On April 21, 2016, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) published eight new FAQs on its Cuba sanctions program.
OFAC clarifies that U-turn transactions (funds transfers originating and terminating outside the United States in which neither the originator nor the beneficiary is a person subject to U.S. jurisdiction) can be conducted by foreign branches and subsidiaries of U.S. banks, not just their domestic locations. It also sets out a limited expectation for bank due diligence on these transactions beyond a bank’s direct customer – banks always need to screen parties against prohibited parties lists and their own internal filters, and for U-turn transactions they need to ensure that neither the sender nor the beneficiary is subject to U.S. jurisdiction. But for parties other than their own direct customers, banks can rely on the address that they are provided for this purpose and do not need to conduct active diligence unless there are “red flags” indicating possible U.S. person involvement. OFAC also made clear that Cuban Specially Designated Nationals (“SDNs”) are not excluded from U-turn transactions.
These new FAQs are an important read for insurers and reinsurers as well. They make clear that U.S. reinsurers cannot participate in arrangements for which the underlying activity is not authorized, such as providing coverage for a foreign company offering investment opportunities in Cuban state-owned enterprises. In other words, U.S. reinsurers may be prohibited from participating even if the foreign company is operating lawfully, simply because the foreign company is not operating under an authorization from OFAC. OFAC also states explicitly that providing cargo insurance is authorized as long as the underlying export transaction itself is authorized, and that an authorization to offer insurance coverage allows for the payment and settlement of claims under the policy.
On imports, OFAC has said that a specific license is generally required to bring items back into the United States that were previously exported to Cuba. But this rule does not apply when the re-importation is required by the applicable authorization issued by the Commerce Department’s Bureau of Industry and Security, in which case OFAC will defer (e.g., for temporary exports and subsequent re-imports, or one-for-one replacements of parts). OFAC has also confirmed the position – surprising to many – that trade with Cuba from third countries of goods that contain between 10% and 99.99% U.S.-origin content requires an OFAC license, but 100% U.S.-origin goods can be sent from a third country to Cuba without an OFAC license.