In the latest installment of the Mahan Air/Al-Naser Airlines saga, officials from both the U.S. and Iran have begun exchanging threats regarding Mahan’s plan to fly the disputed Airbus A340-600s on international routes. On Tuesday, in an apparent preemptive strike against the possibility of a U.S. attempt to have the planes “seized,” the head of Iran’s civil aviation authority Alireza Jahangirian warned
“As long as … a disruption has not taken place, we cannot make a definite assertion. But if it happens, Iran will take legal action.”
It’s not entirely clear why Iran would fear some sort of attempt to stop Mahan Air from flying international routes since, as the image above (taken in the Bangkok Airport in 2014) shows, Mahan flies these routes openly. Reuters appears to summarize the thought process:
“The U.S. Treasury department said last month that Mahan Air had a “blockable interest” in the planes, meaning they could be subject to an asset freeze, raising the possibility that Washington may attempt to have them seized at airports outside Iran.”
I’m not sure how you assert that Treasury identifying the aircraft as blocked property could lead to a seizure outside of U.S. jurisdiction. Pursuant to 31 C.F.R. 560.211, blocked property,
“…in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person… may not be transferred, paid, exported, withdrawn, or otherwise dealt in” (emphasis added).
Unless Mahan happens to be flying these aircraft to New York City, Treasury has no ability to assert jurisdiction simply because the aircraft are considered blocked property and foreign parties have no legal responsibility to seize the aircraft. It’s possible the U.S. could all of a sudden decide that EO 13224-related secondary sanctions apply to Mahan Air’s commercial flights, but as noted above, it has never done so previously.
Then today, the infamous anonymous Senior Administration Official told the Wall Street Journal that the United States is in fact trying to do… something… to address Mahan’s potential Airbus flights:
“I have been quite explicit with the Iranians…that we will try to disrupt this action because Mahan Air has been a designated entity for some time.”
So what could the U.S. government actually do to “disrupt” Mahan flying its Airbuses abroad? It depends on whether the Airbuses in question are subject to the Export Administration Regulations (“EAR”) administered by the Commerce Department’s Bureau of Industry and Security (“BIS”). Under the so-called De Minimis rule and 31. C.F.R. 560.205, the reexportation of goods containing more than de minimis (10% aggregate value) U.S.-origin content requires a license. While there are a number of Airbus aircraft that use U.S.-made engines which definitely put the craft over the 10% threshold, the A340-600 does not. However, it’s still a good bet that the A340-600 does in fact incorporate than 10% U.S.-origin goods and/or technology.
OFAC could potentially inform an airport receiving a Mahan plane that doing so would constitute a prohibited reexportation of U.S.-origin goods, though this would be a fairly significant stretch of the regulations, since the airport is never actually in possession of the aircraft.
Alternatively, BIS could inform an airport receiving on of Mahan’s aircraft that doing so would constitute a violation of the Temporary Denial Order (“TDO”) currently imposed on Mahan. According to Mahan’s TDO, foreign persons are prohibited from
“Engag[ing] in any transaction to service any item subject to the EAR that has been or will be exported from the United States and which is owned, possessed or controlled by a Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by a Denied Person if such service involves the use of any item subject to the EAR that has been or will be exported from the United States. For purposes of this paragraph, servicing means installation, maintenance, repair, modification or testing.”
As the EAR is currently in effect under the auspices of the International Emergency Economic Powers Act (“IEEPA”), civil penalties for violations can be up to $250,000 or twice the value of the transactions, whichever is higher. The U.S. could inform a foreign aviation authority that servicing a Mahan aircraft would be in violation of the TDO. If it really wanted to make a splash, BIS hypothetically could issue a limited TDO for the airport, specifically related to the Mahan Aircraft. The question then is, if it’s possible why hasn’t this been done before?
If OFAC were truly devious and its primary goal was to ground the planes, it’s conceivable that they could use the strict liability nature of U.S. sanctions to press the original sellers of the aircraft into doing their dirty work for them. As noted above, the reexportation of goods containing more than de minimis U.S.-origin content requires a license from BIS, failing to secure such a license for an Airbus A340-600, if it is indeed subject to the EAR, would constitute a violation of the Iranian Transactions and Sanctions Regulations (“ITSR”). While this wouldn’t necessarily result in liability on the part of the original sellers, as opposed to Al-Naser, Treasury might be able to at least claim, as Mike Burton and I discussed a few weeks ago, that there were enough red flags in the transactions that the sellers had “reason to know” that the planes were intended for Iran.
Treasury could then threaten enforcement action unless the presumably European sellers file suit claiming that the contracts were based on fraudulent misrepresentations on the part of Al-Naser and that they [the contracts] should be declared null and void and the planes seized and returned. This might provide justification for the grounding of the Mahan Airbuses. Again, this scenario would only work if the U.S. determined it was more important to ground than planes than to deter future violations through enforcement action. Would this actually work? Who knows, though it seems unlikely that Al-Naser was completely up-front about what it was planning on doing with the planes. But it would be interesting to see it play out.
This is all academic until Mahan actually starts flying these planes. What happens then is anyone’s guess.