Yesterday, President Obama announced that the United States and Cuba will begin talks to resume full diplomatic relations and partially lift travel and economic sanctions and restrictions, some of which have existed for more than 50 years. The announcement came after 18 months of secret discussions between U.S. and Cuban officials, facilitated by Canada and the Vatican. The negotiations resulted in a prisoner exchange and an understanding between President Obama and Cuban President Raúl Castro to work toward normalizing relations between the two countries.

Key Changes in the Cuban Sanctions Program and Their Impact

Most significantly, as detailed below, the Obama Administration announced plans yesterday to:

  1. Issue general licenses authorizing certain types of travel to Cuba, including family visits, thus beginning an era of broad people-to-people engagement.
  2. Authorize exports of consumer communications devices and related software and equipment, as well as Internet services, to facilitate the Cuban people’s ability to communicate abroad.
  3. Authorize the use of U.S. credit and debit cards for use by travelers to Cuba and allow certain financial transactions to facilitate the processing of authorized transactions.
  4. Authorize other types of transactions, including discrete types of exports to Cuba to support the nascent Cuban private sector and expanded licenses for transactions involving Cuban individuals in third countries.

These changes are not immediately effective but are expected to be implemented in the next several weeks through amendments to the Cuban Assets Control Regulations promulgated by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) and changes in U.S. Export Administration Regulations made by the U.S. Department of Commerce.

President Obama’s announcement marks a sea change in U.S. policy toward Cuba, and begins a process of easing sanctions that could likely be expanded in the months to come using the President’s executive powers. The focus of these early changes is on expanding people-to-people contacts (especially among families), encouraging private sector development in Cuba, and improving the lives of the Cuban people.

At the same time, it should be recognized that this easing of sanctions, while important, is limited in nature and will not eliminate key elements of the broad economic embargo against Cuba long in force and effect. The removal of the embargo would require a range of executive and legislative actions. First, multiple regulatory agencies must approve the removal of Cuba from the United States’ list of terrorist states. The President has instructed the Secretary of State to launch such a review. Second, Congress will need to pass legislation that amends the Helms-Burton law that codified some of the present sanctions, as well as take other measures.

Members of Congress from both political parties have expressed mixed reactions to the President’s actions and, at this point in time, it is unclear whether there will be sufficient support or political will to pass a law that fully lifts the Cuban embargo. While some members of Congress may challenge the President’s actions, it appears that the actions taken today are within the President’s broad scope of authority and consistent with existing laws and regulations.

Specific Changes to the Cuban Sanctions Program

The following are the specifics of the Presidential actions announced yesterday:

Reestablishing Diplomatic Relations

Secretary of State John Kerry will begin immediate discussions with Cuba on reestablishing diplomatic relations, which were severed in January 1961. The United States will reestablish an embassy in Havana and will carry out high-level exchanges and visits between the U.S. and Cuban governments in the coming months. The United States will also work with Cuba on issues such as immigration, counter-narcotics, environmental protection and human trafficking.

Facilitating Expansion of Travel to Cuba

General licenses for travel in the following categories will be made available for all authorized travelers:

  1. Family visits
  2. Official governmental business
  3. Journalistic activity
  4. Professional research and meetings
  5. Educational activity
  6. Religious activity
  7. Public performances, clinics, workshops, athletic and other competitions, exhibitions
  8. Support for the Cuban people
  9. Humanitarian projects
  10. Private foundations, research or educational institutes activity
  11. Export, import or transmission of information or information materials
  12. Certain export transactions (that may be considered for authorization)

Any travel service provider in compliance with OFAC regulations will be able to arrange travel to Cuba for any of the 12 activities listed above, and general licenses will authorize provision of these services.

The breadth of authorized travel to Cuba will likely usher in an era of broadly expanded people-to-people engagement. Travel for “professional research and meetings,” “educational activity,” private foundation activity, and religious and athletic exhibitions, among others, should result in a significant increase in travel to Cuba.

Initiating Efforts to Increase Cubans’ Access to Telecommunications

The commercial export to Cuba of certain consumer communication devices, related software, applications, hardware, services and items for the establishment and update of communications-related systems will be authorized in order to contribute to the ability of the Cuban people to communicate with the rest of the world. Additionally, telecommunications providers will be permitted to establish infrastructure and other necessary mechanisms to provide commercial telecommunications and Internet services to Cuba.

Facilitating Financial Transactions Between the U.S. and Cuba

U.S. institutions will be allowed to open correspondent accounts at Cuban financial institutions in order to facilitate the processing of authorized transactions. Use of U.S. credit and debit cards will be permitted by travelers to Cuba, and certain other measures will be adopted to provide for the more efficient financing of authorized payments between the United States and Cuba.

Expanding Exports of Certain Goods and Services From the U.S. to Cuba

Certain items will be authorized for export, including building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment for small farmers.

Updating the Application of Cuban Sanctions in Third Countries

U.S. entities in third countries will be generally licensed to provide services to, and to engage in financial transactions with, Cuban individuals in third countries. General licenses will also be issued to (1) unblock the accounts at U.S. banks of Cuban nationals who relocated outside of Cuba, (2) permit U.S. persons to participate in third-country professional meetings and conferences related to Cuba, and (3) allow foreign vessels to enter the United States after engaging in certain humanitarian trade with Cuba.

Facilitating Remittances to Cuba by U.S. Persons

Remittances from U.S. persons to Cuban nationals (other than certain government officials) will be increased from $500 to $2,000 per quarter. Additionally, donations for humanitarian projects, support for the Cuban people, and support for the development of private businesses in Cuba no longer will require specific licenses.

Authorizing U.S. Citizens to Import Additional Goods From Cuba

Licensed U.S. travelers (under a general or a specific license) will be permitted to import $400 worth of Cuban goods, including up to $100 of tobacco and alcohol products.

Discussing the Unresolved Maritime Boundary in the Gulf of Mexico

The United States will invite the governments of Cuba and Mexico to discuss shared maritime boundaries in the Gulf of Mexico.

Effect on the U.S. Business and Financial Community

Yesterday’s announcement signals a transformative shift and the beginning of normalization of U.S.-Cuban relations and business ties.

While U.S. firms may not yet engage in full-scale trade with Cuban individuals or firms, measures that facilitate transactions between the U.S. and Cuba increase Cubans’ access to telecommunications, and authorize more exports to Cuba will create new opportunities for U.S. businesses, particularly in the telecommunications, technology and construction sectors. The changes also are potentially important for U.S. financial institutions that have long faced complexities in complying with the Cuban sanctions, given the global nature of the financial system today and the participation of financial institutions in Canada, Mexico and elsewhere in Cuba.

The changes announced yesterday highlight the Obama Administration’s ongoing support for facilitating trade between the United States and Cuba and for promoting the growth of Cuba’s private sector. According to the White House website, “other options for promoting the growth of entrepreneurship and the private sector in Cuba will be explored.”

Further developments in U.S.-Cuba relations are likely. It is expected that more restrictions will be lifted in the coming months. It is also anticipated that U.S. business interests will encourage the lifting of restrictions on participation in oil and gas development and other energy projects, and in a range of financial transactions that can facilitate the development of a market economy.