In recent months, the U.S. Departments of Commerce and the Treasury have relaxed restrictions on doing business in Iran and Cuba, easing export controls and lifting certain sanctions. However, despite the changes, important legal limitations remain in place. These limitations and the challenging business environments in both countries pose significant compliance risks that businesses must continue to carefully navigate.

I. Iran

A. Changes to U.S. Sanctions and Export Controls

On January 16, 2016, the U.S., EU, and UN lifted certain sanctions against Iran as a result of Iran’s implementation of measures designed to restrict its nuclear program. For its part, the U.S. only lifted its “secondary” Iran sanctions, which applied to non-U.S. persons participating in transactions with or involving Iran. As a result, foreign entities may generally engage in business activities in Iran without the threat of U.S. sanction. However, the primary sanctions prohibiting U.S. persons from engaging in business in or with Iran still apply.1

As a result of the implementation of the nuclear deal, the U.S. also authorized foreign subsidiaries of U.S. companies to engage in many business activities with the Government of Iran or any person subject to Iranian jurisdiction.2 Additionally, U.S. businesses may engage in limited activities in support of their foreign subsidiaries’ operations in Iran, including participating in the initial determination to do business in Iran, establishing policies and procedures related to such business, and sharing automated business support systems.

B. Challenges Remaining

As noted above, despite significant changes, the “primary” Iran sanctions, which form the U.S. trade embargo against Iran, remain in force. As a result, U.S. companies are generally still prohibited from engaging in business with Iran. Furthermore, while nuclear-related “secondary” U.S. sanctions targeting non-U.S. companies were lifted, non-U.S. persons still face challenges conducting business in Iran. For example, U.S. banks are generally not permitted to clear or process dealings with Iranian financial institutions, making transacting in U.S. dollars difficult.3

U.S. export controls and non-nuclear-related sanctions targeting Iranian entities and individuals also remain in place for both U.S. and non-U.S. persons, significantly restricting the access of U.S. businesses and goods to the Iranian market. Finally, while the U.S. maintains these restrictions, the EU has suspended nearly all sanctions on Iran. As a result, multinational companies that had become acclimated to the mirror-image EU and U.S. sanctions regimes must now be attuned to the substantial divergences.

II. Cuba

A. Changes to U.S. Sanctions and Export Controls

In December 2014, President Obama announced an historic shift in U.S. policy towards Cuba designed to engage and empower the Cuban people.4 To implement this new policy the Departments of Commerce and the Treasury have taken several steps to facilitate U.S. business activity in Cuba and with Cuban nationals. For example, the Dept. of Commerce’s Bureau of Industry and Security has adopted a policy of generally approving license applications for the export to Cuba of certain items, including some items related to telecommunications, agriculture, and aviation.5 U.S. persons may now also travel to Cuba to conduct business there in connection with the authorized export of certain goods.6 Certain U.S. businesses may even establish a physical presence, such as an office or warehouse, in Cuba, or set up and maintain a Cuban business presence, such as a subsidiary, branch, joint venture, or franchise.7

These changes also make it easier for businesses in Cuba to transact in U.S. dollars. The new regulations permit “U-turn” transactions in which Cuban nationals have interests to be routed through the U.S. financial system.8 Additionally, U.S. banks may now process U.S. dollar monetary instruments presented by Cuban financial institutions through third-country banks.9

B. Challenges Remaining

Despite this historic policy shift and the regulatory changes accompanying it, Cuba remains largely off limits for U.S. business for several reasons. First, the statutory embargo against Cuba remains in place. As a result, U.S. entities are still generally prohibited from engaging in business activities in or with Cuba. Furthermore, the sanctions relief described above is narrow and subject to complex limitations and procedural requirements.

Beyond these remaining sanctions and export controls, additional legal and practically constraints mean that doing business in Cuba continues to be challenging. Cuban government officials have clearly indicated that the easing of U.S. sanctions does not signal the privatization of the Cuban economy.10 As a result, the primary access point and partner for businesses looking to engage in Cuba continues the Cuban government. Additional factors including restrictions on private ownership of property and recent arrests of foreign executives on corruption charges further complicate the Cuban business environment.

III. Conclusion

The recent changes in U.S. export controls and sanctions against Iran and Cuba represent significant shifts in U.S. policy and open new business opportunities for U.S. companies in those countries. However, many challenges remain. Embargos against both countries continue to generally prohibit U.S. businesses from participating in transactions in or with either country. The sanctions relief provided in recent months is limited and complex Moreover, the business environments in both countries pose additional compliance risks. U.S. companies must continue to carefully navigate these legal and practical restrictions when engaging with Iran and Cuba.