On October 14, 2016, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced final rules amending the Export Administration Regulations (“EAR”), 15 C.F.R. Part 730 et seq., and the Cuban Assets Control Regulations (“CACR”), 31 C.F.R. Part 515, respectively, to authorize additional activities relating to Cuba. The final rules became effective on October 17, 2016, upon publication in the Federal Register.
The rules were announced on the same day that the President issued a Presidential Policy Directive relating to U.S.-Cuba Normalization, which outlined a government-wide approach to promoting engagement with the Cuban government and Cuban people. The OFAC and BIS rules significantly expand the available authorizations for certain activities relating to import and export transactions, financing, commerce, health and medicine, travel, and infrastructure, including the following:
Import and Export Transactions
- Removal of 100% U.S. Origin Requirement: OFAC has amended the general license for exports from the United States and reexports from third countries that are authorized by BIS (CACR §515.533(a)), to remove the requirement that items reexported from a third country be of “100% U.S.-origin.” Instead, OFAC has added a provision stating that the transaction must not be between a U.S.-owned or -controlled firm in a third country and Cuba for export of commodities produced outside the United States or Cuba, per the statutory requirement in Section 1706 of the Cuban Democracy Act of 1992. As a result, items that are produced in the United States but are not of 100% U.S. origin generally may be reexported to Cuba from a third country under this provision, provided the reexport is licensed or otherwise authorized by BIS.
- Imports into the United States Specifically Intended for Cuba: OFAC has clarified that imports into the United States of items from a third country that are specifically intended for export to Cuba under a BIS license or other authorization are authorized under the general license at CACR §515.533(a). This resolves the ambiguity about whether such imports were “ordinarily incident” to the subsequent BIS-authorized export or whether they needed to be separately licensed by OFAC. OFAC has not clarified whether U.S. parent companies are permitted to source items intended for Cuba from a third country subsidiary under this provision, however. Additionally, Note 1 to §515.533(a) still contains the limitation that transactions not “tied to specific exports or reexports, such as transactions involving future (non-specific) shipments, must be separately licensed by OFAC.”
- Return and Repair/Servicing: OFAC has added a new general license authorizing transactions ordinarily incident to the import into the United States or a third country of items previously exported or reexported to Cuba, as well as the service and repair of those items (CACR §515.533(b)). The items must have been exported or reexported to Cuba pursuant to either (i) the general license at CACR §515.533(a) for BIS-authorized exports/reexports or (ii) a specific license issued under at CACR §515.559 for reexports of non-U.S. produced items by a U.S.-owned or -controlled firm in a third country. However, any follow-up export or reexport of serviced, repaired, or replacement items to Cuba must be separately authorized by OFAC and/or BIS.
- Consumer Goods for Personal Use: BIS has amended the EAR to allow exports and reexports of certain items sold directly to eligible individuals in Cuba for their personal use or their immediate family’s personal use, under License Exception for Support for the Cuban People (SCP), EAR §740.21(b)(4). Eligible items are those classified as EAR99 or controlled on the U.S. Commerce Control List for anti-terrorism reasons only. The new authorizations will facilitate direct sales by online retailers and other retailers that sell consumer products directly to end users. Note that certain prohibited members of the Cuban government and the Cuban Communist Party (as redefined in this rule and further explained below) are not eligible purchasers or end-users under this provision.
Commerce and Financing
- Contingent Contracts: OFAC has added a new general license authorizing persons subject to U.S. jurisdiction to enter into contingent contracts for transactions that are currently prohibited by the CACR (CACR §515.534). The performance of such contracts, including making deposits and receiving payments, must be made contingent on prior OFAC authorization of the underlying transactions or such authorization no longer being required, as well as on prior licensing from any other relevant federal agency. The term “contingent contracts” is defined to include executory contracts, executory pro forma invoices, agreements in principle, executory offers capable of acceptance such as bids or proposals in response to public tenders, binding memoranda of understanding, or any other similar agreements.
- Vessels Entering U.S. Ports: OFAC has amended the general license at CACR §515.550 to allow certain foreign vessels that have called on Cuban ports in the last 180 days to enter into U.S. ports, despite the prohibition under CACR §515.207(a) that normally prohibits such vessels from entering U.S. ports to load or unload freight. The exception applies only to foreign vessels that have carried only items that would be designated EAR99 or controlled for anti-terrorism reasons only if they were subject to the EAR, from a third country to Cuba.
- Cargo Transiting Cuba: BIS has amended the License Exception for Aircraft, Vessels and Spacecraft (AVS), EAR §740.15(e), to authorize cargo to transit through Cuba aboard an aircraft that is on a temporary sojourn in Cuba pursuant to License Exception AVS, provided the cargo is bound for another destination. Previously this license exception was available only to cargo aboard a vessel. The cargo may not be removed from the aircraft or vessel for use in Cuba and may not be transferred to another aircraft or vessel while in Cuba.
- Agricultural Items Financing: OFAC has clarified that “agricultural items” authorized for export to Cuba by BIS, such as pesticides and tractors, are not subject to the same statutory restrictions on payment terms, i.e., cash in advance or third-country financing, that apply to “agricultural commodities” such as poultry and corn (CACR §515.533(a)(4)).
Health and Medicine
- Joint Medical Research: OFAC has issued a new general license authorizing persons subject to U.S. jurisdiction to engage in commercial and non-commercial joint medical research with Cuban nationals (CACR §515.547(a)). The general license does not authorize the establishment of a business or physical presence in Cuba, without separate authorization from OFAC, or the export/reexport of goods, technology, or software that is subject to the EAR, without separate authorization from BIS.
- FDA Approval of Cuban-Origin Pharmaceuticals: OFAC has issued a new general license authorizing all transactions incident to obtaining approval of Cuban-origin pharmaceuticals from the U.S. Food and Drug Administration (“FDA”) (CACR §515.547(b)). This includes discovery and development, pre-clinical research, clinical research, regulatory review, regulatory approval and licensing, regulatory post-market activities, and the import into the United States of the pharmaceuticals.
- Marketing and Distribution of Cuban-Origin Pharmaceuticals: OFAC has issued a separate general license authorizing the marketing, sale, or other distribution in the United States of FDA-approved Cuban-origin pharmaceuticals, including the import of such pharmaceuticals into the United States (CACR §515.547(c)). OFAC has not defined the term “pharmaceuticals” in this context, however, and it is unclear whether the term corresponds to the definition of “medicine” used in other OFAC sanctions programs.
- Bank Accounts: OFAC has also added authorization under CACR §515.547(d) for persons subject to U.S. jurisdiction to open, maintain, and close bank accounts at Cuban financial institutions, for the purpose of engaging in the authorized health and medicine-related activities described above.
- Imports into the U.S.: OFAC has lifted the $400 monetary limit on merchandise acquired in Cuba and imported into the United States by U.S. persons as accompanied baggage, as well as the similar $100 limit on alcohol and tobacco merchandise. Additionally, U.S. persons are permitted to import Cuban-origin merchandise acquired in third countries as accompanied baggage, without a monetary limit (CACR §515.585). All such Cuban-origin merchandise imported into the United States by U.S. persons is permitted for personal-use only. “Personal use” includes giving the item to another individual as a gift, but not the transfer of the item to another person for payment (CACR §515.560). OFAC previously permitted non-U.S. person travelers to import Cuban-origin goods into the United States in accompanied baggage, with the exception of alcohol and tobacco products (CACR §515.585). OFAC has now removed the alcohol and tobacco products exception. Non-U.S. persons are still prohibited from importing Cuban-origin goods in commercial quantities or for resale (CACR §515.569).
- Remittances: OFAC has amended CACR §515.570(i) to authorize persons subject to U.S. jurisdiction to make remittances to third-country nationals for their travel to, from, and within Cuba, so long as such travel would be authorized by a general license if the that traveler were a U.S. national, e.g., for educational activities, support of the Cuban people, family visits to close relatives, professional research, etc.
- Civil Aviation Safety: OFAC has added a new general license authorizing persons subject to U.S. jurisdiction to provide Cuba and Cuban nationals, wherever located, with services aimed at promoting safety in civil aviation and the safe operation of commercial aircraft (CACR §515.572(a)(5)).
- Infrastructure: OFAC has issued a new general license allowing persons subject to U.S. jurisdiction to provide services to Cuba or Cuban nationals, related to developing, repairing, maintaining, and enhancing certain Cuban infrastructure in order to directly benefit the Cuban people (CACR §515.591). “Infrastructure” in this context means systems and assets in the public transportation, water management, waste management, non-nuclear electricity generation, and electricity distribution sectors, as well as in hospitals, public housing, and primary and secondary schools.
- Prohibited Officials: OFAC has revised its definition of prohibited officials of the Government of Cuba (CACR §515.337) and prohibited members of the Cuban Communist Party (CACR §515.338), to limit those prohibited persons to members of the Council of Ministers, flag officers of the Revolutionary Armed Forces, and members of the Politburo. BIS has made corresponding changes to its lists of Cuban government and Cuban Communist Party officials who are ineligible to receive certain items otherwise permitted under license exceptions, i.e., gift parcels (License Exception GFT, EAR §740.12(a)), consumer communications devices (License Exception CCD, EAR §740.19), and software and commodities to improve the free flow of communication (License Exception SCP, EAR §740.21(d)(4)).