On December 17, 2014, President Barack Obama announced major changes in US policy with respect to Cuba, unveiling the most substantial steps toward diplomatic and trade normalization since the US severed relations and imposed a full trade embargo in 1961.

While that embargo remains in effect, President Obama said he will take several executive actions to open up more opportunities for trade and travel between the US and Cuba, including by relaxing restrictions on the sale and export of goods, funding flows, and financing. The President also said that the US would soon formally recognize Cuba and open an embassy in Havana, as part of suite of other measures intended to enhance ties between the two countries. The changes to US sanctions will be effected through amendments to the Cuban Assets Control Regulations administered by the US Treasury Department's Office of Foreign Assets Control, and amendments to the Export Administration Regulations administered by the US Commerce Department's Bureau of Industry and Security. However, because of the Helms-Burton Act, the US embargo on Cuba will remain law, including the broader framework of US sanctions against Cuba, such as the prohibitions on travel for tourism purposes, and general prohibitions on commercial exports and imports.

The key elements of President Obama's executive actions to re-frame US relations with Cuba are as follows:

Diplomatic relations

The US will re-establish diplomatic relations with Cuba, including re-establishing the US embassy in Havana, and collaborating on migration, counter-narcotics, environmental protection and trafficking in persons, among other issues. As an initial step, the Assistant Secretary of State for Western Hemisphere Affairs will lead the US delegation to the next round of US-Cuba Migration Talks in January 2015, in Havana.

In addition, the US will now review its determination that Cuba is a state sponsor of international terrorism, with an eye towards removing it from the list, where it has been since 1982. The State Department will provide a report to the President within six months on the status. Other than Cuba, currently only Iran, Sudan and Syria are designated state sponsors of international terrorism, a status which imposes significant restrictions on US foreign assistance, exports and financing.

Travel

Easing the regulatory hurdles to travel to Cuba is a centerpiece of the sanctions relaxation announced by the President.

General licenses will be made available for all authorized travelers in the twelve existing categories of travelers: (1) family visits; (2) official business of the US government, foreign governments and certain intergovernmental organizations; (3) journalistic activity; (4) professional research and professional meetings; (5) educational activities; (6) religious activities; (7) public performances, clinics, workshops, athletic and other competitions and exhibitions; (8) support for the Cuban people; (9) humanitarian projects; (10) activities of private foundations or research or educational institutes; (11) exportation, importation or transmission of information or information materials; and (12) certain export transactions that may be considered for authorization under existing regulations and guidelines.

Under these general licenses, US citizens and permanent residents will be able to book travel arrangements through any service provider that complies with OFAC regulations governing travel services to Cuba, so long as the travel fits within one of the 12 categories. Ordinary tourism travel, however, will remain prohibited.

In addition, US credit and debit cards will be permitted for use by travelers to Cuba, and the US will permit limited imports from licensed US travelers to Cuba. Under the amended CACR, licensed US travelers will be authorized to import US$400 worth of goods, of which no more than US$100 can consist of tobacco products and alcohol combined.

Trade and financing

Expanded commercial sales/exports, streamlining trade

The US will expand the range of types of goods which may be sold and exported to Cuba, and ease the required financial terms. These include building materials for private residential construction, goods for use by private sector Cuban entrepreneurs and agricultural equipment for small farmers. In addition, so as to streamline financing for sales of goods, the Treasury Department will amend the CACR's definition of the statutory term “cash in advance” to specify that it means “cash before transfer of title."

Telecommunications

The US will authorize the sale and export of certain telecommunications equipment, including consumer communications devices, related software, applications, hardware and services, and items for the establishment and update of communications-related systems. US companies will also be permitted to build telecom infrastructure in Cuba.

Remittances

Remittance levels will be raised from US$500 to US$2,000 every three months for general remittances to Cuban nationals (excluding certain officials of the government or the Communist party). Remittance forwarders, as well as donations for humanitarian projects or private businesses, will moreover no longer require a specific license.

Correspondent accounts

The US will permit US financial institutions to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions.

Changes to Cuba sanctions applied abroad

US sanctions against Cuba currently reach the foreign subsidiaries of US companies. Under the new sanctions approach announced by President Obama, foreign subsidiaries of US companies will be generally licensed to provide services to, and engage in financial transactions with, Cuban individuals in third countries (i.e., not the United States or Cuba). In addition, the US will:

  • provide general licenses to unblock the accounts at US banks of Cuban nationals who have since relocated outside of Cuba;
  • permit US persons to participate in third-country professional meetings and conferences related to Cuba; and
  • permit non-US vessels to enter the United States after engaging in certain humanitarian trade with Cuba.

Implications

President Obama's proposed changes to the US Cuba sanctions, and re-establishment of diplomatic ties with Havana, are significant politically and could well prove to be significant economically. At the same time, Administration officials have been quick to underscore that while the purpose of many of these changes is to support the Cuban private sector and increase "people-to-people" communications, broader normalization is in alignment with the existing US policy on supporting democratic reforms and respect for human rights in Cuba.

Nonetheless, significant barriers remain. The general embargo continues to be in effect, for example, and as noted above, ordinary tourist travel remains prohibited. Moreover, the amendments to the CACR and EAR will not be able to roll back prohibitions imposed via existing law such as the Helms-Burton Act and, accordingly, the regulatory landscape for US trade and travel with Cuba remains one which requires careful navigation.1

Moreover, the changes announced by President Obama will take some time to implement and they have already come under scrutiny by Congress. US relations with Cuba are among the most sensitive - and often divisive - topics on Capitol Hill, and it remains to be seen whether, and if so how, the Senators and Congressmen most active on this issue may try to block this new approach. Given this fast-moving policy dynamic, active monitoring is essential to identifying opportunities and mitigating risk.