On January 15, 2015, the US Department of Treasury, Office of Foreign Assets Control (OFAC) and the US Department of Commerce, Bureau of Industry and Security (BIS) respectively amended the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR) to implement the Obama Administration’s announcement on December 17, 2014 to ease restrictions on travel to, trade with, and conducting financial and business transactions with Cuba. See our previous advisory regarding the Administration’s announcement. OFAC and BIS each have also provided explanatory guidance in the form of Frequently Asked Questions.
The amendments represent the most significant relaxation of unilateral economic sanctions against Cuba since the United States first implemented a comprehensive export embargo against the country and the revolutionary government of Fidel Castro in 1960. These changes complement the CACR and EAR amendments of September 3, 2009 that ease certain travel, telecommunications, and remittance restrictions concerning Cuba, as described in our prior advisory, as well as the CACR revisions of January 14, 2011, which allowed licenses for certain authorized travel to Cuba, payment of certain remittances to Cuba, and transactions with Cuban nationals who have become residents of third countries, as described in our prior advisory. The changes further relax restrictions on travel to Cuba for authorized purposes, as well as on the provision of travel-related services, the payment of remittances to Cuba, the provision of telecommunications services to Cuba, and transactions with Cuban nationals located outside of Cuba. They also ease restrictions on the provision of financial services to Cuba – including allowing US financial institutions to open correspondent accounts at Cuban financial institutions and authorized travelers to use credit and debit cards in Cuba— and permit certain trade and shipping with Cuba. The changes are effective as of January 16, 2015.
OFAC ECONOMIC SANCTIONS
The OFAC final rule amends CACR section 515.542(d) to generally authorize transactions to establish facilities, including fiber-optic cable and satellite facilities, for the purpose of establishing commercial telecommunications services between any country (including the US) and Cuba. This general license also covers transactions for telecommunications services within Cuba if in connection with establishing a country-to-country connection. Previously, OFAC’s regulations required specific licenses authorizing transactions related to telecommunications facilities linking third countries and Cuba. OFAC granted such licenses only where OFAC determined that such facilities were necessary to provide efficient and adequate telecommunications services between the United States and Cuba.
Under the recent amendments, persons subject to US jurisdiction may provide an expanded set of internet-based services to Cuba. Section 515.578(a)(1) authorizes the export and re-export of web hosting, provided it is not for the promotion of tourism and domain name registration. New section 515.578(a)(2) allows the export or re-export of software design, business consulting, information technology management services (including cloud storage), and installation and repair services (including repair training) related to the following items (listed in subparagraphs 2(i)-(iii)):
- items subject to the EAR exported or re-exported to Cuba under License Exception Consumer Communications Devices (CCD) (summarized in detail below)
- items of foreign origin located outside the United States that are exported, re-exported, or provided, directly or indirectly, by a person subject to US jurisdiction to Cuba pursuant to a specific license, and items that are of a type described under the License Exception CCD, provided that the items would be designated EAR99 if located in the US or that they would meet the criteria for classification under the relevant Export Classification Control Number (ECCN) specified in the License Exception CCD if they were subject to the EAR
- “publicly available” software that is not subject to the EAR, as described in 15 CFR section 734.3(b)(3), that is exported, re-exported, or provided, directly or indirectly, by a person subject to US jurisdiction to Cuba, as well as software of a type described in License Exception CCD
Section 515.578(a)(3) permits the importation into the US of the items listed in subparagraphs (2)(i)-(iii) by an individual entering from Cuba. Section 515.578(a)(4) provides for the export and re-export of certain free, publicly available internet-based services to restricted Cuban government officials, organizations or members of the Communist parties, as defined under sections 515.337 and 515.538.
II. US Exports or US Origin Re-exports
OFAC significantly has relaxed the finance requirements for US exports to Cuba. Under CACR section 515.533, persons subject to US jurisdiction can only accept “payment of cash in advance” for any authorized US exports or re-exports, which previously was defined to require that the seller receive payment prior to shipment of the goods. Under amended section 515.533(a)(2), “payment of cash in advance” is now defined to include:
- payment before the transfer of title to, and control of, the exported items to the Cuban purchaser, or
- financing by a banking institution located in a third country, provided that banking institution is not a designated national, US citizen, US permanent resident alien, or entity within US jurisdiction
This change may allow a variety of US business interests, most notably exporters of agriculture, food, medicines, and medical devices, to gain greater access to Cuban markets.
Additionally, OFAC amends section 515.550 to relax the prohibition on the entry of vessels that had recently visited Cuba into US ports. Under new subparagraph(c), vessels may enter US ports even though they are engaged in transporting agricultural commodities, medicine, or medical devices from a third country to Cuba, provided that such items would be designated as EAR99 if they were subject to the EAR. New subparagraph (d) also exempts vessels that carry students, faculty, and staff that travel to Cuba for educational activities covered under section 515.565(a), from the restrictions on entry into US ports imposed by section 515.207.
III. Expanded Travel Allowed
In addition to travel previously subject to general licenses for educational or religious purposes, amended section 515.560(a) allows persons subject to US jurisdiction to travel to Cuba for twelve specific reasons, including family visits, without first obtaining a specific license from the US government. However, the CACR continues to prohibit travel for tourist activities.
Under the amended regulations, travel-related transactions as allowed under 515.560(c) are specifically extended to transactions that are directly incident to:
- market research, commercial marketing, sales negotiation, accompanied delivery, or servicing of exports. See amended sections 515.533 and 515.559.
- the export, import, or transmission of information or informational materials now authorized under a general license. See amended section 515.545(b).
- persons subject to US jurisdiction who are visiting a person ordinarily resident in Cuba or a person who is visiting Cuba for authorized educational activities or official government business. See amended section 515.561(a).
- employees, contractors, or grantees of the United States Government, any foreign government, or any intergovernmental organization of which the United States is a member or holds observer status, and who are traveling on specific business. (See amendedsection 515.562(a) which expanded the individuals allowed to engage in travel-related transactions, as this provision previously applied only to government or intergovernmental organization officials);
- experienced freelance journalists, and broadcast or technical personal supporting those freelance journalists, who are currently working on a freelance journalistic project. See amended section 515.563(a).
- professional research, professional meetings, and educational activities in Cuba. While these travel-related transactions were allowed under the prior regulations, the amended regulations relax the requirements for research and meetings to qualify for a general license under this definition. See amended sections 515.564 and 515.565.
- an expanded set of educational activities – including, but not limited to: noncommercial academic seminars, conferences, and workshops related to Cuba or global issues involving Cuba; the facilitation by an organization of licensed educational activities in Cuba within certain parameters; and certain educational exchanges not involving academic study. Additionally, students traveling to Cuba as part of an educational program are no longer required to carry a letter stating that their study will be accredited in the US. See amendedsection 515.565.
- an expanded set of religious activities, which allows for persons who are not directly affiliated with a religious organization in the US, but who travel to Cuba to engage in a full-time schedule of religious activities. See amended section 515.566, and
- a broader scope of public performances, clinics, workshops, athletic and other competitions, and exhibitions. Seeamended section 515.567
The revised regulations allow OFAC to continue to issue specific licenses where a transaction related to any of the above purposes does not qualify for the newly provided general license.
Subject to certain record-keeping requirements, articulated in Note 1 to section 515.560, certain additional travel-related transactions are authorized under the amended regulations, including:
- consumption spending beyond the established per diem rate in Havana, Cuba. See amended section 515.560(c)(2).
- importing up to $400 worth of goods directly from Cuba (including up to $100 in alcohol or tobacco). This incrementally overturns a prohibition on the import of all Cuban origin goods into the United States first implemented by President Kennedy in 1963. Per OFAC guidance, this amendment does not permit the purchase of Cuban-origin goods in third countries. See amended section 515.560(c)(3).
- carrying up to $10,000—per visit to Cuba—in remittances for close relatives, other Cuban nationals, and religious organizations. See amended section 515.560(c)(4)(i). The limit previously was $3,000. Certain limitations on remittances sent to Cuba annually and quarterly, described below, still apply; and
- processing and paying for transactions using credit and debit cards by US persons who are travelling under one of the 12 travel categories listed in 515.560(a). See amended section 515.560(c)(5).
Additionally, persons subject to US jurisdiction, including travel agents and airlines, are now permitted to provide certain travel and carrier services for authorized travel to, from, and within Cuba. See amended sections 515.571 and 572. Payments and related transactions to pay for and receive services from Cuba where in connection with overflights or emergency landings are also authorized without a specific license. See amended section 515.48.
The regulations authorize the provision of health, life, and travel insurance, as well as the receipt of and payment for medical services, to authorized travelers. See Note 2 to section 515.560. Persons subject to US jurisdiction are also authorized to issue and provide coverage under global policies for health, life and travel insurance for the benefit of individuals who reside outside Cuba (e.g., in other third countries) who travel to or within Cuba. Likewise, they can process and pay claims arising from events that occur for individuals while traveling to, in, or from Cuba. See newsection 515.580. These amendments reflect a significant change for insurers subject to US jurisdiction, who have been the subject of prior OFAC enforcement actions.
IV. Financial Transactions
Depository institutions are authorized to:
- open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions. See new section 515.584(a).
- set up testing arrangements and exchange authenticator keys with any financial institution that is a national of Cuba for authorized or exempt transactions. See new section 515.584(b);
- process authorized travel-related transactions through credit and debit cards issued by US financial institutions. See new section 515.584(c); and
- Wire transfers – banks subject to US jurisdiction may:
- reject, rather than block, Cuba-related funds transfers provided that a member of the Cuban government/Communist Party does not have an interest in the funds. See new section 515.584(d)(1). If, however, a member of the Cuban government/Communist Party has an interest in the transfer, the transfer must continue to be blocked; and
- process transfers that originate and terminate outside the US, and that would be authorized if engaged in by a person subject to US jurisdiction. See new section 515.584(d)(2).
Additionally, under amended section 515.505, banking institutions, US registered brokers or dealers in securities, and US money transmitters, are now authorized to deal with "unblocked" Cuban nationals who permanently reside outside of Cuba. Accounts of such persons who were previously "blocked" can now be unblocked. The amended regulations define “unblocked" Cuban national as:
- an individual national of Cuba who has taken up residence in the United States and (i) is a US citizen, (ii) lawful permanent resident, (iii) has applied to become a lawful permanent resident and has an adjustment of status application pending, or (iv) is lawfully present and intending to lawfully remain in the United States on a permanent basis. Persons qualifying under (iv) include persons with a pending asylum application, or who has been paroled into the US under Cuban Parole or Cuban Medical designations pursuant to US immigration laws. Persons under (iv) do not include those in the United States on a non-immigrant visa or having some other non-immigrant status. However, section 515.571 does authorize such individuals and those dealing with these individuals to engage in certain transactions.
- individual nationals of Cuba who have taken up permanent residence in a third country, provided certain required documentation is obtained demonstrating permanent resident status.
- entities that otherwise would be a national of Cuba solely because of the interest of one or more individuals who would be considered unblocked nationals.
- Note that any person who is a prohibited official of the Government of Cuba or a prohibited member of the Cuban Communist Party, as defined elsewhere in the CACR, does not qualify as an "unblocked" Cuban national.
The amended regulations increase the amount of personal remittances that may be sent to Cuban nationals, other than close relatives, from $500 to $2,000 quarterly. See amended section 515.570(b)(1). (Remittances to close relatives are not subject to this limitation.)
Furthermore, the amended regulations provide for a general license authorizing remittances to individuals and independent non-governmental organizations (NGOs) in Cuba, including pro-democracy and civil society groups and their members, to support:
- humanitarian projects intended to directly benefit the Cuban people
- the Cuban people through activities of “recognized” human rights organizations, independent organizations promoting transition to democracy, and individuals and NGOs that promote strengthening of civil society in Cuba, and
- the development of private business, including small farms, in Cuba
See amended section 515.570(g). These remittances are not subject to any quarterly or annual limitation, and are not subject to the $10,000 per-visit limit for travelers carrying remittances to Cuba noted above.
Banking institutions are authorized to provide services in connection with the collection or forwarding of authorized remittances. See amended section 515.572(a)(3).
VI. General Licenses for Support for the Cuban People and Humanitarian Projects
A new general license at sections 515.574(a) and 515.575(a) authorizes transactions related to certain activities that are intended to provide support for the Cuban people and humanitarian projects. Such transactions previously required OFAC to grant specific licenses on a case-by-case basis. Certain micro-financing activities and entrepreneurial and business training, such as for private businesses and agricultural operations, are now authorized, as are the commercial imports of certain specified goods and services produced by independent Cuban entrepreneurs. See sections 515.575, 515.582. The US State Department will publish a list of such authorized goods and services at http://www.state.gov/e/eb/tfs/spi.
VII. Transactions with Cuban Nationals Located Outside of Cuba
Under the revised regulations, OFAC also expands the transactions that persons subject to US jurisdiction, including US banks and firms, may engage in with Cuba nationals located outside the US. Now, US-owned or -controlled entities may provide goods and services to Cuban nationals located outside of Cuba, provided that the transaction does not involve a commercial exportation, directly or indirectly, of goods and services to or from Cuba. See new section 515.585. Additionally, persons subject to US jurisdiction are now authorized to sponsor and participate in third country professional meetings and conferences that are attended by Cuban nationals. See newsection 515.581.
BIS EXPORT CONTROLS
I. License Exception Support for the Cuban People
Pursuant to the comprehensive embargo that the United States maintains on trade with Cuba, generally all items that are subject to the Export Administration Regulations (EAR) require a license from BIS for export or re-export to Cuba unless authorized by a license exception, e.g., AGR.
To implement the President’s announcement, BIS added section 740.21 to the EAR, creating new License Exception Support for the Cuban People (SCP), which authorizes the export and re-export, without a BIS license, 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. Although the license exception does not specify particular types of authorized private sector activity, this BIS final rule mentions auto mechanics, barbers, hairstylists, and restaurateurs as examples.
Items eligible for export and re-export to Cuba pursuant to this portion of License Exception SCP are limited to those items subject to the EAR but not specified in any Export Control Classification Number (i.e., known as EAR99) or controlled on the Commerce Control List (CCL) only for anti-terrorism (AT) reasons.
License Exception SCP also authorizes the export and re-export to Cuba of certain donated items for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities, and the temporary export and re-export of certain items by persons departing the United States for their use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities or for their use in professional research. The activities or research, however, may not relate to the development, production, use, operation, installation, maintenance, repair, overhaul, or refurbishing of any item enumerated or otherwise described on the United States Munitions List (USML) or the CCL unless the only reason for control of the item is AT.
Finally, License Exception SCP also authorizes the export and re-export to Cuba of certain items:
- To human rights organizations, individuals, or non-governmental organizations that promote independent activity intended to strengthen civil society
- For telecommunications, including access to the Internet, use of Internet services, infrastructure creation and upgrades, and
- For use by news media personnel and US news bureaus engaged in the gathering and dissemination of news to the general public
Items eligible for export and re-export to Cuba pursuant to this portion of License Exception SCP are limited to those designated as EAR99 or controlled on the CCL only for anti-terrorism reasons.
II. License Exception Consumer Communications Devices
Prior to BIS’s revision, License Exception Consumer Communications Devices (CCD) authorized the export and re-export of donated consumer communications devices (commodities such as computers, communications equipment and related items, including personal computers, mobile phones, televisions, radios and digital cameras) that are widely available for retail purchase and that are commonly used to exchange information and facilitate interpersonal communications, as well as certain telecommunications and information security-related software. BIS revised section 740.19of the EAR, however, to expand upon the donation requirement, thereby allowing export or re-export of eligible items for commercial sale or donation to eligible recipients in Cuba.
BIS also made minor technical revisions to some of the paragraphs in section 740.19 in order to track more precisely current technical specifications for certain items and make clear that some items must be consumer items to be eligible for License Exception CCD.
III. License Exception Gift Parcels and Humanitarian Donations
BIS revised section 740.12 of the EAR to remove the limiting note to that section. Now one can export and re-export multiple gift parcels in a single shipment pursuant to License Exception Gift Parcels and Humanitarian Donations (GFT) for delivery to individuals residing in a foreign country.
IV. Licensing Policy for Environmental Protection
Finally, BIS amended section 746.2 of the EAR to add a general policy of approval for license applications for the export and re-export of items necessary for the environmental protection of US and international air quality, waters, and coastlines (including items related to renewable energy or energy efficiency). Although, prior to this change, the EAR included enough flexibility to authorize such environmental protection-related transactions, this revision more clearly notifies the public of the US policy interest in authorizing such transactions.
The amendments to the CACR and EAR mark the most significant liberalization of the US embargo on Cuba since its imposition in 1960. The amendments relax restrictions related to travel, telecommunications activities, certain travel-related insurance services, correspondent banking, remittances, and certain types of trade, including trade related to personal communications devices and items for use in certain segments of the nascent Cuban private sector.
However, it is important to note that the amendments, while significant, fall far short of lifting the core restrictions imposed by the embargo. For example, the fundamental and sweeping restriction of the CACR – i.e., no dealing in property in which the Cuban government or Cuban nationals have an interest – remains intact. OFAC and BIS will continue to enforce this prohibition and the other restrictions of the CACR. Therefore, individuals and companies interested in trade and other activities with Cuba will need to consider carefully the contours of this new liberalization.
The CACR and EAR amendments, along with the broader diplomatic opening between the United States and Cuba that is underway, present the most significant prospect of a full lifting of the embargo since its imposition over fifty years ago. However, while President Obama may take further action using his Executive powers and authority, the core aspects of the embargo have been codified into law by Congress, and congressional action will be needed to fully lift the current sanctions that are in place. Therefore, further action will be dependent upon complex political forces in the United States, as well as the development of civil society and private industry in Cuba.