BIS Continues to Add Aviation Businesses to the Entity List, Including AVIC Entities

December 20, 2022 by Leave a comment

The Bureau of Industry and Security (BIS) End-User Review Committee (ERC) has added several new businesses to its entities list. This list continues to include a focus on aviation companies so it is especially important for ASA members to check these lists before exporting aircraft parts.

One of the aviation companies added to the entities list is the AVIC Research Institute for Special Structures of Aeronautical Composites. This AVIC company is accused of acquiring or attempting to acquire U.S.- origin items in support of China’s military modernization. This is not the only AVIC company that has been sanctioned – the United States has also issued sanctions against these other AVIC companies (do not consider this a complete list!):

  • AVIC AVIATION HIGH-TECHNOLOGY COMPANY LIMITED
  • AVIC HEAVY MACHINERY COMPANY LIMITED
  • AVIC XI’AN AIRCRAFT INDUSTRY GROUP COMPANY LTD.
  • AVIC AVIONICS
  • AVIC AIRCRAFT CO. LTD.
  • AVIC INTERNATIONAL HOLDING CORPORATION

These entities now have a license requirement for all items subject to the export regulations. The BIS license review policy for these companies typically includes a presumption of denial, but there are some exceptions available for some goods, so if you have a potential transaction, you should (1) identify whether government sanctions appear to prohibit the transaction, (2) examine the license presumptions, (3) examine whether the special nature of your transaction changes the presumptions, and (4) consider whether a license may be available for your particular transaction.

Where there is a presumption of denial, there is a significant burden to meet in order to rebut the presumption of denial. An important part of that burden should include a demonstration of the mechanisms that will be use to prevent diversion or redirection of the export from a stated civil end use to a military end use that would not have been licensed. The exporter who wants to get a license should consider this factor, as well as considering the strategies for preventing diversion.

As aviation companies continue to get added to the BIS Entities List, it continues to be very important to check your export customers on every transaction against the Consolidated Screening List.

Filed under Uncategorized Tagged with , , ,

BIS Expands Sanctions Against Russia and Belarus

April 15, 2022 by Leave a comment

Yesterday, BIS announced its latest round of sanctions against Russia and Belarus arising from Russia’s invasion of Ukraine. We have written about previous BIS sanctions against Russia and Belarus over the past several weeks. The previous rounds of sanctions imposed, among other things, a license requirement for all articles controlled under CCL categories 3 through 9 under a new § 746.8 of the EAR.

The latest sanctions expand that license requirement under § 746.8 to now include CCL categories 0 through 2 as well. Thus, any item specified under any ECCN is subject to an export license requirement. Although this may not seem like a broad expansion of the licensing requirements as far as aircraft parts distribution is concerned, it is important to note that many bearings are controlled under CCL 2 and certain seals, gaskets, sealants and fuel bladders specially designed for aircraft or aerospace are controlled under CCL 1. These items now require a license to Russia or Belarus.

The sanctions also further limit the availability of License Exception AVS paragraphs (a) and (b) to aircraft registered in, owned or controlled by, or under charter or lease by Belarus or a national of Belarus (bringing it in line with limitations on the exception already applicable to Russia and Russian nationals). We can therefore not rely on License Exception AVS–a commonly used license exception–to support a Russian or Belarusian aircraft.

The United States continues to impose additional sanctions as a result of the war in Ukraine. We will keep members updated as new sanctions that affect distributors arise.

Filed under Uncategorized Tagged with , , , , , , , ,

New Sanctions Against Belarus

March 4, 2022 by 1 Comment

The United States is issuing new sanctions against Belarus. In practice, they will prevent – or make very difficult – most aircraft parts transactions in support of commercial aviation in Belarus. In fact, they will generally prevent a wide range of transaction in goods that would be exported to Belarus.

The new sanctions will probably limit transactions with Belarusian air carriers like Belavia.

The Federal Register Notice will begin with the phrase “In response to Belarus’s substantial enabling of the Russian Federation’s (Russia)’s further invasion of Ukraine …” so there is no question about why these sanctions are being issued. And this also suggests that we can expect Belarus to be treated to a similar level of sanctions as Russia. You can see this being implemented through the addition of Belarus directly to the new Russia-specific sanctions programs.

Here is an outline of the new sanctions leveled against Belarus

  • General licensing requirement for most exports
  • Limit on the use of license exceptions
  • Added to country groups D:2 and D:4
  • New MEU sanctions
  • New MEIU sanctions

Discussion of Belarusian Sanctions Programs

Recently, the US Government added a new regulation at 15 C.F.R. § 746.8. This new regulations applied a broad set of sanctions against Russia. In summary, anyone exporting aircraft parts (and many other BIS-controlled articles) now requires a license to export those goods to Russia (a license that will likely be denied). That same set of sanctions has been applied against Belarus. The new rule will apply 15 C.F.R. § 746.8 to Belarus, as well as to Russia.

In practice this means:

  1. Aircraft parts that are controlled under an CCL categories 3 through 9 (like ECCN 9A991) will need a BIS license to be exported to Belarus or to Russia;
  2. There is a presumption of denial for most such licenses;
  3. Generally, license exceptions will not be permitted to be used, BUT a short list of exceptions can be used in specific cases; and
  4. Among the license exceptions permitted to be used, most of them cannot be used to export aircraft parts to Belarusian and/or Russian customers.

This license requirement is the most important change for aircraft parts exporters. It means that you cannot export aircraft articles to Belarus (nor to Russia) without a BIS license, and because of the presumption of denial it will be difficult to obtain such a license.

Licensing and License Exceptions

For those who want to pursue a BIS license for exports to Belarus or Russia, the U.S. government has opened the door to license sin support of “safety of flight,” but the burden will be on the applicant to demonstrate that the transaction will not benefit the Russian or Belarusian government or defense sector. The presumption of denial, though, makes any license application an uphill battle, so we recommend using a law firm with experience in export licensing to pursue such a license (yes, a firm like ours).

The license exceptions that typically can be available are mostly forbidden. Only a short list of exceptions is available and for most civil aircraft article transactions there are limitations that will prevent them from being used to support Belarusian aircraft. The available license exceptions look like this:

  • TMP: Temporary exports for use by the news media only.
  • GOV: exports in support of the US government.
  • TSU: software updates for US-related companies.
  • BAG: for personal baggage.
  • AVS: this applies to aircraft parts but it excludes exports for aircraft registered in D:1 nations, or owned/operated by nationals of D:1 nations. Both Belarus and Russia are D:1 nations.
  • ENC: encryption hardware and software for US-related companies.
  • CCD: applies to consumer devices like computers, TVs, phones and cameras.

If one of these license exceptions looks like it might apply to your fact pattern then read the regulation and get legal help before using it! There are plenty of details that potentially limit the applicability of each of these license exceptions. Note that the loopholes that are left are generally for supporting non-Belarusian parties who happen to be in Belarus; for example AVS may permit exports for an aircraft that is AOG in Belarus as long as the aircraft has no other connections to Belarus or Russia.

BIS maintains country groups in order to better manage sanctions programs and to limit exceptions. Belarus has been added to country groups D:2 and D:4 for additional nuclear and missile technology restrictions. Belarus was also removed from country group A:4, which was a nuclear suppliers group.

Belarus has been added to the MEU restrictions of 15 C.F.R. § 744.21 and the MEIU restrictions of 15 C.F.R. § 744.22. This imposes an additional restriction on exports for military end uses (or destined for military end users), including military intelligence end use and end users.. Remember that the list of military end users typically includes private companies who represent a “threat of diversion” to military end use, so the coverage of this rule is broader than just strict military entities.

Implementation is Now

The Belarusian sanctions Federal Register notice is expected to be published on March 8. It was posted for public inspection on the evening of March 2, though. It is expected to be effective for all transactions beginning on the public inspection date of March 2, 2022.

Filed under Uncategorized Tagged with , , , , , , , ,

Russian Sanctions FAQ: Getting Paid for Past Exports

March 1, 2022 by Leave a comment

QUESTION – Getting Paid for Past Exports: I legally exported aircraft parts to a Russian customer and the export portion of the transaction was complete before February 24, 2022. I am expecting payment soon. Am I allowed to get paid by the Russian customer?

SHORT ANSWER:

The short answer is that this is too broad a question to answer with a simple, bright-line analysis. Some payments may be legal while others may be blocked. Whether your payment is blocked may depend on the identity of the customer who is paying you. If your payment is blocked, then if your transaction is subject to a general license then it may be legal to treat the payment as a winding-up activity that is permitted under the applicable general license. The current general licenses for winding-up are only good through the end of March 25 (12:01 am eastern daylight time on March 26, 2022) so if you think you need to take advantage of one, then you should do it immediately!

LONGER ANSWER:

BIS has imposed sanctions effective February 24, 2022 on exports to Russia; but it appears that the transaction in this fact pattern was completed before those sanctions took place so there does not appear to be a question about whether the prior export was legal.

The Treasury Department has taken a number of steps to sanction Russia, just in the month of February – and this does not even consider the prior sanctions that were imposed in response to other Russian actions. Here is a summary of the February 2022 Treasury actions (taken from the Treasury website):

  • Financial services sector determination.  On February 22, 2022, the Secretary of the Treasury, in consultation with the Secretary of State, issued a determination pursuant to E.O. 14024 that authorizes sanctions against persons determined to operate or to have operated in the financial services sector of the Russian Federation economy.  
  • Correspondent or payable-through account and payment processing prohibitions.  On February 24, 2022, the Office of Foreign Assets Control (OFAC) issued Directive 2 under E.O. 14024, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions” (Russia-related CAPTA Directive), which prohibits U.S. financial institutions from:  (i) the opening or maintaining of a correspondent account or payable-through account for or on behalf of foreign financial institutions determined to be subject to the prohibitions of the Russia-related CAPTA Directive; and (ii) the processing of transactions involving foreign financial institutions determined to be subject to the prohibitions of the Russia-related CAPTA Directive.  Annex 1 to the Russia-related CAPTA Directive identifies Public Joint Stock Company Sberbank of Russia and other foreign financial institutions owned 50 percent or more by this bank as subject to these prohibitions, which become effective on March 26, 2022.
  • Blocking certain Russian financial institutions.  OFAC designated specified Russian financial institutions pursuant to E.O. 14024, including the State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), VTB Bank Public Joint Stock Company, Public Joint Stock Company Bank Financial Corporation Otkritie, Promsvyazbank Public Joint Stock Company, Sovcombank Open Joint Stock Company, Joint Stock Commercial Bank Novikombank, and several of these financial institutions’ subsidiaries.  As a result, all property and interests in property of these entities in the possession or control of U.S. persons, including U.S. financial institutions, or within U.S. jurisdiction, are blocked and must be reported to OFAC.  In addition, all property and interests in property of any entity that is owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.  Accordingly, U.S. persons, including U.S. financial institutions, are prohibited from transacting with these entities unless exempt or authorized by OFAC.  
  • Expanding sovereign debt prohibitions to include the secondary market.  On February 22, 2022, OFAC issued Directive 1A under E.O. 14024, “Prohibitions Related to Certain Sovereign Debt of the Russian Federation” (Russia-related Sovereign Debt Directive), replacing and superseding Directive 1 under E.O. 14024 of April 15, 2021, to extend existing sovereign debt prohibitions to cover participation in the secondary market for ruble or non-ruble denominated bonds issued after March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.  
  • New debt and equity restrictions involving certain Russia-related entities.  On February 24, 2022, OFAC imposed additional debt and equity restrictions involving Russia-related entities by issuing Directive 3 under E.O. 14024, “Prohibitions Related to New Debt and Equity of Certain Russia-related Entities” (Russia-related Entities Directive), to prohibit certain dealings by U.S. persons, or within the United States, in new debt of longer than 14 days maturity or new equity of Russia-related entities determined to be subject to the prohibitions of the Russia-related Entities Directive.  OFAC determined on February 24, 2022 that the entities listed in Annex 1 to the Russia-related Entities Directive, which include certain major Russian state-owned enterprises and large privately owned financial institutions, are subject to the prohibitions of this directive for new debt or equity issued on or after March 26, 2022. 
  • General Licenses (GLs).  OFAC issued several Russia-related General Licenses authorizing certain transactions otherwise prohibited by E.O. 14024.

Under these sanctions programs, payment for prior sales becomes subject to two different questions.

  • First, is there a standard that prevents me from getting paid?
  • Second, is there a standard that interferes with the banking system getting my money to me?

Depending on the details of your transaction (including the identify of your customer, there may be OFAC restrictions on getting your funds; however there are general licenses that have been issued for winding-up certain types of transactions and activities. These general licenses last through March 26 and are intended to permit an orderly wrap-up to transactions, so they might affect your transaction if payments for prior exports would otherwise be blocked; but only certain transaction models get general licenses so you will need to study them carefully.

The current list of blocked parties is likely to be supplemented with additional names. President Biden’s Executive Order 14024 from last year authorizes the sanctioning of instrumentalities of the Russian Federation, so any company that is identified as an instrumentality is potentially subject to being added to the sanctions list.

One potential example is Aeroflot. The Russian Federation owns a 57.3% stake in Aeroflot. Because Executive Order 14024 authorizes the sanctioning of instrumentalities of the Russian Federation, it is possible that Aeroflot could be named in future sanctions [this is a hypothetical – they are not yet named in OFAC sanctions!!]. If they were so-named as a blocked party, then such a designation could inhibit transaction in that any funds of theirs that would come into the United States would be blocked.

There are some aviation companies that have already been identified as being subject to export sanctions programs, like these:

  • Avia Group LLC
  • PJSC Beriev Aircraft Company
  • Sukhoi Civil Aircraft
  • Sukhoi JSC
  • Russian Aircraft Corporation MiG
  • United Aircraft Corporation
  • KONTSERN AVIAPRIBOROSTROENIE OAO
  • JSC Scientific Research Institute of Aircraft Equipment (NIIAO)
  • Public Joint Stock Company United Aircraft Corporation

And don’t get confused about programs – there is another BIS list of blocked entities that names Russian aviation businesses to whom exports are limited.

Certain Russian banks are is being removed from the SWIFT system, which is the normal agency that banks use for accomplishing cross-border financial transactions. The new banking limits could be even more of an impediment to getting paid, if your customer keeps it money in a bank that has been among those listed in the the Treasury Department sanctions.

Filed under Uncategorized Tagged with , , , , ,

Russia Sanctions FAQ: Return of Goods

February 28, 2022 by 1 Comment

QUESTION – RETURN OF GOODS: I was managing repairs for a Russian air carrier and I still have aircraft articles from Russia in my inventory.  Can I just return them to Russia?

There are new requirements that apply to this sort of transaction. Even though these requirements have not yet been published in the Federal Register, they are effective as of February 24. The new BIS requirements can be found online.

A license will typically be required for the return to Russia of anything in CCL Categories 3 through 9.  Most aircraft articles fall into an ECCN in CCL categories 3 through 9 (for example, many aircraft articles are identified in ECCN 9A991, which is in CCL Category 9).  Such articles are subject to the new licensing requirements.  So this means that you typically cannot return the articles to a Russian airline unless you obtain a license.

There is currently a presumption of denial on Russia licenses under the new BIS rules, so you will need a compelling reason to be able to obtain a license.

Only certain special license exceptions can be used to overcome this licensing provision.  15 C.F.R. § 746.8(c). For the aviation industry, the most useful of these is typically AVS, which is for aircraft parts. SPOILER ALERT: You can’t use AVS to overcome the new Russia sanctions and send something to a Russian airline for use on their planes.

The new regulations permit reliance on the first two subsections of the AVS license exception (15 C.F.R. § 740.15(a) and (b)). AVS permits the export of aircraft parts for permanent use on an aircraft, when those parts are necessary for the proper operation of the aircraft (such as parts included on the type design). Typically, to use this AVS exception you need to know the destination aircraft. This license exception does not apply to an aircraft registered in, owned or controlled by, or under charter or lease to a country included in Country Group D:1, Cuba, or a national of any of these countries. Russia is found in country group D:1, so you cannot use AVS for a Russian-owned/controlled aircraft but you could potentially use it to support a non-Russian aircraft.

The licensing obligation also generally applies to Russia-destined re-exports (such as things that started in the US, and are now contemplated to be exported from a non-US country to Russia). Your actual fact pattern can complicate things so if this is a potential issue for you, then you should be asking a lawyer for advice on your specific facts.

Filed under Uncategorized Tagged with , , , , , ,

BIS Issues New Regulations Implementing Sanctions Against Russia

February 25, 2022 by 3 Comments

We have written over the last few days about the implementation of new rounds of sanctions against Russia. Effective February 24, and to be published March 3 in the Federal Register, BIS has finalized its own regulation implementing sanctions measures against Russia. The goal of the sanctions is to restrict Russia’s access to items it needs to project power and includes “sophisticated technologies designed and produced in the United States, as well as certain foreign-produced items that contain or are based on U.S.-origin technology.” These controls primarily target Russia’s defense, aerospace, and maritime sectors. The following is a brief summary of BIS’s sanctions implementation.

ECCN License Requirements

The most significant change for aircraft parts distributors appears in new § 746.8(a)(1) of the EAR, which imposes a license requirement on any item subject to an ECCN in categories 3 through 9 of the CCL. This would obviously include common industry ECCNs like 9A991.d and 7A994, as well as more tightly controlled CCL 7 and CCL 9 ECCNs. Further, license applications are subject to a presumption of denial, making licenses difficult to obtain. The preamble to the regulation specifically cites ECCN 9A991.d as an example of an item subject to a low level of control that did not previously require an export license to Russia that will now require a license.

However, two notes to this general policy are important to aircraft parts distributors. First, BIS will apply a case-by-case review policy to export license applications intended to ensure inter alia safety of flight. Second, License Exception AVS paragraph (b) remains available to overcome the new license requirement. AVS paragraph (b) provides:

Equipment and spare parts for permanent use on an aircraft, when necessary for the proper operation of such aircraft, may be exported or reexported for use on board an aircraft of any registry, except an aircraft registered in, owned or controlled by, or under charter or lease to a country included in Country Group D:1, Cuba, or a national of any of these countries.

Note that Russia is a D:1 country, so AVS would not be allowed for Russian registered, owned, or operated aircraft, but non-Russian operators in AOG situations in Russia may be able to be supported under this exception.

This license exception and case-by-case review policy should allow distributors to continue to serve some civil operators in Russia (again, with the note that to support a Russian operator will require an export license), but we caution anyone seeking to use such an exception to consult with their export compliance counsel.

Additional Restrictions

Foreign Direct Product

The sanctions create two new “foreign direct product”(FDP) rules: one applicable to Russia as a whole and one applicable to Russian military end users. These restrictions apply to the export or re-export of foreign-produced items that are the product of U.S.-controlled technology or software. In the case of the FDP rule applying to Russia broadly, the relevant foreign produced products are those produced from controlled technology or software in CCL 3-9, and are subject to comparable license requirements, presumptions, and exceptions as the ECCN rule above. In the case of FDP to military end-users, all CCL chapters are restricted and no license exceptions are available (with certain very case-specific exceptions).

Expanded Military End-Use and Military End User Control

The sanctions expand the restrictions on items that can be exported without a license to Russian military end users and end-uses. Previously, those items listed in Supplement No. 2 to part 744 required a license for export to a military end use or military end user. The sanctions expand the ECCNs that require a license to a Russian military end use/user to all items subject to the EAR except food and medicine designated EAR99 and items subject to ECCNs 5A992.c and 5D992.c (and even those not to Russian government end users or state-owned enterprises). In short, practically every item subject to the EAR will require a license for export to a Russian military end user or for a Russian military end-use, and those licenses will be presumptively denied.

Russian MEU Listed Entities to the Entity List

Finally, BIS transitioned 45 Russian entities from the Military End User (MEU) list (Supplement No. 7 to part 744) to the Entity List (Supplement No. 4 to part 744; 15 C.F.R. § 744.16) to reflect the heightened restrictions and licensing requirements reflected by the expanded military end-user and end-use controls described above. BIS also added and modified certain entities.

Conclusion

This is a highly complex and dynamic regulatory environment. The baseline presumption is that all aerospace exports to Russia of virtually anything subject to the BIS regulations will require a license. For the purposes of civil aviation, license exception AVS (to non-Russian aircraft) and case-by-case license review may offer some limited relief, but make sure to consult with your export compliance counsel before undertaking any new transactions. Also remember that the sanctions and regulations continue to change: what was a legal export yesterday may not be legal tomorrow. Keep your eye on this space for more updates.

Filed under Uncategorized Tagged with , , , , , ,

More Russia Sanctions are on the Way

February 24, 2022 by 1 Comment

Last night, President Biden spoke with President Zelenskyy of Ukraine. In the public statement issued after the call, President Biden said that today he would be “meeting with the Leaders of the G7, and the United States and our Allies and partners will be imposing severe sanctions on Russia.”

Earlier this week we described the first round of sanctions, which were targeted at the “Covered Regions” in Eastern Ukraine. The next round of sanctions will probably described businesses and people in Russia with whom business is restricted. One of the areas of potential sanctions that is being discussed in Washington is specific export restrictions on aerospace products and articles.

In addition, Janet Yellen has signed a determination that limits financial transactions with Russia.

ASA members should be cautious about transactions with Russia and in particular should watch carefully for more export sanctions that may more directly target Russia.

UPDATE: This afternoon (Feb. 24th) President Biden announced that the United States and the G-7 will be imposing additional sanctions on Russia. Based on a recent background statement by a senior administration official, it appears likely that these will include export restrictions. As soon as the details become available, we will be posting a blog article about them.

Also, the Treasury Department issued a new directive that will restrict certain transactions with the following businesses:

x CREDIT BANK OF MOSCOW PUBLIC JOINT STOCK COMPANY
x GAZPROMBANK JOINT STOCK COMPANY
x JOINT STOCK COMPANY ALFA-BANK
x JOINT STOCK COMPANY RUSSIAN AGRICULTURAL BANK
x JOINT STOCK COMPANY SOVCOMFLOT
x OPEN JOINT STOCK COMPANY RUSSIAN RAILWAYS
x PUBLIC JOINT STOCK COMPANY ALROSA
x PUBLIC JOINT STOCK COMPANY GAZPROM
x PUBLIC JOINT STOCK COMPANY GAZPROM NEFT
x PUBLIC JOINT STOCK COMPANY ROSTELECOM
x PUBLIC JOINT STOCK COMPANY RUSHYDRO
x PUBLIC JOINT STOCK COMPANY SBERBANK OF RUSSIA
x PUBLIC JOINT STOCK COMPANY TRANSNEFT

Filed under Uncategorized Tagged with , , ,

White House Issues Round One of the Ukraine-Russian Sanctions

February 22, 2022 by 2 Comments

The White House has announced that it will be issuing sanctions “to respond to President Putin’s action to purportedly recognize the so-called Donetsk and Luhansk People’s Republics (DNR and LNR) as “independent” states.” What does this announcement mean for ASA members who have Russian or Ukrainian business partners?

At the root of the sanctions is an Executive Order that was signed last night. It defines the “Covered Regions” as the areas covered by the Donetsk People’s Republic (DNR) and the Luhansk People’s Republic (LNR). It also authorizes the Secretary of the Treasury to identify other parts of Ukraine to be identified as a part of the Covered Regions (typically this would be accomplished through an OFAC rule, so it will be important to watch whether this scope expands to include other parts of Ukraine).

  • The Executive Order prohibits investment in the Covered Regions;
  • The Executive Order prohibits export (or other sale/supply) to the Covered Regions;
  • The Executive Order prohibits import from the Covered Regions;
  • The Executive Order prohibits participation by a United States person in a transaction by a foreign person that would have been prohibited in the United States.

The Executive Order also permits the addition of people and entities to the Specially Designated Nationals (SDN) list, so it will be important to check our business partners against this list for each export transaction (you should already be doing this).

Previously issued licenses may not cover this new Executive Order, so they may be inadequate to overcome this new Executive Order’s restrictions. Thus even a previously licensed transaction may require a new license if it is within the scope of the Executive Order.

Don’t forget that there are existing sanctions against Russia and the Crimean region. So make sure that you comply with those, as well. The White House has signaled that more sanctions may be issued, soon, against Russia; this means that keeping abreast of the changing regulations and standards is especially important.

There are special wind-down rules. If you need to engage in a wind-down operation to exit business in the Covered Regions, then make sure you consult with an attorney, and review the OFAC wind-down general license.

In summary, if you’ve been buying from or selling to a partner in a Covered Region, then you will need to assess your aircraft parts transactions to ensure that they remain in compliance with the law – full compliance may require a new license, or it may require termination of the business. I would recommend against any aircraft parts transaction that involves the Covered Regions unless you have the advice of an attorney who understand this area of the law.

Resources:

Filed under Uncategorized Tagged with , , , , , , ,

U.S Announces new Russia Sanctions. What it means for Distributors.

April 16, 2021 by Leave a comment

Yesterday, as you are no doubt aware, the United States announced a new round of sanctions against the Government of the Russian Federation for

efforts to undermine the conduct of free and fair democratic elections and democratic institutions in the United States and its allies and partners; to engage in and facilitate malicious cyber-enabled activities against the United States and its allies and partners; to foster and use transnational corruption to influence foreign governments; to pursue extraterritorial activities targeting dissidents or journalists; to undermine security in countries and regions important to United States national security; and to violate well-established principles of international law, including respect for the territorial integrity of states.

The effect of the sanctions are to block the interests in property of certain persons (including both individuals and companies) in the technology or defense and related materiel sector, persons who have engaged in malign activities, and other persons and entities holding key roles in the Russian government or blocked entities (the full list is described in the Executive Order).

Sanctions against Russia are not a new concern for aircraft parts distributors. For many years, companies exporting to Russia have been required to review their customer and end users–as well as the individuals and entities that own or control the customers and end users–to determine whether they are subject to any of the existing sanctions regimes arising out of the situation in the Crimea region of Ukraine or other sanctions regimes imposed by the U.S. Treasury Department and administered by OFAC.

In limited cases, sanctioned persons have been corporations with a direct nexus to aviation, e.g., Rostec, Avia Group, and Avia Group Nord. In other cases, exports to entities like Aeroflot and United Aircraft Corporation may require a license depending upon facts of the transaction due to the ownership or control exercised by a sanctioned entity, like Rostec, or a high-powered individual.

The latest round of sanctions is likely to have both effects. A company called Unijet–which offers on-demand VIP business jet service–was added to the list, as well as a range of individuals and large institutions that could indirectly have a controlling interest in or position with aerospace and aviation companies.

What does all this mean for aircraft parts distributors? Unless you are doing business with one of newly listed parties, not much has changed. You already should be performing a review of your customer and obtaining detailed end user information when exporting aircraft articles to ensure compliance with OFAC sanctions (as well as BIS export regulations). When a customer, end user, or person or entity with control (more than a 50% stake) appears on the OFAC Sanctions List, you must obtain a specific license or identify an appropriate authorization prior to export.

Exports to persons in nations subject to U.S. sanctions can be tricky. Due to the nature of state-owned enterprises and monopolies, and the powerful individuals that control them, you must often dig through many layers of ownership and control to determine whether or not a blocked person is involved in the transaction. Such diligence should be memorialized in writing and kept with the other records retained for the transaction so that you can demonstrate the efforts you took to clear any red flags if the government ever asks.

Whenever you have questions about export compliance–and especially when you are dealing with customers in countries that have been subject to U.S. or international sanctions–we always recommend you consult with an export compliance attorney to help you .

Filed under Uncategorized Tagged with , , , , ,

China to Sanction U.S. Aerospace Manufacturers

October 30, 2020 by 1 Comment

The Chinese Government has said that China will sanction several US defense companies for selling arms to Taiwan. All three companies are active in the aerospace realm.

On Monday, Chinese Ministry of Foreign Affairs spokesperson Zhao Lijian called on the U.S. to break ties with the government on Taipei, and he announced plans to sanction Lockheed Martin, Raytheon Technologies and Boeing Defense. He did not provide further details of the sanctions, and we’ve waited this week to learn of the details, but none have yet been released.

Zhao’s specificity in naming Boeing Defense could mean that Boeing Commercial Aircraft Group is not affected by the sanctions. This is mere supposition, though; the actual reach of the sanctions is not yet known.

Adam Ni, director of the China Policy Center in Canberra, Australia, suggested that he “suspect[s] the strategy will not be formal sanctions, but rather through administrative regulatory means.” This could include punitive tariffs or similar means that effectively prevent certain business with these sanctioned entities.

We will continue to watch, to learn how this might affect other U.S. aerospace companies.

Filed under Uncategorized Tagged with , , , ,

← Older posts

Newer posts →