Last Thursday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued General License I to 31 C.F.R. Part 560, the Iranian Transactions and Sanctions Regulations (“ITSR”). In sum, General License I authorizes U.S. persons:
[T]o enter into, and engage in all transactions ordinarily incident to the negotiation of and entry into, contracts for activities eligible for authorization under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services, provided that the performance of any such contract is made expressly contingent upon the issuance of a specific license…
“Contingent contracts” are defined in a Note to the operative paragraph of the General License to include “executory contracts, executory pro forma invoices, agreements in principle, executory offers capable of acceptance such as bids or proposals in response to public tenders, binding memoranda of understanding, or any other similar agreement.” Such definition does not constitute an exhaustive lists of the kinds of contracts that OFAC will regard as “contingent,” though U.S. persons entering into such contracts should ensure that any other contracts are of a kind to those listed in the Note.
Pursuant to the JCPOA, OFAC had issued a Statement of Licensing Policy (“SLP”) establishing a favorable licensing regime for U.S. and non-U.S. persons to request specific authorization to engage in transactions for the sale of commercial passenger aircraft and related parts and services to Iran, provided the transactions did not involve U.S.-designated persons (i.e., SDNs). Licenses authorizing U.S. persons and non-U.S. persons to export to Iran commercial passenger aircraft for exclusively civil aviation end-use, for instance, would be issued on a case-by-case basis at OFAC’s discretion.
Prior to seeking license authorization for the export of commercial passenger aircraft and related parts and services to Iran, however, U.S. persons sought to negotiate contracts with Iranian parties contingent on the receipt of a license from OFAC. Doing so, however, often triggered the prohibitions of the ITSR, particularly as those prohibitions were defined by U.S. sanctions authorities. As such, U.S. persons had to first submit license applications to OFAC for legal permission to engage Iranian parties and negotiate and enter into contracts with them relating to the SLP.
Considering OFAC’s scarce resources and personnel issues, these license applications risked a significant delay in the sale to Iran of commercial passenger aircraft and related parts and services. That seems to have been the impetus for the issuance of General License I. Instead of having to process dozens upon dozens of license applications relating to the negotiation of and entry into contracts falling under the terms of the SLP, OFAC decided that it could license U.S. persons to engage in such negotiations and contracts without undermining U.S. foreign policy goals, provided that such contracts were contingent on U.S. parties receiving license authorization for the actual export of commercial passenger aircraft or related parts and services to Iran or Iran-related parties. As such, we now have General License I to streamline the export to Iran of commercial passenger aircraft and related parts and services adjudged consistent with U.S. foreign policy and the terms of the JCPOA.
In light of these considerations, General License I should not have surprised anyone. It is no secret that OFAC has trouble processing license applications in a timely manner; and so long as U.S. persons had to undertake a two-step licensing process in order to export commercial passenger aircraft and related parts and services to Iran, the delays inherent in such a process would have risked the U.S.’s commitment under Annex II of the JCPOA to license the sale of commercial passenger aircraft.
As implementation of the JCPOA moves forward, we will likely continue to see more of these changes so that the U.S. lives up to its JCPOA commitments and Iran receives the benefit of its nuclear bargain. This might not then be the last word from OFAC.