Since 'Implementation Day' was established on January 16 2016 under the Joint Comprehensive Plan of Action (for further details please see "'Implementation Day' brings openings for commercial aircraft sales with Iran"), US sanctions programmes targeting Iran in the commercial passenger aircraft industry have continued to evolve. One recent development is General Licence I, which was issued by the US Treasury Department Office of Foreign Assets Control (OFAC) on March 24 2016. This licence should make it easier for US persons to enter into contingent contracts, negotiations and transactions incident to the entry into contracts for the sale of aircraft or related parts to Iran.
For those watching for developments in the commercial aviation market, this initiative should give some cause for optimism. Transactions involving the sale or lease of commercial aircraft are often complex and multi-layered. For example, most aircraft sale and lease transactions begin with a letter of intent. The letter of intent's purpose is to memorialise the parties' intent to enter into a transaction. However, it is generally made subject to the execution of definitive documents.
While Implementation Day established a favourable licensing policy for sales of passenger aircraft and related parts and services to Iran, US entities contemplating such transactions must still seek specific authorisation from OFAC. Up until March 24 2016, US entities also had to obtain specific licences for the negotiations and contingent contracts that led up to the actual sales transaction. This obligation raised hurdles that many considered unnecessarily put US companies looking to do business with Iran at a competitive disadvantage.(1) By establishing General Licence I, OFAC evidently hopes to remove at least some of those hurdles for US entities. In addition, OFAC should be able to process licence applications for the actual sales transactions more efficiently without the burden of also handling applications for precursor negotiations and contingent agreements.
General Licence I defines 'contingent contracts' as including:
- executory contracts;
- executory pro forma invoices;
- agreements in principle;
- executory offers capable of acceptance, such as bids and proposals in response to public tenders;
- binding memoranda of understanding; and
- similar agreements.
These agreements must be made expressly contingent on the issuance of a specific licence by OFAC authorising performance of the activities.
OFAC has also updated its frequently asked questions relating to Iran sanctions, in which it further explained what types of activity are covered under General Licence I.(2) For example, the negotiation and entry into a non-disclosure agreement (NDA) connected to a contingent contract with an Iranian entity is authorised under General Licence I. However, the enforcement of NDA breaches does not fall within the scope of the licence and may require a separate specific licence.
Further, the licence does not authorise transactions or dealings with any person whose property or property interests are blocked under OFAC sanctions programmes other than the Iranian Transactions and Sanctions Regulations (ITSR). Thus, entities contemplating doing business with Iranian customers may be blocked under different sanctions programmes. For example, Mahan Air is blocked under several OFAC sanctions programmes other than the ITSR and any US person is still prohibited from doing business with it.
Finally, OFAC continues to identify newly blocked entities and individuals under the Specially Designated Nationals List for their involvement in Iran's ballistic missile programme. Those wanting to enter the Iranian market must remember that the trade relationship between the United States and Iran is tenuous, and that its gradual thawing provides many opportunities for US businesses to unwittingly fall foul of US sanctions and export laws.
For further information on this topic please contact Timothy J Lynes, Stewart B Herman or Thomas E Healey at Katten Muchin Rosenman LLP by telephone (+1 202 625 3500) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Katten Muchin Rosenman LLP website can be accessed at www.kattenlaw.com.
(1) The effects of these hurdles were demonstrated earlier this year when Boeing Co had to delay its negotiations with Iranian airline carriers for fleet overhauls pending an OFAC specific licence, possibly contributing to its losing out on a $27 billion order to European rival Airbus Group SE (for further details please see "Boeing Cleared for Iran Talks After $27 Billion Airbus Haul").
Eric Rock and Benjamin Shanbaum of Rock Trade Law LLC contributed to the preparation of this update.
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