On September 18, 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 further ease the US embargo against Cuba and authorize certain business activities with Cuba in targeted sectors. Following coordinated OFAC and BIS action in January 2015, on which we previously advised, this is the second major round of amendments in the past year to the CACR and Cuba-specific provisions of the EAR. According to a Treasury Department fact sheet, the Obama Administration is “further delivering on the new direction toward US relations with Cuba that President Obama laid out last December.”
The amendments, which took effect on September 21, 2015, are intended to further reduce the need for specific licensing for activities in certain sectors that the Administration has targeted for sanctions relief, including telecommunications, internet-based services, transportation/travel, and others noted below. The amendments also will lift many remaining restrictions on remittances, administration of trusts and estates, and other family-related areas. The general licenses for certain basic business operations in Cuba are particularly noteworthy, and will for the first time since imposition of the embargo authorize persons subject to US jurisdiction in certain targeted industries to establish a physical business presence in Cuba. Even with these developments, however, the Cuban sanctions regime remains highly complex and onerous, and cannot be fully lifted without action by Congress.
The CACR, 15 C.F.R. Part 515, generally restricts persons “subject to US jurisdiction”—a term that includes US citizens, US lawful permanent residents, US-incorporated entities, and foreign entities owned or controlled by the foregoing—from dealing in the property of Cuban nationals and engaging in trade and numerous other transactions with Cuba. 31 C.F.R. § 515.329. As noted above, in January 2015 OFAC amended the CACR to authorize certain activities related to telecommunications, travel, support for the Cuban people, financing of certain exports, and remittances. This most recent liberalization takes the earlier round of relaxations even further.
Establishing a Business Presence in Cuba
US companies and entities in certain sectors will now be generally licensed by OFAC to conduct “all transactions necessary to establish and maintain a physical presence in Cuba,” subject to certain limitations. 31 C.F.R. § 515.573. Sectors covered by this new provision include news bureaus, providers of telecommunications or internet-based services, mail carriers, certain cargo transportation and travel providers, and exporters of certain goods (e.g. agricultural products and private construction products) with valid export authorization. Such companies will be authorized to lease space (e.g. offices, retail stores or warehouses), secure related goods and services, open bank accounts, and employ both Cuban nationals and US persons in Cuba. Other sectors not specifically enumerated, including insurance and reinsurance, are not covered under this general license, and such US companies would require a specific license to conduct transactions necessary to establish and maintain a physical presence in Cuba. As discussed in more detail below, notwithstanding this general license, export or reexport to Cuba of certain items subject to the EAR may require specific authorization from BIS.
Providers of telecommunications and internet-based services, and services related to exports of certain consumer communication devices, will additionally be authorized to license and market their services and to engage in “all transactions necessary to establish and maintain a business presence in Cuba, including through subsidiaries, branches, offices, joint ventures, franchises, and agency or other business relationships with any Cuban national, and to enter into all necessary agreements or arrangements with such entity or individual,” for the purpose of engaging in the authorized activities. 31 C.F.R. §§ 515.578, 542. Because many Cuban industries still require local partnerships, this new general license will greatly simplify the regulatory burden of establishing – and changing the terms of – those partnerships and other business relationships in the covered sectors.
CACR amendments include a general license for “all transactions, including payments” for certain legal services from Cuba or from a Cuban national that involve legal advice and counseling on the requirements of, and compliance with, Cuban law in relation to otherwise authorized transactions. This provision will facilitate market entry by allowing US companies easier access to legal services related to Cuban laws and business practices. In addition, OFAC has expanded the existing general license authorizing US persons to provide certain legal services to Cuba, so specific licenses will no longer be required to receive payment for such services, subject to certain restrictions and reporting requirements. 31 C.F.R. §§ 515.512, 588.
In a move with potentially significant implications for Cuba’s economy and the purchasing power of Cuban people, OFAC has removed entirely the limit on the amount of donative remittances that can be sent to Cuba, previously $2,000 per quarter, along with the limit on the amount of such funds individuals can carry to Cuba. 31 C.F.R. §§ 515.570(b), 560(c)(4)(i), 560(d)(2). Friends and family of Cuban persons should also take note that they can now apply to OFAC to unblock and return remittances that were previously blocked for exceeding the limits then in place. Similarly, certain remittances from blocked sources are authorized, including funds deposited in a blocked account in a US bank held in the name of or for the benefit of a Cuban national as a result of certain payments from a life insurance policy or annuity contract, provided that the remittances are not made for emigration-related purposes. 31 C.F.R. § 515.570(f). Restrictions remain on remittances to prohibited Cuban government officials and prohibited members of the Cuban Communist Party.
Building on the January 2015 authorization to provide carrier services for travelers, the revised regulations authorize US persons to provide carrier service by vessel. 31 C.F.R. § 515.572. In addition, they are now also authorized to provide lodging services onboard vessels to authorized travelers while the vessel is traveling to, from, or within Cuba, including when docked at a port in Cuba. Furthermore, OFAC has authorized close relatives of authorized travelers to visit or accompany authorized travelers for a broader set of activities than those that were authorized in January, now including journalistic activity, professional research, religious activities, and others, though OFAC has not provided guidance on the permissible activities of family members while the authorized travelers are engaged in a full-time schedule of authorized activities. Also noteworthy is that authorized travelers will be able to open and close bank accounts in Cuba to support authorized transactions. 31 C.F.R. §§ 515.560, 561.
By adding a new provision authorizing, with limited exceptions, any transaction “ordinarily incident to a licensed transaction and necessary to give effect thereto,” OFAC guidance states that it is merely “clarifying” its policy. While many have viewed such a provision to be “read-in” to the CACR, this is nonetheless a welcome confirmation of OFAC’s approach to incidental activity. This provision would cover, for instance, most payment transactions necessary to carry out authorized activity.
Other particularly noteworthy developments – though far from an exhaustive list of the numerous additional changes made by these new rules – are as follows:
- An expanded authorization for persons subject to US jurisdiction to provide goods and services to Cuban national individuals located in a third country, and authorization for US banking institutions to open, maintain, and close bank accounts for such Cuban nationals
- A new case-by-case licensing policy for exports and reexports to Cuba of items for the safety of civil aviation and commercial passenger aircraft
- An expanded general license for educational activities allowing the provision of internet-based courses in Cuba (but only at the undergraduate level or below), academic exchanges, joint non-commercial academic research, and sponsorship of conferences in Cuba “on global issues involving Cuba”
- A significantly expanded general license for administering estates and trusts in which a Cuban national has an interest
- A new general license for importing into the United States mobile applications developed in Cuba and for hiring Cuban developers
BIS amended the EAR to expand the scope of certain license exceptions for Cuba and create a new licensing policy to further promote private sector economic activity in Cuba, facilitate travel to Cuba for authorized purposes, and help ensure safety in civil aviation and safe operation of commercial passenger aircraft.
The EAR at 15 C.F.R. § 746.2 have long imposed a licensing requirement for the export and reexport to Cuba of all items “subject to” the EAR, a term that includes US-origin items, items located in the United States, foreign-made items that incorporate more than a de minimis level of US content, and certain foreign-made items that are the “direct product” of US-origin technology. As noted above, in January 2015 BIS created new license exception Support for the Cuban People (SCP) to authorize certain exports in support of Cuba’s private sector. At the same time, BIS expanded license exception Consumer Communications Devices (CCD) to authorize exports to Cuba of certain communications-related items, such as computers, mobile phones, televisions, radios, and digital cameras.
Expansion of License Exception Support for the Cuban People (SCP)
License Exception SCP authorizes certain exports and reexports to Cuba intended for specified purposes, including improving Cuban people’s living conditions, supporting their independent economic activity, and improving the free flow of information to, from, and among the Cuban people. § 740.21(a). Please see our previous advisory for details.
The new rule expands the scope of License Exception SCP as follows:
- The rule amends Sections 740.21(b) and (d)(1) to clarify that leases and loans, and not just commercial sale or donation, are covered within the scope of License Exception SCP for items intended for improving living conditions, supporting independent economic activity in Cuba, and improving the free flow of information to, from, and within Cuba.
- The rule expands Section 740(c)(2) – which previously authorized temporary exports to Cuba of items by persons traveling from the United States for their use in scientific, archeological, cultural, ecological, educational, historic preservation, or sporting activities, or for their use in the traveler’s professional research – to include certain temporary reexports to Cuba, so that travelers leaving not only from the United States but also from a foreign country are permitted to carry with them authorized items to Cuba for eligible end-uses. To qualify under this portion of the License Exception, items must remain under the traveler’s “effective control” while in Cuba (i.e., travelers need to either retain physical possession of the item, or secure the item in a safe environment such as a hotel safe, bonded warehouse, or locked or guarded exhibition facility).
- The rule adds Section 740.21(d)(4) to permit the export or reexport to Cuba of commodities or software that will be used by individuals or private sector entities in Cuba to develop software to improve the free flow of information, improve living conditions, or support independent economic activity in Cuba. This provision of SCP does not apply to certain exports to Cuban Government-related individuals and entities.
- The rule adds Section 740.21(e)(1) to authorize the export and reexport to Cuba for certain items for use by US citizens and permanent residents and companies organized in the United States to establish, maintain, or operate a physical presence in Cuba in order to engage in authorized activities. Resulting payments connected with such presence (e.g., lease payments and transactions necessary to secure related goods and services) are permitted to the extent authorized by Section 515.573 of the CACR, which is described in more detail above. Eligible end-users including, among others, (i) providers of mail, parcel and cargo delivery services; (ii) entities involved in certain educational activities; (iii) religious organizations; (iv) providers of travel and carrier services; (v) persons involved in the provision to Cuba of information and informational materials; (vi) and persons authorized by BIS to export items to Cuba pursuant to a specific license or certain license exceptions, including, among others, License Exception Agricultural Commodities (AGR) and SCP.
- In addition, Section 740.21(e)(2) provides a similar authorization for exports in connection with the establishment, maintenance, and operation of a physical presence in Cuba to end users authorized by OFAC to provide telecommunications services, to establish telecommunications facilities, or to provide internet-based services in Cuba. This provision is broader than that found in 740.21(e)(1) in that it covers exports to not only US persons who have established a physical presence in Cuba, but extends to their authorized “subsidiaries, branches, offices, joint ventures, franchises, and agency or other business relationships with any entity or individuals who is a national of Cuba.” Together with Section 740.21(e)(1), this amendment significantly reduces the licensing burden on companies falling within certain specified industries that are establishing physical operations in Cuba.
- The rule adds Section 740.21(f) to authorize the temporary (not more than one year) export and reexport to Cuba of certain items such as commodities, software and technology used for installation, service or repair of items subject to the EAR that have been exported or reexported to Cuba under a license or license exception.
Items are generally eligible for export or reexport to Cuba under License Exception SCP only if they are EAR99 or controlled on CCL only for anti-terrorism reasons. BIS clarified that Cuban government import agencies and other government owned, operated or controlled companies may act as consignees for eligible items to the private sector. BIS Cuba FAQs n. 9 (Sep. 21, 2015). Also, certain eligible items exported to improve telecommunications infrastructure pursuant to Section 740.21(d)(1) may be sold to Cuban government owned, operated, or controlled companies.
Additionally, the BIS rule:
- Expands the scope of License Exception Consumer Communication Devices (CCD), 740.19(a) of the EAR, to correct an inadvertent limitation by allowing use of CCD for qualifying leased or loaned items, in addition to items commercially sold or donated.
- Revises the EAR to make various aspects of License Exception Aircraft, Vessels and Spacecraft (AVS) available for Cuba. Among other things, this change allows certain vessels to travel on temporary sojourn to Cuba, including cargo, passenger, and recreational vessels that are used in connection with travel authorized by OFAC, and to remain in Cuba for up to 14 days. As discussed above, OFAC has issued a general license that authorizes US persons to provide carrier services by vessel to authorized travelers. 31 C.F.R. § 515.572.
- Amends the licensing policy for Cuba in Section 746.2 of the EAR to add a policy of case-by-case review for license applications for exports and reexports of items to ensure safety in civil aviation and safe operation of commercial passenger aircraft.
- Specifies that a license is required for the release of technology or source code on the CCL to Cuban nationals in the United States or a third country, but not for the deemed export or deemed reexport of technology or source code designated as EAR99.
With this latest set of regulatory amendments, the Obama Administration arguably is pushing the limits of its authority to roll back the embargo. A full relaxation of Cuba sanctions would require action by Congress, which, as noted in our International Compliance Blog, the President urged Congress to take when he announced the opening of the US embassy in Havana in July. These new OFAC and BIS measures appear designed to support the new US policy to engage and empower the Cuban people. These measures set the groundwork for future business opportunities in Cuba by improving telecommunications services, facilitating travel, mail and cargo delivery, bolstering the purchasing power of Cuban people, making it easier to do business with the Cuban private sector, and allowing US companies to obtain legal advice in Cuba to support their business operations. For companies operating in the industries that OFAC and BIS are targeting with these new and expanded general licenses, these regulatory changes will have a significant impact as these companies establish physical business presence in Cuba and engage in newly authorized transactions. Nearly all activities in other sectors that have not been targeted for relief will continue to require a license as long as the statutory embargo remains in place.