On June 16, 2017, President Trump announced a revised U.S. policy toward Cuba, partially reversing the more liberal Cuba policy pursued by President Obama beginning in December 2014. The main practical effects of the new policy are that U.S. persons may no longer pursue “individual people-to-people travel” to Cuba or transact with Cuban military and intelligence agencies and their controlled affiliates. Although President Trump strongly opposed the Obama administration’s approach to U.S.-Cuba relations, the policy announced on Friday rolls back only a limited portion of the trade reforms enacted over the past two years. The Departments of Commerce and the Treasury are required to initiate a process within 30 days to amend their Cuba-related regulations, and the newly announced changes will not take effect until those regulations are final.
This development follows months of speculation that President Trump would adopt a harder line toward Cuba relations than his predecessor. President Obama pursued a campaign of liberalization of U.S.- Cuba relations during his last two years in office, including reestablishment of diplomatic relations and expansion of the ability of U.S. persons to travel to Cuba and do business in and with Cuba. In contrast, Donald Trump’s statements on the campaign trail indicated full support for the U.S. embargo against Cuba and opposition to the Obama administration’s reforms. President Trump’s new policy does not terminate diplomatic relations or close the U.S. embassy in Havana, although it does restrict U.S. travel and business opportunities in a modest way. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) also published frequently asked questions in connection with the new policy, and the White House published a fact sheet.
We summarize below the important provisions of the new policy and key takeaways from these policy developments.
President Trump’s Cuba Policy
The White House indicated that the new policy is designed to achieve four objectives:
1. Enhance compliance with U.S. law—in particular the provisions that govern the embargo of Cuba and the ban on tourism;
2. Hold the Cuban regime accountable for oppression and human rights abuses ignored under the Obama policy;
3. Further the national security and foreign policy interests of the United States and those of the Cuban people; and
4. Lay the groundwork for empowering the Cuban people to develop greater economic and political liberty.
The most important changes for U.S. businesses and travelers are that this new policy:
• Prohibits new transactions with the Cuban military, intelligence, or security services and their affiliates, including the Grupo de Administracion Empresarial S.A. (GAESA) conglomerate; and
• Prohibits “individual people-to-people travel” and requires OFAC to regularly audit the records of U.S. travelers to Cuba to ensure compliance with U.S.-Cuba sanctions.
Restriction on business with the Cuban military and GAESA
The new policy will prohibit transactions with entities under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services, including GAESA, as well as their affiliates and subsidiaries. The State Department will issue a list of these prohibited entities.
GAESA is deeply entrenched in the Cuban economy, particularly the sectors that touch international trade, such as tourism and shipping. The agency is led by Luis Alberto Rodriguez, Raul Castro’s son-inlaw. GAESA owns or controls a vast array of investments in Cuba that do not outwardly bear any connection to the Cuban military. It owns the new Cuban container ship terminal in Mariel and controls the surrounding foreign trade zone. It also owns most tourist-related businesses in Cuba, such as retail chains and restaurants in the tourist area of Havana, and foreign run hotels on the island, including the Four Points by Sheraton Havana, the only U.S. hotel to open in Cuba since the recent liberalization of U.S. sanctions.
OFAC’s FAQs indicate that a grandfathering provision will protect pre-existing commercial arrangements. Therefore, direct transactions with these newly prohibited entities will be permitted if those commercial engagements were in place prior to the issuance of the forthcoming regulations. Otherwise, U.S. businesses that have considered future plans to open U.S.-Cuba trade via the Mariel container ship terminal and foreign trade zone, or to enter many parts of the Cuban tourist industry, are likely to be prohibited from pursuing these plans. In fact, one goal of the rule change is to direct more U.S. business to private, small Cuban businesses.
Additionally, the policy expands the Cuban Assets Control Regulations’ (CACR) definition of “prohibited officials of the Government of Cuba” to prohibit U.S. persons from transacting with a wider range of Cuban government ministers and local governments, as well as other Cuban state agencies, Cuban labor unions, and Cuban media organizations.
Prohibition on “individual people-to-people travel” and required audits
The new policy will end the practice of “individual people-to-people travel” for U.S. persons traveling to Cuba. As part of President Obama’s reforms, the CACR was amended to include a general license for “individual people-to-people travel,” which allowed Americans to travel to Cuba as individuals for the purpose of enhancing contact with the Cuban people. This authorization fueled a large increase in U.S. travel to Cuba. The Trump administration views this general license as a way to end run the statutory ban on tourist travel to Cuba. Going forward, “people-to-people travel” that is not under the auspices of an academic organization will be limited to group travel rather than self-directed individual travel.
OFAC’s FAQs indicate that any traveler that has initiated travel plans prior to the announcement of the new policy on June 16, 2017 (i.e., has completed at least one Cuba travel-related transaction, such as purchasing a flight or reserving accommodation in Cuba) will fall under an effective safe harbor. In that case, all additional travel-related transactions for that trip would also be authorized, whether the trip occurs before or after OFAC’s amendments to the CACR are issued.
The agency will also be required to audit U.S. travel to Cuba to ensure compliance with the sanctions regulations. The CACR currently provide that any American traveling to Cuba must keep full and accurate records of all transactions related to authorized travel and retain them for five years. This provision has not been widely enforced. It is unclear what mechanism any future audits will take. The new policy requires that OFAC provide a report on the results of the new audit provisions 180 days from their enactment.
President Trump’s new policy toward U.S.-Cuba relations represents a change from the recent liberalization of relations in the last two years of the Obama administration. Though the Obama-era changes have not been fully reversed, this policy may signal a new era of greater restrictions on the ability of U.S. businesses and travelers to transact with Cuba. U.S. companies that have done business with Cuba in recent years should carefully review their operations to determine if they have been transacting with the Cuban military, GAESA, or their affiliates. While there will be a grandfathering provision, it remains to be seen how broadly the future regulations and guidance will extend that grandfathering provision. The effect on future U.S. business opportunities in Cuba will also be determined by the specific regulations, as well as any changes Cuba may make to the organization or ownership of its state-owned enterprises. The changes to U.S.-Cuba sanctions policy will not take effect until OFAC implements amendments to the CACR. Although OFAC is required to begin the rule-making process within 30 days, the implementation process may take several months.