United States: US Revises Cuba Sanctions Regulations To Further Normalize Trade With Cuba

On September 18, 2015, the US Department of Treasury and US Department of Commerce released significant revisions to the US embargo on Cuba, as set out in the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR). These changes will loosen a number of trade sanctions currently in effect. Among other things, the revised regulations permit US businesses to establish operations in Cuba in certain circumstances, relax controls on travel and remittances to Cuba, authorize commercial and financial transactions with Cuban nationals outside of Cuba, and expand opportunities for US firms to provide telecommunications services to Cuba. The changes took effect on September 21, 2015.

The revised Cuba sanctions regime

The US has long had one of the most extensive sanctions regimes with respect to Cuba. Many of the prohibitions set out in the CACR apply not only to US individuals and entities, but also to the overseas subsidiaries of US entities.1 The CACR has moreover prohibited transactions with Cuban nationals even where they are located outside of Cuba. The revisions to the CACR and EAR roll back many of these prohibitions.

The key changes set out in the revised CACR and EAR are as follows:

Establishing a presence and opening accounts in Cuba. Persons subject to US jurisdiction who are now authorized to engage in trade with Cuba will also now be able to establish a physical presence in Cuba and open bank accounts in Cuban banks. Thus, persons who have been authorized under the revised CACR to trade with Cuba will also now be able to open an office, hire Cuban nationals and open a Cuban bank account. They will also be permitted to conduct marketing activities in connection with their presence in Cuba. Companies that may establish a physical presence in Cuba under this new rule include companies facilitating permitted exports (including certain consumer communications devices, construction supplies and equipment to the private sector, agricultural equipment to the private sector, and supplies, equipment and tools for private sector entrepreneurs); as well as companies involved in mail, parcel and cargo transportation; telecommunications services (see below); news; travel services; and entities engaging in authorized educational and religious activities.

Transactions with Cuban nationals outside of Cuba. All persons subject to US jurisdiction will now be permitted to provide goods and services to Cuban nationals located outside of Cuba. Under the revised CACR, moreover, banking institutions—whether or not subject to US jurisdiction—will also be allowed to open, maintain and close bank accounts for these Cuban nationals without risk of US sanctions.

Financial transactions. The revised CACR loosens restrictions on sending money to or from Cuban nationals, whether located in or outside of Cuba. Cuban nationals may now make remittances to persons subject to US jurisdiction, and vice versa, without a cap on the amount, so long as neither the sender nor receiver is a prohibited official of the government of Cuba or the Cuban Communist Party. The revised CACR furthermore eliminates the limitation on remittances that may be carried on one's person back to Cuba. Where remittances are currently blocked (such as because the remittances were over the limitation), the revised CACR establishes a general license that would allow these to be unblocked. Cuban nationals lawfully present in the United States (in a non-immigrant status, or pursuant to other non-immigrant travel authorization) may now also open and maintain bank accounts without having to close them prior to their departure.

Expansion of telecommunications services. The revised CACR also rolls back prohibitions in the telecommunications and Internet sector, expanding the list of services now permitted to be exported or re-exported to Cuba with regard to consumer communications devices under the EAR, including with respect to software design, business consulting and IT management services. The CACR also now authorizes training related to the installation, repair or replacement of those permitted items. As noted above, persons subject to US jurisdiction who are engaged in providing telecommunications and Internet-based services may now establish a presence and open a bank account in Cuba. The revised CACR also authorizes these persons to enter into license agreements and to market services, and permits the import of Cuban-origin mobile applications and the employment of Cuban nationals to develop such applications.

Travel. New general licenses will be available for direct travel between the US and Cuba, and for travel for close relatives to visit or accompany authorized travelers on a number of different grounds, such as educational activities, journalistic activity, professional research and religious activities, as well as activities related to humanitarian projects and activities of private foundations or certain research or educational institutes. Notably, however, the US continues to prohibit general tourism travel to Cuba.

Exports. The EAR license exception Support for the Cuban People (SCP), which was created in January 2015, has been expanded.2 Exception SCP is now adapted to facilitate the various trade opportunities allowed under the revised CACR. Accordingly, SCP will now authorize a range of new exports and re-exports, including exports and re-exports of items to Cuba for use in establishing, maintaining and operating a physical presence in Cuba by authorized end-users, i.e., persons providing permitted telecommunications or Internet-based services, travel services, etc. Previously, the SCP was limited to sales and donations transactions; it will now be expanded to other types of transactions, such as leases and loans.

The EAR will also be amended to facilitate export of certain items relating to civil aviation and vessels, as well as the temporary sojourn in Cuba of certain vessels. License exception Aircraft, Vessels and Spacecraft (AVS), which allows export of equipment, spare parts for permanent use on a vessel or aircraft, and ship and plane stores, will now be available for use to Cuba, provided any items exported are designated as EAR 99 or controlled only for anti-terrorism (AT) reasons. The Bureau of Industry and Security (BIS) will also now permit use of the exception for temporary sojourn in Cuba of cargo and commercial passenger vessels, as well as recreational vessels if used in connection with travel authorized by the Office of Foreign Assets Control (OFAC).

In addition, BIS will now evaluate on a case-by-case basis license applications to Cuba relating to improving the safety of civil aviation, such as for aircraft parts and components relating to safety, weather observation stations, airport safety equipment and commodities used for security screening of passengers. Until now, BIS has applied a policy of denial to such license applications.

Other. Building on President Obama's December 2014 announcement and the January 2015 changes, the revised CACR also loosens prohibitions in the following areas:

  • Legal advice. The revised CACR permits persons subject to US jurisdiction to provide—and be paid for—the provision of legal services to Cuba and Cuban nationals, with regard to legal advice on US law, so long as the advice is not in furtherance of transactions violating the CACR.
  • Mail and cargo. The revised CACR allows persons subject to US jurisdiction to provide mail and cargo services, as well as remittance forwarding services, for authorized services.
  • Educational activities. The revised CACR expands the scope of authorized educational activities, including standardized testing services and Internet-based courses to Cuban nationals, and also authorizes academic exchanges and joint non-commercial academic research between US and Cuban universities.
  • Air ambulances. The revised CACR authorizes air ambulances to travel to and from Cuba to evacuate individuals requiring medical care.
  • Gifts. The revised CACR will allow goods from Cuba or Cuban-origin goods that are intended as gifts to be sent to the United States, under certain circumstances.
  • Humanitarian projects. The revised CACR expands humanitarian projects to include disaster relief and historical preservation missions.
  • Cuban official missions. The revised CACR authorizes fund transfers on behalf of official missions of the government of Cuba in the United States.
  • New section to permit transactions "ordinarily incident" to a licensed transaction. The revised CACR adds a new section 515.521 to authorize any transaction ordinarily incident to a licensed transaction and necessary to give effect to such licensed transaction. In its new guidance, the Office of Foreign Assets Control provides the example of a payment made using an online payment platform for authorized transactions.

Implications

With its historical ties, close proximity to US shores and US$68 billion economy, Cuba may prove to be a significant market for a number of US businesses. Under the revised CACR, this market is now more open to US citizens and residents, US businesses as well as US businesses' overseas subsidiaries. Certain companies that are permitted to export items or services to Cuba now have a path by which they might establish a greater commercial foothold in that country. The telecommunications, banking and travel sectors in particular benefit from the revisions to the CACR. In addition, it is not unreasonable to expect that the expanded authorizations of financial transactions with Cuba may make it easier for US persons or entities lawfully conducting business in or traveling to Cuba to access US accounts—an issue that has reportedly presented challenges to US travelers.

At the same time, the general commercial embargo remains in effect, and any transaction not authorized under the CACR or a general license will require a specific license from OFAC. Thus, for example, while travel to Cuba may now be significantly easier, travelers subject to US jurisdiction must still ensure their travel is valid under the CACR or general license, and ordinary tourism remains banned. This is reflected in the revised CACR section authorizing travel to Cuba for market research, commercial marketing, sales negotiation, accompanied delivery, installation or servicing, which still retains its caveat: "provided that the traveler's schedule of activities does not include free time or recreation in excess of that consistent with a full-time schedule."

Although the changes to the CACR and EAR are significant, the long-term trajectory of US-Cuba trade normalization and corresponding trade relief remains uncertain. This trajectory will likely depend as much on the next US president as the current one, and the topic of Cuba sanctions can be expected to surface in the coming months as the various US presidential candidates establish their positions on foreign policy. As noted in our earlier client alert, moreover, a number of Cuba sanctions are pursuant to statute. It will take an act of Congress to reverse these prohibitions. Businesses entering the Cuban market should therefore be prepared to navigate a shifting regulatory landscape.


1 The CACR defines "persons subject to the jurisdiction of the United States" to include not only US citizen or resident individuals (wherever located), persons physically in the US and entities organized under US law, but also any non-US entity owned or controlled by US individuals or US-organized entities.

https://www.federalregister.gov/articles/2015/01/16/2015-00590/cuba-providing-support-for-the-cuban-people

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