Why it matters
Continuing to ease the restrictions on financial relationships with Cuba, the Department of the Treasury's Office of Foreign Assets Control (OFAC) announced additional policy changes to "remove existing restrictions on payment and financing terms for authorized exports and reexports to Cuba of items other than agriculture items and commodities," as well as establishing "a case-by-case licensing policy for exports and reexports of items to meet the needs of the Cuban people, including those made to Cuban state-owned enterprises." Depository institutions in the United States are now permitted to provide financing for authorized exports and reexports (including issuing a letter of credit) with the elimination of the restriction to only cash in advance or third-country financing. However, the amendments—which also lift limits on travel and telecommunications—may be the end of the actions permissible by President Barack Obama's administration without Congress formally lifting the embargo against Cuba. The expansion of commercial relationships with Cuba will continue to be a focus for many businesses which eye residents of Cuba, and individuals and businesses with ties to Cuba, as potential areas of growth.
In furtherance of President Barack Obama's efforts to improve relations between Cuba and the United States, the Department of the Treasury's Office of Foreign Assets Control (OFAC) and the Department of Commerce's Bureau of Industry and Security (BIS) announced new amendments to the Cuban Assets Control Regulations and Export Administration Regulations.
In 2014, the President advocated for a changed position with regard to Cuba and began the process of reconnecting the two countries. Last year, a Florida bank became the first in 50 years to engage in direct transactions with a Cuban bank. Although the U.S. trade embargo remains in place (and requires congressional approval to be lifted), both the BIS and OFAC have issued regulations to allow U.S. banks to open correspondent accounts in Cuban banks and permitted American travelers to use credit and debit cards on the island.
Now the agencies have opened the door even further. With new amendments that took immediate effect in late January, the BIS and OFAC removed financing restrictions for most types of authorized exports, allowing payment of cash in advance, sales on an open account, and financing by third-country financial institutions or U.S. financial institutions.
Pursuant to the changes, Section 515.533(a) of the Cuban Assets Control Regulations (CACR) was amended to remove the previous limitations on payment and financing terms for exports and reexports of items other than agriculture items or commodities to Cuba. Where only third-country financing or cash in advance was permitted, sales on an open account are now allowed by the regulations.
"Depository institutions … are authorized to provide financing for exports or reexports of items, other than agricultural items or commodities, authorized pursuant to Section 515.533, including issuing, advising, negotiating, paying, or confirming letters of credit (including letters of credit issued by a financial institution that is a national of Cuba), accepting collateral for issuing or confirming letters of credit, and processing documentary collections," according to the amendments.
Previously, financing provided for exporters was limited to cash-in-advance payments or through third countries.
To read the amended CACR, click here.
To read OFAC's FAQ document, click here.