100 Russian aircraft, including oligarch jet identified by US

The US Commerce Department, through its Bureau of Industry and Security (BIS) moved to identify 100 Russian commercial and private aircraft with the intention to effectively ground them, as a response to Russia’s further invasion of Ukraine.

The planes have recently flown to Russia in what BIS qualifies as “apparent violations” of US export controls (Export Administration Regulations or EAR).

BIS has publicly identified the aircraft from third countries to Russia, all of which are owned or
controlled by, or under charter or lease to, Russia or Russian nationals, and has listed them accordingly.

Some of the already identified planes include a private jet owned by sanctioned Russian businessman Roman Abramovich. About 50% of the commercial planes listed are either owned directly by Russia’s national flag carrier Aeroflot, or its subsidiaries. Other operators include freight airliner AirBridgeCargo, cargo charter airline Avistar-TU, leisure airline Nordwind, and charter airline Azur Air.

BIS has emphasized that this list is not exhaustive and the restrictions also apply in any situation in which a person has knowledge that a violation of the EAR has occurred, is about to occur, or is intended to occur in connection with an aircraft or other item that is subject to the EAR, whether or not such aircraft or other item is included on this list.

This list will be updated, so BIS does expect relevant parties to keep checking additions to the list.

“Today, the Department of Commerce is demonstrating the power and reach of the actions we
took over the past few weeks in response to Russia’s brutal war of choice against Ukraine,” said
Secretary of Commerce Gina M. Raimondo. “We are publishing this list to put the world on
notice—we will not allow Russian and Belarusian companies and oligarchs to travel with
impunity in violation of our laws.”

 

Prohibited Aircraft Services

In this week’s notice BIS is clearly notifying the public that providing any form of service to these aircraft requires authorization. By preventing these aircraft from receiving any service, for example including from abroad, the intent is to effectively ground international flights from Russia on these aircraft.

Prohibited services include, but are not limited to:

  • refueling
  • maintenance
  • repair,
  • the provision of spare parts or services, as per the prohibitions outlined in General Prohibition Ten of the EAR (Section 736.2(b)(10)), which provides:

(10) General Prohibition Ten – Proceeding with transactions with knowledge that a
violation has occurred or is about to occur (Knowledge Violation to Occur). You may
not sell, transfer, export, reexport, finance, order, buy, remove, conceal, store, use, loan,
dispose of, transport, forward, or otherwise service, in whole or in part, any item subject
to the EAR and exported or to be exported with knowledge that a violation of the Export
Administration Regulations, the Export Administration Act or any order, license, License
Exception, or other authorization issued thereunder has occurred, is about to occur, or is
intended to occur in connection with the item.

Nor may you rely upon any license or License Exception after notice to you of the suspension or revocation of that license or exception. There are no License Exceptions to this General Prohibition Ten in part 740 of the EAR.

Absent such authorization, any person anywhere—including within Russia—risks
violating the EAR and would be subject to BIS enforcement actions which could include
substantial jail time, fines, loss of export privileges, or other restrictions.

Effective February 24, 2022, BIS imposed expansive and stringent controls on aviation-related

items destined for Russia, including a new license requirement for specified aircraft or aircraft
parts.

Effective March 2, 2022, BIS imposed similar controls on Belarus, including the new BIS
license requirement. As a result, any aircraft manufactured in the United States, or that is
manufactured in a foreign country and includes more than 25% U.S.-origin controlled content, is
subject to a license requirement if such aircraft is destined for Russia.

Sanction & Export Control Evasion Schemes:

Earlier this week, we reported that Russia had implemented a new law making it harder for foreign aircraft leasing companies to repossess their planes in the face of Western sanctions.

The new law would allow foreign jets to be registered in Russia “to ensure the uninterrupted functioning of activities in the field of civil aviation”, effectively “kidnapping” 515 jets leased from Western countries by Russian airlines worth about $10bn (£7.7bn).

Kidnapping aircraft is one thing, and keeping them operational and airworthy is quite another.

With plane-makers Boeing & Airbus suspending parts, maintenance and technical support to Russia in line with international sanctions, together with a complete closure of European, US, & Canadian airspace to Russian airlines, the country’s aviation industry will need to get creative for the parts and maintenance required to keep its planes in the air.

Aircraft Spare Parts

When half of the Islamic Republic’s civilian aircraft fleet was grounded, US sanctions likewise prevented Iran carriers from purchasing spare parts.  As a result, Iran has been forced to supply its aircraft parts on the black market. As its aircraft are not getting any younger, the spare parts needed for maintenance are often procured through overseas networks willing to work around US sanctions. These networks are not necessarily “pro” that particular government. In most cases they are simply driven by the lucrative opportunity and either fail to consider the risks of getting caught or wrongly assess the risk of getting caught as minimal.

It would be wrong to think people willing to circumvent sanctions are necessarily based in “friendly” countries of the country subject to sanctions. Quite the opposite, often they will operate from the very countries where the parts are manufactured, and export-restricted.

The might operate as simply as a home office, operating a legitimate business which trades in aircraft parts. The parts may then be repackaged and shipped to seemingly legitimate front companies located in “neutral” countries. A network of co-conspirators will then re-forward them on to the actual end user/sanctioned airline.

The money for the purchases usually flows between 3-4 countries camouflaged within a complex web of shell/front companies and pseudonymous bank accounts designed to confuse investigators and hide the true identities of the end users.

These extensive arrangements, obviously, come at a premium, making parts far more expensive, and OEM aircraft parts procured on the black market can cost 10 times their normal retail price, with every participant in the network taking their cut in the process.

Aircraft Services

As far as servicing sanctioned airlines, OFAC has in the past taken action against three Mahan Air (Iranian airline) GSAs in markets across the Middle East and Asia. GSAs are third parties that provide services to an airline under the airline’s brand. These services range from sales, financial, administrative, and marketing services to freight reception and handling.

On July 23, 2019, OFAC issued an advisory to inform the international civil aviation industry of potential exposure to U.S. government economic sanctions for providing unauthorized support to designated Iranian airlines. OFAC warned the aviation community of the sanctions risk for individuals and entities that choose to maintain commercial relationships with Mahan Air and other Iranian designated airlines.

I would expect that OFAC will likewise issue a separate warning pertaining to Russia, so it would probably be prudent to follow OFAC’s earlier guidance on the subject:

In addition to GSA services such as ticketing and freight booking, the industry should conduct due diligence for other activities that, when conducted for or on behalf of a designated person, may be potentially sanctionable.  Such activities may include reservation and ticketing services, procurement of aircraft parts and equipment, maintenance contracts, airline grounds services, catering, interline transfer or codeshare agreements, and refueling contracts.

Some Red Flags Indicators

Some relevant red flag indicators of Russia sanction/export controls evasion can be found in FinCEN’s recent “High value assets” and “Vigilance for Potential Russian Sanctions Evasion Attempts” advisories, as well as in BIS’ “Red Flag Checklist” and “Know Your Customer Guidance.

Compliantly LLC is as a consultancy engaged in compliance that has been trusted by clients to provide advisory to mitigate sanction and export control violations, including ,risk assessmentswhistleblowing systemsdue diligencepolicies and training . Protect your company, contact us for more information on our compliance services.

Leave a Reply

%d bloggers like this: