Economic Sanctions – How they impact business aviation
In the world of global business aviation, understanding economic sanctions regulations (both comprehensive and targeted) is important in order to reduce an operators’ exposure to significant fines and potential criminal penalties.
This article is meant to give the reader an overview of what the sanctions are, who administers them, who must comply, and some of the risks associated with violating the regulations.
1. What are economic sanctions?
Economic sanctions are restrictions which one country places on another country or a group of countries as a form of punishment. Economic sanctions on the country level are put in place to attempt to effect change in foreign policy or national security. In the context of this article or the series of articles on this blog, economic sanctions are either comprehensive (against a specific country) or targeted to block the assets and trade restrictions against governments, individuals, organizations or assets.
2. U.S. Sanction Administration
The U.S. Treasury Department, through the Office of Foreign Asset Control (OFAC), administers the U.S. sanction programs and embargoes which target geographic regions and governments. While the sanction programs, like the one on Iran, are comprehensive and target specific areas of the country’s economy and also include broad restrictions, others are targeted and are aimed at specific individuals and entities (example: terrorists, drug traffickers, and more recently, oligarch’s who are sympathetic to a government at odds with the U.S.).
3. Who is required to comply with OFAC regulations?
As noted by the U.S. Treasury, Compliance is required by U.S. persons, including all U.S. citizens and permanent resident aliens, regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the case of certain programs, foreign subsidiaries owned or controlled by a U.S. company must also comply. Certain programs also require foreign persons in possession of U.S. origin goods to comply (example, U.S. manufactured aircraft).
Each country on the sanctioned list is sanctioned based on a different foreign policy and national security goals and therefore, the prohibitions will differ between the programs. Consequently, it is safe to say that one economic sanctions program does not fit all and it is important to understand the risk of doing business with a country on the list or with an individual that has been blocked before engaging.
Moreover, it is important to understand that there could be significant risks if prohibited transactions are made that could put all organizations involved in a transaction at risk of violating the regulations. Simply out-sourcing your trade compliance to a third party does not relieve an operator from the compliance requirements with the regulation. You should know what your third-party vendors are doing about compliance with the regulations.
Today there are comprehensive sanctions against countries like Iran, North Korea and Cuba to name a few. While there are certain exemptions for certain activities, it is important to understand whether a specific license is required before operations to these countries are conducted.
6. Specially Designated Nationals – blocked persons, organizations or assets
In the non-comprehensive sanctions programs, there are prohibitions from dealing with individuals, entities and, even today, certain aircraft registries. The names are incorporated into a list and maintained by OFAC. U.S. organizations and individuals are prohibited from having any dealings with the Specially Designated Nationals (SDN’s) wherever they are located.
Moreover, entities that a person on the SDN list owns (OFAC defines this as a direct or indirect ownership interest of 50 percent or more), are also blocked, regardless of whether that entity is separately named on the SDN list. As an operation of law, a U.S. company or person, may not conduct business with the entity.
Because the programs administered by OFAC change frequently and often require guidance for implementation and understanding, it is important to seek guidance to ensure that you have complete information about the current restrictions and the individuals or companies you plan to do business. If you have specific questions regarding sanctions or compliance, you can reach out to our Global Compliance Team at CCO@univ-wea.com.
This blog does not constitute legal advice, make sure to contact your trade counsel if your operations are operating to or over a sanctioned country to ensure compliance.