On March 15, 2016, the Obama Administration announced additional regulatory changes to further ease sanctions and export control restrictions on trade with Cuba. The new rules mark the fifth round of changes by executive authority in just 15 months, and were timed for release just ahead of the President’s historic visit to Cuba early next week.
OFAC has posted a summary of the changes, which are effective upon publication in the Federal Register on March 16, 2016. The new rules create opportunities for U.S. companies to expand their engagement with Cuba, especially with respect to financial transactions with Cuban nationals, physical and business presence in Cuba, and transit of cargo through Cuba.
- Financial Transactions: U.S. banks will be allowed to process a number of transactions in which Cuban nationals hold interests.
- Unlike other sanctions regimes, the new OFAC rules for Cuba authorize U.S. financial institutions to process “U-turn” transactions, in which U.S. dollar-denominated payments originating outside the United States may be cleared through the U.S. correspondent accounts as part of a transfer to another party outside the United States. Neither the originator nor the beneficiary of the payment may be subject to U.S. jurisdiction, but they may be Cuban nationals.
- In addition, U.S. banks can now process monetary instruments (such as travelers checks, personal checks, and money orders) denominated in U.S. dollars, as long as they are presented indirectly by Cuban financial institutions. Cuban financial institutions can undertake these transactions through correspondent accounts in third countries, but the regulations still do not permit Cuban financial institutions to open correspondent accounts in the United States.
- Finally, U.S. banks may open accounts in the United States for Cuban nationals to receive authorized payments in U.S. dollars in the United States and to remit the authorized payments to Cuba.
- Physical and Business Presences: The new regulations expand the authorizations created in September 2015 related to establishment of physical and business presences in Cuba. Under the September regulations, the authorization to establish a "physical presence" allowed a person subject to U.S. jurisdiction to establish an office, retail outlet, or other facility; the authorization to establish a "business presence" allowed telecom services providers subject to U.S. jurisdiction to establish a subsidiary or joint venture in Cuba.
- Physical Presence: Certain additional entities will now be allowed to establish physical presences in Cuba, including those engaged in humanitarian projects and other authorized non-commercial activities intended to support the Cuban people, as well as private foundations and educational and research institutions for certain authorized activities.
- Business Presence: Entities engaged in certain types of activities previously allowed to establish physical presences in Cuba—exporters authorized to export goods into Cuba, entities providing mail or parcel services or cargo transportation, and carrier and travel services—will now be allowed to establish business presence in Cuba for these authorized activities.
- Entities authorized to establish an office and other facilities may export items necessary for such physical or business presence and are authorized to assemble in Cuba goods sent to Cuba consistent with U.S. law. To establish and maintain physical and business presence in Cuba, BIS has provided a license exception for the export of EAR99 items and items controlled only for anti-terrorism reasons to be exported to Cuba.
- Cargo Vessels Transiting Through Cuba: Vessels departing from the United States and transiting through Cuban territory may now carry cargo bound for third countries without a license. The vessels must be on temporary sojourn in Cuba and the cargo bound for third countries must depart with the vessel at the end of the sojourn, not enter the Cuban economy, and not be transferred to another vessel while in Cuba. This rule will enable vessels carrying cargo from the United States to select more efficient shipping routes en route to destinations other than Cuba.
- Additional Changes: The new OFAC and BIS regulations also include:
- Authorizing the importation of Cuban-origin software beyond mobile apps.
- Eliminating the requirement for an organization to sponsor educational “people-to-people” travel to Cuba (instead, individuals are also authorized to travel for such people-to-people educational exchanges even if not part of a sponsored group but they still have to comply with the conditions related to authorized activities in Cuba).
- Authorizing the provision of educational grants.
- Expanding the transactions permitted by U.S. companies related to the hiring of Cuban nationals.
- Instituting a licensing policy of case-by-case reviews for exports and reexports to Cuba of items that would enable or facilitate Cuban private sector exports.
- Authorizing the acquisition and personal consumption in third countries of Cuban-origin merchandise, including alcohol products and cigars.