Following more than 50 years of Cold War acrimony with Cuba, President Obama announced last week that the United States will normalize relations with the country. The announcement has U.S. businesses and the international trade community surmising what the practical effects will be, and how soon things might change. But before companies seek to invest in Cuban projects or initiate commercial activity with Cuban-owned businesses or Cuban nationals within or outside of the country, counsel well-versed in these issues and the Cuban Asset Control Regulations (CACR) (31 C.F.R. Part 515, et seq.) should be consulted. It remains a tricky legal environment, and the enforcement of restrictions that remain in place will no doubt continue on both sides, including multi-party transactions outside of Cuba that involve a Cuban national or business.
Under the 1963 Trading with the Enemy Act, the United States enacted the Cuban embargo and secured prohibitions on travel, commerce, and trade with the country and its citizens. Since the imposition of the embargo, the sanctions have been carried out through the U.S. State, Commerce and Treasury Departments, including the Treasury's Office of Foreign Assets Control (OFAC) and the Commerce's Bureau of Industry and Security (BIS), and enforced aggressively as a priority of U.S. foreign policy. The regulations have since been supplemented and renewed over the years, and enforcement of the restrictions were given heightened priority when the U.S. State Department designated Cuba a state sponsor of terrorism. The effect of such a designation has had significant deleterious effects on Cuba's ability to participate in international banking and commerce, and the repercussions have reached well beyond the United States, as many U.S. allies honored the embargo and restrictions, fearful of offending the United States. The effect of these regulations, and the terror designation, also resulted in a severe restriction on all commercial activity with Cuba, its government and private sector, and its citizens, including multi-party transactions outside of Cuba that also involve a Cuban national or commercial entity.
With the announcement last week, and the administration's comments over the past few days, the easing of these sanctions appears to be a certainty. The President has a great deal of authority to work around the existing embargo, without the participation of Congress. The U.S. government has already begun easing family and banking restrictions. U.S. financial institutions will be permitted to engage in business with Cuban banks, and Americans will be able to send up to $8,000 per year to residents of Cuba. And perhaps most significantly, exports to Cuba's private sector will be allowed, including agricultural commodities, household goods and telecommunications items. The sale of equipment and goods to non-government-owned businesses will be permissible, including construction companies, agricultural firms and farms, and auto repair shops.
While no changes will take place until OFAC and BIS issue new regulations taking into account the policy changes, the process is already underway. OFAC is already preparing to allow those who are eligible to travel to Cuba to do so without obtaining special permission from the government.
Nevertheless, what must be kept in mind in this analysis is that the Cuban government is also a significant factor in whether economic expansion will occur there, and whether investment in the country will be allowed to flourish. Analysts estimate that about 95 percent of the Cuban economy is controlled by the state, and currently severe restrictions exist on business ownership by foreigners. Therefore, Cuba's restrictive policies must also ease before foreign and national companies can gain entry to, or expand, their presence in Cuba. Currently, foreign investors must partner with the Cuban government, not private companies, and may maintain only a minority stake. Experts do not see this changing anytime soon.