August 19, 2014
by Ryan Aggergaard
Recently, we have had several questions from members regarding export of aircraft parts to Russia and the Ukraine. As most readers no doubt know, the United States and the EU, in response to the conflict in eastern Ukraine, have imposed various economic sanctions on certain persons and businesses in Russia. When sanctions like these are imposed, those companies doing business with customers in Russia and Ukraine wisely want to know whether and what type of affect these sanctions may have on their business.
Questions regarding business relations in Russian and Ukraine typically take one of two forms: The first, can I do business with the customer at all? The second, can I export this particular part to the customer?
To answer these questions, we first need to know what sanctions have been imposed and to whom they apply. We then need to recall our basic export compliance principles and apply those principles to determine whether the part itself can be exported. Those who have attended ASA workshops in the past may recognize these steps as part of the process of export compliance.
The United States, through the Treasury Department, has issued several rounds of sanctions directed at specific industries and parties. For the most part, the targeted industries have been companies in the Russian financial and energy sectors, while the individuals mainly officials and individuals with ties to Vladimir Putin.
However, companies in the financial and energy sectors are the only ones that have been targeted. Importantly, Avia Group and Avia Group Nord, business aviation groups, were also targeted with U.S. sanctions. This means that although not yet a focal point, the aviation industry can by targeted if the United States deems it necessary, and so is a good reminder that exporters of aircraft parts need to be aware. The Treasury Department maintains an up to date list of Ukraine-related sanctions on its website.
Although it appears that the Russian aviation sector has not been highly targeted by the United States yet, these sanctions illustrate the importance of knowing your customer. Further, simply because the United States has not sanctioned an organization does not mean they may not be sanctioned by another body. For instance, the EU recently issued sanctions against Dobrolet, a low-cost Russian carrier. If you are based in the the EU, you should review the European Union’s restrictive measures in force to ensure you remain compliant with EU sanctions.
As our industry well knows, wealthy entities and individuals, such as those named in sanctions, frequently own or operate their own aircraft. Given the wealth and high-ranking status of individuals and companies named, it is important to review the Treasury Department Office of Foreign Asset Control’s Specially Designated Nationals list. Furthermore, it is important to take this step with every transaction, because new individuals and entities can be added at any time, whether announced as a new round of sanctions or not.
Once we have determined whether sanctions apply to our prospective customer, we can rely on our export compliance program to take us the rest of the way. The exporter must determine whether the article it plans to export is ITAR or EAR controlled. Once the appropriate export regime is determined the exporter must determine whether an export license is required for the particular part or whether any license exceptions apply. If a license is required, the exporter should apply as usual. Be aware that both the State Department DDTC and the Commerce Department BIS may deny export license applications for high-tech items that could contribute to Russian military capability. In most cases, however, articles for civil aviation may still be exported.
The highly publicized nature of these sanctions rightfully causes many companies to hesitate before undertaking an export transaction to the listed countries. This hesitation is appropriate, given the already complex nature of export compliance. But these delays can also help the exporter to ensure that the transaction is undertaken correctly and legally.
The good news is that an effective export compliance system will enable you to easily comply with whatever sanctions and restrictions are enacted. An effective compliance system should find the exporter following the same steps, reviewing the same lists, and performing the same analyses with every export transaction. An export compliance program that is second nature to the exporter’s employees will ensure that no matter what sanctions are issued, or against whom, your company will remain compliant. Our law firm has helped many companies establish effective export compliance programs. If you have questions regarding compliance, please feel free to contact us.
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