Action Item: On January 16, 2015, the U.S. Department of the Treasury's Office of Foreign Assets Control and the U.S. Department of Commerce amended the Cuban Assets Control Regulations and the Export Administration Regulations related to Cuba. The revisions to these regulations represent a dramatic easing of restrictions on traveling and doing business with Cuba, but do not eliminate entirely the historic embargo that has been in place for over 50 years. Companies and individuals seeking to do business with Cuba must give careful consideration to the new regulations in order to ensure full compliance with them. Accordingly, they should closely examine licensing and banking requirements, conduct comprehensive due diligence, and consider the appropriate sanctions exclusion clauses and warranties to include in any insurance policies for Cuba-related dealings.

In a major policy shift, President Obama announced the normalization of relations with Cuba on December 17, 2014. On January 16, 2015, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") amended the Cuban Assets Control Regulations, in Title 31 of the Code of Federal Regulations Part 515 (31 CFR Part 515), to implement this policy change that significantly loosens export and travel restrictions to Cuba. On the same date, the U.S. Department of Commerce published its amendments to the Export Administration Regulations ("EAR") related to Cuba administered by the Department's Bureau of Industry and Security ("BIS").

The Historic U.S. Embargo

Until the President's announcement, the Cuban Assets Control Regulations and the EAR served as the principal mechanism through which the U.S. embargo against Cuba was enforced for a period of over fifty years. First put into place in July 1963, these regulations sought to deny hard currency to the Cuban government and prohibited any person subject to U.S. jurisdiction from dealing in any property in which Cuba or a Cuban national has an interest. The regulations further imposed a total freeze on Cuban assets, both government and private, and on financial dealings with Cuba. They also prohibited Americans from traveling to Cuba without a specific license permitting their travel for an approved purpose under one of 12 categories of authorized travel. Finally, EAR imposed a policy of general denial for all applications for licenses for export to Cuba of items subject to the EAR, unless the item was listed as exempt from the policy. All exports to Cuba under the Department of Commerce jurisdiction also required a specific license unless the export fell into one of 12 license exceptions published in the EAR (for instance, agricultural exports to Cuba, including food for people and animals, were excepted from the license requirement).

Amendments to the Cuban Assets Control Regulations and to EAR

While the January 2015 amendments to the Cuban Assets Control Regulations and to EAR did not eliminate the embargo against Cuba, they did significantly ease several restrictions that have been in place. For instance, the new regulations preserve the 12 existing categories of authorized travel to Cuba, such as travel for educational activities, journalistic and religious activities, and humanitarian projects, but removed the restriction requiring travelers to apply for and obtain a specific license approving of their specific trip. Travel solely for tourism purposes remains prohibited by statute and therefore will not be permitted unless and until Congress acts to appeal the statute. OFAC further amended the Cuban Assets Control Regulations to permit U.S. travel agents and airlines to provide travel and scheduled (i.e., non-charter) carrier services to Cuba.

Notably, the new regulations will have a significant impact on American business dealings with Cuba. For instance, OFAC and BIS will now permit American companies to export telephones, computers, and Internet technology to Cuba and to send supplies to private Cuban firms. This will result in drastically improved Internet services in Cuba and communications with the United States, which until now were hampered by obsolete equipment and an almost complete lack of infrastructure.

Moreover, the amended EAR significantly loosens restrictions on exports to Cuba. Though export licenses are still generally required, under the revised regulations, a new exception to the export license requirement has been added that allows the export of goods that generally "support" the Cuban people. The wide range of goods that fall into this category include building materials, equipment and tools for use by the private sector, items for use in scientific, archaeological, educational and sporting activities, and goods for use by news media personnel and U.S. news bureaus.

The amended regulations further permit U.S.-owned or operated entities in third countries to provide goods and services, with some limitations, to Cuban nationals in third countries. U.S. financial institutions will also be permitted to enroll merchants and to process U.S. credit and debit card transactions in Cuba for travel-related and other transactions, and depository institutions will be able to open correspondent accounts at Cuban financial institutions. This is significant as OFAC is now permitting U.S. individuals that remit money to Cuban nationals to now send up to $2,000 per quarter, up from the previous limit of $500 per quarter.

Significant Changes for Shipping and Commodities Trade

The new OFAC regulations make significant changes for shipping and agricultural commodities trade. Specifically, they create new exceptions to the "180-day rule" set forth in 31 CFR § 515.207, which bars vessels from the U.S. for 180 days after calling Cuba to engage in the trade of goods or the purchase or provision of services. (This section also bars vessels carrying goods or passengers to or from Cuba, or carrying goods in which Cuba or a Cuban national has an interest.)

The new § 515.550 provides for the following exceptions from the vessel ban in § 515.207:

  • shipment of cargoes exported under Commerce Department authorization (including agricultural, medical, telecommunications, and other permitted goods);
  • carriage of students, faculty, and staff that are authorized to travel to Cuba; and
  • vessels engaged in the exportation or re-exportation to Cuba from a third country of most agricultural commodities, medicine, or medical devices.

This last exception is highly significant for the dry bulk sector, as it effectively ends the U.S. blacklisting of dry cargo ships trading agricultural goods to or from Cuba. In addition, financing terms for U.S. agricultural exports are liberalized, permitting payment on title transfer (rather than prior to loading, as previously required).

With regard to cruise and ferry services, the new rules do not provide a general license to allow the carriage of passengers by sea between the U.S. and Cuba. However, the revised OFAC regulations do allow for individual, specific licenses to be granted by OFAC for vessel services. The new 31 CFR 515.572(c) states: "Specific licenses may be issued on a case-by-case basis authorizing the provision of travel-, carrier-, or remittance forwarding-services . . . including the transportation of authorized travelers by vessels."

Similarly, the Commerce Department's new rules, while loosening export license rules for many types of commodities, still do not allow vessels to depart the U.S. for Cuba without an export license. The provision requiring export licenses for vessels departing for Cuba (15 CFR § 740.15(d)(5)) was left unchanged. Accordingly, to operate passenger services to Cuba, it appears that an individual license must be obtained from OFAC and an export license for the vessel itself will have to be obtained from the Commerce Department, at least until the State Department completes its process to remove Cuba from the list of state sponsors of terrorism.

Conclusion

While the revisions to the Cuban Assets Control Regulations and to the EAR represent a dramatic easing of restrictions on traveling and doing business with Cuba, congressional action will be needed to fully normalize relations with the country, roll back the bulk of the existing sanctions, and address the disposition of the over $250 million in assets currently blocked by U.S. financial institutions under the embargo. That is not expected to occur in the near future, given vocal opposition raised by a number of members of Congress. Until then, companies and individuals seeking to do business with Cuba must give careful consideration to the new regulations in order to ensure full compliance with them. Moreover, companies looking to explore or expand Cuba operations should closely examine licensing and banking requirements, conduct comprehensive due diligence, and consider the appropriate sanctions exclusion clauses and warranties to include in any insurance policies for Cuba-related dealings.

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