On January 28, 2016, Iran Air’s Chairman and CEO, Farhad Parvaresh, who only two weeks earlier was on the Specially Designated Nationals and Blocked Persons (“SDN”) List, inked the deal with Airbus for 118 new wide-body and single aisle aircraft, destined for Iran Air. With considerably more Airbus aircraft acquired by Iran Air than Boeing since the 1979 revolution (all second-hand through intricate acquisitions in the black-market), Mr. Parvaresh had expressed his interest prior to Implementation Day for purchasing Airbus aircraft over other manufacturers, to fulfill Iran Air’s projected need of more than 100 new aircraft. But why did Airbus, a European aircraft manufacturer, have to wait until the lifting of U.S. sanctions targeting Iran to supply Iran Air? Albeit certain European Union sanctions such as the now terminated EU Council Regulation 267/2012 served as the primary and direct legal barrier for the export of Airbus aircraft to Iran, a wide assortment of U.S. based sanctions targeting Iran, some specifically aimed at Iran Air, prevented Airbus who was otherwise a non-U.S. person for purposes of U.S. sanctions laws and regulations, from selling commercial airliners to Iran Air, pre-implementation of the Joint Comprehensive Plan of Action (“JCPOA”). OFAC’s new statement of licensing policy (“SLP”) for the export/reexport of commercial passenger aircraft to Iran, which includes language for its ability to grant specific licenses to non-U.S. persons, is a testament to the authority of U.S. sanctions over the actions of non-U.S. persons and how such authority is still in effect.

First, Iran Air had been designated on the SDN List since June 23, 2011, pursuant to E.O. 13382, for providing material support and services to the Iranian Revolutionary Guard Corps (“IRGC”) and Iran’s Ministry of Defense and Armed Forces Logistics (“MODAFL”). Mr. Parvaresh was on the SDN List pursuant to E.O. 13382, since Mary 23, 2013, for his role as chairman. As a result, any dealings with Iran Air by a non-U.S. person such as Airbus, would subject the company to the retaliatory measures of section 4 of E.O. 13382 itself, by engaging in “…activities or transactions that have materially contributed to…the proliferation of weapons of mass destruction or their means of delivery…” Iran Air, having been formerly designated on the SDN List, in part for its air transfer of such weapons on behalf of IRGC, would arguably materially benefit in the eyes of the U.S. Government from new Airbus aircraft, by enhancing its ability to transfer such weapons for the benefit of the IRGC and MODAFL. Considering that such retaliatory sanctions would include the prohibition on U.S. Government departments’ and agencies’ ability to enter into any contract for goods or services with Airbus, which translates into the manufacturers’ inability to supply the U.S. military with new aircraft, it goes without saying that any benefits of supplying Iran Air were greatly outweighed by the cost of losing the U.S. military as a customer.

Furthermore, as a result of its E.O. 13382 SDN designation, the specific U.S. secondary sanction of section 2(a)(i) of E.O. 13645, would have enabled the U.S. Government to block any and all Airbus property within U.S. jurisdiction for having provided “…goods or services to…” an Iranian person on the SDN List, i.e. Iran Air.   As Iran Air and Mr. Parvaresh, were removed from the SDN List on Implementation Day in accordance with Attachment 3 to Annex II of the JCPOA, Airbus no longer has to deal with either E.O. 13382 retaliatory concerns or the blocking sanctions of E.O. 13645. However, also complicating matters prior to implementation of the JCPOA, any non-U.S. financial institutions were essentially prohibited from facilitating the necessary financial services for Iran Air’s acquisition of Airbus aircraft.

Airbus’ ability to accept payment for the sale of its aircraft to Iran Air was not viable as a result of U.S. secondary sanctions that were in place prior to Implementation Day. Foreign financial institutions (“FFI”) that facilitated financial transactions with Iran Air (while it was on the SDN List), on behalf of Airbus and other involved parties, would subject themselves to correspondent or payable-through account sanctions under Section 104(c)(2)(E)(ii)(I) of CISADA, Section 1247(a) of IFCA, and Section 3(a)(i) of E.O. 13645. In other words, the FFI would essentially lost is ability to engage in U.S. dollar transactions. Furthermore, a host of other financial and banking-related secondary sanctions would have impeded payment transfers between Airbus and Iran Air, such as the inability of Iranian banks in accessing SWIFT for transfers (Section 220(c) of the TRA), FFIs’ inability to deal in transactions related to the Iranian rial (Section 1(a) of E.O. 13645), and the blocking of property of FFIs that provide financial services to persons on the SDN List (Section 2(a)(i) of E.O. 13645). As a result of all such secondary sanctions now being lifted, any FFIs involved in a payment transfer between Airbus and Iran Air are in a much more feasible position to facilitate the necessary financial transactions for the agreement. Nevertheless, certain unknowns relating to financial services for the purchase of Airbus aircraft by Iran Air remain as a result of the sizable U.S. sanctions targeting Iran that are still in effect.

It is important to consider that U.S. financial institutions are still prohibited under the Iranian Transactions and Sanctions Regulations (“ITSR”) from providing financial services to Iran, including the clearing of U.S. dollar transactions. As the rest of the global-financial system heavily relies on that of the United States, with the U.S. dollar being the preferred currency for denominating international transactions, problems may arise for any leasing or financing to Iran Air for the purchase of the aircraft, since U.S. financial institutions cannot be involved either directly or indirectly in such transactions. Therefore, it will be interesting to see how Airbus and Iran Air will formulate the terms of the “agreement”, in regards to payment for the aircraft, if they haven’t already. More information about the nature of the agreement will become available sometime this month when Airbus’ official orderbook for the month of January 2016 is updated.

Finally, even post-Implementation Day, the ITSR continues to prohibit non-U.S. persons from reexporting any U.S. origin goods, technology, or services to Iran, that are subject to the license requirements of the U.S. Department of Commerce’s Bureau of Industry and Security’s (“BIS”) Export Administration Regulations (“EAR”) or the U.S. Department of State’s International Traffic in Arms Regulations (“ITAR”). See 31 C.F.R. § 560.205. More specifically, if such goods or technology comprise 10 percent or more of the total value of a foreign made product, they are considered U.S. origin for purposes of this prohibition. See 31 C.F.R. § 560.420. A plethora of civilian aircraft parts are on the EAR’s Commerce Control List, and are thereby subject to the EAR’s license requirements. Since roughly 40 percent of Airbus aircraft include U.S. origin parts, exports of Airbus airliners to Iran would effectively be considered a prohibited reexport of U.S. origin goods under § 560.205. However, OFAC’s newly issued Statement of Licensing Policy For Activities Related to the Export or Reexport to Iran of Commercial Passenger Aircraft and Related Parts and Services is intended in part to alleviate this issue for foreign aircraft manufacturers such as Airbus, by issuing specific licenses on a case-by-case basis to non-U.S. persons for the sale of civilian aircraft to Iran, “…where there is a nexus to U.S. jurisdiction…”

As many in the sanctions world and myself predicted prior to Implementation Day, OFAC has interpreted and implemented the United States’ commitment under section 5.1.1 of Annex II of the JCPOA, to mean the establishment of the aforementioned SLP, rather than a general license for the provision of commercial aircraft, related parts, and services to Iran, essentially expanding on the prior Third Amended SLP of the former Joint Plan of Action (“JPOA”). Pursuant to this new SLP, OFAC may at its discretion issue specific licenses to authorize U.S. persons and non-U.S. persons to (1) export, re-export, sell, lease, or transfer to Iran commercial passenger aircraft for exclusively civil aviation end-use, (2) export, re-export, sell, lease, or transfer to Iran spare parts and components for commercial passenger aircraft, and (3) provide associated services, including warranty, maintenance, and repair services and safety-related inspections, for all the foregoing, provided that licensed items and services are used exclusively for commercial passenger aviation. Although this SLP enables Airbus to engage in what would otherwise be considered a prohibited reexport of U.S. origin goods under § 560.205, discretion as to whether new Airbus aircraft may go to Iran Air ultimately remains with the U.S. Government, as Airbus must apply for a specific license, and OFAC may or may not issue it.

In our firm’s experience applying for specific licenses pursuant to the former Third Amended SLP for the export and reexport of civilian aircraft parts and services to Iranian commercial airlines, OFAC would nearly always issue such specific licenses. Nevertheless, one such license was later revoked by OFAC without providing any statement of reasons. Whatever the cause for that revocation, it evidences that by issuing authorization for the sale of civilian aircraft, related parts, and services to Iran, in the form of specific licenses, OFAC is empowered to retain the control necessary to quickly revoke such authorization should U.S. foreign policy interests with Iran change.

With this specific licensing concern still in effect for the reexport of incorporated U.S. origin goods in Airbus airliners, the fact that U.S. financial institutions continue to be prohibited in large part by the ITSR from providing their financial services for Iran related transactions, and that a significant portion of Iran related U.S. sanctions impacting foreign persons remain in place, all indicate that a relatively high-risk U.S. based sanctions environment still remains in place for those non-U.S. persons intending on being a part of the agreement between Airbus and Iran Air. However, given that the “agreement” is reported to be worth $25 billion USD, and that U.S. sanctions have been trimmed down to a level that legally enables the transfer of Airbus civilian aircraft to Iran Air from a U.S. sanctions perspective, there are likely going to be enough parties involved with the risk-appetite to make a Iran Air-Airbus aircraft deal happen.