United States: Treasury And Commerce Further Relax US Cuba Sanctions

On January 26, 2016, the Obama Administration released its third update to the US Cuba sanctions in the past two years. To effectuate these changes, the US Treasury Department's Office of Foreign Assets Control (OFAC) further amended the Cuban Assets Control Regulations (CACR), and the US Commerce Department's Bureau of Industry and Security (BIS) further amended the Export Administration Regulations (EAR) and its own licensing policy. Both the OFAC and BIS amendments became effective on January 27, 2016.

Despite the continued effort by the Obama Administration to create opportunities for economic engagement with Cuba, the overall commercial embargo remains in effect. This means that, absent a license or other authorization or exception, persons subject to US jurisdiction are prohibited from doing business with Cuba or a Cuban national, and the property and interests in property of Cuba or Cuban nationals remain subject to blocking (freezing). Set forth below are some highlights of the recent OFAC and BIS actions.

OFAC amendments to the CACR

OFAC revised the CACR to further "engage and empower the Cuban people," including, for example:

  • Financing and payment for authorized trade. OFAC lifted restrictions on the types of  payment and financing terms for authorized exports and re-exports, with the exception of agricultural commodities or items. Previously, the general license for authorized exports allowed only certain types of financing, such as "cash in advance" or via third country financial institutions that were not themselves the target of sanctions. The amended CACR generally authorize US depository institutions to provide various types of financing for authorized exports and re-exports of other than agricultural commodities or items, including issuing letters of credit, using collateral to confirm letters of credit and processing documentary collections.
  • Air service to and from Cuba and the US. It is now permissible for certain authorized air carrier services to enter into code share and leasing arrangements to facilitate the provision of air carrier services authorized by the general license (i.e., for the types of travel which are already permitted). Blocked space arrangements are also now authorized. These allow a code-sharing partner to buy seats on an operating partner's flights and sell them under its own name from a separate inventory. This includes entering into such arrangements with a Cuban national, meaning that it may be possible for a US company to sell seats on Cuban airlines, and for a Cuban company to sell seats on US airlines.
  • Transactions related to information and informational materials.  OFAC issued an expanded general license authorizing travel-related and other transactions directly incident to professional media or artistic productions of information or informational materials, including the filming or production of movies and television programs and music recordings. The expanded general license also covers the creation of artworks in Cuba by persons that are regularly employed in or have demonstrated professional experience in a field relevant to such professional media or artistic productions. OFAC also expanded the existing general license for informational materials to authorize transactions relating to the creation, dissemination or artistic or other substantive alteration or enhancement of informational materials, including employment of Cuban nationals and the remittance of royalties or other payments.
  • Professional meetings in Cuba. The amendments now authorize travel-related and other transactions in order to organize professional meetings and conferences in Cuba. The prior general license had only explicitly permitted attendance at such gatherings.
  • Public performances, clinics, workshops, athletic and other competitions and exhibits.  OFAC lifted restrictions on travel and other transactions related to amateur and semi-professional sports federation competitions and public performances, clinics, workshops and other athletic and non-athletic competitions and exhibitions in Cuba. There is no longer a requirement that profits from certain events be donated to a Cuban NGO or a US charity, or that certain events be organized by authorized US travelers.
  • Humanitarian projects. The list of authorized humanitarian projects within the existing general license has been expanded to include disaster preparedness and response.

BIS amendments to the EAR

BIS amended the EAR and its licensing policy to facilitate greater commercial flows between the United States and Cuba. BIS moved to a general policy of approval, as opposed to a case-by-case review, for certain types of exports and reexports. For other items, BIS moved away from a general policy of denial toward a case-by-case consideration. 

General policy of approval

BIS now has a general policy of approval—rather than case-by-case review—for exports and re-exports of the following items:

  • Telecommunications items (other than those already eligible for existing license exceptions CCD or SCP) that would improve communications to, from and among the Cuban people;
  • Certain commodities and software to human rights organizations or to individuals and non-governmental organizations that promote civil society in Cuba;
  • Commodities and software for US news bureaus in Cuba whose primary purpose is the gathering and dissemination of news to the general public;
  • Agricultural items that are outside the scope of "agricultural commodities" as defined in part 772 of the EAR (such as insecticides, pesticides and herbicides) as well as agricultural commodities not eligible for License Exception Agricultural commodities (AGR) (for instance, AGR is only usable for commodities that are EAR99; presumably, items identified under an ECCN on the CCL will stand to benefit from this licensing policy); and
  • Items that are necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air transportation, including the export or re-export of such aircraft leased to state-owned enterprises.

Case-by-case review

BIS also adopted a new case-by-case review process, instead of the prior general policy of denial, for exports and re-exports of certain items to meet the needs of the Cuban people. This includes exports and re-exports to Cuban state-owned enterprises (SOEs), government agencies and other organizations of  that provide goods and services for the use and benefit of the Cuban people. By contrast, BIS will maintain its policy of denial as to license applications to Cuban SOEs and governmental entities that primarily act to generate revenue for the Cuban government, such as those engaged in tourism and mining or resource extraction. The new case-by-case review policy includes exports and re-exports of items for:

  • agricultural production
  • artistic endeavors (including the creation of public content, historic and cultural works and preservation)
  • education
  • food processing
  • disaster preparedness
  • relief and response
  • public health and sanitation
  • residential construction and renovation
  • public transportation

BIS also adopted a case-by-case review process, instead of the prior general denial policy, for exports and re-exports of items for use in the construction of facilities for treating public water supplies, or supplying electricity or other energy to the Cuban people, sports and recreation, and other infrastructure that directly benefits the Cuban people. This new case-by-case review process also applies to exports and re-exports to wholesalers and retailers of items for domestic consumption by the Cuban people.

Conclusions

The January 26, 2016 amendments further advance President Obama's policy of easing of sanctions on Cuba without lifting the overall embargo. These regulatory changes facilitate exports that are intended to strengthen civil society in Cuba and enhance communications between the Cuban people and the international community, with the goal of building a more open and mutually beneficial relationship between Cuba and the United States.

This further relaxation of US sanctions against Cuba continues the trend toward providing expanded opportunities for persons subject to US jurisdiction to do business with and in Cuba, and to travel to the island.

Some of the changes are particularly noteworthy departures from existing policy. The thaw in US-Cuba trade has, to date, fallen firmly on the side of private enterprise in Cuba as distinguished from state-owned enterprises. The liberalized licensing policy regarding certain Cuban government entities represents a significant shift away from maintaining that distinction, and has the potential to open a significant portion of the Cuban economy to commerce with the US. In addition, the allowance for the creation and substantive enhancement of informational materials in Cuba, a common feature of "Berman Amendment" general licenses, also represents a significant change from existing practice and may present interesting opportunities for US persons and firms wishing to pursue business opportunities in or with Cuba.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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