U.S. federal authorities have taken hefty measures against Iraq and UAE based entities in the latest move of sanctions enforcement, sending a clear signal that the U.S. sanctions regime against Iran remains in full force. On May 21st 2015, The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued an order denying the export privileges of Al Naser Airlines (Iraq), Bahar Safwa General Trading (Dubai), and Ali Abdullah Alhay (Iraq) for their efforts to illegally export civilian aircraft to Iran in violation of the Export Administration Regulations (EAR). Al Naser Airlines, Syrian businessman Issam Shammout, and his UAE-based Sky Blue Bird Aviations were also added to the Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals (SDN) list for providing support to Iran’s Mahan Airlines. OFAC designated Mahan Airlines in October 2011 for providing financial and technological support to Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF).
The BIS, based on an Office of Export Enforcement (OEE) investigation, indicated that at least two Airbus aircraft were purchased by Al Naser Airlines in late 2014 and early 2015 and are now based in Iran under Mahan’s possession. The aircraft contained controlled U.S.-origin components and technologies valued at more than 10% of the aircraft’s total value and as a result are subject to the EAR due to their dual use. The investigation also showed that Ali Abdullah Alhay is a 25% owner of Al Naser Airlines and signed letters of intent and sales agreements for the aircraft. Mr. Alhay made two electronic funds transfers (EFT) in the amounts of $815,000 and $600,000, respectively. The majority of the purchase price was then paid via another EFT made by Bahar Safwa General Trading, an entity suspected of acting as a front company for Mahan, in the amount of $2.5 million in early 2015.
BIS also reported that Al Naser, Bahar Safwa General Trading, and Mr. Alhay have also attempted to obtain other controlled aircraft, including some located in the United States, in similarly patterned transactions during the same recent time period. Specifically, Mr. Alhay signed letters of intent, sales agreements and paid $450,000 commitment fee for two Airbus A320 jets. Bahar Safwa General Trading wired two EFTs in the amount of $2 million and $986,000 respectively for the same aircraft in late February 2015. OEE Special Agents detained both Airbus A320s prior to their planned export from the United States, based on the risk of diversion to Iran and specifically Mahan Airlines.
The BIS order adds Al Naser, Mr. Alhay, and Bahar Safwa General Trading to an existing Temporary Denial Order (TDO) against Iran’s Mahan Airlines. TDOs deny the export privileges of a company or individual to prevent an imminent or on-going export control violation. These orders are issued for a renewable 180-day period and also deny the designated party’s right to receive exports and re-exports from the United States or conduct other transactions that are subject to the EAR. The assets of designated persons and companies (those placed in the SDN list) are blocked and U.S. persons are generally prohibited from dealing with them.
BIS stated that adding the three named entities to the TDO was necessary to provide notice to U.S. persons and companies that they should cease dealing with these parties in export and re-export transactions involving items subject to EAR or other activities prohibited by the TDO. This action is claimed to be consistent with the public interest to preclude future violations of the EAR and prevent Mahan Airways’ efforts to evade the TDO. BIS controls exports and re-exports of commodities, technology and software to support national and foreign policy, including nuclear, chemical and biological weapons, and missile non-proliferation, human rights, regional stability, and curbing terrorism.
This enforcement action shows that the U.S. sanctions regime against Iran remains strong and vigilant, despite the preliminary agreement between the “P5+1” nations (the United States, United Kingdom, France, Russia, China, and Germany) and Iran reached in April. Furthermore the move by BIS and OFAC should serve to discourage U.S. persons and companies from dealing with similar parties and engaging in transactions that are subject to the EAR without complying with the rules. Sanctions laws have not changed yet, and April’s preliminary agreement should not distract businesses from compliance, as sanctions enforcement is still in full force. Additionally, irrespective of the contours of any agreement reached by the P5+1, U.S. authorities have largely indicated that the sanctions regime against Iran will not vanish overnight. Contrary to what is being portrayed by the media, the U.S. Federal government is still effectively enforcing sanctions against Iran. Businesses and individuals seeking to engage in transactions with Iran should revise and update compliance programs and be alert of the use of fronts and front companies. Businesses should not get ahead of themselves, and must take care to notice and comply with all the limitations that continue to exist.