On September 21, 2015, the Department of the Treasury's Office of Foreign Assets Control (OFAC) and the Department of Commerce's Bureau of Industry and Security (BIS) published rules that further loosened longstanding trade restrictions between the United States and Cuba.1 As stated by U.S. Commerce Secretary Penny Pritzker, the new rules are intended, among other things, "to make it easier for Cuban citizens to trade and travel more freely, to enjoy the fruits of their labor, to access the Internet, and to be hired directly by foreign companies."2
But despite the Administration's stated goal of moving toward normalcy in Cuban trade, the new rules promise only limited benefits to U.S. commerce. Unlike many U.S. trade sanctions, which may be lifted unilaterally by the executive branch, the Cuban embargo cannot be repealed absent Congressional action, and there is no consensus in Congress on the Cuban embargo. Nevertheless, although the new regulations authorize only a few, narrow categories of transactions, they are noteworthy as the latest in a series of developments that slowly but steadily have expanded the scope of permissible trade with Cuba.
The January 16, 2015 Regulations
The September 21 amendments build on regulations issued by OFAC and BIS on January 16, 2015.3 The OFAC January 16 regulations:
- Authorized transactions, without an OFAC license, "ordinarily incident" to travel in Cuba, if the travel is otherwise permissible;
- Allowed persons subject to U.S. jurisdiction to provide travel and carrier services by aircraft to Cuba (boats would be added later);
- Permitted depository institutions to open correspondent accounts at Cuban banks to process authorized transactions;
- Expanded financing options for authorized exports to Cuba by changing financing requirements from "cash before shipment" to "cash before transfer of title and control";
- Authorized the provision of commercial telecommunications services by persons subject to U.S. jurisdiction, both within Cuba and between Cuba and other countries, including transactions "incident to the establishment of facilities, including fiber-optic cable and satellite facilities" (subject to reporting requirements); and
- Allowed certain transactions between U.S.-controlled foreign firms and Cuban nationals located outside of Cuba, so long as those transactions did not involve any exports of goods or services to or from Cuba.
The BIS regulations, issued that same day, made the following parallel changes:
- Allowed (without license) certain exports to strengthen private civil society in Cuba, including commercially sold building materials for privately-owned buildings and "[t]ools, equipment, supplies, and instruments for use by private sector entrepreneurs";
- Authorized telecommunications exports (including exports to certain Cuban government end-users) that are intended to "[i]mprove the free flow of information to, from, and among the Cuban people . . . including access to the Internet, use of Internet services, infrastructure creation and upgrades"; and
- Authorized the unlicensed commercial exports of items eligible for the Consumer Communications Devices (CCD) (previously allowed only for donated items).
The September 21, 2015 Regulations
The September 21 amendments continued to chip away at the Cuban embargo. In general, they expand upon the January 16 amendments: loosening restrictions on travel and communications, easing restrictions on cash remittances, and strengthening private civil society. Other changes, such as authorizing the provision and receipt of legal services to and from Cuban nationals, are new. A few changes are relevant to U.S. commercial interests, and worthy of note:
(1) The OFAC and BIS rules authorize U.S. persons to establish and maintain a physical presence in Cuba to engage in otherwise authorized transactions, including licensed exports and imports, and the provision of telecommunications or Internet-based services. The BIS rule also permits U.S. persons to export certain items from the U.S., without a license, to U.S. persons who have an authorized physical presence in Cuba.
U.S. businesses that decide to establish a physical presence in Cuba still face a number of issues on which the regulations provide little guidance. The OFAC regulations authorize U.S. persons to "[l]eas[e] physical premises ... and secure related goods and services," including costs of operation.4 The regulations are less clear, however, whether U.S. persons may purchase real estate to establish or maintain a physical presence in Cuba. Also, although the authorization for telecommunications and Internet-based service providers explicitly state that a "physical presence" may include forming subsidiaries, branches, and joint ventures, the regulations containing the broader "physical presence" authorization for all other U.S. companies are silent as to whether this authorization includes forming subsidiaries, branches, or joint ventures.
OFAC and BIS have issued some guidance to clarify the regulations, and more guidance is likely.5 Nonetheless, violations of trade sanctions and export controls are strict liability offenses. U.S. businesses seeking to establish a physical presence in Cuba must therefore exercise caution to protect against even inadvertent violations.
(2) U.S. persons (and foreign businesses owned or controlled by U.S. persons) are authorized to provide transportation services to Cuba without a license. The travel embargo has not been abolished, but the September 21 amendments extended the limited authorization for airline service to Cuba to vessels (including cruise lines). OFAC regulations continue to prohibit travel to Cuba for tourist purposes only, however, and authorize travel only for specific authorized purposes, such as trips to Cuba to conduct "market research," "commercial marketing," or "sales negotiation," in connection with exports of U.S. items consistent with BIS policy.6
When the OFAC amendments issued, BIS also amended its rules to authorize the "temporary"7 export of aircraft and vessels to Cuba without a license, provided that they are used in connection with authorized travel or exports. The new rules also create a case-by-case licensing policy for exports and reexports of aircraft parts and components related to aviation safety. BIS guidance states that this includes "aircraft parts and components; software and technology related to safety of flight; air traffic control, aviation communications, and aviation weather related equipment; airport safety equipment; and devices used for security screening of passengers and baggage."8
(3) Telecommunications services involving Cuba are generally authorized, but caution is important. Telecommunications is one of the few industry sectors that may be boosted by the amendments to the Cuban sanctions. As noted above, the January amendments allow commercial telecommunications providers to offer services both within Cuba and between Cuba and other countries – and these services may include fiber-optic cable and satellite facilities. The recent amendments go further – authorizing licensing agreements related to all authorized telecommunications services, as well as the marketing of services, without a license, subject only to reporting requirements. Additionally, BIS has expanded the CCD exception to include leases and loans of eligible items. As noted above, prior to this change, the CCD exception required that items had to be sold or donated.
Despite historic restrictions on doing business with the Cuban government, OFAC guidance also makes clear that companies may now engage directly with state-owned Cuban entities in connection with telecommunications-related transactions. Nevertheless, the regulations still forbid engaging with certain "prohibited officials of the Government of Cuba" and "prohibited members of the Cuban Communist Party."9 This puts to question what OFAC expects U.S. companies to do if Cuban agency practice requires that contracts be signed by a minister who is a prohibited official or Communist Party member. Where such risk is present, prior consultation with OFAC is advisable.
(4) Cuban legal counsel is authorized. Persons subject to U.S. jurisdiction may now generally provide, as well as receive, legal services to and from Cuban nationals, if these services "are not provided to facilitate transactions in violation of this part." (The regulations still require a license to provide legal services to prohibited government officials and Communist Party members.)
(5) Bank accounts may be opened for authorized transactions. The OFAC amendments permit any person subject to U.S. jurisdiction to open bank accounts in Cuba for authorized transactions. Subject to certain exceptions, this includes online payment platforms. Nevertheless, OFAC regulations do not require any financial institution to process payments. In a strict liability regime, some banks have refused to process any transactions with sanctioned countries, legal or not. It is not yet clear how U.S. and Cuban banks will respond to these changes in the rules.
Cuba is a poor country. News reports, with apparent reference to Cuban government statistics, indicate that per capita income may hover around $20 a month. Reports also indicate that even U.S. businesses otherwise well-positioned to do business in Cuba face obstacles imposed by the Cuban legal system. Against this backdrop, the OFAC and BIS regulations may have limited practical value for U.S. companies seeking to do business in Cuba.
Telecommunications firms appear to have some openings, as do firms supporting small private businesses. The OFAC amendment authorizing legal services from Cuban lawyers may also prove to be key for U.S. businesses that will struggle to navigate the Cuban legal system in establishing a presence in Cuba. In all cases, however, U.S. companies exploring business opportunities in Cuba need to review the regulations – and monitor changes – to avoid both disappointment as well as surprises.
1.The OFAC rules are available at http://www.gpo.gov/fdsys/pkg/FR-2015-09-21/pdf/2015-23587.pdf. The BIS rules are available at https://www.bis.doc.gov/index.php/forms-documents/doc_download/1294-80-fr-5898-enhancing-support-for-the-cuban-people.
3.The OFAC rules are available at http://www.gpo.gov/fdsys/pkg/FR-2015-01-16/pdf/2015-00632.pdf. The BIS rules are available at http://www.gpo.gov/fdsys/pkg/FR-2015-01-16/pdf/2015-00590.pdf.
4.One thing is clear: The regulations authorizing the establishment and maintenance of a physical presence in Cuba expressly exclude establishing a presence in Cuba for the purpose of providing "lodging services" (e.g., hotels). That will still require a license, and there is no guarantee that licenses will be approved. Note to id. § 515.573(b)(7).
5.The BIS Guidance is available at https://www.bis.doc.gov/index.php/forms-documents/doc_download/1292-bis-cuba-consolidated-faqs-final-091715. The OFAC Guidance is available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_new.pdf.
6.31 CFR § 515.560.
7.Under the regulations, a vessel or aircraft may remain in Cuba for no more than 14 days to qualify as "temporary." Note to 31 C.F.R. § 740.15(d).
8.BIS Guidance at 13 (FAQ No. 37).
9.31 C.F.R. § 515.542(c). "Prohibited officials of the Government of Cuba" is defined at id. § 515.337. "Prohibited members of the Cuban Communist Party" is defined at id. § 515.338.
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