Iran is currently a U.S. sanctioned country under the Iranian Transactions and Sanctions Regulations (“ITSR”), 31 C.F.R. Part 560. As a result, most transactions and forms of trade with Iranian entities by U.S persons/entities or conducted from U.S. soil are prohibited.

On 4 November 2014, the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) issued an update to a question concerning payments to Iranian aviation authorities for overflights and emergency landings. It was previously the case that non-U.S. owned airlines could overfly Iran and make emergency landings provided that no payment was made to or through any designated bank or any entity on the Specially Designated Nationals and Blocked Persons list.

The updated answer now makes it clear that:

  • payments made to Iranian aviation authorities for overflights of/emergency landings in Iran by foreign-owned and registered aircraft involving the US financial system are prohibited; and
  • U.S persons and U.S. owned or controlled foreign entities may not make such payments, nor can such payments travel through the U.S. financial system, unless they fall under the scope of sections 560.522 and 560.516 of the ITSR.

U.S. financial institutions are defined under section 560.327 of ITSR as including U.S. originating financial institutions as well as the U.S. branches, offices and agencies of foreign financial institutions.

This is particularly relevant due to the increasing number of airlines using Iranian airspace because of insecurity over Iraq and Ukraine.

Following this update by OFAC, foreign-owned and registered airlines and the financial institutions with whom they hold accounts will need to ensure that any payments to the Iranian aviation authority for overflights or emergency landings have no direct or indirect nexus to the U.S. financial system.

For more information, please see the original update by OFAC here.