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Europe Opens Routes for Sanctioned Iran Airline: Flying the Too-Friendly Skies?

On June 20, 2016, you will be able to take a non-stop flight from Tehran to Paris . . . but you probably shouldn’t.

According to its website, the Iranian airline Mahan Air will add the City of Lights to the list of European destinations it is already serving, including Athens, Copenhagen, and Dusseldorf. What makes the current and proposed Mahan routes interesting to regulatory experts is that Mahan Air is on the U.S. Treasury’s Specially Designated Nationals (SDN) list. According to the Treasury’s Office of Foreign Assets Control (OFAC), Mahan Air has moved troops and equipment for the Iranian Revolutionary Guard Corps and has provided support and transport to the Assad regime in Syria.

As you would expect, U.S. persons are prohibited from any transactions with an SDN, but the sanctions go further than that. Non-U.S. persons who transact with SDNs may themselves become subject to U.S. sanctions, either as so-called sanctions evaders or as SDNs. In March, OFAC designated two UK businessmen, Jeffrey Ashfield and John Meadows, as SDNs because those men assisted Mahan Air to secure millions of dollars in financing and U.S.-origin aircraft parts. As a result, all of Mr. Ashfields’s and Mr. Meadows’s U.S. assets were frozen and no U.S. person, including U.S. banks, may do business with the men or the companies they own.

So what’s going on in Paris?

In order for an airline to open a new route to a city, that city’s airport authority typically enters into a contract to sell landing rights to the airline.[1] Charles de Gaulle airport is owned by Paris Aéroport, a public-private partnership that is majority-owned by the French Government. Mahan would also require contracts with ground services companies in order to operate its current and proposed European routes.

That means multiple large European companies, including state-owned entities, are contracting with a known SDN. The companies are too large and sophisticated to be unaware of the regulatory risk contracts with Mahan Air entail. Therefore, it appears that the companies are taking a calculated risk that they will be able to do business with an SDN and not be sanctioned.

So if the EU companies are aware of the regulators, are the regulators aware of them?

In his testimony before the House Foreign Affairs Committee,[2] Acting Treasury Undersecretary Adam Szubin stated that he begins every meeting with European leaders by insisting that Mahan Air should not be allowed to operate in Europe as if it is a “legitimate airline.” However, when Mr. Szubin was pressed for details on whether OFAC will sanction companies doing business with Mahan for their activity, Mr. Szubin declined to speculate on whom OFAC will target for sanctions.

The Iran nuclear agreement continues to bring new opportunities for European companies (and other non-U.S. companies) to conduct legitimate business with Iran. However, in the absence of clear lines from U.S. regulators, substantial risks arise with every choice a company makes with respect to Iranian business. As noted in our article, many multinational banks are taking a conservative line and hesitating to take on even some lawful business with Iran. On the other hand, it appears that CDG and other European companies are willing to push the boundaries as in the case of Mahan Air, undertaking transactions where they see the potential gain outweighs the peril of punishment under U.S. sanctions.

When doing business in Iran, companies large and small must assess their opportunities in light of their own risk tolerance. We believe companies are best equipped to make that assessment,  and thereby maximize their opportunities, when they are well informed about the potential liability they face and the chances of that liability manifesting. We recommend that any company considering business in Iran or with Iranian companies consult with an expert and carefully calibrate what exposure it is willing to take on for the potential profits to be won in newly-opened Iranian markets.


[1] We understand that airlines will sometimes sell landing rights to other airlines on the secondary market. If that is the case with Mahan Air in Paris, then a major air carrier may also be subject to U.S. sanctions. However, we were unable to uncover how Mahan Air obtained its landing rights and our concern is sanctions analysis rather than journalism, so we will assume for this piece that Charles de Gaulle sold the landing rights directly to Mahan Air.

[2] At about the 52-minute mark of the video found at: https://foreignaffairs.house.gov/hearing/hearing-iran-nuclear-deal-oversight-implementation-and-its-consequences-part-ii

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Reid Whitten, partner, Sheppard Mullin Law Firm
Partner

Reid Whitten works with clients around the world to plan, prepare, and succeed in global business transactions.

In the areas of U.S. and international sanctions, export and defense export controls, and anti-corruption regulations, he supports clients in detecting and deterring potential compliance issues as well as conducting and defending investigations and enforcements. Mr. Whitten also advises on anti-dumping, anti-money laundering, and anti-boycott regulations.

Mr. Whitten is a thought leader on cross-border business regulations. He teaches a seminar on The Law of...

202-469-4968
J. Scott Maberry, Lawyer, Sheppard Mullin, International Trade, Trade Practice
Partner

Mr. Maberry is an International Trade partner in the Government Contracts, Investigations & International Trade Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Mr. Maberry's expertise includes counseling and litigation in export controls, the Foreign Corrupt Practices Act (FCPA), anti-terrorism, economic sanctions, anti-boycott controls, and Customs.  He also represents clients in negotiations and dispute resolution under the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and other multilateral and bilateral agreements.

202-469-4975