Introduction

In advance of President Obama's historic visit to Havana, the Obama administration recently announced the easing of yet another set of sanctions on Cuba. The changes to the existing sanctions policy became effective on March 16 2016 through regulatory amendments to the Cuban Assets Control Regulations (administered by the US Department of the Treasury's Office of Foreign Assets Control (OFAC)) and the Export Administration Regulations (administered by the US Department of Commerce's Bureau of Industry and Security (BIS)), along with additional explanatory material including the joint BIS/OFAC fact sheet, OFAC FAQs and BIS FAQs.

This marks the fourth set of amendments to the Cuban Assets Control Regulations and the Export Administration Regulations since Obama began efforts to normalise relations with Cuba in December 2014. For example, previous amendments to the Cuban Assets Control Regulations took effect in January 2015, September 2015 and January 2016. Touted as a further step by the administration to "engage and empower" the Cuban people, the latest amendments will:

  • facilitate authorised travel to Cuba by persons subject to US jurisdiction;
  • reduce barriers to financial transactions by Cuban nationals; and
  • increase the flow of information to, from and within Cuba.

Prior amendments to the Cuban Assets Control Regulations and the Export Administration Regulations introduced changes in a number of sectors, including travel, banking and finance, telecommunications and trade and business. Today's amendments constitute additional, modest changes in most of these sectors.

Travel and travel-related restrictions lifted

"People to people" educational travel

Individuals are now authorised to travel to Cuba for individual "people to people" educational travel. In the past, a general licence was applicable for educational trips only where such trips were planned through a US organisation and travellers were accompanied by a representative of a sponsoring organisation. The scope of the general licence has been broadened, but an individual must still engage in a full-time schedule of educational exchange activities designed to enhance contact with the Cuban people and result in meaningful interaction between the traveller and individuals in Cuba. US persons continue to be prohibited from travelling to Cuba as tourists.

Salary payments in the United States

Restrictions have also been lifted for non-immigrant Cuban nationals in the United States – such as Cuban athletes, artists or performers – to earn a salary or compensation, provided that the recipient is not subject to any special tax assessments in Cuba and that no additional payments are made to the Cuban government.

Cuban merchandise

OFAC now authorises transactions involving US persons purchasing Cuban-origin merchandise for personal consumption in a third country or receiving travel-related services from Cuba or Cuban parties in a third country.

Restrictions on banking and financial services eased

U-turn payments through the US financial system

US banking institutions can now process U-turn transactions in which Cuban parties have an interest. This will allow fund transfers from a bank outside the United States to pass through US financial institutions before being transferred to a bank outside the United States, where neither the originator nor the beneficiary is subject to US jurisdiction.

Processing of US dollar instruments

US banking institutions can now process US dollar monetary instruments, including cash and travellers' cheques, presented indirectly by Cuban financial institutions. Correspondent accounts at third-country financial institutions used for such transactions may be denominated in US dollars.

US bank accounts for Cuban nationals

US banks can now open and maintain US bank accounts for Cuban nationals in Cuba who receive payments in the United States for authorised or exempt transactions and wish to remit such payments back to Cuba.

Expansion of trade and commercial opportunities

Physical and banking presence

The revised regulations authorise a 'physical presence' in Cuba (through an office, retail outlet or warehouse) for:

  • entities involved in authorised humanitarian projects or non-commercial activities intended to provide support for the Cuban people; and
  • private foundations or research or educational institutes engaging in certain authorised activities.

Further, the regulations authorise a business presence in Cuba (through subsidiaries, joint venture, branches or franchises) to facilitate authorised transactions for:

  • exporters of goods that are authorised for export or re-export to Cuba;
  • exempt entities providing mail or parcel transmission services or cargo transportation services; and
  • providers of carrier and travel services.

The physical and business presence authorisations permit exporters and re-exporters of authorised or exempt goods to assemble such goods in Cuba. They do not authorise the incorporation of Cuban-origin goods into items assembled pursuant to the relevant section of the regulations or the processing of raw materials into finished goods in Cuba.

Importation of software

In addition to Cuban-origin mobile apps, imports of Cuban-origin software to the United States are now allowed.

Shipping services to the United States

Vessels are permitted to transport authorised cargo from the United States to Cuba and then travel to other countries with any remaining cargo that was on-loaded in the United States.

Exports and re-exports from Cuban private sector

The BIS will conduct a case-by-case review to determine whether to issue licences for the export and re-export of items that would enable or facilitate exports from Cuba of items produced by the Cuban private sector.

Grants and awards for education and humanitarian projects

OFAC has authorised grants and awards that enable US support for educational projects in Cuba and US participation in philanthropic efforts.

Business opportunities for US companies

While the intended beneficiaries of the Obama administration's change in policy continue to be the "Cuban people", the cumulative effect of the amendments will be to increase business opportunities for US companies hoping to trade with or invest in Cuba.

Providers of airline and transport services

In January 2015 OFAC authorised through general licences 12 categories of travel that had previously been permitted only by specific licences. Although tourist-related and other unauthorised travel remains generally prohibited even after today's amendments, the recent inclusion of "people to people" educational travel serves to increase the potential for cheaper and less cumbersome travel by US citizens to Cuba. For instance, US persons can now book educational trips on their own.

The most immediate beneficiaries of these changes are providers of airline and transport-related travel services. OFAC had already published general licences to authorise US carriers to provide carrier services by vessel or aircraft in connection with authorised travel. Entry into blocked space, code-sharing or leasing agreements to facilitate the provision of carrier services by air is also now authorised. Further, travel carriers may now set up a business presence in Cuba. These changes, coupled with the arrangement recently announced by the Departments of State and Transportation allowing up to 20 daily, scheduled round-trip flights for each country, will significantly increase the ability of US citizens to travel to Cuba. A number of US carriers have already applied for an allocation of the new opportunities to provide scheduled passenger and cargo flights.

Banks and financial institutions

A second major class of beneficiaries is US banks and other financial institutions. US financial institutions can now participate in many more activities as a result of the amendments: U-turn transactions, the processing of US dollar-based instruments and the opening of US-based accounts for Cuban nationals. Previous amendments increased the value of remittances that can be sent to Cuba and permitted authorised US travellers to use their US-issued credit and debit cards while travelling in Cuba.

Greater commercial opportunities with Cuba and Cuban parties also open up possibilities for funding transactions. Banks are also now authorised to finance certain transactions involving US exports and re-exports of 100% US-origin items from a third country (other than agricultural items or commodities).

Telecommunications

US companies providing telecommunications and internet-based services, express courier services and travel and carrier services can now set up a business in Cuba, through subsidiaries or joint ventures, and employ Cuban nationals and US persons in Cuba. More generally, US companies can also export or re-export items that do not incorporate Cuban-origin goods or process raw materials into finished goods in Cuba. The BIS policy to consider on a case-by-case basis items produced by the Cuban private sector may expand the business opportunities for US companies interested in Cuban exports.

Telecom and internet businesses based in Cuba may seek to create more synergies with Cuban software and mobile companies that can now export to the United States; express courier companies based in Cuba may now provide greater after-sale and customer-care services through access to internet and telecommunications services.

Education

The emphasis on educational services and exchanges, through educational grants and de-restrictions on educational travel, may well improve the collaboration between Cuban and US educational institutions, lead to research that can be commercially exploited and encourage the demand for US-based education services among Cuban students.

Entertainment

The amendments make it possible for US sports, media and entertainment companies to sponsor and compensate athletes, performers and entertainers who have been granted visas to the United States. In their joint fact sheet, the BIS and OFAC explain that Cuban nationals who can secure legal non-immigrant status in the United States will be authorised to earn a salary or compensation (ie, in excess of basic living expenses) consistent with the terms of the particular visa, provided that the recipient is not subject to any special tax assessments in Cuba which would presumably cause any US-sourced compensation to pass to the Cuban government, thereby undermining US policy.

For further information on this topic please contact Jan Yves N Remy, Andrew W Shoyer or Robert Torresen at Sidley Austin LLP's Washington DC office by telephone (+1 202 736 8000) or email (jremy@sidley.com, ashoyer@sidley.com or rtorresen@sidley.com). Alternatively, contact Carlos A Rodriguez at Sidley Austin's New York office by telephone (+1 212 839 5300) or email (crodriguez@sidley.com). The Sidley Austin website can be accessed at www.sidley.com.

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