On Friday, 6 January 2017, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) revised its Frequently Asked Questions (FAQs), adding five new FAQs (numbers 86-90) pertaining to vessel transactions with Cuba. The new FAQs come on the heels of a general licence issued by OFAC in October 2016 that significantly narrowed the scope of the so-called ‘180-day rule’— a restriction that prevents foreign-flag vessels from calling at U.S. ports for at least 180 days after calling at a Cuban port. See Reed Smith Client Alert, 17 October 2016. The five new FAQs discussed below provide clarity on several issues relevant to this and related rules.
FAQ No. 86: The 180-Day Rule and Goods/Passengers-on-Board Rule
FAQ No. 86 explains the nature of the so-called ‘180-day rule’ and the ‘goods/passengers-on-board rule’. OFAC stated that the 180-day rule is a “restriction prohibiting any vessel that enters a port or place in Cuba to engage in the trade of goods or the purchase or provision of services there from entering any U.S. port for the purpose of loading or unloading freight for 180 days after leaving Cuba, unless authorized by OFAC”. Traditionally, this rule has applied “even if a vessel has stopped in Cuba solely to purchase services unrelated to the trade of goods, such as planned ship maintenance”. A description of the 180-day rule can be found in 31 C.F.R. §515.207(a).
OFAC also explained the goods/passengers-on-board rule, which “prohibits any vessel carrying goods or passengers to or from Cuba or carrying goods in which Cuba or a Cuban national has an interest from entering a U.S. port with such goods or passengers on board, unless authorized or exempt”. A description of the good/passengers-on-board rule can be found in 31 C.F.R. §515.207(b).
The general exceptions that apply can be found in 31 C.F.R. §§ 515.206 and 515.550.
FAQ No. 87: Exceptions to the Rules
There are exceptions to the 180-day rule and the goods/passengers-on-board rule, which OFAC addressed in the new FAQ 87. Specifically, OFAC explained that under the general licence issued by OFAC in 2016, a vessel will not be subject to the 180-day rule or the goods/passengers-on-board rule if the vessel is:
- engaging in trade with Cuba that is not prohibited under U.S. regulations either because it is licensed or exempt from U.S. prohibitions (e.g., carrying goods from the U.S. that are licensed or otherwise authorised for export or re-export to Cuba);
- engaging in the export or re-export from a third country to Cuba of agricultural commodities, medicines or medical devices that, were they subject to the Export Administration Regulations (EAR), would be classified as ‘EAR99’;
- carrying persons between the United States and Cuba (or within Cuba) pursuant to OFAC’s general licence for the provision of carrier services, or, in the case of a vessel used solely for personal travel (and not transporting passengers), pursuant to a licence or other authorisation issued by the Commerce Department for the exportation or re-exportation of the vessel to Cuba; or
- a foreign vessel that has entered a port or place in Cuba while carrying students, faculty and staff that are authorised to travel to Cuba pursuant to the general licence for educational activities under U.S. regulations.
OFAC also clarified that a vessel will not be subject to the 180-day rule if the vessel’s only transactions with Cuba are the exportation to Cuba from a third country of items that, were they subject to the EAR, would be designated as EAR99 or controlled on the Commerce Control List only for anti-terrorism reasons.
OFAC emphasised in FAQ No. 87 that exceptions to the 180-day rule do not apply to vessels that:
- carry goods to Cuba that, were they subject to the EAR, would not be designated as EAR99 or controlled for only anti-terrorism reasons;
- load goods in Cuba, unless the transactions involving those goods are authorised by OFAC or exempt from U.S. prohibitions; or
- purchase or provide services in Cuba, other than docking, unloading or other services associated with normal shipping transactions.
FAQ No. 88: The Exceptions Distinguished from Authorisations
In FAQ No. 88, OFAC makes clear that the exceptions to the 180-day rule do not themselves authorise shipments to or from Cuba; they merely authorise certain vessels to enter a U.S. port without waiting 180 days after leaving a port or place in Cuba. However, shipments to or from Cuba may be separately authorised under other provisions of U.S. regulations. Most shipments from third countries to Cuba, for example, are not even subject to U.S. restrictions.
FAQ No. 89: U.S. Destination Cargo Aboard Vessels in Cuban Ports
FAQ No. 89 clarifies an issue of special importance to foreign vessels. It expressly states that the 180-day rule does not apply to foreign vessels travelling to the United States, via Cuba, with cargo destined for the United States, provided all goods destined for the United States remain aboard while the vessel is docked in a Cuban port.
Prior to OFAC issuing FAQ No. 89, there was some uncertainty regarding the scope of 31 C.F.R. § 515.204, which prohibits all persons subject to U.S. restrictions from purchasing, transporting, importing or otherwise dealing in merchandise if it has beaen “located in or transported from or through Cuba”.
OFAC states expressly that “goods entering the U.S. that remained on board the ship while it docked in a Cuban port . . . are not considered goods that have been located in or transported through Cuba for the purposes of 31 C.F.R. § 515.204”.
Nevertheless, OFAC notes that goods may not be unloaded in Cuba, other than goods that would be designated as EAR99 or controlled only for anti-terrorism reasons if they had been exported from the United States. Nor may merchandise be loaded in Cuba unless it is licensed or exempt.
FAQ No. 90: Code-Sharing Agreements
FAQ No. 90 addresses whether companies that use different ocean carriers as part of a broader shipping service utilising code-sharing agreements may take advantage of the exceptions to the 180-day rule.
OFAC advises that “any shipping company may deploy a vessel in a broader shipping arrangement and, so long as the vessel meets the terms of the general license, that vessel may enter a U.S. port accordingly. There is no requirement for authorization of the individual companies or the broader code-sharing arrangement.” In short, OFAC stated, “code-sharing agreements do not affect the general license or its requirements”.