Example: High risk scenarioA producer of electric engines based in EU Member State A19 intends to sell a set of electric engines to an Iranian customer, a state-owned airline. The contract includes warranty and spare part delivery. A factory in EU Member State B would carry out warranty repairs. The contractual volume amounts to EUR 5 million. The Iranian airline operates aircraft for cargo and civil transportation. The engines are required for the installation in passenger aircraft. The goods are to be delivered “ex works” and the payment is to be transferred to the bank account (held in EU Member State C) of the electric engines producer (based in EU Member State A). Technical engineers from the electric engine producer shall provide trainings and assist in case of technical matters. During the course of the establishment of a business relation and several visits in Iran, the electric engine producer has heard rumours that one of the board members of the Iranian airline has ties to the Iranian Revolutionary Guard Corps, which is listed under EU restrictive measures.
In this high risk scenario (see question 12
), an EU-based electric engine producer has to check whether electric engines are dual-use goods and whether it needs to apply for a certificate at the export control authority of the EU Member State in which it is based. The export control authority supports the electric engine producer with background information regarding the target, an Iranian airline. The combination of several factors (i.e. rumours that the Iranian airline potentially has links to an entity that is subject to EU restrictive measures, the type of goods and the contract value) may indicate a high risk transaction for the electric engine producer.
Because of the high risk attributed to this transaction, a level III due diligence is recommended, especially in case of potential ties to the Iranian Revolutionary Guard Corps (IRGC).
Interviews with experts and competitors in the relevant Iranian business environment as well as with target’s management may allow gathering relevant information. Such interviews could reveal information on the company’s reputation and identify ties to persons subject to EU restrictive measures. The electric engine producer likely needs to assign a third-party consultant to run the appropriate background checks. Furthermore, the identification of the stakeholders of the Iranian airline and the individual(s) actually controlling the company would be challenging.
In this case, the background checks have revealed that a board member of the Iranian airline is a consultant to the board of a sanctioned entity but has no official position as a representative and no control on daily operations of the sanctioned entity. Further due diligence and background checks have yielded no results. Some litigation cases in the past as well as some financial matters have come up during the checks but without any impact on the specific deal with the electric engine producer.
Consequently, the electric engine producer could proceed with the deal and apply for the certificates and guarantees.
19. Note that all practical examples are fictitious and do not relate to existing persons or businesses.