prior to Implementation Day, all entities worldwide that are either owned or controlled by U.S. person were subject to all the prohibitions applicable to U.S. persons. On January 16, 2016, OFAC issued a "General License" authorizing non-U.S. entities that are owned or controlled by a U.S. person ("U.S.-owned or -controlled foreign entities") to engage in activities otherwise prohibited by the U.S. sanctions, so long as U.S. persons are not involved. Several categories of activity remain prohibited by U.S.-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 authorization from OFAC);
  2. Any transfer of funds to, from, or through the U.S. 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 U.S. person or in the United States;
  4. Transactions with any individual or entity identified on the U.S. Foreign Sanctions Evaders List;
  5. Activity prohibited by the U.S. 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 U.S. 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 authorizes U.S. 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 U.S.-owned or -controlled foreign entities to engage in transactions involving Iran that are authorized under the new General License.

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.

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