United States: US Implements Key Changes To Cuba Sanctions Financial Transactions And Travel Provisions

Effective November 9, 2017, the US Department of Treasury's Office of Foreign Assets Control (OFAC) and the US Department of Commerce's Bureau of Industry and Security (BIS) amended the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR), respectively, implementing the changes to the Cuba sanctions program initially unveiled by President Donald Trump on June 16.1

The newly amended Cuba sanctions program adds significant restrictions relating to financial transactions and travel by persons subject to US jurisdiction.2 In particular:

  • Persons subject to US jurisdiction may not engage in direct financial transactions with persons and entities on the US Department of State's List of Restricted Entities and Subentities Associated with Cuba (the "Cuba Restricted List").3
  • Persons subject to US jurisdiction may no longer engage in individual educational travel to Cuba.
  • The list of "prohibited officials of the Government of Cuba,"4 with whom persons subject to US jurisdiction are restricted from certain dealings and who are not eligible to receive items under certain EAR license exceptions, has been significantly expanded.
  • License applications to export items for use by entities on the Cuba Restricted List will be subject to a general policy of denial.
  • The types of items eligible for export under License Exception SCP (Support for the Cuban People) has been expanded.

Any person or company engaged in transactions involving Cuba, or planning to do so in the future, will need to assess the implications of these new restrictions to ensure compliance.

Background of Cuba sanctions program and recent developments

The US has maintained a comprehensive trade embargo against Cuba since shortly after the Cuban Revolution. The CACR generally prohibits persons subject to US jurisdiction from engaging in commercial transactions with the government of Cuba, Cuban entities and Cuban nationals, as well as from traveling to Cuba, with certain exceptions.

In 2009, and again in 2015, the Obama administration significantly eased travel restrictions by issuing general licenses covering 12 authorized categories of travel. The Obama-era policy changes also made it easier for US persons to support the Cuban people and private sector by relaxing, among other things, restrictions on financial transactions ordinarily incident to authorized activity involving Cuba and licensing requirements for exports of certain categories of goods to Cuban individuals or private-sector entrepreneurs.

While persons subject to US jurisdiction remain prohibited from traveling to Cuba for purely tourist reasons, general licenses authorize travel for 12 broad categories.5 Despite the easing of sanctions, transactions with or involving Cuba or Cuban nationals have remained significantly restricted.

In June 2017, President Trump announced a new Cuba policy in a National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba (Cuba NSPM). The stated aim of the Cuba NSPM was to exert pressure on the Cuban government to address its civil and human rights abuses by ending economic practices that disproportionately benefit the Cuban government and military. To that end, the new policy directed a move away from the relief implemented by the Obama administration by narrowing the scope of authorizations to support only the Cuban people and the Cuban private sector. You may read our alert on the Cuba NSPM here. Under the Cuba NSPM, OFAC was to issue revised regulations to implement this new policy within 30 days; however, it did not do so until November 9.  

New transaction restrictions

Persons subject to US jurisdiction are now prohibited from engaging in "direct financial transactions" with entities on the Cuba Restricted List, which the State Department published on November 8.6 That list includes 180 entities and sub-entities that have been deemed to be under the control, or acting on behalf of the Cuban military, intelligence or security services. It includes not only government agencies, but also marinas, tour agencies, shops and hotels, and includes the Cuban locations of a number of international brands such as H10, Iberostar, Kempinski, and Meliá.

A "direct financial transaction" occurs where the person engaging in the transaction acts as the "originator on a transfer of funds whose ultimate beneficiary is an entity" on the Cuba Restricted List.7 OFAC has also amended a number of general licenses, including all travel-related general licenses, to include the prohibition on direct financial transactions involving entities on the Cuba Restricted List. This restriction has been broadly incorporated into virtually all aspects of the CACR, even including the statutorily mandated information and informational materials exception.8 The new transaction restrictions are intended to weaken Cuban military and certain government entities, while strengthening private Cuban enterprise. 

Certain guidance from the State Department and OFAC are particularly noteworthy. First, unlike the List of Specially Designated Nationals and Blocked Persons (SDN List), OFAC's "50-percent Rule" does not apply to the Cuba Restricted List, so entities owned by entities on the Cuba Restricted List are not themselves restricted merely as a result of such ownership.9 In addition, OFAC continues to place the burden on travelers to comply with limitations on general licenses. For instance, a new FAQ reaffirms that US financial institutions may rely on the statements of customers with respect to transactions, including those involving an entity on the Cuba Restricted List, and need not independently verify compliance with the CACR, unless the financial institution knows or has reason to know that the transaction is not authorized.10

New travel restrictions

The general license for educational travel11 previously permitted individual academic (through an academic institution) and non-academic ("people-to-people") travel. Under the recent amendments to that general license, individual educational travel is no longer permitted. US persons desiring to travel to Cuba for educational purposes must now do so through organizations subject to US jurisdiction, and must be accompanied by a representative of the sponsoring organization who is also a person subject to US jurisdiction.12 The predominant portion of the people-to-people travel must not involve a prohibited Cuban official (which is now a much larger category) or member of the Cuban Communist Party.

The amended general license for travel in connection with "Support for the Cuban people," like all other categories of authorized travel, contains a full-time schedule of activities of organizations aimed at improving human rights and promoting civil society and democracy.13 The license now specifies that such a full-time schedule of activities must "result in meaningful interaction with individuals in Cuba and that enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people's independence from Cuban authorities."14 In addition, persons traveling to Cuba under this general license must stay at private Cuban residences, dine at privately owned restaurants and shop at privately owned small businesses.

Travelers to Cuba are required to retain records of their Cuba-related transactions and schedules for at least five years; however, in the case of individuals traveling under the amended general licenses for educational travel, individuals may rely on the sponsoring organization to maintain records reflecting compliance with the requirements of that license. 

"Grandfathering" provisions

Financial transactions relating to authorized commercial engagements that were in place before November 9, as well as travel-related transactions initiated prior to that date, will remain authorized.15 Travel arrangements are considered "initiated" if traveler has completed at least one travel-related transaction, such as purchasing flight tickets or reserving accommodations.16

Revised export control regulations

Effective November 9, 2017, BIS will apply a policy of denial to license applications to export items whose ultimate end-user will be entities on the Cuba Restricted List. Also, prohibited Cuban officials are now ineligible to receive exports and re-exports under license exceptions for gifts and humanitarian donations (GFT), consumer communication devices (CCD) and support for the Cuban people (SCP).17

BIS also expanded the scope of license exception SCP, which authorizes certain license-free exports to the Cuban private sector.18 Prior to November 9, the SCP exception identified certain eligible types of items, limited to use by the private sector on privately owned buildings, private agricultural activities or private sector entrepreneurs. The new rule expands the types of eligible products to include all items for use by the Cuban private sector for private sector economic activities.19 Items used to primarily generate revenue for or contribute to Cuban state operations, however, are ineligible.

What these changes mean for persons and entities engaging in transactions involving Cuba

Effective November 9, 2017, transactions with Cuba are more challenging and present greater risk, and travel to Cuba will likely become more difficult for certain travelers.

SDNs have always been off-limits to persons subject to US jurisdiction, but the new restrictions on financial transactions add an additional layer of complexity. The Cuba Restricted List is one more list for US persons to check in connection with transactions involving Cuba. This prohibition applies to all commercial transactions, including travel. Persons subject to US jurisdiction engaged in any commercial transactions involving Cuba, travel-related or otherwise, must determine whether those transactions involve newly-restricted persons and, if they do, whether the grandfathering provisions of Section 515.209 apply.

Given the relatively spontaneous nature of travel and the sheer number and variety of entities on the Cuba Restricted List, the new changes will make travel to Cuba significantly riskier for persons subject to US jurisdiction. Persons planning otherwise authorized travel must now carefully consider where they will stay, shop and eat while in Cuba.

In addition, financial institutions will need to consider what additional diligence measures might be appropriate in light of OFAC's new guidance, including what constitutes a "reason to know" that a transaction involving an entity on the Cuba Restricted List is not authorized, as OFAC's guidance suggests the mere involvement of a restricted entity may not by itself be such a "reason to know."

The expanded Cuban Prohibited Officials list presents an additional layer of compliance challenges. Instead of naming specific individuals subject to restrictions, OFAC has identified a number of categories of persons (which includes persons associated with Cuban state-run media, certain provincial officials and members and employees of the Supreme Court) with whom persons subject to US jurisdiction are restricted from dealing. Because, unlike the SDN or Cuba Restricted Lists, the Cuban Prohibited Officials list does not identify individuals by name, diligence to ensure compliance is likely to present new challenges.

US persons planning educational—academic or non-academic—travel to Cuba will need to consider whether their travel will be conducted within the confines of the new restrictions. Organizations sponsoring such travel will also need to understand their recordkeeping obligations as to individual travelers.

Finally, while the CACR primarily applies to persons or entities that are subject to US jurisdiction, certain foreign entities need to consider whether and how the new US Cuba sanctions policy will affect them. For instance, a non-US entity that books travel for US persons, hosts educational trips, or is a foreign institution of higher learning with US person faculty and/or students will need to consider how it may be affected by the amendments to the CACR.

Conclusion

The newly implemented changes to the Cuba sanctions program adds significant restrictions relating to financial transactions and travel. While the primary application of these changes is to persons subject to US jurisdiction, any individual, company or institution engaged in transactions involving Cuba, or planning to do so in the future, will need to assess the implications of these new restrictions to ensure compliance. 

Footnotes

1 82 FR 51998.

2 The term "person(s) subject to US jurisdiction" includes: (1) any individual, wherever located, who is a citizen or resident of the United States; (2) any person within the United States; (3) any corporation, partnership, association, or other organization organized under the laws of the United States or of any State, territory, possession, or district of the United States; and (4) any corporation, partnership, association, or other organization, wherever organized or doing business, that is owned or controlled by any of the persons mentioned in categories (1)-(3). 31 C.F.R. §515.329.

3 82 FR 52089.

4 31 C.F.R. § 515.337.

5 31 C.F.R. § 515.560(a).

6 31 C.F.R. § 515.209.

7 82 FR 51998, 51999.

8 82 FR 51998, 52000.

9 82 FR 52089.

10  US Department of Treasury Office of Foreign Assets Control, Frequently Asked Questions Related to Cuba (Nov. 8, 2017), 67.

11 31 C.F.R. § 515.565.

12 31 C.F.R. § 515.565(a)(2).

13 31 C.F.R. § 515.574.

14 82 FR 51998, 51999.

15 31 CFR 515.209; see also US Department of Treasury Office of Foreign Assets Control, Frequently Asked Questions Related to Cuba (Nov. 8, 2017), 74.

16 See 82 FR 51983, 51998.

17 82 FR 51983, 51984.

18 15 C.F.R. § 740.21.

19 82 FR 51983, 51984.

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