This is part one of a three-part series on U.S. export compliance for aviation businesses.
Diversification is often important to a growing business, and geographic diversification is a classic way to expand your reach and help protect your business from domestic downturns. Being able to provide maintenance services and parts support to customers outside of your home country is often an important step to growth in an aviation business.
There is a complex web of regulations and relationships that affect these international transactions — and many of you have read my articles about bilateral agreements, airworthiness tags, maintenance release tags, and other features of the internal civil aviation system. But this month’s article will deal with the specific issues of export compliance that are faced by the aviation community.
Export compliance can seem complicated because there are so many different agencies that affect it. Many of us in aviation are used to dealing with just one regulatory scheme for aviation safety (the FAA’s regulations, in the United States). For export compliance, though, you typically need to be concerned about three different regulatory compliance agencies:
• Office of Foreign Asset Control, Treasury Department
• Bureau of Industry and Security, Commerce Department
• Directorate of Defense Trade Controls, State Department
There are also special situations where other agencies may get involved, but we will remain focused on these three for this article. Please note that the importing authority in your destination country will also have jurisdiction and you should work with your business partner to ensure compliance with the partner’s import laws.
One of the most important rules that I can impart to you is that navigating the export rules can be worthwhile. Many companies refuse to export because they are concerned about the penalties from non-compliance. The concern is justified, but the value that you can obtain from a healthy export trade is worth the investment that you will make in compliance. There are several strategies for compliance. We find that our clients will often rely heavily on our law firm when they first start to export, but that they eventually work with our firm to build a compliance system as they become more comfortable with compliance. The goal, of course, is to have a system that helps to guide transactions in a way that ensures full compliance.
I typically like to start my export analysis by examining the Treasury Department restrictions. The Treasury Department frequently does not restrict the export of aircraft parts but when it does it can be a serious situation. There are two areas that need to be examined for aircraft parts exports:
• Specially Designated Nationals
• Country-Based Sanctions
• Transactional Sanctions
Specially Designated Nationals are people and entities who are sanctioned by the Treasury Department. You can apply for a license to export to them, but unless there is a reason for the government to grant you a license, you might not get one. Often, once a potential business partner has been added to an SDN list, the best approach is to work to get them off of the list (assuming that they were wrongly added to the list in the first place). You can find these “SDNs” listed in the consolidated export screening list at https://www.trade.gov/data-visualization/csl-search.
The consolidated export screening list is published by the International Trade Administration and it (as the name implies), it consolidates lists of people and entities that are subject to various export restrictions. Once you’ve found someone on that list, you need to identify why the person/entity is on the list and what sort of restrictions this imposes before you can consider exporting to that person/entity.
Country-Based Sanctions — the United States issues sanctions against locations. These sanctions programs frequently include intermediate destinations (not just final destinations). You can find a list of these destinations online at the OFAC website: https://home.treasury.gov/policy-issues/financial-sanctions/sanctions-programs-and-country-information. There can be more than one program that affects a country. At present, Russia is affected by both the Magnitsky sanctions and Ukraine-related sanctions (which were imposed in response to the annexation of the Crimean peninsula). But the United States is threatening to add additional sanctions.
Read the rules carefully, as they may not impact your specific transaction. Some of the sanctions programs might forbid almost all transactions, while others might not apply to aviation transactions at all!
While most of the Treasury Department’s sanctions programs are aimed at specific countries, some of them are aimed at classes of perpetrators and classes of transactions. An example of the sort of sanctions program that the United States publishes is the program against narcotics traffickers. These programs typically result in people being added to the consolidated screening list, mentioned above, so that makes scrutiny of that list particularly important. There are also sanctions programs that target specific types of transactions, like trade in diamonds (which is not a common way to pay for aircraft parts, so I won’t say anything more about that program).
The important thing for Treasury Department compliance is to check compliance for every transaction. The rules can change fast, and a transaction that was legal one week might be illegal the next. There is a tendency for exporters to sometimes become complacent because they are used to seeing the same results every transaction. They assume that the business partner will always be unsanctioned. But in this fast-moving world, an export partner can be added to a sanctions program with relatively little public warning. In my law practice, I have represented companies whose long-time business partners were added to a sanctions list — but my client did not notice and continued to do business with the partner. Companies who come to my firm after failing to perform transactional due diligence find that the experience can be more expensive that simply installing an effective compliance program that checks the appropriate lists for every transaction.
Next issue, we will examine how to distinguish Commerce Department jurisdiction from State Department jurisdiction (an important step in your export analysis) and we will discuss compliance for aircraft parts deemed to be defense articles, under the International Traffic in Arms Regulations (ITARs). If you are looking for more guidance on how to comply with U.S. export laws, then please be sure to join us at the ASA/AFRA Conference. I will be teaching a workshop on export compliance at the ASA/AFRA Annual Conference in June. Check out aviationsuppliers.org for more information!