Executive Summary This client alert addresses the recent amendments to the Cuba sanctions regime in the wake of President Obama’s historic visit to Cuba. The recent changes represent the increasing efforts of the U.S. government to restore U.S.-Cuba diplomacy. The changes to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) provide significant benefits in the travel, shipping, finance, humanitarian and educational sectors.
In recent previous client alerts, we had summarized the developing approach in U.S.-Cuba relations of 2 February 2016, 21 September 2015, and 19 December 2014.
Preceding President Obama’s historic visit to Cuba, on March 15, 2016, the U.S. government announced additional changes to the Cuba sanctions regime that will “make it easier for Americans to travel to Cuba, expand access to U.S. financial institutions and the U.S. dollar from Cuba, and expand the ability for Cubans living in the U.S. to earn a salary.”1 These changes also present significant opportunities for the international shipping community, which has been hindered by the 180 Day Rule and its licensing requirements in the past, but for which additional exemptions like License Exception AVS (Aircraft, Vessels and Spacecraft) may now apply. The U.S. Department of Commerce, Bureau of Industry and Security (BIS) and the Department of Treasury, Office of Foreign Assets Control (OFAC), together released statements detailing the specific changes to OFAC sanctions regulations and export laws coinciding with the White House’s announcement. The latest round of regulatory changes is likely to spark interest from the private sector and international community in the new opportunities presented in the shipping, travel, finance, trade, educational, and humanitarian sectors.
OFAC’s Regulatory Changes OFAC’s recent revisions to the Cuban Assets Control Regulations (CACR) will bolster trade and commercial opportunities between the United States, Cuba, and third countries. Treasury Secretary Jacob J. Lew has stated these amendments will “chart a new course in U.S.-Cuba relations.”2 From enabling Cubans to earn a salary in the United States to easing shipping restrictions, the revisions mark yet another unprecedented move by the U.S. government to seek to develop a new direction toward Cuba and reform past policy. The most recent regulatory changes taking effect to meet these goals are as follows:
- Shipping industry and ports: Changes to the CACR lift the 180-day ban on entry to U.S. ports for vessels traveling under License Exception AVS to carry cargo for third countries on temporary sojourn to Cuba. Those vessels that are not using AVS, or are otherwise exempt under the CACR, will still be subject to the 180-day requirement to refrain from calling in the United States to load or unload cargo for 180 days after calling in Cuba. The “180 day rule” applies to both U.S. and non-U.S. vessels. Previously, the CACR was amended to allow vessels exporting cargo with authorization from the Department of Commerce, carriage of students, faculty and staff, and vessels engaged in exportation or re-exportation of agricultural commodities, medicine, or medical devices.3 License Exception AVS only applies to cargo vessels for hire for use in the transportation of items; passenger vessels for hire for use in the transportation of passengers and/or items; and recreational vessels used in connection with travel authorized by OFAC. License Exception AVS authorizes the export or reexport of aircraft and vessels to Cuba from the United States on temporary sojourn, as flying an aircraft or sailing a vessel to Cuba constitutes an export or reexport. BIS authorization is required for aircrafts or vessels subject to the Export Administration Regulations (EAR), and departing from the United States. License Exception AVS also authorizes the export of equipment and spare parts for permanent use on certain vessels or aircraft. Those using License Exception AVS should ensure they meet the conditions of the exception. Previously, OFAC’s regulations did not allow such vessels to call at U.S. ports to load or unload freight for up to 180 days after departing Cuban ports. Vessels not traveling under License Exception AVS will still require a license from the Department of Commerce. These license applications will be reviewed by the Department of Commerce on a case-by-case basis when they are used to deliver humanitarian goods or services, or when their use is consistent with U.S. foreign policy interests.
- Travel to Cuba: Although tourism to Cuba is still not permitted for U.S. persons, these recent regulatory changes permit individuals to travel to Cuba as part of an “educational” experience. Individuals may travel to Cuba so long as they have a full-time schedule of educational activities to enhance contact with the Cuban people, support civil society in Cuba, or promote the independence of the Cuban people. The travel must also result in meaningful interaction between the traveler and individuals in Cuba. The regulation imposes record-keeping requirements and also requires that one not meet with Cuban government officials for the predominant portion of the trip. Although the CACR do not define the term “predominant” for purposes of determining the duration of time that would violate the general license terms, the general license does specify that travelers have a “full-time schedule” of the educational exchange activities listed above. OFAC issues two types of licenses – general licenses and specific licenses. A general license provides an authorization for a transaction without the need to apply for a license. A specific license is a written document issued by OFAC that authorizes a transaction and requires submission of a written application.
- Receipt of salary payments: Cuban nationals lawfully present in the United States in a non-immigrant status or pursuant to another non-immigrant travel authorization issued by the United States may now receive salary payments in the United States, provided they are not subject to a tax assessment by the Cuban government. All transactions related to sponsoring or hiring Cuban nationals to work in the United States are also authorized, so long as employers do not make payments to the Cuban government in relation to the employment.
- Purchase of Cuban-origin goods: U.S. persons may now buy Cuban-origin goods for personal consumption while in a third country. U.S. persons may also receive services from a Cuban national that are ordinarily incident to travel and maintenance in a third country. For years, this regulation prohibited, for example, U.S. persons from purchasing and consuming Cuban cigars in a third country. Now, U.S. persons will be able to travel to Europe and other third countries to purchase and consume Cuban cigars and alcohol. This follows the recent authorization from December 2014 that now allows travelers to return to the United States from Cuba with $400 worth of goods from Cuba, of which up to $100 worth can be Cuban cigars and alcohol in accompanied baggage for personal use. The March 2016 rule does not allow U.S. persons to import Cuban-origin merchandise from a third country that is not Cuba.
- Certain financial transactions: U-Turn transactions in which Cuba or Cuban nationals have interests may now be processed through the U.S. financial system. The regulation authorizes “U-turn transactions,” which are transactions that must be processed through a U.S. bank as an intermediary before being transferred to another foreign bank. Transactions involving a U.S. originator or beneficiary will continue to be prohibited unless otherwise exempted or authorized in the CACR.
- Processing indirect transactions in U.S. dollars: OFAC has added a new general license to allow U.S. banks to process transactions in U.S. dollars, where the transaction is presented indirectly by Cuban financial institutions. Correspondent accounts for transactions authorized in this section may be in U.S. dollars, but U.S. banks may not open correspondent accounts for Cuban banks.
- Bank accounts for Cuban nationals: Cuban nationals may open U.S. bank accounts to receive payments for transactions authorized or exempted by OFAC. For example, a Cuban author may open a U.S. bank account to receive payments for sales of her book.
- Establishing a physical and business presence in Cuba: OFAC previously authorized U.S. persons to establish business in Cuba through subsidiaries, branches, offices, joint ventures, franchises or other business relationships in Cuba. Exporters of agricultural commodities, medicine, medical devices, telecommunications items may establish a business presence in Cuba.
OFAC has expanded the entities that may have a physical presence in Cuba and that now may also include humanitarian organizations, private foundations, religious organizations, educational institutions, travel service providers, carrier providers, and organizations that “strengthen civil society in Cuba.”
- Grants and awards: Educational grants, scholarships or awards may be provided to a Cuban national. This includes grants for humanitarian projects to benefit the Cuban people.
- Telecommunications and internet services: Cuban-origin software may now be imported into the United States.
BIS’ Regulatory Changes BIS’ regulatory changes to the EAR are detailed in the Federal Register Notice published March 16, 2016, and provide certain revisions to the License Exception AVS.4 Under the new rule, vessels departing the United States on temporary sojourn to Cuba no longer have to obtain a license for cargo in transit through Cuba to other destinations, and may use License Exception AVS.
- License Exception AVS: The new rule allows for vessels departing the United States on temporary sojourn to Cuba with cargo for other destinations, and states they may travel under License Exception AVS rather than obtain a license for the cargo to transit Cuba to other destinations, provided that the following conditions are met: (1) the cargo departs with the vessel at the end of its temporary sojourn to Cuba; (2) the cargo does not enter the Cuban economy; and (3) the cargo is not transferred to another vessel while in Cuba. The revision to AVS will now allow for the efficient use of vessels carrying cargo from the United States to Cuba and other countries. It will also allow exporter carriers to choose more efficient routes.
- Revision to License Exception SCP: License Exception SCP (Support for the Cuban People) will now allow the export or reexport of EAR-99 items and items controlled only for anti-terrorism reasons for use by those who are authorized to establish and maintain a physical or business presence in Cuba. These entities include news organizations, educational organizations, humanitarian organizations and those organizations that seek to provide support for the Cuban people. In addition, this list includes entities that have received a specific license from OFAC to establish or maintain a physical or business presence in Cuba.
- BIS’ license policy review regarding exports to Cuba: BIS has revised the EAR licensing policy regarding Cuba and will now review license applications on a case-by-case basis, if such license applications would enable or facilitate exports of items from Cuba’s private sector. BIS maintains that approving certain licenses of this type may also meet the needs of the Cuban people and is consistent with the administration’s policy of supporting the Cuban people as they seek to gain independence. BIS continues to maintain a licensing policy of denial for proposed exports that would generate revenue for the Cuban government.
- Revisions to EAR rule concerning in-transit shipments: BIS will no longer prohibit shipments from transiting certain destinations under General Prohibition 8 if a license or license exception applies.
The recent revisions to the CACR and EAR continue to support the Obama administration in its goal to empower the Cuban people and re-establish diplomatic relations between the United States and Cuba. The new revisions will likely have a significant effect in promoting more flexible shipping and trade arrangements, as well as facilitating the expansion of travel to Cuba.