Legalizing U.S. Dollar Banking Transactions + Allowing “Self-Directed Individual People-to-People” Trips to Cuba Highlight Updated Regs
Shortly before President Obama’s trip to Havana, the Office of Foreign Assets Control of the U.S. Treasury (“OFAC”) announced more regulatory changes that continue to improve many commercial and sociopolitical aspects of U.S.-Cuba relations. These new changes are primarily related to:
- Authorizing Self-Directed Individual People-to-People Travel (Pure Tourism Still Prohibited)
- Employing and Compensating Cubans
- Consuming Cuban-Origin Merchandise
- Transferring Funds Through U.S. Banks
- Creating Bank Accounts for Cuban Nationals
- Establishing a Business Presence in Cuba
- Establishing a Brick-and-Mortar Physical Presence in Cuba
- Importing Cuban-Origin Software
- Shipping and Porting
- Exporting of Items Produced by the Cuban Private Sector
- Providing Grants, Awards and Scholarships to Cuban Nationals
A full summary and analysis of the changes is outlined in the following article.
On Sunday, March 20, 2016, President Obama landed in Havana accompanied by several influential Cuban-American businessmen who were all former hardliners on Cuba, but who now want to end the Cuban embargo. Obama's historic landing occurs in the midst of a growing American chorus to end the embargo, as evidenced by U.S. opinion polls that show clear majorities of Democratic and Republican voters favor its end.
Ironically, at a time when the U.S. is politically polarized, ending the embargo is one of the few issues on which a majority of Democrats, Republicans and independents agree; many American companies and the U.S. Chamber of Commerce are also calling for an end to the embargo. Lobbying groups such as Engage Cuba, funded in part by American business interests, are mounting effective grassroots efforts in key states to push lawmakers "out of the closet" and to finally “vote their true beliefs” and end the embargo.
Moreover, contrary to what the hardliners in the U.S. say, the old policy of isolation was a complete failure. Anyone who has been to Havana lately can clearly see major changes, including (1) a growing private economic sector, (2) increased and improved access to the internet and mobile communications, and (3) signs that the Cuban government is working hard to attract more foreign investment and to settle any outstanding international debt issues.
Denial is ever-present when the end of anything held dear is near, but the fact remains that the U.S. embargo of Cuba is on “life support” while Congress musters the courage to pull the plug. In the meantime, OFAC's latest regulatory changes to legalize the use of the dollar in Cuba-related transactions and to permit individual, self-directed people-to-people trips will provide more opportunities for Americans to move forward on Cuba while the leadership in Congress catches up to what all the polls show the voters want.
The highlights of the OFAC changes announced on March 15, 2016, are as follows.
1. People-to-People Travel
Individuals taking people-to-people trips to Cuba will no longer need to do so with a group specializing in such trips. However, pure tourism is still prohibited and individuals will need to maintain records for five years demonstrating that they engaged in "a full-time schedule of educational exchange activities intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities and that will result in a meaningful interaction between the traveler and individuals in Cuba."
This is perhaps best explained by pointing to two of several examples provided by OFAC:
Example 2 to § 515.565(b): An individual plans to travel to Cuba to participate in discussions with Cuban artists on community projects, exchanges with the founders of a youth arts program, and to have extended dialogue with local city planners and architects to learn about historical restoration projects in Old Havana. The traveler will have a full-time schedule of such educational exchange activities that will result in meaningful interaction between the traveler and individuals in Cuba. The individual’s activities qualify for the general license, provided that the individual satisfies the recordkeeping requirement.
Example 4 to § 515.565(b): An individual plans to travel to Cuba to rent a bicycle to explore the streets of Havana, engage in brief exchanges with shopkeepers while making purchases, and have casual conversations with waiters at restaurants and hotel staff. None of these activities are educational exchange activities that will result in meaningful interaction between the traveler and individuals in Cuba, and the traveler’s trip does notqualify for the general license.
2. Payment of Salaries
New section (a)(5)(i) explicitly authorizes the receipt of any salary or other compensation consistent with the individual’s non-immigrant status or other non-immigrant travel authorization, provided that the recipient is not subject to any special tax assessment by the Cuban government in connection with the receipt of the salary or other compensation.
New section 515.571(e) authorizes all transactions related to the sponsorship or hiring of a Cuban national to work in the United States and provides that an employer may not make additional payments to the Cuban government in connection with the sponsorship or hiring of a Cuban national. Section 515.571(e) also authorizes transactions in connection with the filing of an application for non-immigrant travel authorization.
3. Cuban-Origin Merchandise
Certain dealings in Cuban-origin merchandise are authorized by individuals for personal consumption while in a third country. Individuals are also authorized to receive or obtain services from Cuba or a Cuban national that are ordinarily incident to travel and maintenance within a third country. This authorization will allow, for example, Americans traveling in Europe to purchase and consume Cuban-origin alcohol and tobacco products while abroad similar to the travel exemptions in other sanctions programs.
4. U-Turn Payments Through the U.S. Financial System + Processing of U.S. Dollar Monetary Instruments
From the perspective of the Cuban government, these are likely the most significant new regulations. An amended General License found in 31 C.F.R. 515.584(d) permits funds transfers from foreign banks to pass through one or more U.S. financial institutions before being transferred to another foreign bank, if neither the originator nor the beneficiary of that transfer is a person subject to the jurisdiction of the United States.
New section 515.584(g) authorizes U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions. Correspondent accounts used for transactions authorized pursuant to this section may be denominated in U.S. dollars.
Nevertheless, it is important to note that, while U.S. banks can now engage in these limited financial transactions involving Cuba, the embargo remains in place. Moreover, these regulations do not require U.S. banks to actually perform these transactions. It remains to be seen whether any U.S. banks actually engage in these transactions while still having exposure for violations of other Cuban embargo rules.
5. U.S. Bank Accounts for Cuban Nationals
U.S. banking institutions are also authorized to open and maintain bank accounts in the United States for Cuban nationals in Cuba to receive payments in the United States for authorized or exempt transactions and to remit such payments back to Cuba.
6. Business Presence
OFAC is expanding the authorization to establish a business presence in Cuba to include the following additional categories of persons subject to U.S. jurisdiction (all of whom were previously authorized to establish a physical presence):
- exporters of goods authorized for export or reexport to Cuba by section 515.533 or section 515.559 or that are otherwise exempt;
- entities providing mail or parcel transmission services authorized by section 515.542(a) or providing cargo transportation services in connection with trade involving Cuba authorized by or exempt from the prohibitions of this part; and
- providers of travel and carrier services authorized by section 515.572.
OFAC is clarifying that the business and physical presence authorization for providers of internet-based services extends to persons engaged in transactions authorized by section 515.578(e)
7. Physical Presence
OFAC is expanding the previous authorization for physical presence to include the following additional categories of persons subject to U.S. jurisdiction:
- entities engaging in non-commercial activities authorized by section 515.574 (Support for the Cuban People);
- entities engaging in humanitarian projects set forth in section 515.575(b) (Humanitarian projects); and
- private foundations or research or educational institutes engaging in transactions authorized by section 515.576.
OFAC is also adding a note to clarify that the activities that may be carried out by exporters of items exported or re-exported pursuant to authorization by the Department of Commerce or OFAC, or that are otherwise exempt, at a physical presence authorized by this section include the assembly of such items in Cuba.
8. Importation of Software
The Cuban Asset Control Regulations currently authorize the importation of Cuban-origin mobile applications. OFAC is expanding this authorization to allow the importation of Cuban-origin software.
The Department of Commerce is generally authorizing vessels to transport authorized cargo from the United States to Cuba and then sail to other countries with any remaining cargo that was on-loaded in the United States.
10. Cuban Private Sector
The Department of Commerce is adopting a licensing policy of case-by-case review for exports and re-exports of items that would enable or facilitate exports from Cuba of items produced by the Cuban private sector.
11. Grants and Awards
OFAC is adding a new provision in section 515.565 to authorize the provision of educational grants, scholarships, or awards to a Cuban national or in which Cuba or a Cuban national otherwise has an interest. This could include, for example, the provision of educational scholarships for Cuban students to pursue academic studies for a degree. OFAC is also adding a note to section 515.575(b) to clarify that the existing authorization includes provision of grants or awards for humanitarian projects in or related to Cuba that are designed to directly benefit the Cuban people as set forth in that section.