The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the US Commerce Department’s Bureau of Industry and Security (“BIS”) announced final rules effective November 9, 2017, implementing the National Security Presidential Memorandum (“NSPM“) “Strengthening the Policy of the United States Toward Cuba,” signed by President Trump on June 16, 2017. These final rules are available here and here. Concurrent with the announcement of the final rules, OFAC and BIS each issued new and updated Cuba FAQs (available here and here). OFAC also issued a Fact Sheet explaining the amendments resulting from its Final Rule.
In addition to the OFAC and BIS changes, the US Department of State published the List of Restricted Entities and Subentities Associated with Cuba (“Cuba Restricted List”), which provides a list of entities with which direct financial transactions are now generally prohibited under the Cuban Assets Control Regulations (“CACR”).
We have summarized the key changes made by OFAC, BIS, and the State Department below.
US State Department Cuba Restricted List
The US State Department published and will maintain the Cuba Restricted List (available here), which includes a list of entities and subentities that are under the control of, act for or on behalf of, the Cuban military, intelligence, or security service or personnel, and with which direct financial transactions would disproportionality benefit the Cuban military, intelligence, or security services or personnel at the expense of the Cuban people or private enterprise in Cuba. The Cuba Restricted List includes a wide variety of entities in Cuba including certain Cuban ministries, holding companies, tourist agencies, retail and other stores, entities directly serving the Cuban defense and security sectors, and more than 80 hotels. Importantly, entities or subentities owned or controlled by another entity or subentity on the Cuba Restricted List will not be treated as restricted unless specified by name on the Cuba Restricted List.
OFAC Final Rule
As required by the NSPM, OFAC issued a Final Rule (the “OFAC Final Rule”) effective November 9, 2017, which amends the CACR as follows:
- Financial Transactions: Pursuant to section 3(a)(ii) of the NSPM, OFAC amended the CACR to add a new § 515.209 to restrict direct financial transactions with entities and subentities listed on the Cuba Restricted List. Subject to certain exemptions, a person engages in a direct financial transaction, “by acting as the originator on a transfer of funds whose ultimate beneficiary is an entity or subentity on the Cuba Restricted List or as the ultimate beneficiary on a transfer of funds whose originator is an entity or subentity on the Cuba Restricted List.” Such transactions include transactions by wire transfer, credit card, check, or payment of cash. The OFAC Final Rule further revised § 515.421 of the CACR to clarify that transactions ordinarily incident to licensed transactions do not include direct financial transactions with entities identified on the Cuba Restricted List if the terms of the applicable general or specific license exclude such direct financial transactions. OFAC added corresponding language to implement this prohibition in the following general licenses: §§ 515.530, 515.534, 515.545, 515.560, 515.561, 515.564, 515.565, 515.566, 515.567, 515.572, 515.573, 515.574, 515.576, 515.577, 515.578, 515.581, 515.584, and 515.590.
- Educational Travel: The OFAC Final Rule revised the categories of educational travel set forth in § 515.565(a)(1)-(6) of the CACR to authorize educational travel only under the auspices of an organization that is a person subject to US jurisdiction. Authorized educational travelers must be accompanied by a person subject to US jurisdiction who is an employee, paid consultant, agent or other representative of the sponsoring organization, unless the traveler is the representative and obtains a certification letter from the sponsoring organization. OFAC added a “grandfathering” provision in § 515.565(d) of the CACR to authorize certain travel that was previously authorized where the traveler has already completed at least one travel-related transaction (e.g., purchasing a flight or reserving accommodation) prior to the publication of the OFAC Final Rule on November 9, 2017.
- People-to-People Educational Travel: Individual people-to-people nonacademic educational travel is no longer authorized under the CACR. Section 515.565(b) of the CACR was revised to require that people-to-people education travel be conducted under the auspices of an organization subject to US jurisdiction which sponsors such exchange. Travelers must be accompanied at all times by a person subject to US jurisdiction who is an employee, paid consultant, agent or other representative of the sponsoring organization. Travel-related transactions authorized under this section must be for the purposes of engaging, while in Cuba, in a full-time schedule of activities that enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities. OFAC also added a “grandfathering” provision into § 515.565(e) of the CACR to authorize certain people-to-people travel that was previously authorized where the traveler has already completed at least one travel-related transaction (e.g., purchasing a flight or reserving accommodation) prior to the June 16, 2017 NSPM.
- Support for the Cuban People: The Final Rule amended § 515.574 of the CACR to require that each traveler engage in a full-time schedule of activities that result in meaningful interaction with individuals in Cuba and that enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities.
- Definition of Prohibited Officials of the Government of Cuba: The definition of the term “prohibited officials in the Government of Cuba” in CACR § 515.337 was amended to include certain additional individuals to correspond with the definition which was in place prior to the October 17, 2016 rule.
In addition to the changes described above, OFAC issued new and updated Cuba FAQs to reflect the changes from the OFAC Final Rule implementing the NSPM. The following FAQs are of particular note (though this is not a comprehensive list):
- FAQ 17: OFAC clarified in new FAQ 17 that individual people-to-people travel is education exchange travel that (i) does not involve academic study; and (ii) does not take place under the auspices of an organization subject to US jurisdiction that sponsors such exchanges. Such individual people-to-people travel is no longer authorized under the CACR; however, travelers who have already completed at least one travel-related transaction prior to the NSPM may engage in related individual people-to-people travel.
- FAQs 47-48: These new FAQs explain the Cuba Restricted List (further detailed above) and provide examples of direct financial transactions with entities on the Cuba Restricted List which would be prohibited. For example, a person subject to US jurisdiction traveling to engage in an authorized family visit under CACR § 515.561 would not be authorized to book a hotel room directly with a hotel included on the Cuba Restricted List. An individual working for a church subject to US jurisdiction interested in establishing a presence in Cuba pursuant to CACR § 515.573(d)(3) would be prohibited from signing a new contract directly with a real estate company on the Cuba Restricted List to rent a location for the church’s physical presence.
- FAQ 67: OFAC noted that US originating banks and US beneficiary banks are generally not required to independently verify whether a person subject to US jurisdiction is engaging in direct financial transactions as defined in CACR § 515.209 when processing Cuba-related transactions. Such financial institutions are expected to conduct normal due diligence with respect to Cuba-related transactions but may rely on customer statements as to whether the transaction is authorized unless the financial institution has reason to know the transaction is not authorized.
- FAQ 74: OFAC clarified that most Cuba-related commercial engagements that include direct financial transactions with entities and subentities identified on the Cuba Restricted List continue to be permitted, provided that those commercial engagements were in place prior to November 9, 2017 (or the date the entity or subentity is otherwise added to the Cuba Restricted List). By way of example, businesses will be permitted to continue with authorized transactions outlined in contingent or other types of contractual arrangements agreed to prior to the issuance of the new regulations, consistent with other OFAC authorizations.
BIS Final Rule
BIS also issued a final rule (the “BIS Final Rule”) amending the licensing policy for Cuba and portions of three license exceptions available for re/exports to Cuba under the Export Administration Regulations (“EAR”) as follows:
- Cuba Licensing Policy: Pursuant to section 3(a) of the NSPM, BIS amended note 2 to § 746.2(b)(3)(i) to clarify that BIS has a policy of denial for applications for the re/export of items for use by entities or subentities listed on the Cuba Restricted List unless such transactions are determined to be consistent with the NSPM.
- Prohibited Cuban Government Officials: License Exceptions Gift Parcels and Humanitarian Donations (“GFT”), Consumer Communications Devices (“CCD”), and Support for the Cuban People (“SCP”) specify certain eligible and ineligible parties to which re/exports may be authorized. Pursuant to section 3(d) of the NSPM and conjunction with OFAC’s amended definition of prohibited officials of the Government of Cuba, BIS amended the list of ineligible Cuban government officials for transactions invoking License Exception GFT, CCD, or SCP.
- Cuban Private Sector: Pursuant to section 2(d) of the NSPM, the BIS Final Rule revised § 740.12(b) to create a single, consolidated provision authorizing the re/export to Cuba of items for use by the Cuban private sector for private sector economic activities. The items must be designated as “EAR99” or controlled only for Anti-Terrorism reasons on the EAR’s Commerce Control List. In addition, the items may not be used to primarily generate revenue for the Cuban state or to contribute to the operation of the state, including through the construction of state-owned buildings. Though the revised § 740.12(b) does not specify the specific types of items which may be re/exported under SCP, medicines, medical devices, and agricultural commodities are not eligible for this license exception.
BIS also issued new and revised Cuba FAQs in connection with the EAR amendments. Of particular note, BIS clarified that the change in licensing policy will not affect licenses issued by BIS prior to the publication of the BIS Final Rule and added in new FAQ 67, which confirms that the re/export of agricultural commodities, medicines, or medical devices using License Exception SCP is not permitted.
Mr. Coward focuses on outbound trade compliance matters, including the extraterritorial application of US law, particularly US export control laws, anti-boycott regulations and trade sanctions/embargoes maintained by the US government against various countries. In addition, his practice covers issues of corporate conduct such as the application of the Foreign Corrupt Practices Act and foreign bribery laws. He provides international transactional advice; assistance in the design and implementation of corporate compliance programs, compliance audits, and internal investigations; and representation in enforcement proceedings.
Hannah is a US-qualified trade associate based in the London office of Baker McKenzie. She primarily advises European clients on compliance with US export controls, US trade and economic sanctions, and US antiboycott controls. Hannah also advises US and non-US companies in the context of licensing, enforcement actions, internal investigations, compliance audits, mergers and acquisitions and other cross-border transactions, and the design, implementation, and administration of compliance programs.
Olivia advises multinational companies on various compliance and trade issues, including US customs laws, export controls, trade sanctions, foreign anti-bribery laws, and the US Foreign Corrupt Practices Act. Olivia helps clients conduct audits of compliance with US export controls and US customs laws and structure compliance programs. Additionally, Olivia assists companies with customs-related matters, specifically classification, valuation, and country of origin under US customs law. Olivia's practice extends to voluntary disclosure filings and assistance with enforcement actions necessitated by US government action and US customs laws.