Russia Sanctions FAQ: Intermediaries, Including MROs

QUESTION – Intermediaries, Including MROs: I have been contacted by an MRO that wants to buy aircraft articles. The MRO is located in a country where it is legal to export most aircraft articles without an export license. Last week, though, I got the same exact purchase order from a Russian air carrier, so I strongly believe that the MRO is buying on behalf of the Russian air carrier. Can I sell to the MRO despite this belief?

Short Answer

The short answer is that this export looks like it is likely to be prohibited unless you have an appropriate export license. The reason for this is because it appears from the fact pattern that the article is intended to be installed on a foreign aircraft and the foreign aircraft appears to be subject to Russian operational control. This makes the transaction subject to the new Russia sanctions published by BIS.

Analysis

It is important to remember that there is a special rule under the U.S. export regulations that requires additional due diligence for aircraft articles destined for installation on a foreign aircraft. If you know that the article you plan to export is intended for installation on a foreign aircraft then you need to identify at least three pieces of information (per 15 C.F.R. § 744.7(a)):

  • The country in which the aircraft is located, and
  • The country in which the aircraft is registered (I usually ask for the registry number as well, for verification), and
  • Who currently controls / leases / charters the aircraft and their nationality.

Once we have this information, then we need to analyze the information to assess compliance. Each of these locations needs to be cleared (either [i] no license required, or [ii] appropriate license obtained, or [iii] license exception found to be applicable). If any one fo them leads to a license obligation, then the license obligation must be cleared (e.g. license or exception) in order to perform the export.

An Example

Let’s see how this looks in a real-world hypothetical. Imagine that you get a purchase order from an MRO in Turkey. The purchase order seeks a set of articles that are all controlled under ECCN 9A991. Imagine that the MRO reveals that the articles are intended to be installed on a Irish-registered aircraft that is leased to and operated (controlled) by a Russian air carrier. Even though you are exporting to Turkey, you also need to consider the other nations identified in this analysis. Exporting an ECCN 9A991 article to Turkey or Ireland does not require a license based on destination (we will omit the other analyses, such as party-level restrictions); however the recently-promulgated Russia sanctions do require that these articles be licensed to be exported for the purpose of installation on an aircraft subject to Russian operational control.

In this hypothetical we need to find a way to address the Russian operational control of the aircraft. Typically we might turn to the AVS license exception. The new Russian Sanctions regulations explicitly permit reliance on subsections (a) and (b) of that AVS license exception. BUT – and this is important – the AVS license exception we would use (in section 740.15(b)) cannot be used for country group D:1 nations. And Russia is a D:1 nation. So the AVS license exception for aircraft articles is unavailable for this export transaction.

Unless we have a transaction that fits into another sort of license exception, we are probably going to need a license for this transaction.

What Else Can I Do?

Information is your friend in situations like this., The more information you have, the more you can explore other options, like special exceptions that might apply to your transaction.

For example, it might turn out that the bill of materials requested is part of a service bulletin, and the fact that a Russian carrier sought the same bill of materials might be an understandable coincidence. In such a case, though, I might ask the customer-MRO to provide assurances that the articles are being installed in a manner consistent with U.S. law. I would take this additional step because of a red-flag that was raised by the similarities between the purchase orders.

You also might identify another license exception that applies to the transaction.

Some exporters might tend to prefer an information-free transaction on the grounds that what-they-don’t-know-can’t-hurt-them. This is not always true in export cases. Remaining willfully blind to the facts may not shield you from liability. Instead, willful blindness to the facts is often more likely to lead to trouble.

The most important thing for exporters to recognize is that they have a role in preventing circumvention of the U.S. export regulations. Failure to fulfill that role undermines the regulations, but it also potentially puts you in jeopardy of administrative or criminal penalties for your support of an illegal export transaction.

State Department Plans ITAR Overhaul

The State Department is planning a complete overhaul of the International Traffic In Arms Regulations (ITARs) which govern the export of defense related articles.  The ITARs often apply to dual-use equipment that is exported.  This can include articles that were originally designed for use on defense related aircraft but subsequently used on civilian aircraft.

The State Department’s plan is to review the entire set of ITARs and to chose which elements need to be updated or revised.  For members of the public that wild like to see significant revisions to the ITARs in order to bring them up-to-date with modern export practice, and to make compliance easier, this is certainly the best opportunity to influence change and it may be the only opportunity to achieve meaningful revision.

The State Department is already looking at how best to revise the United Sates Munitions List, and has been considering making Category VIII (Aircraft and Associated Equipment) more explicit in order to better define what is regulated and what is not regulated.  Our contacts in the government have already asked for advice on how best to structure this provision.

The State Department’s work plan also includes an examination of the following elements:

(1) Review of USML Categories

(2) New licensing exemption for certain replacement parts and incorporated articles (ITAR sections 123.28 and 126.19).

(3) New licensing exemption for transfer of defense articles to dual national and third-country national employees (ITAR section 126.18).

(4) New licensing exemption for the temporary export for personal use of chemical agent protective gear (ITAR section 123.17).

(5) New electronic submission of registration payments (ITAR parts 120, 122, and 129).

(6) Clarification of records maintenance requirement (ITAR section 122.5)

(7) Discontinue submissions of form DSP–53 (ITAR section 123.4).

(8) Change in requirements for the return of licenses (ITAR section 123.22).

(9) Revision of agreements procedures (ITAR part 124).

(10) Update information on sanctioned countries (ITAR section 126.1).

(11) Clarify and reflect new policy for exports made by or for the U.S. Government (ITAR section 126.4).

(12) Revise brokering regulations (ITAR part 129).

(13) Revise definition of “defense service” (ITAR sections 120.9, 120.38, 124.1, and 124.2).

(14) New regulations implementing the Australia and UK defense cooperation treaties (ITAR parts 120, 123, 124, 126, 127, and 129).

(15) Establishment of a general program license, which would allow multiple exporters to collaborate with foreign partners on U.S. government programs (ITAR part 123).

(16) Revise/establish definitions of/for “technology,” “specially designed,” and “public domain” (ITAR part 120).

(17) Revision of Missile Technology Control Regime annex (ITAR part 121).

Factors that the State Department will take into account in assessing any proposed changes are statutory requirements, recouping the cost of service, and increase in net benefits.

The State Department’s preliminary work plan can be found online in the Federal Register at http://www.gpo.gov/fdsys/pkg/FR-2011-05-09/pdf/2011-11242.pdf.  Comments on the State Department’s preliminary work plan will be accepted until June 30, 2011.