Wednesday, 16 June 2004

USA government requires airline passenger licenses

Following an unpublished and bizarre interpretation of its economic sanctions laws, the USA government is requiring USA citizens and residents already holding fully-paid tickets on the Peru-based international and domestic airline Aero Continente to obtain licenses from the USA government before they are permitted to use their tickets.

And if they can’t or don’t have time to get a license, the USA is forcing would-be travellers to donate the value of their outstanding tickets to someone the USA has designated as a “drug trafficker”.

How could this be?

On 1 June 2004, the USA Department of the Treasury’s Office of Foreign Assets Control announced its designation of Aero Continente (including a list of its offices and subsidiaries in Peru, the USA, and other countries) as “specially designated nationals” (SDN’s) subject to USA economic embargoes and/or sanctions:


The following have been added to OFAC’s SDN list as significant foreign narcotics traffickers ([SDNTK]s) under the Foreign Narcotics Kingpin Designation Act…:


According to OFAC’s overview of U.S. sanctions against those designated as drug traffickers:

U.S. persons are prohibited from engaging in any transaction or dealing in property or interests in property of [SDNTK]s and from engaging in any transaction that evades or avoids the prohibitions of the Kingpin Act. These prohibitions affect trade transactions as well as accounts, securities, and other assets.

So it’s fairly clear that USA law now forbids travel agents in the USA from selling tickets on Aero Continente (which until earlier this year operated flights to and from Miami), and forbids people subject to USA jurisdiction (including USA citizens, residents, and people in the USA at the time of ticket purchase) from buying tickets on Aero Continente as long as the airline is designated by OFAC as a “drug kingpin”.

But what about all the people who already have tickets, purchased before 1 June 2004, for future Aero Continente flights?

Despite determined efforts, I can’t tell. And the fact that I can’t tell epitomizes the dilemna faced by innocent travellers who bought tickets on Aero Continente before its listing by the USA as a “specially designated person” subject to economic sanctions effective 1 June 2004.

A woman who would identify herself only as “Erin” who answered OFAC’s telephone “Compliance Hotline” at +1-202-622-0447 told me today (I’ve been trying to get through for days, and it took me almost an hour on hold) that USA citizens or residents holding tickets on Aero Continente — even tickets already fully paid for, and even tickets purchased for them by third parties — would have to apply to OFAC for a license to use their tickets, or to submit their tickets for refund!

You’d hope that OFAC — one of whose most contentious responsibilites is the enforcement of the USA government’s restrictions on travel to Cuba — might have some understanding of airline booking and ticketing procedures. Instead, OFAC’s guidance to Aero Continente ticket-holders, and travel agents, evidences the most typical misconceptions of naive industry outsiders.

It’s bad enough (albeit common) to speak of “booking a ticket”, confusing the discrete actions, either of which can come before the other and be performed by different people, of making a booking (reservation), and buying or issuing a ticket. (That’s the same sort of naiveté as that of the Transportation Security Administration when it assumed, in developing its CAPPS-II airline passenger profiling and monitoring plans, that reservations are created all at once, not built gradually, in a single transaction in which passenger information is entered directly by the airline, not through a chain of intermediaries including travel agents and computerized reservation systems.)

But it’s harder to understand how OFAC, or anyone else, could fail to distinguish the transaction between the purchaser and the airline or travel agent when a ticket is bought and issued, and the various actions (making, changing, and reconfirming reservations; reporting the numbers of issued tickets to the airline; requesting seat assignments, special meals, or other services; checking luggage; and actually travelling) that later occur in fulfilment of that contract. Quite simply, buying and selling or refunding a ticket is a transaction. Using the ticket isn’t a transaction, and in itself involves no exchange of money.

It’s quite common — especially when one person pays for tickets for an entire family or other group — for the ticket holder and intended passenger not even to be a party to the contract between the purchaser and the airline, but only a third-party beneficiary of that contract.

Even more inconsistently, Erin at OFAC told me that ticket holders can, without a license, avail themselves of other Aero Continente services: they can make reservations if they have open or freely changeable tickets (so that there is no additional fee for the reservations), they can reconfirm reservations, they can request special meals or other services. Everything except actually boarding the plane, or submitting their ticket to the airline or an agent with a request that a refund be made to the purchaser.

Erin at OFAC said she was reading from an internal OFAC e-mail message providing guidance on how to handle Aero Continente tickets. But she told me I’d have to request it under the Freedom Of Information Act if I wanted to see it in writing, and she warned me that FOIA requests, even if approved, would take “a long time” — probably longer than any of my clients could afford to wait to find out whether they need a license to travel.

Erin referred all further questions to OFAC’s Licensing Division +1-202-622-2480, but they have yet to return my calls.

It’s clear that OFAC is presuming air transport to be a “transaction” between the airline and the passenger, occuring at the time of travel, when the plain language of every airline contract of carriage, and decades of interpretation, are that the contract is between the airline and a purchaser who is not necessarily one of the passengers, and which is entered into when a ticket is purchased, up to a year before transportation services are provided. Providing transportation is the fulfilment of a contractual obligation, not the creation of a contract.

Under OFAC’s interpretation, a USA citizen or resident can’t legally, without a license, actually require Aero Continente to provide the transportation services for which the airline has already received full payment. Nor can the purchaser request a refund. Their only legal option under USA law, as OFAC is interpreting it, is to fail to check in for their ticketed flight(s) and, as a no-show, forfeit any eligibility for refund, even if Aero Continente should later be removed from the SDN list or even if OFAC later gives permisison to seek a refund.

So the effect of OFAC’s “sanctions” is to expropriate the fares already paid by USA citizens and residents to Aero Continente, forcibly transfer the value of outstanding tickets to the “drug kingpin” as a windfall profit, and absolve the “embargoed” entity of any liability for providing the travel services for which they’ve been paid.

[Update: OFAC eventually granted what purported to be “licenses” for US persons holding tickets on Aero Continente to cancel their reservations and request refunds. But these “licenses” were approved only after all of these reservations had expired unused and the ticket purchasers had forfeited their eligibility for refunds for “no-show” passengers. Relying on the advice we were given by the first person we spoke to at OFAC, the travel agency where I work, , applied for licenses, in several batches as we assembled the necessary documentation, on behalf of itself and all its clients holding tickets issued by or for travel on Aero Continente. A week after my first conversation on 16 June 2004 with “Erin” at OFAC’s “Compliance Hotline, I got a call on 23 June 2004 from someone who said his name was “Lee Miller” and that he was an “Enforcement Investigations Officer” with OFAC +1-202-622-2430. I had contacted OFAC to try to find out how to comply with the law, but I gather that automatically made me the subject of an enforcement investigation, as though I was trying to find out how to violate the law. Anyway, almost a year later, received a batch of identical formal responses in May and June 2005, granting our applications in part and denying them in part. According to the OFAC staff attorney working on our applications, who kept in touch with me throughout the process, no one had ever asked which specific actions by a travel agency or holder of tickets on an airline embargoed by OFAC would or would not be permitted, with or without a license. So our applications prompted a prolonged policy-making process within OFAC, and set a precedent OFAC will likely follow in future cases. The one major question I didn’t dare even ask OFAC, and which therefore remains outstanding, is whether it is permitted, under the sanctions, for a customer, ticket holder, or travel agent to visit the Web site of Aero Continente or a similar entity.]

[Follow-up, 7 November 2006: My comments submitted to ICANN on how this could affect which Internet domain names can be used for travel purposes prohibited in the USA.]

Link | Posted by Edward on Wednesday, 16 June 2004, 11:18 (11:18 AM)

Very informative blog. Thanks for the updates.

Posted by: John B. Koch, 18 March 2011, 03:08 ( 3:08 AM)
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