On June 13, 2019, the US Treasury Department’s Office of Foreign Assets Control (OFAC) announced settlements with three travel companies – Expedia Group, Inc. (Expedia), Hotelbeds USA, Inc. (Hotelbeds USA) and Cubasphere Inc. (Cubasphere) – for their alleged involvement in booking travel to Cuba or arranging trips for Cuban nationals between 2011 and 2014.
According to the OFAC settlement agreement, US-based company Expedia assisted more than 2,000 persons, including some Cuban nationals, book travel within Cuba or between Cuba and locations outside the US. At least some of these violations appear to have been booked by foreign subsidiaries of Expedia, which failed to recognize they were subject to the same restrictions as their US parent company. As a result of the violations, Expedia agreed to pay a civil penalty of US$325,406.
Hotelbeds USA, a US subsidiary of Spanish-based Hotelbeds Groups, agreed to pay US$222,705 to settle potential civil liability for assisting more than 700 non-US persons book unauthorized travel in violation of the Cuban Assets Control Regulations (CACR). In the settlement agreement, OFAC noted that Hotelbeds USA “knowingly sold hotel accommodations and gave its clients specific instructions to direct their payments for the Cuba-related transactions to an account in Spain, from which Hotelbeds USA was subsequently reimbursed.” Apparently, Hotelbeds USA personnel believed they could lawfully provide Cuba-related travel services to non-US persons, provided that all corresponding payments were made to non-US bank accounts.
Finally, US-based Cubasphere and an individual acting on its behalf agreed to pay US$40,320 for their involvement in unauthorized Cuba travel-related transactions and the provision of Cuba travel services to more than 100 individuals. Specifically, Cubasphere received direct payments from groups and individuals traveling to Cuba for booking air travel, hotels and transportation within Cuba. Cubasphere procured Cuba visas for travelers from US religious organizations, citing one of the travel-related general licenses authorizing US persons to travel to Cuba when such travel is “directly incident to engaging in religious activities in Cuba” (31 CFR § 515.566). However, OFAC noted that the “actual itineraries for the Cuba trips focused primarily on sightseeing and tourism activities rather than humanitarian or religious activities.”
These settlement agreements were announced as the Trump Administration continues to tighten US Cuba sanctions. Indeed, on June 5, the US Treasury and Commerce Departments amended the CACR and the Export Administration Regulations to codify changes previously announced by the Administration on April 17, 2019. The amended regulations:
- Remove group people-to-people educational travel from the list of categories of permissible travel to Cuba, and
- Make passenger vessels, recreational vessels and private aircraft on temporary travel to Cuba ineligible for the license exception for temporary sojourns to Cuba. (Commercial civil aircraft are now the only aircraft that remain eligible for the license exception when destined to Cuba.)
Key Takeaways and Recommendations
These recent settlement agreements are instructive in several ways:
- The Trump Administration is committed to enforcing US sanctions in key priority areas such as Cuba, Iran and Venezuela. As a result, US and non-US companies doing business in jurisdictions covered by US sanctions, including Cuba, must remain vigilant and ensure that appropriate compliance policies and procedures are in place to avoid engaging in activities that could trigger US sanctions.
- For OFAC’s Cuba and Iran programs, US companies must recognize that the same prohibitions that apply to them apply equally to foreign subsidiaries.
- It is critical that US companies and foreign parents of US subsidiaries implement evolving and dynamic sanctions compliance programs that reflect and account for the relevant sanctions risks. This includes frequent updates to relevant policies, technologies and websites to ensure they are not providing prohibited goods or services to US persons.
- US and non-US companies should conduct sanctions-related due diligence both before and after mergers and acquisitions are concluded. Once an entity has been acquired, we recommend the parent company take the appropriate steps to audit, monitor, train and verify newly acquired subsidiaries for OFAC compliance. (In the case of Expedia, some of the violations were committed by a newly acquired foreign subsidiary.)