The U.S. Treasury Department and the U.S. Commerce Department have published new rules implementing the policy changes announced by the president on 17 December 2014 regarding the historic shift in U.S. relations with Cuba. While the statutory embargo and extensive sanctions remain in place, these changes are significant and provide a number of opportunities for U.S. companies to pursue commercial business opportunities in Cuba in certain sectors, including telecommunications infrastructure and services, consumer communications devices, agriculture, environmental protection, travel services, banking, and insurance. Some strong political opposition remains, however, and certain members of Congress expressed immediate concern.
According to a White House press release, the new rules “will immediately enable the American people to provide more resources to empower the Cuban population to become less dependent upon the state-driven economy, and help facilitate our growing relationship with the Cuban people.”
Secretary of Commerce Pritzker is reported to be planning a trip to Cuba in the coming year. Several Democratic members of the U.S. House of Representatives have also introduced legislation aimed at allowing free trade between the two countries. Senator Marco Rubio, (R-FL) on the other hand, issued a statement calling the regulations a “windfall to the Castro regime that will be used to fund its repression against Cubans, as well as its activities against U.S. national interests in Latin America and beyond.”
The new rules, which take effect on 16 January 2015:
- provide new and expanded license exceptions, as well as more favorable policies on approval of specific licenses, for the exports of certain types of items to Cuba that are intended to improve the living conditions of the Cuban people, including certain telecommunications equipment and personal communications devices;
- loosen restrictions on certain activities undertaken in the banking, finance, and insurance sectors;
- facilitate 12 categories of authorized travel pursuant to general licenses;
- removes barriers to scheduled air carrier service between U.S. and Cuba;
- ease restrictions on remittances and donations for certain purposes;
- permit limited imports of goods from Cuba; and
- authorize non-U.S. subsidiaries to conduct transactions with certain Cuban nationals located in other countries.
Each of these broad categories of changes is addressed below. The regulatory changes are implemented by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) through revisions to the Cuban Assets Control Regulations and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) through revisions to the Export Administration Regulations (EAR), with the expectation of certain future actions by the Department of State and the Department of Transportation.
Neither rule lifts the overall trade embargo against Cuba. The trade embargo against Cuba remains in place, and the modification or repeal of the embargo would require future action by Congress. Please see our prior update of 17 December 2014 and analysis of 15 February 2011 for additional information.
Exports to Cuba
Under the Commerce Department’s new Support for the Cuban People (SCP) license exception, exports and reexports will be authorized related to three areas: (1) improving living conditions and supporting independent economic activity; (2) strengthening civil society; and (3) improving communications. To qualify for License Exception SCP, the items must be classified as EAR99 or enumerated on the Commerce Control List and controlled only for anti-terrorism (AT) reasons. In addition, many of the provisions of License Exception SCP are limited to exports for “private sector” users in Cuba. The amended regulations do not define “private sector” for purposes of the license exception, but separate guidance published by BIS indicates that it “encompasses economic activity generated by private individuals and groups as enterprises for profit and also that which is generated by non-profit organizations and charities.” Entities that are government owned, operated or controlled would not be considered part of the private sector of Cuba.
More specifically, license exception SCP will authorize the export to Cuba of:
- building materials, equipment, and tools for use by the private sector to construct or renovate privately-owned buildings, including privately-owned residences, businesses, places of worship, and building for private sector social or recreational use;
- tools and equipment for private agricultural activity;
- tools, equipment, supplies, and instruments for use by private sector entrepreneurs (e.g., auto mechanics, barbers, hairstylists and restaurateurs);
- donated items and the temporary export of items for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities, as well as exports to human rights organizations, individuals or NGOs that promote independent activity intended to strengthen civil society;
- items for telecommunications, including access to the Internet, use of Internet services, infrastructure creation and upgrades; and
- items for use by news media personnel and U.S. news bureaus.
The new Commerce rule also expands existing license exceptions for consumer communication devices (License Exception Consumer Communication Devices (CCD), described below), gift parcels, and humanitarian donations (License Exception GFT). It also puts into place an expanded licensing policy for the issuance of specific licenses related to goods and equipment for the protection of the environment.
The U.S. government did not amend or liberalize the license requirements for the export or re-export of medical devices. In FAQs issued by BIS, available here, BIS confirmed that medicine and medical devices continue to require an individual validated license. Applications for the export/re-export of medicine and medical devices will generally be approved subject to certain limited exceptions.
Banking & Financing
U.S. banks will be permitted to open and maintain correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, such as those incident to authorized travel, remittances, or certain sales of authorized goods. U.S. financial institutions will also be allowed to enroll merchants and process credit and debit card transactions for transactions incident to authorized travel in Cuba.
U.S. insurers are now authorized to offer global health, life, or travel insurance policies for third country nationals traveling to Cuba, so long as the person is ordinarily resident outside of Cuba. This general license authorizes U.S. companies and their non-US subsidiaries to service those global policies and pay claims arising from events that occurred while the individual was traveling in, to, or from Cuba. This is a very significant development as it provides authority to issue coverage even if the foreign traveler’s underlying activities are not among the categories of licensed travel.
U.S. insurers are also authorized to provide health, life, or travel insurance to U.S. persons on authorized travel to Cuba, including making payments related to the receipt of emergency medical services.
Under its new regulations, the Commerce Department has established a new license exception SCP authorizing exports and re-exports to Cuba of certain items for telecommunications, including access to the Internet, use of Internet services, infrastructure creation, and upgrades. Also, existing license exception CCD, which previously authorized only donations, has been expanded to authorize commercial sales of consumer communications devices that enable the flow of information to, from, and among the Cuban people – such as personal computers, mobile phones, televisions, memory devices, recording devices, and consumer software. In both cases, the items must be classified as EAR99 or enumerated on the commerce control list and controlled only for anti-terrorism reasons (which encompasses a broad range of equipment and consumer devices, even when low-level encryption functionality is incorporated). In addition, applications for exports of telecommunications items not covered under these license exceptions will be considered on a case-by-case basis.
To complement the expanded export authorizations for telecommunications items, OFAC also has expanded existing general licenses to authorize a broader range of telecommunications-related transactions and services. In order to better provide efficient and adequate telecommunications infrastructure and services between the United States and Cuba, an expanded OFAC general license will facilitate the establishment of commercial telecommunications facilities linking third countries and Cuba, including facilities to provide telecommunications services in Cuba. The prior general license related to telecommunications facilities had been limited to linking Cuba and the United States, and specific licenses were required for these types of activities to provide telecommunications links between Cuba and third countries. U.S. persons relying on this general license are required to notify OFAC within 30 days of commencing or ceasing such services and must report to OFAC certain payments related to these services on a semiannual basis.
OFAC also expanded a separate general license authorizing additional services incident to internet-based communications. This provision is designed to ensure that communications and connectivity services are available in Cuba to support the expanded exports and reexports of communications devices that are now authorized under the amended Commerce Department Regulations. Services that can now be provided for a fee to certain end users in Cuba, subject to certain limitations, include:
- internet communications services such as e-mail or other messaging platforms, social networking, VOIP, web-hosting, or domain-name registration;
- services supporting a number of kinds of software applications used on personal computers, cell phones, and other personal communications devices;
- IT support services such as cloud storage, software design, business consulting, and the provision of IT management and user support.
The U.S. Government continues to prohibit tourist travel to Cuba. However, OFAC expanded the types of persons and activities that now qualify for travel to Cuba. OFAC for example, authorized “people to people” activities under a general license and expanded the scope of “educational activities,” including with respect to secondary school students.
OFAC has issued general licenses within the 12 categories of authorized travel for many travel-related transactions to, from, or within Cuba that previously required a specific license. A general license allows individuals to plan and take trips to Cuba that are described in the regulations without having to submit a written request for authorization to OFAC. Travelers will be required to certify that their travel falls within one of the authorized categories and are required to maintain documentation related to their travel for five years.
Travel-related transactions are permitted by general license for certain travel related to the following activities, subject to criteria and conditions in each general license:
- family visits;
- official business of the U.S. government, foreign governments, and certain intergovernmental organizations;
- journalistic activity;
- professional research and professional meetings;
- religious activities;
- public performances, clinics, workshops, athletics, other competitions, and exhibitions;
- support for the Cuban people;
- humanitarian projects;
- activities of private foundations or research or educational institutes;
- exportation, importation, or transmission of information or information materials; and
- certain authorized export transactions that are consistent with BIS licensing policy.
Authorized U.S. travelers to Cuba will be allowed to import up to US$400 worth of goods acquired in Cuba for personal use. This includes no more than US$100 worth of alcohol or tobacco products. Notably, the OFAC regulations also were amended to remove per diem spending limits that applied previously. As a result, there are no longer specific spending limits on authorized expenditures.
Air Travel Service Providers
Under the new regulations, regularly scheduled air transportation service to Cuba will be permitted. At this time, however, only charter service is available until the U.S. Department of Transportation establishes procedures for the restoration of scheduled service. Once scheduled service is restored, passengers purchasing a ticket for scheduled service to Cuba will be able to purchase their ticket directly from the airline offering the service.
In a notice dated 15 January 2015, the Department of Transportation has stated that it anticipates a number of U.S. air carriers will be interested in providing scheduled service to Cuba and, in view of that, it will engage with the Government of Cuba to “assess our aviation relations and establish a bilateral basis for further expansion of air services.” See the announcement here.
The limits on generally licensed remittances to Cuban nationals other than certain prohibited Cuban Government and Cuban Communist Party officials will be increased from US$500 to US$2,000 per quarter. In addition, certain remittances to Cuban nationals for humanitarian projects, support for the Cuban people, or development of private businesses will be generally authorized without limitation.
Imports from Cuba
Commercial imports of certain independent Cuban entrepreneur-produced goods and services, as determined by the State Department on a list to be published on its website, will be authorized. Otherwise, the rules generally do not liberalize the trade or dealing in Cuban-origin goods.
Transactions with Cuban Nationals
U.S.-owned or -controlled entities in third countries, including banks, will be authorized to provide goods and services to an individual Cuban national located outside of Cuba, provided the transaction does not involve a commercial exportation of goods or services to or from Cuba.
OFAC’s new regulations also unblock Cuban nationals who have permanently relocated to a third country provided that the individual provides copies of government-issued documents demonstrating permanent residence in a third country. Activities involving such individuals were previously authorized, but the property in which they had an interested prior to the date on which they took up permanent residence outside of Cuba (or 28 January 2011, whichever was later) had been blocked.