United States Eases Elements of Cuban Embargo; New Regulations Issued by U.S. Treasury and Commerce Departments Implement Cuban Policy Changes Announced in December SUMMARY Effective January 16, 2015, the United States Department of Treasury s Office of Foreign Assets Control ( OFAC ) and the United States Department of Commerce s Bureau of Industry and Security ( BIS ) issued regulations revising the Cuban Assets Control Regulations ( CACR ) and the Export Administration Regulations ( EAR ), respectively, in order to implement U.S. policy changes towards Cuba announced by the Obama Administration on December 17, 2014. The changes are targeted to further engage and empower the Cuban people. Although these regulations have eased certain elements of the Cuban embargo, particularly in the areas of travel, telecommunications, remittances, certain financial services and support for the Cuban people, the changes are incremental and the Cuban embargo, which also has been codified into law by various statutes enacted since the embargo was first adopted, remains in place. 1 Transactions between the United States, or persons subject to U.S. jurisdiction, and Cuba generally remain prohibited unless authorized or exempt. 2 The changes are very detailed and technical, and despite the Obama Administration s new policy towards Cuba, care must be taken to ensure that any activity undertaken in reliance on the new authorizations strictly conforms to the terms and conditions of the regulations. The changes are summarized below. OFAC S AMENDMENTS TO THE CACR Procedurally, OFAC s amendments to the CACR generally consist of OFAC: issuing new general licenses, generally authorizing transactions that would otherwise be prohibited by the CACR; changing certain matters previously eligible for a specific license which require the licensee to obtain permission New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com
from OFAC to engage in otherwise prohibited acts on a case by case basis into general licenses; and expanding existing general licenses to authorize a broader array of activity. -2- Concurrently with the issuance of the revised CACR, OFAC published a set of Frequently Asked Questions ( FAQs ) providing additional guidance. 3 Travel to Cuba and Travel Services, Including Insurance Travel for tourist activities continues to be prohibited, but the changes ease the regulatory burden associated with permissible travel to Cuba. OFAC amended the CACR to generally license certain types of travel to, from or within Cuba which previously could be conducted only after the issuance of a specific license by OFAC; with the amendments, there are 12 generally licensed categories of travel to Cuba. 4 The CACR provide that persons engaged in authorized travel to Cuba may engage in enumerated travelrelated transactions, such as transportation-related transactions incident to travel to and from Cuba, the payment of living expenses in Cuba, and the acquisition in Cuba of goods for personal consumption, among other things. OFAC s revisions to the CACR remove per-diem caps on living expenses while in Cuba, allow authorized travelers to Cuba to return to the United States with up to $400 worth of merchandise for personal use only (provided, among other things, that no more than $100 of the merchandise consists of alcohol or tobacco products), and raise the value of remittances that authorized travelers are allowed to carry to Cuba from $3,000 to $10,000. 5 As discussed below, OFAC s amendments to the CACR enable authorized travelers to use U.S. credit and debit cards in Cuba for authorized expenses, and U.S. financial institutions are permitted to enroll merchants to process those transactions, but there is no requirement that U.S. financial institutions process such transactions. 6 OFAC also amended the CACR to generally authorize any person subject to U.S. jurisdiction, including travel agents and tour group operators and airlines, to provide travel and carrier services in connection with authorized travel involving Cuba, 7 subject to recordkeeping and reporting requirements. 8 The provision of these services previously required a specific license from OFAC. The CACR also authorize the provision of health, life and travel insurance-related services to authorized travelers to Cuba, as well as the receipt of emergency medical services and the making of payments related thereto. 9 In addition, OFAC added a general license authorizing persons subject to U.S. jurisdiction to issue or provide coverage for global health, life or travel insurance policies for individuals ordinarily resident in a country outside of Cuba who travel to or within Cuba, which permits persons subject to U.S. jurisdiction to service those policies, and pay claims arising from events that occur, while the individual is or was traveling in, to or from Cuba. 10 The CACR, as revised, also generally authorize all transactions incident to the processing and payment of credit cards, debit cards, stored value cards, checks, drafts, travelers checks, and similar instruments used or negotiated in Cuba by any person authorized by the CACR to engage in financial transactions in Cuba. 11 Previously, transactions incident to processing credit and debit card transactions in Cuba were not authorized. OFAC also amended this general license to permit persons subject to U.S. jurisdiction that process such transactions to rely on the traveler in determining whether
the underlying transaction is authorized, so long as persons processing the transaction do not know or have reason to know that the transaction is not authorized. 12 In reliance on the new licenses, MasterCard announced that it is removing the current block on U.S.-issued card transactions in Cuba as of March 1, 2015. 13 Remittances OFAC amended the CACR to raise the limits on certain remittances to Cuban nationals 14 and to generally authorize additional types of remittances. Specifically, OFAC raised the limits on generally licensed periodic remittances from persons subject to the jurisdiction of the United States to Cuban nationals from $500 to $2,000 per quarter. 15 Remittances to certain officials of the Cuban Government or members of the Cuban Communist Party remain prohibited. 16 In addition, OFAC generally authorized remittances in unlimited amounts from persons subject to U.S. jurisdiction to individuals and independent nongovernment entities in Cuba for the following purposes: (i) to support humanitarian projects in or related to Cuba that are designed to directly benefit the Cuban people; (ii) to support the Cuban people through activities of recognized human rights organizations, independent organizations designed to promote a rapid, peaceful transition to democracy, and activities of individuals and non-governmental organizations that promote independent activity intended to strengthen civil society in Cuba; and (iii) to support the development of private businesses, including small farms. 17 OFAC also expanded the types of entities generally authorized to process authorized remittances to Cuba without first obtaining a specific license from OFAC to include all banking institutions, which OFAC clarified includes U.S. registered money transmitters and U.S. registered brokers or dealers in securities. 18 Previously, only depository institutions 19 were generally authorized to process authorized remittances. The general authorization is subject to certain recordkeeping and reporting requirements. 20 Banking The recent amendments to the CACR add general authorizations for various financial transactions. U.S. depository institutions are now permitted to establish and maintain correspondent accounts at financial institutions in Cuba, provided that the accounts are used only for transactions authorized under the CACR. 21 This general license does not, however, permit the establishment or maintenance of accounts in the United States or with a person subject to U.S. jurisdiction by, on behalf of, or for the benefit of, Cuba or a Cuban national. 22 Additionally, U.S. depository institutions are permitted to set up testing arrangements and exchange authentication keys with Cuban financial institutions for conducting transactions authorized by the CACR. 23 All transactions incident to the processing and payment of credit and debit cards involving travel-related and other transactions in Cuba also are authorized. 24 OFAC also implemented changes that affect how U.S. depository institutions treat wire transfers involving Cuba or a Cuban national. Previously, U.S. depository institutions were required to block all payments in which Cuba or a Cuban national had an interest, to the extent such payments were not otherwise -3-
authorized by or exempt from the CACR. OFAC has issued a new general license authorizing U.S. depository institutions to reject, instead of block, funds transfers that originate and terminate outside of the United States, provided that neither the originator nor the beneficiary is a person subject to U.S. jurisdiction and provided that prohibited officials of the Cuban Government or prohibited members of the Cuban Communist Party do not have an interest in the transfer. 25 The general license also authorizes U.S. depository institutions to process funds transfers in which Cuba or a Cuban national have an interest that originate and terminate outside the United States, provided that neither the originator nor the beneficiary is a person subject to U.S. jurisdiction and provided that the funds transfer would be authorized under the CACR if the originator or beneficiary were a person subject to U.S. jurisdiction. 26 Telecommunications The OFAC amendments expanded the scope of a general license of the CACR, so that transactions (including payments) incident to the establishment of facilities (including fiber-optic cable and satellite facilities) to provide telecommunications services 27 linking the United States or third countries and Cuba, including facilities to provide telecommunications services in Cuba, are authorized. 28 OFAC also updated general licenses authorizing telecommunications-related transactions, including payment related to the provision of telecommunications, involving Cuba or provided to Cuban individuals, provided such individuals are not prohibited officials of the Government of Cuba or prohibited members of the Cuban Communist Party. Under these authorities, U.S. persons may, for example, purchase calling cards for people to use in Cuba or pay directly to a telecommunications operator located in Cuba. 29 In addition, OFAC expanded a general license to authorize persons subject to U.S. jurisdiction to provide additional services to Cuba incident to internet-based communications (such as instant messaging, social networking, web browsing and blogging), as well as services related to exportation and reexportation of certain communications items. 30 Transactions with Cuban Nationals Outside of Cuba OFAC s amendments to the CACR authorize U.S. owned or controlled entities organized or operating in third countries to provide goods and services (including financial services) to Cuban nationals located outside of Cuba, provided, among other things, that the transaction does not involve a commercial exportation of goods or services to or from Cuba. 31 U.S. owned or controlled entities are not permitted under this license to export to Cuba commodities produced in the authorized trade territory, nor to reexport to Cuba items of U.S. origin. Such persons also continue to be prohibited from engaging in transactions with respect to Cuban-origin goods. In addition, OFAC amended the CACR to generally authorize individual Cuban nationals that have taken up permanent residence outside of Cuba to be treated as unblocked nationals, meaning that the prohibitions of the CACR generally do not apply to such individuals. 32 OFAC also issued a new general license allowing persons subject to U.S. jurisdiction to sponsor, provide services in connection with, and -4-
participate in conferences or other similar events in a third country that are attended by Cuban nationals, provided the event does not relate to tourism in Cuba. 33 Imports of Products of Cuban Entrepreneurs OFAC issued a new general license authorizing persons subject to U.S. jurisdiction to engage in all transactions, including payments, necessary to import goods and services produced by independent Cuban entrepreneurs as determined by the State Department, to be set forth by the State Department at: http://www.state.gov/e/eb/tfs/spi/. 34 To date, the State Department has not published this list. Diplomatic Activity and International Organizations OFAC broadened a general license allowing U.S. depository institutions to process funds transfers for the official business of third country diplomatic or consular missions in Cuba to also authorize the processing of funds transfers for the official business of international intergovernmental organizations in which the United States is a member or holds observer status. 35 The license was also expanded to allow U.S. depository institutions to process funds transfers and maintain accounts for the personal expenditures of employees, grantees and contractors, as well as persons who share a common dwelling as a family member of such persons, of third country diplomatic mission or intergovernmental organizations in Cuba. 36 Finally, to facilitate the reestablishment of diplomatic relations with Cuba, OFAC issued a new general license authorizing the provision of goods and services in the United States to official missions of the Government of Cuba to the United States and to international organizations in the United States, and payment for such goods and services, subject to conditions, including that the goods and services are for the conduct of official business. 37 BIS S AMENDMENTS TO THE EAR BIS administers the Export Administration Regulations controlling the transfer of U.S.-origin dual-use goods and services (i.e., goods or services that have both civilian purposes and potential military applications). The new BIS regulations modify U.S. export policy towards Cuba, and generally complement OFAC s revisions. Similar to OFAC, BIS implemented its changes by creating new authorizations, or expanding existing authorizations, that provide for exceptions to the licensing requirements of the EAR. 38 Private Sector Tools and Equipment: BIS introduced a new License Exception SCP ( Support for the Cuban People ), which authorizes the export and reexport of certain commercially sold or donated items which fall within one or more of the following categories: (i) building materials, equipment and tools for use by the private sector to construct or renovate privately owned buildings; (ii) tools and equipment for private sector agricultural activity; and (iii) tools, equipment, supplies, and instruments for use by private sector entrepreneurs (e.g., auto mechanics, barbers, hairstylists and restauranteurs). 39 Items eligible for export and reexport to Cuba pursuant to this aspect of License Exception SCP are only those designated -5-
EAR99 (i.e., items subject to the EAR but not specified in any Export Control Classification Number) or controlled on the Commerce Control List only for anti-terrorism reasons. Donated Items for Specified Purposes: License Exception SCP also authorizes the export and reexport to Cuba of certain donated items for use in scientific, archaeological, cultural, ecological, educational, historic preservation or sporting activities 40 as well as the temporary export to Cuba of certain items by persons departing the United States for their use in connection with such purposes or for their use in professional research (directly related to the traveler s profession, professional background or area of expertise) so long as they are returned to the United States within two years, unless consumed in Cuba or otherwise authorized by a license from BIS. 41 These rules exclude items on the United States Munitions List (22 C.F.R. Part 121) or Commerce Control List (Supplement 1 to Part 774 of EAR), unless the only reason for control of the item on the CCL is for anti-terrorism reasons. Human Rights Organizations: License Exception SCP authorizes the export and reexport to Cuba of certain items to human rights organizations, individuals, or non-governmental organizations that promote independent activity intended to strengthen civil society. Similar to the aspect of License Exception SCP regarding private sector tools, items eligible for export and reexport to Cuba pursuant to this aspect of License Exception SCP are only those designated EAR99 or controlled on the Commerce Control List only for anti-terrorism reasons. Telecommunications Items: License Exception SCP authorizes the export and reexport of certain items for telecommunications (including access to and the use of the Internet) and use by news media personnel and U.S. news bureaus engaged in the gathering and dissemination of news to the general public. 42 Only items designated EAR99 or controlled on the Commerce Control List only for anti-terrorism reasons are eligible. Consumer Communications Devices: The existing License Exception for Consumer Communications Devices, created in 2009, authorized the export or reexport of certain communications commodities and software (such as recording devices, mobile phones and computers) that are donated by the exporter or reexporter to an eligible end user free of charge. BIS amended this licensing exception by eliminating the donation requirement in the rule, 43 thereby authorizing the export and reexport of eligible commercially sold communications commodities and software to eligible end users in Cuba. Gift Parcels and Humanitarian Donations: License Exception GFT, for gifts and humanitarian donations, was amended to authorize exports of multiple gift parcels exported in a single shipment for delivery to individuals residing in a foreign country, including but not limited to Cuba. This eliminates the need to obtain individual licenses for each gift parcel in the shipment. 44 Environmental Protection: BIS also added a provision to the EAR establishing a general policy of approval for exports and reexports to Cuba of items necessary for the environmental protection or -6-
enhancement of U.S. and international air quality, water quality or coastlines. 45 related to renewable energy or energy efficiency. This includes items NEXT STEPS As noted by Secretary of the Treasury Jacob Lew, the amendments issued by BIS and OFAC are meant to put in place a policy that helps promote political and economic freedom for the Cuban people such that they do not need to rely on the Cuban state. 46 Although significant, the changes represent an incremental easing, and not the lifting of, Cuban Sanctions, and OFAC continues to enforce the prohibitions of the CACR. 47 There are likely to be compliance challenges occasioned by the revisions to the CACR, especially for U.S. financial institutions attempting to determine whether a transaction underlying a funds transfer is authorized under the expanded general licensing regime of the CACR, and there may be additional guidance or clarification as those challenges begin to surface. Clients interested in further information concerning the recent amendments to the CACR and EAR should contact the Sullivan & Cromwell lawyers identified at the end of this memorandum. * * * Copyright Sullivan & Cromwell LLP 2015-7-
ENDNOTES 1 2 3 4 5 6 7 8 9 10 11 12 13 14 The Helms-Burton Act, which among other things, provides the possibility of a private right of action against persons who traffic in confiscated property, remains in effect. Persons subject to the jurisdiction of the United States include (i) any individual, wherever located, who is a citizen or resident of the United States; (ii) any person in the United States; (iii) any corporation, partnership, association or other organization organized under the laws of the United States or of any State, territory, possession, or district of the United States; and (iv) any corporation, partnership, association or other organization, wherever organized or doing business, which is owned or controlled by any person or persons specified in (i) through (iii). Thus, foreign subsidiaries of U.S.-organized entities are generally subject to the prohibitions of the CACR. See OFAC, Frequently Asked Questions Related to Cuba, (Jan. 15, 2015), available at: http://www.treasury.gov/resource-center/sanctions/programs/documents/cuba_faqs_new.pdf. 31 C.F.R. 515.560. The categories of travel for which a general authorization, subject to conditions and limitations, is now available include: (i) family visits; (ii) official business of the U.S. government, foreign governments, and certain intergovernmental organizations; (iii) journalistic activity; (iv) professional research and professional meetings; (v) educational activities; (vi) religious activities; (vii) public performances, clinics, workshops, athletic and other competitions, and exhibitions; (viii) support for the Cuban people; (ix) humanitarian projects; (x) activities of private foundations or research or educational institutes; (xi) travel related to the exportation, importation or transmission of information or informational materials; and (xii) travel related to certain authorized exportations with respect to U.S. owned or controlled foreign firms. OFAC s FAQs provide substantial guidance regarding the type of activities that are authorized under each category of travel to, from or within Cuba. See FAQs, II, Travel. 31 C.F.R. 515.560(c)(2)-(4). See also FAQs 21-23, 28. 31 C.F.R. 515.584. 31 C.F.R. 515.572. Note 1 to 515.560. See 501.601 and 501.602 for recordkeeping and reporting requirements. See also FAQ 26. Note 2 to 31 C.F.R. 515.560. 31 C.F.R. 515.580. 31 C.F.R. 515.560(c)(5). Id. The announcement appears on MasterCard s website at: http://newsroom.mastercard.com/news-briefs/mastercard-removes-block-on-cuba-transactionsfor-u-s-issued-cards/. A Cuban national includes: (i) a subject or citizen of Cuba or any person who has been domiciled in or a permanent resident of Cuba at any time on or since July 8, 1963, except persons who were permanent residents of or domiciled in Cuba in the service of the U.S. Government and persons whose transactions in that country were authorized by OFAC; (ii) any partnership, association, corporation, or other organization that, on or since the effective date: (a) was or has been organized under the laws of Cuba; (b) had or has had its principal place of business in Cuba; or (c) was or has been controlled by, or a substantial part of the stocks, share, bonds, debentures, notes, drafts, or other securities or obligations of which was or has been controlled by, directly or indirectly, Cuba and/or one or more nationals thereof; (iii) any organization s office or other sub-unit that is located within Cuba; (iv) any person to the extent that such person, on or since July 8, 1963 was or has been acting or purporting to act directly or indirectly for the benefit -8-
ENDNOTES (CONTINUED) 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 or on behalf of any national of Cuba; and (v) any other person who there is reasonable cause to believe is a national. 31 C.F.R. 515.570(b). See FAQ 28. 31 C.F.R. 515.570(b)(3). See FAQ 28. 31 C.F.R. 515.570(g). See FAQ 28. 31 C.F.R. 515.572(a)(3). See FAQ 29. The term banking institutions includes any person engaged primarily or incidentally in the business of banking, of granting or transferring credits, or of purchasing or selling foreign exchange or procuring purchases and sellers thereof, as principal or agent, or any person holding credits for others as a direct or incidental part of his business, or any broker. 31 C.F.R. 515.314. The term depository institution means any of the following: (i) an insured bank as defined in section 3 of the Federal Deposit Insurance Act; (ii) an insured institution as defined in section 408(a) of the National Housing Act; (iii) an insured credit union as defined in section 101 of the Federal Credit Union Act; or (iv) any other institution that is carrying on banking activities pursuant to a charter from a Federal or state banking authority. 31 C.F.R. 515.533. 31 C.F.R. 515.572(b). 31 C.F.R. 515.584(a). See FAQs 32-33. See FAQ 33. 31 C.F.R. 515.584(b). 31 C.F.R. 515.584 (c). See FAQ 30-31. 31 C.F.R. 515.584(d)(1). See FAQ 36. See 31 C.F.R. 515.584(d)(2). See FAQ 36. The term telecommunication services includes data, telephone, telegraph, internet connectivity, radio, television, news wire feeds, and similar services, regardless of the medium of transmission, including transmissions by satellite. 31 C.F.R. 515.542(f). 31 C.F.R. 515.542(d). See FAQ 41. 31 C.F.R. 515.542(c). See FAQ 41. 31 C.F.R. 515.578. See FAQ 41. 31 C.F.R. 515.585. See FAQs 43-44 In determining whether an individual Cuban national qualifies as unblocked under this authorization, persons subject to U.S. jurisdiction must obtain evidence that such individual has taken up permanent residence outside of Cuba. See 31 C.F.R. 515.505; FAQs 35 and 42. See also 31 C.F.R. 515.307. 31 C.F.R. 515.581. 31 C.F.R. 515.582. 31 C.F.R. 515.579(a). 31 C.F.R. 515.579(b). 31 C.F.R. 515.586. Generally, all items that are subject to the EAR (most goods and technology subject to U.S. jurisdiction, with limited exceptions) require a license for export or reexport to Cuba unless authorized by a license exception. -9-
ENDNOTES (CONTINUED) 39 40 41 42 43 44 45 46 47 15 C.F.R. 740.21(b). 15 C.F.R. 740.21(c)(1). 15 C.F.R. 740.21(c)(2). 15 C.F.R. 740.21(d). 15 C.F.R. 740.19. 15 C.F.R. 740.12. 15 C.F.R. 746.2(b)(6). See Department of Treasury, Statement by Secretary Lew on Amendments to the Cuban Assets Control Regulations, (Jan. 1, 2015). OFAC, Frequently Asked Questions Related to Cuba, (Jan. 15, 2015), available at: http://www.treasury.gov/resource-center/sanctions/programs/documents/cuba_faqs_new.pdf. -10-
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