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.