The United States government has maintained for some time a strict economic sanctions regime targeting Iran and a comprehensive embargo targeting Cuba. Both of these regimes were designed to deny those countries access to the U.S. financial system by generally prohibiting U.S. persons from engaging in nearly any transaction involving Iran or Cuba and their nationals. However, over the course of the last 18 months or so, the Obama Administration has announced sweeping changes in policy with respect to Cuba and Iran that would begin the process of evolving U.S. relations with those countries.
In the last three months, the Treasury Department's Office of Foreign Assets Control ("OFAC") took two steps to implement these changes in policy. Specifically, OFAC, along with other U.S. government agencies, eased certain nuclear-related sanctions pursuant to the Joint Comprehensive Plan of Action (the "JCPOA") regarding Iran's nuclear program. And OFAC has issued two Federal Register notices, most recently on March 16, amending their Cuba regulations. These developments stop well short of ending the strict requirements of the various sanctions regimes, though they do signal movement toward the gradual easing of the Iran and Cuba sanctions programs.
In July 2015, the P5+1 (China, France, Germany, Russia, the UK, and the United States) and the European Union reached an agreement with Iran on the JCPOA to limit Iran's nuclear program to peaceful purposes. As part of this agreement, the United States agreed to ease its Iranian sanctions regime by lifting certain nuclear-related sanctions. This easing of sanctions was implemented by the U.S. government on January 16, 2016 (the JCPOA "Implementation Day") and included the following measures:
- Easing of Secondary Sanctions. The United States relaxed certain nuclear-related "secondary sanctions." In general, secondary sanctions are targeted toward non-U.S. persons who engage in certain types of activities relating to Iran. With certain exceptions, the Implementation Day measures include the relaxation of secondary sanctions on non-U.S. persons who engage in certain activities relating to Iran's financial, banking, insurance, shipping, energy and petrochemical, gold and precious metals, graphite and other metals, and automotive sectors.
- Removal of Certain Entities and Individuals from the Specially Designated Nationals List ("SDN List"). Consistent with the JCPOA, OFAC removed a number of entities and individuals from the SDN List, the list of persons with whom U.S. persons are generally prohibited from engaging in transactions.
- Issuance of a New General License. OFAC also issued a new general license, General License H, authorizing non-U.S. entities owned or controlled by U.S. persons to engage in certain limited transactions involving Iran.
- Adoption of a Statement of Licensing Policy. OFAC adopted a favorable licensing policy regarding the export, re-export, sale, lease, or transfer of commercial passenger aircraft (as well as certain parts and services) to Iran for certain limited end uses.
- Easing of Import Restrictions. OFAC also stated its intent to amend the Iranian Transactions and Sanctions Regulations ("ITSR") to allow for the importation of certain Iranian-origin items, including carpets and foodstuffs, under a general license.
As noted, these steps by the U.S. government are significant in terms of overall U.S. policy toward Iran, but they have limited impact on most U.S. companies seeking to do business in Iran. While the EU made much more sweeping changes to its Iran sanctions as a result of the JCPOA, effectively lifting most sanctions and allowing European companies to do business in Iran, OFAC's Iranian sanctions regime -- specifically, OFAC's primary sanctions regime prohibiting U.S. persons from engaging in nearly all activities involving Iran -- remains in place.
On January 27, 2016, OFAC published in the Federal Register a number of amendments to the Cuban Assets Control Regulations (the "CACR") removing payment and financing restrictions on certain exports to Cuba and allowing code-sharing, leasing, and other arrangements involving U.S. and Cuban airlines to further facilitate travel to Cuba for authorized purposes. 81 Fed. Reg. 4,583 (Jan. 26, 2016). OFAC issued another round of amendments on March 16 further easing financial and other restrictions ahead of the President's planned visit to the island. 81 Fed. Reg. 13,989 (Mar. 16, 2016). These are the third and fourth sets of amendments to the CACR since the President's announcement in December 2014 of a new direction toward Cuba.
In particular, the January amendments cover the following:
- Removal of Financing Restrictions. Previously, payment and financing terms for authorized exports to Cuba were limited to cash-in-advance or third-country financing. The amendments remove most of these financing restrictions for most types of exports, except for agricultural commodities.
- Expansion of Authorized Exports and Re-Exports. The CACR amendments, along with similar amendments to the Export Administration Regulations ("EAR"), expand the scope of allowable exports to Cuba. Specifically, the amendments authorize certain additional travel-related transactions under a general license. In addition, the EAR amendments, which are implemented by the Commerce Department's Bureau of Industry and Security ("BIS"), establish a general policy of approval for certain export licenses intended to support civil society, news gathering, telecommunications, agriculture, and civil aviation safety. BIS will also adopt a case-by-case licensing policy for exports of items to meet the needs of the Cuban people. Licenses involving Cuban state-owned enterprises remain subject to a general policy of denial.
- Air Carrier Services. The amendments authorize certain additional transactions to facilitate air travel between the United States and Cuba.
- Travel. Before the amendments, the CACR included a number of categories of authorized travel, including, among other categories, travel for professional meetings, for public performances, and for cultural exchanges. While not adding any new categories of authorized travel, the amendments expand authorizations within certain of the categories. For example, the amendments now authorize U.S. persons to engage in transactions necessary to organize professional meetings in Cuba, whereas previously, the CACR only allowed U.S. persons to engage in transactions necessary to participate in such meetings.
The March amendments go even further in facilitating authorized travel to Cuba, expanding the range of financial transactions, and authorizing additional types of business and physical presence in Cuba. Specifically, under the prior regulations, U.S. persons were only permitted to engage in most authorized travel to Cuba as part of a group. The March amendments ease this restriction by allowing individuals to travel independently to Cuba for certain authorized people-to-people purposes.
Additionally, the March amendments authorize so-called "u-turn" transactions involving Cuba, Cuban nationals, and property in which Cuba has an interest. This amendment authorizes funds transfers from non-U.S. banks that pass through one or more U.S. financial institutions before being transferred to a bank outside the United States. Further, the March amendments include additional authorized purposes for which U.S. persons may establish a business or physical presence in Cuba. While the financial and business amendments are largely technical in nature, the travel amendments could make substantial progress toward allowing U.S. persons to visit Cuba.
As noted, these amendments come in advance of the President's planned visit to the island in late March. We would anticipate that additional amendments further easing restrictions relating to Cuba may be forthcoming.
Importantly, while these amendments mark significant changes to U.S. policy, the embargo with respect to Cuba and the sanctions regime with respect to Iran remain in place. If anything the CACR and the ITSR have become more complex as, rather than simply prohibiting all or nearly all transactions, the regulations now include a number of limited and highly technical exceptions that could allow U.S. persons to explore opportunities in or involving those countries. For these reasons, it remains critical to consult the regulations before engaging in any activity involving Cuba and Iran. We would be pleased to provide further guidance regarding Cuba and/or Iran upon request.