July 7, 2016 | House Committee on Financial Services

The Implications of U.S. Aircraft Sales to Iran

Chairman Huizenga, Vice Chairman Mulvaney, Ranking Member Moore, and distinguished members of the Committee on Financial Services, Subcommittee on Monetary Policy and Trade, I am honored to appear before you today to discuss the implications of U.S. aircraft sales to Iran. In particular, I would like to focus my testimony on the threat Iran still poses, both to the region and to the international financial community, the risks in providing commercial aircraft to Iran, as well as how to best mitigate those risks. In addition, I will also speak directly to the three legislative proposals circulated by Committee staff.

As we approach the one-year anniversary of the signing of the Joint Comprehensive Plan of Action (“JCPOA”) between Iran and the P5+1, it is as important as ever to carefully examine the consequences of that agreement and Iran’s continued destabilizing activities in the region, and to remain vigilant in ensuring that Iran is limited in its ability to support terrorist forces and corrupt the international financial system.

While the JCPOA has arguably curbed Iran’s nuclear activities in the short run, the Islamic Republic continues to send fighters to Syria, develop ballistic missiles in violation of United Nations Security Council Resolutions, and openly support Hezbollah, which is well known to have killed Americans and remains designated as a Specially Designated Global Terrorist, as well as other terrorist groups and militant proxies. In short, Iran remains a threat to regional stability in the Middle East and to our key allies such as Israel.

In addition—and of particular importance to this Committee—Iran poses a special threat to the global financial system. Beginning in the early 2000s, the United States and the international community more broadly recognized this threat and began actively cutting Iranian banks out of global financial markets and limiting Iran’s ability to use the international financial system to finance its proliferation and terrorist activities.

Make no mistake. Though Iran has signed the JCPOA and begun implementing it, Iran has not changed the underlying criminal activity that has led respectable financial institutions across the world to refuse to do business in Iran or with clients doing substantial amount of business there. Indeed, one marked development in the past year has been the international financial community’s unwillingness to re-enter the Iranian market, even if legally permitted to do so.

Yet as we approach the one-year anniversary of the JCPOA and despite these serious risks, we are seeing increasing interest from Western companies to legally re-enter Iranian markets. In particular, pursuant to a Statement of Licensing Policy issued by the Office of Foreign Assets Control (“OFAC”) at the United States Department of the Treasury, both Boeing and Airbus have recently struck agreements to sell aircraft to Iran, contingent on securing approval from the United States Government.  While these sales were clearly contemplated under the JCPOA, the sale of such aircraft to Iran, and in particular to Iran Air, raises serious concerns that such planes will be used to traffic illicit arms and militants to Syria in support of Syrian President Bashar al-Assad, to Hezbollah in Lebanon, and to militants in Yemen. This fear is warranted: as recent research has shown, Iran Air—as well as still-designated entities like Mahan Air—regularly flies commercial aircraft to Syria and Lebanon that are known to—or suspected of—transporting arms, cash from illicit activities, or foreign militants. 

At the same time, there are legitimate public policy reasons to at least consider approving these sales. In particular, Iran’s commercial aviation safety record is dismal and new Boeing and Airbus aircraft and maintenance would likely reduce these horrible catastrophes that risk the lives of ordinary Iranian citizens. 

Yet any licenses issued by the Treasury Department permitting the sale of aircraft by Boeing and Airbus to Iran Air or any other government entity or private company in Iran risk not only providing the Islamic Republic with new ways to support Hezbollah and President Assad, but also of potentially signaling to the international financial community that it may be acceptable to return to doing business in the Islamic Republic, despite the fact that the underlying international security and financial crimes compliance (“FCC”) risks remain.

This Committee is right to consider legislation significantly restricting the sale of these aircraft. In any prospective sale of aircraft to Iran, the impetus must remain on Iran to prove that it is not and will not use them for illicit or dangerous purposes. In the following testimony, I suggest ways the Committee can modify the current legislative proposals to continue to pressure Iran.

Further, the United States should not be a cheerleader for these deals and should not actively help facilitate them. It is one thing to say to private industry that it can do permissible business that was bargained for in the JCPOA. It is quite another to proactively tell U.S. and foreign financial institutions—through a specific licensing process—that they can bank such activities.  Given Iran’s history of abusing the international financial system, the United States should refrain from providing legal authorization to any financial institution that wants to re-enter Iranian markets in all but the rarest of circumstances.

I will focus my comments today on four main areas. First, I will discuss the threats posed to the international financial system by Iran’s continued support for terrorism and proliferation, as well as the general risks facing any companies considering doing business in the Islamic Republic. Second, I will touch on the specific real and regulatory risks that Boeing and Airbus face when deciding whether to sell aircraft and associated services to Iran Air and other Iranian entities, as well as any financial institutions that decide to provide financial services related to the agreements. Third, I will discuss the legitimate safety concerns with the Iranian airline fleet that and how these concerns must be balanced against the financial crime and illicit activity risks inherent in providing these planes to Iran. Fourth, I will comment directly on the three proposed pieces of legislation.