On January 27, 2016, the US Department of the Treasury, Office of Foreign Assets Control (OFAC), and the US Department of Commerce, Bureau of Industry and Security (BIS),announced, respectively, amendments to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR) to further ease the US embargo against Cuba. This is the third round of major changes in just over a year, following the coordinated action of OFAC and BIS in January and September 2015, on which we previously advised (along with the regulatory changes in July reflecting Cuba’s removal from the list of state sponsors of terrorism). OFAC and BIS have also updated their Frequently Asked Questions to explain the changes.
With these new amendments, OFAC has relaxed restrictions on non-agricultural trade finance, the production of media content, and certain travel-related transactions. BIS has further liberalized aspects of its Cuba licensing policy, including by instituting a policy of case-by-case review for transactions with Cuban state-owned enterprises that meet the needs of the Cuban people. While the Obama Administration continues to emphasize its commitment to enabling economic advancement and informational connectivity for the Cuban people—and facilitating non-agricultural trade finance will indeed remove a significant hurdle to authorized exports—significant limitations remain, in large part due to statutory requirements that cannot be altered by the executive branch of government.
OFAC has removed the limitations on payment terms for authorized exports to Cuba and reexports of 100% US-origin items from a third country to Cuba, other than exports of agricultural items or commodities. There is also a new general license for US banks to finance these transactions. Agricultural exports continue to require cash in advance or financing by a third country bank, pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000. This lifting of trade finance restrictions should make it significantly easier for non-agricultural exporters, and their US banks, to take advantage of the targeted opportunities that have been made available.
OFAC has expanded the informational materials general license to include the creation, alteration, and dissemination of informational materials. This is a potentially significant change that may allow US persons to become more involved in the production of media content in Cuba. OFAC has also authorized related travel. Interestingly, the informational materials exemption at section 515.206 still does not authorize transactions related to informational materials “not fully created and in existence,” their “substantive or artistic alteration or enhancement,” or marketing or business consulting services. While it may be helpful for OFAC to clarify the reason for the differing approach under those two provisions, it appears that the broader general license can be used to its full extent irrespective of the narrower scope of the exemption. OFAC may have kept the scope of the exemption narrower simply to maintain consistency with the statutory informational materials exemption that applies in several sanctions regimes.
Vessels and aircraft
OFAC has added a new general license for facilitating the temporary sojourn of aircraft and vessels between the United States and Cuba, for example authorizing the work of flight and ground crews. OFAC has also authorized air carriers to enter into blocked space, code-sharing, and leasing arrangements with Cuban entities and clarified that the general license for air carrier services includes indirect trips between Cuba and the United States. All of these changes will make it easier for maritime and air carriers to operate services between the United States and Cuba.
The general license for professional meetings now allows travelers to organize—not just attend—professional meetings or conferences in Cuba. Similarly, the travel-related general licenses for participation in athletic competitions in Cuba, as well as public performances, clinics, workshops, and other competitions and exhibitions, have been expanded to include organizing these events.
OFAC expanded the humanitarian general license to include disaster preparedness activities, instead of only disaster relief.
Although BIS still maintains a general policy of denial for Cuba licenses, this rule further expands the more flexible licensing policies that have been crafted to support certain categories of exports to Cuba. Notably, this rule does not expand license exceptions, but rather sets out additional types of trade for which BIS is more likely to grant licenses. This should simplify and expedite the license application and approval process in these areas. It is also a signal from BIS that it is more willing to consider license applications in a broad array of sectors.
BIS has expanded the number of areas subject to a general policy of approval (rather than case-by-case review) in the core areas that it has been targeting for engagement, including:
- Telecommunications items that would improve communications to, from, and among the Cuban people;
- Items to ensure the safety of civil aviation (including the export or reexport of aircraft leased to state-owned enterprises);
- Certain agricultural items;
- Items for human rights and civil society organizations; and
- Items for US news bureaus in Cuba.
BIS has also added a broad policy of case-by-case license review for exports that “meet the needs of the Cuban people,” including certain transactions with state-owned enterprises. Specifically stating that it will allow a broad set of transactions with state-owned enterprises is a significant development. This policy excludes transactions that BIS finds would “primarily” generate revenue for the Cuban government, such as tourism and mineral extraction, or that support the Cuban security services. Furthermore, BIS will not grant licenses under this policy for the purpose of enabling exports from Cuba to third countries, and it will prohibit those who obtain such licenses from reexporting the items to third countries. BIS provided the following examples of exports and reexports that it would consider licensing under this new policy:
- Items for agricultural production, artistic endeavors, education, food processing, disaster preparedness, public health, residential construction, and public transportation;
- Items for construction of public infrastructure; and
- Exports to domestic wholesalers and retailers in Cuba.
This latest round of amendments to the Cuba sanctions regime represents a continued effort by the Administration to relax regulatory restrictions as much as possible within the existing statutory framework—particularly in the areas that the US government has targeted for increased commerce, such as information exchange and certain types of travel and trade. Lifting the limitations on non-agricultural trade finance will remove a significant barrier to authorized exports. Case-by-case review for certain previously unauthorized exports that meet the needs of the Cuban people, including exports to state-owned enterprises, also will provide a new set of opportunities. Still, as long as the statutory embargo remains in place, trade with Cuba will continue to be limited in scope and will remain complex to implement.