On the eve of President Barack Obama's March 2016 visit to Cuba, the U.S. government has once again eased trade restrictions with the island nation. The U.S. Department of the Treasury and the U.S. Department of Commerce issued final rules this week that, among other measures, (i) increase the scope of authorized to travel by U.S. persons to Cuba; (ii) expand the categories of businesses authorized to have a physical or business presence in Cuba; (iii) authorize U.S. financial institutions to engage in an increased array of financial transactions involving Cuban individuals and entities; and (iv) lift certain restrictions on the payment of salaries to certain Cuban nationals in the United States.
These measures expand on earlier amendments to the Cuban Assets Control Regulations ("CACR") administered by the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"), and relevant provisions of the Export Administration Regulations ("EAR") administered by the U.S. Department of Commerce's Bureau of Industry and Security ("BIS"). The measures were discussed in our Alerts: "OFAC and BIS Issue Revised Cuba Regulations" (January 2015), "Although Embargo Remains in Place, U.S. Government Continues to Expand Allowable Trade with Cuba" (September 2015 ), and "U.S. Continues Easing of Trade Restrictions on Cuba, but Embargo Remains" (January 2016).
Notwithstanding the continued expansion of permissible trade activity with Cuba since December 2014, however, the U.S. embargo against Cuba remains in place, and U.S. companies and their non-U.S. subsidiaries remain generally prohibited from engaging in business with Cuba, absent a license or license exception.
This Alert provides an overview of the more notable changes resulting from the most recent amendments.
Although U.S. persons still cannot engage in tourist travel to Cuba, OFAC has amended its people-to-people educational travel general license to authorize individual people-to-people educational travel. As a result of this amendment, U.S. persons are no longer required to engage in people-to-people educational travel through an authorized travel organization. According to the U.S. Treasury Department, U.S. persons now can travel to Cuba provided that they engage in a "full-time schedule of educational exchange activities intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people's independence from Cuban authorities and that will result in a meaningful interaction between the traveler and individuals in Cuba." A trip that includes conversations with Cuban vendors while relaxing at the beach, however, will not qualify for this general license.
U.S. persons who take advantage of this change to the general license to engage in authorized individual travel must retain all records relating to their travel, including documents that will demonstrate a full-time schedule of authorized activities. U.S. persons who engage in such travel through an authorized travel organization can continue to rely on the organization to retain such records.
OFAC also has authorized U.S. persons located in third countries to purchase Cuban-origin goods for personal consumption while in the third countries. This means, for example, that U.S. persons can smoke Cuban cigars and drink Cuban rum in Mexico but cannot then bring any leftover goods back to the United States with them. This authorization does not allow the importation of the Cuban-origin goods into the United States from third countries, including as accompanied baggage.
Finally, U.S. persons in third countries also now may receive or obtain services from Cuba or a Cuban national that are ordinarily incident to travel and maintenance in the third counties.
BIS has revised the License Exception Aircraft, Vessels and Spacecraft, or "AVS," in the EAR to allow vessels that carry cargo destined for other countries to transit through Cuban territory without obtaining a license for that cargo. However, the cargo must leave with the vessel at the end of the temporary sojourn. The cargo can neither enter the Cuban economy nor be transferred to another vessel while in Cuba.
Physical and Business Presence
In September 2015, OFAC amended the CACR to permit certain categories of organizations, including U.S. news bureaus, telecom providers, and travel and carrier service providers, to establish an office or other facility in Cuba to conduct authorized transactions. OFAC now has further amended the CACR to allow entities engaged in authorized humanitarian projects, entities engaged in authorized noncommercial activities under the Support for the Cuban People, or "SCP," general license, and private foundations or research or educational institutions engaging in certain authorized activities to establish a physical presence in Cuba.
OFAC also has amended the CACR to authorize additional categories of businesses to establish a business presence in Cuba (all of which were previously authorized to establish a physical presence in Cuba). Specifically, with this latest round of amendments, OFAC has authorized providers of certain authorized mail or parcel transmission services, cargo transportation services, travel and carrier services, and exporters of certain goods that are licensed or otherwise authorized by BIS for export or re-export to Cuba to establish a business presence in Cuba. Previously, only providers of certain authorized telecommunications services and internet-based services were permitted to establish a business presence. This amendment authorizes the above-listed categories of businesses to establish and maintain subsidiaries, branches, offices, joint ventures, franchises, and agency or other business relationships with any Cuban national, and to enter into all necessary arrangements with such entity or individual.
BIS has correspondingly amended the EAR to allow exports and re-exports of EAR99 items or items only controlled for anti-terrorism purposes to Cuba for use by organizations authorized by OFAC to establish and maintain a physical and/or business presence in Cuba. OFAC's revised CACR also permits such goods to be assembled in Cuba.
With these recent amendments, OFAC has authorized U.S. financial institutions to engage in three additional categories of financial transactions involving Cuba or Cuban nationals.
U.S. financial institutions are now authorized to process U-turn transactions in which Cuba or a Cuban national has an interest. U-turn transactions are those that originate at a financial institution outside of the United States but then pass through a U.S. financial institution before being sent to another financial institution outside of the United States, often so that the transaction can be completed in U.S. dollars. For these newly authorized transactions, neither the originator nor the beneficiary of the transaction can be a U.S. person.
U.S. financial institutions are now also permitted to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions in connection with an underlying transaction that is authorized, exempt, or not prohibited by the CACR. This authorization, however, does not permit U.S. financial institutions to open correspondent banking accounts for Cuban banking institutions.
Finally, U.S. financial institutions may open and maintain bank accounts for Cuban nationals in Cuba solely to receive payments in the United States for authorized transactions, or transactions exempt from the CACR, and to remit payments to Cuba for such transactions.
The recent amendments authorize Cuban nationals in the United States with nonimmigrant status or pursuant to other nonimmigrant travel authorization to receive a salary or compensation in excess of basic living expenses, consistent with the Cuban national's visa, as long as the Cuban national is not subject to any special tax assessments in Cuba. In addition, U.S. companies can engage in transactions related to the sponsorship or hiring of Cuban nationals for employment or performance in the United States, as long as no payments are made to the Cuban government in connection with the sponsorship or hiring. Pursuant to these amendments, U.S. persons also now can engage in transactions on behalf of a Cuban national in connection with the filing of an application for nonimmigrant travel authorization issued by the U.S. government.
U.S. persons may now, in addition to importing Cuban-origin mobile applications, import Cuban-origin software.
Grants and Awards
OFAC also has expanded the scope of authorized educational activities under the CACR to authorize the provision of educational grants, scholarships, or awards to Cuban nationals or in which Cuba or a Cuban national has an interest, including, for instance, the provision of scholarships to Cuban students so that they might pursue academic studies.
Jones Day will continue to monitor developments associated with the U.S. government's trade policy with respect to Cuba.