On January 16, the Department of Commerce, Bureau of Industry and Security (BIS) and the Department of the Treasury, Office of Foreign Assets Control (OFAC) put into effect their Final Rules officially altering the 1960 U.S. embargo against Cuba. These Rules signify government-wide implementation of the historic policy changes announced by President Obama on December 17, 2014. The Rules are the most significant changes to American policy towards the island nation in decades and likely will signal the opening for U.S. business interests in Cuba.
The new U.S. export policy amends OFAC's Cuban Assets Control Regulations (CACR), 31 C.F.R. part 515, and BIS' Export Administration Regulations (EAR), 15 C.F.R. parts 730-774, and will result in changes to regulations administered by the Departments of State, Transportation, and Homeland Security. Importantly, the updated regulations liberalize former policies, but do not wipe out the embargo.
Office of Foreign Assets Control
OFAC amended the CACR and issued updated Frequently Asked Questions to implement increased engagement by the United States in Cuba. Many of the liberalizing changes, including new general licenses, center on "support for the Cuban people" in coordination with changes to the EAR. These track with U.S. Treasury Secretary Jacob Lew's statement that the new regulations "take us one step closer to replacing out-of-date policies that were not working and puts in place a policy that helps promote political and economic freedom for the Cuban people."
- U.S. depository institutions (which include banks and other financial institutions) are now authorized to:
- Open correspondent accounts at financial institutions in Cuba to facilitate the processing of authorized transactions;
- Enroll merchants and process and pay credit and debit card transactions. Note that this rule does not apply to Cuban financial institutions. Cuban banks, e.g., are not generally licensed to open such accounts at U.S. banks; and
- "Reject funds" (not "block") transfers originating and terminating outside the U.S., where (a) neither the originator nor the beneficiary is a person subject to U.S. jurisdiction and (b) prohibited officials of the Government of Cuba and members of the Cuban Communist Part do not have an interest in the transfer.
- Certain Cuban nationals who are permanent residents in the United States and meet other requirements set forth at § 515.505, are now licensed as "unblocked nationals," and U.S. depository institutions can open and maintain accounts for them.
The updated regulations also increase from $500 to $2,000 per quarter for remittances and the ability to hand carry $10,000 in cash into Cuba, which may grab headlines. With these new regulations, banking institutions (including U.S.-registered brokers or dealers in securities and U.S.-registered money transmitters) are authorized under a general license to provide services in connection with the collection or forwarding of remittances.
Travel and Travel Services
- All 12 existing categories of authorized travel are now subject to an OFAC general license, eliminating the need for a specific license for individuals meeting the criteria. OFAC has adopted broad definitions of travel and events for what constitutes "support for the Cuban people" and "humanitarian projects." Tourist travel to Cuba is still not permitted.
- Per diem requirements no longer apply, and U.S. persons who are authorized travelers may use U.S. credit and debit cards in Cuba.
- U.S. travel service providers no longer require a specific OFAC license to provide authorized travel services.
- U.S. air carriers and airlines are no longer precluded from engaging in carrier services from, to, or within Cuba. However, at this time only charter services are available. Although OFAC regulations no longer prevent scheduled operations, U.S. carriers must comply with procedures that will be established by the Department of Transportation (DOT). By Notice issued on January 15, DOT is deferring activation of any existing unused scheduled authority to serve Cuba, as well as any new applications to serve Cuba.
- Note that U.S. persons providing travel or air carrier services must retain a Certification from each customer for five years from the date of the transaction that sets forth the provision of the CACR authorizing the travel.
- U.S. health, life, and travel insurance providers are now permitted to insure authorized travelers and make payments for care provided in response to events occurring in Cuba.
Imports from Cuba
- U.S. persons are authorized to import merchandise as "accompanied baggage" not to exceed $400 per person; no more than $100 of which can consist of Cuban alcohol or tobacco products. (Purchasing Cuban alcohol or tobacco via the internet or in third countries remains prohibited.)
- Non-U.S. persons arriving in the U.S. are authorized to import Cuban-origin merchandise, other than tobacco and alcohol, as accompanied baggage provided it is not for commercial purposes. $100 of Cuban alcohol or tobacco products is authorized if the non-U.S. person was in Cuba.
- U.S. persons may also import "certain goods produced by independent Cuban entrepreneurs," which will be determined by the State Department at a future date, and which will be included at § 515.582.
Non-U.S. Entities Owned or Controlled by U.S. Entities
- U.S. owned and/or controlled entities in third countries may provide goods and services, including financial services, to Cuban nationals residing outside of Cuba provided the transaction does not involve a commercial exportation of goods or services, directly or indirectly, to or from Cuba. This includes a general license authorizing transactions related to third-country conferences attended by Cuban nationals. In addition, OFAC will generally authorize the unblocking of accounts of Cuban nationals who have permanently relocated outside of Cuba.
Exports, Trade and Shipping
Although U.S. persons remain generally prohibited from doing business or investing in Cuba, OFAC has authorized certain activities:
- A new OFAC general license authorizes export from the U.S., and reexport of 100% U.S.-origin goods from third countries, to Cuba only where the export or reexport is licensed or authorized under a license exception by the Commerce Department (BIS).
- "Cash in advance" is redefined in the CACR to mean "cash before transfer of title and control" (instead of "cash before shipment") in an effort to expand financing options for authorized exports to Cuba. This change would permit exports to Cuba before the importer has paid the balance due.
The CACR was amended significantly in relation to telecommunications, including the internet, cell phone technology, fiber-optic cable, and satellite facilities. A new general license authorizes the establishment of commercial telecommunications facilities linking the U.S. or third countries and Cuba, as well as within Cuba; and the CACR authorizes entering into contracts with Cuban telecommunications providers and/or Cuban nationals for certain telecommunications services provided blocked persons are not involved. U.S. persons taking advantage of these new authorities must make reports to OFAC under new Notice requirements.
A new general license authorizes foreign vessels to enter the U.S. after engaging in certain trade in Cuba, removing the previous 180-day restriction from ships leaving Cuba.
- Two general licenses support reestablishment of diplomatic relations and U.S. government interests in Cuba. The first authorizes transactions with Cuban official missions; the second authorizes Cuba-related transactions by employees, grantees, and U.S. government contractors, in support of U.S. government interests.
- Additionally, there is now a general license for transactions directly incident to market research, commercial marketing, sales negotiation, accompanied delivery, or servicing of exports including, among other things, medicine and medical supplies. This general license correlates to the BIS License Exception, Support for the Cuban People (discussed below).
Bureau of Industry and Security
The Department of Commerce (BIS) also amended the EAR through the addition of a new License Exception, expansion of two existing License Exceptions, and changes to licensing policies. Specifically, BIS: (1) created new License Exception (Support for the Cuban People or SCP) (15 CFR §740.21); (2) expanded the scope of existing License Exceptions (Consumer Communication Devices or CCD) (15 CFR §740.19) and Gift Parcels and Humanitarian Donations (GFT) (15 CFR § 740.12); and, (3) amended its licensing policy for exports and reexports to Cuba.
License Exception SCP
New License Exception SCP allows exports and reexports without a BIS license to support the Cuban "private sector" in three areas:
1. SCP supports "Improving living conditions and supporting independent economic activity" through the export and reexport of commercially sold or donated:
- Building materials, equipment, and tools for use by the private sector to construct or renovate privately-owned buildings, including privately-owned residences, businesses, places of worship, and buildings for private sector social or recreational use;
- Tools and equipment for private sector agricultural activity; and
- Tools, equipment, supplies, and instruments for use by private sector entrepreneurs.
2. SCP supports "Strengthening civil society" through the export and reexport of:
- Donated items for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities;
- Temporary export/reexport (up to two years) by travelers in Cuba of certain items for their use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities or for their use in professional research; and
- Export/reexport to Cuba of certain items to human rights organizations, individuals, or NGOs that promote independent activity intended to strengthen civil society.
3. SCP supports "Improving communications" by authorizing exports/reexports to Cuba:
- By sale or donation for telecommunications, including access to the internet, use of internet services, and infrastructure creation and upgrades; and
- Certain items for use by news media personnel and U.S. news bureaus.
License Exception SCP contains several additional restrictions and qualifications:
- Items eligible for this provision must be designated as EAR99 or controlled on the Commerce Control List (CCL) only for anti-terrorism (AT) reasons;
- The activities may not relate to the development, production, use, operation, installation maintenance, repair, overhaul or refurbishing of any item on the United State Munitions List (USML) (22 CFR Part 121) or the CCL unless AT only; and
- Certain items may be sold to Cuban government owned, operated or controlled companies and corporations (except for prohibited officials) for telecommunications infrastructure creation and upgrades.
License Exception CCD
Existing License Exception CCD has been expanded. CCD previously authorized only donations of consumer communication items for use by eligible recipients. Now, CCD authorizes the commercial sale of such devices to eligible end users in Cuba as follows:
- CCD specifies eligible items by description and ECCN. Such items are limited to items designated as EAR99 or those controlled on the CCL for AT reasons only;
- Under CCD, certain "consumer communications devices" (such as mobile phones, computers, and related hardware and software) for resale to the Cuban people may also be sold to Cuban government owned, operated, or controlled companies and corporations (except for prohibited officials); and
- Note that CCD does not authorize U.S.-owned or controlled entities in third countries to engage in reexports of foreign-produced commodities to Cuba for which no license would be issued by OFAC.
License Exception GFT
GFT was amended to remove restriction on export of consolidated shipments of multiple parcels for delivery to individuals residing in a foreign country, including Cuba.
BIS Licensing Policy
BIS' general policy of denial for exports to Cuba has been amended to:
- Implement a general policy of approval for license applications to export items for U.S. environmental protection, international air quality, waters and coastlines (including items related to renewable energy or energy efficiency); and
- Telecommunication items may be authorized to Cuba on a case-by-case basis in coordination with OFAC.
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As the Departments of Treasury and Commerce seek to implement these regulations, companies should pay close attention to future liberalization, potentially opening new avenues for investment and engagement with Cuba and its people. While there are more business opportunities, the new regulations also create a new environment for transactions, which must be carefully understood.