U.S. Department of the Treasury and Department of Commerce Issue Rules Implementing Changes in U.S. Policy on Cuba

January 20, 2015

On January 15, 2015, the United States Department of the Treasury (Treasury Department) and the United States Department of Commerce (Commerce Department) released regulatory amendments implementing historic changes to the Cuba sanctions regime announced by President Obama on December 17, 2014.  The amendments incorporate the diplomatic and economic changes to U.S. policy towards Cuba announced by the President as they apply to the regulations enforced by the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Commerce Department’s Bureau of Industry and Security (BIS).  The revised Cuban Assets Control Regulations (CACR)[1] and Export Administration Regulations (EAR)[2] took effect on January 16, 2015, one day after issuance.  As discussed in more detail in our Gibson Dunn Client Alert, "U.S. Government Takes First Step Toward Normalizing Relations with Cuba; Restores Diplomatic Ties and Eases Trade Sanctions,"[3] the policy changes are designed to further "engage and empower"[4] the Cuban people.  The amendments released today include detailed revisions  to the applicable regulations.  The changes focus primarily on the following areas:  (i) travel; (ii) financial services; (iii) importation of goods; (iv) telecommunications; (v) consumer communications devices; (vi) insurance; (vii) remittances; (viii) third-country effects; (ix) small business growth; (x) the definition of "cash in advance;" (xi) support of the reestablishment of diplomatic relations; and (xii) support for the Cuban people.  These areas are discussed in detail in terms of changes by the Commerce Department to the EAR and revisions by the Treasury Department to the CACR.

Changes to the EAR Related to Exports and Reexports

Pursuant to the comprehensive U.S. trade embargo with Cuba that has been in place for more than 50 years, items "subject to the EAR" (with limited exceptions, almost all goods and technology subject to U.S. jurisdiction) require a license or license exception for export or reexport to Cuba.  In order to implement the policy changes announced by President Obama on December 17, 2014, and, specifically, to "enable[] the export and reexport to Cuba [] items intended to empower the nascent Cuban private sector by supporting private economic activity,"[5] the EAR has been amended in four ways:  (i) the creation of License Exception Support for the Cuban People (License Exception SCP); (ii) amendments to existing License Exception Consumer Communications Devices (License Exception CCD); (iii) amendments to License Exception Gift Parcels and Humanitarian Donations (License Exception GFT); and (iv) the establishment of a general policy of approval for exports and reexports to Cuba of items for the environmental protection of U.S. and international air quality, waters and coastlines.

Creation of License Exception Support for the Cuban People

License Exception SCP is designed to facilitate improvements in the living conditions of ordinary Cubans, support independent economic activity, strengthen civil society, and improve the free flow of information to, from, and among the Cuban people.  Pursuant to License Exception SCP, the export and reexport of certain items to support improved living conditions and independent economic activity will no longer require a license from BIS.  License Exception SCP authorizes the export and reexport of commercially sold or donated:  (i) building materials, equipment, and tools for use by the private sector in order 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, and restaurateurs).[6]  In order to qualify for License Exception SCP, items must be designated as EAR99.[7]

License Exception SCP also provides for the export or reexport of specific items that are donated for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities (the "SCP Designated Activities").[8]  In addition, the temporary export of certain items by persons departing the United States for use in the SCP Designated Activities or in professional research–provided such research is directly related to the traveler’s profession or area of expertise–is authorized under License Exception SCP.  The regulations clarify that such temporary exports must be returned to the United States within two years, with certain exceptions.[9]  In both instances, License Exception SCP only applies if any such items are not listed on the United States Munitions List (USML) or the Commerce Control List (CCL), unless the only reason for control of such item on the CCL is anti-terrorism.[10]

Further, License Exception SCP authorizes the export and reexport to Cuba of certain items to human rights organizations, individuals, or non-governmental organizations that promote activities intended to strengthen civil society.[11]  Such items must be either designated as EAR99 or if the item is listed on the CCL, the only reason for control is anti-terrorism.[12]  License Exception SCP also seeks to facilitate the free flow of information and news media.  Accordingly, it authorizes the export and reexport to Cuba of certain items that facilitate communications, including access to the Internet, the use of Internet services, and items related to the creation and upgrade of telecommunications infrastructure, as well as items used by news media.[13]  Again, the items authorized are limited to those designated as EAR99 or controlled on the CCL only for anti-terrorism reasons.[14]  Items that are listed on the CCL for sensitive reasons such as national security, nuclear proliferation, regional stability, missile technology, and similar sensitivities are not authorized for export pursuant to License Exception SCP.

Revision of License Exception Consumer Communications Device

When created in 2009, License Exception CCD[15] authorized the export and reexport of donated consumer communications devices that enable the free flow of information such as computers, mobile phones, televisions, recording devices, and consumer software.  As of January 16, 2015, License Exception CCD is amended to remove the donation requirement.  As a result, commercially sold as well as donated eligible items may be exported or reexported to Cuba pursuant to License Exception CCD.

Revision of License Exception Gift Parcels and Humanitarian Donations

License Exception GFT[16] previously excluded from eligibility consolidated shipments of multiple parcels for delivery to individuals in a foreign country; the revised rule eliminates this exclusion.  Pursuant to today’s changes, the export and reexport of multiple gift parcels in a single shipment is now permitted under License Exception GFT.  No changes have been made with regards to the applicability of this License Exception to individual gift parcels.

Revisions to Licensing Policy for Environmental Protection

A general policy of approval has been added for the export and reexport of items necessary for the environmental protection or enhancement of U.S. and international air, water quality, or coastlines.[17]  This revision includes items related to energy efficiency or renewable energy.

Changes to the CACR to Implement Policy Changes

Telecommunications and Internet-Based Services

OFAC has amended the CACR to generally authorize transactions that establish mechanisms in Cuba to provide commercial telecommunications services linking third countries and Cuba and in Cuba.[18]  Specifically, the regulations have been amended to provide a general license for transactions (including payments) that are related to the establishment of facilities, including fiber-optic cable and satellite facilities, to provide telecommunications services.[19]  Telecommunication services may include data, telephone, internet connectivity, radio, television, news wire feeds, and similar services.[20]  The CACR also now authorizes the exportation or reexportation of certain services including software design, business consulting, and information technology management services (including cloud storage) of items subject to the EAR that are exported or reexported to Cuba pursuant to License Exception CCD.[21]  This authorization also applies to items that are not subject to the EAR because they are of foreign origin and located outside of the U.S. but are of a type described in License Exception CCD and would be designated as EAR99 or would meet criteria for eligible items specified in License Exception CCD if they were subject to the EAR.[22]

Further, OFAC has revised the CACR to provide that transactions relating to certain Internet-based services are now authorized.  The list of permitted transactions includes:  the exportation or reexportation, directly or indirectly, from the U.S. or by a person subject to U.S. jurisdiction to Cuba of services incident to the exchange of communications over the Internet (e.g., instant messaging, social networking, sharing of photos and movies, web browsing, blogging, and domain registration services).[23]

Travel and Travel Services

Travel for tourist activities continues to be prohibited by law.  However, for the twelve categories of permitted travel, travel will be authorized by general license instead of specific license.[24]  These twelve categories 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) exportation, importation, or transmission of information or informational materials; and (xii) certain export transactions that may be considered for authorization under existing regulations and guidelines.[25]  Specific conditions must still be met for each of the twelve categories.

Further, travel agents and airlines will no longer be required to obtain a specific license from OFAC in order to provide authorized travel and air carrier services.[26]

Use of Credit and Debit Cards, Per Diem, and Importation of Certain Goods and Services

The use of U.S. credit and debit cards in Cuba will now be authorized for travel-related transactions, and U.S. financial institutions will be permitted to enroll merchants to process such transactions.[27] 

Additionally, the previous per diem limitation on authorized travelers’ spending in Cuba has been eliminated[28] and there will be no specific dollar limit on authorized expenses; travelers will be permitted to engage in transactions ordinarily incident to travel within Cuba.[29]  Authorized travelers will also be permitted to import up to $400 worth of goods from Cuba, which may include up to $100 of alcohol or tobacco products.[30]

Financial Services

Pursuant to a new OFAC general license, depository institutions will be permitted to open correspondent accounts at Cuban financial institutions, enabling the processing of authorized transactions.[31]  Note that the general license does not authorize the establishment of accounts in the U.S. or with a person subject to U.S. jurisdiction by, on behalf of, or for the benefit of, Cuba or a Cuban national.[32]

As discussed above, transactions that are incident to the processing and payment of credit and debit cards involving travel-related transactions are authorized under the revised regulations.[33]

In addition, the CACR has been amended to permit expanded financing options for authorized exports to Cuba through a revision to the regulatory guidance concerning the term "payment of cash in advance."[34]  Under the amended guidance, instead of defining the term as "payment of cash before shipment," this term is now defined as "payment [of cash] before the transfer of title to, and control of" the authorized export.[35]

Small Business Growth

OFAC has amended its general license relating to humanitarian projects to authorize certain projects intended to facilitate the development of entrepreneurial skills and small business growth.  These include educational training relating to:  entrepreneurship and business; development of small-scale private enterprise; projects related to agricultural and rural development that promote independent activity; and micro-financing projects[36] (note that this does not include loans, extensions of credit or other financing prohibited by § 515.208).[37]

Further, OFAC will now permit commercial imports of certain specified goods and services that are produced by Cuban entrepreneurs.[38]  The specified goods and services will be determined by the United States Department of State and will be listed on its website and published in the Federal Register on a future date.

Remittances

The limit on generally authorized remittances to Cuban nationals has been raised from $500 to $2,000 per quarter.[39]  As previously provided, the recipient of such remittances must not be a prohibited official of the Government of Cuba or a prohibited member of the Cuban Community Party.[40]  Additionally, authorized travelers may now carry a total amount of $10,000 in remittances; an increase from the previous limit of $3,000.[41]  Further, remittances may be made to close relatives who are students in Cuba pursuant to a general license or specific educational license.[42]  

Remittances to certain individuals and independent non-governmental organizations in Cuba, including pro-democracy groups and civil society groups, and to member of such groups, are authorized for certain purposes, including to support:  (i) humanitarian projects in or related to Cuba which are intended to directly benefit the Cuban people; (ii) 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) the development of private businesses, which includes small farms.[43]

Further, OFAC has expanded the general license for U.S. banking institutions, including registered brokers or dealers and registered money transmitters, to provide services in connection with the collection of forwarding of authorized remittances.[44]  Note that detailed records relating to the provision of these authorized services must be retained for at least five years from the date of the transaction.[45]

Certain Transactions with Cuban Nationals Located Outside Cuba

Pursuant to the amendments to the CACR, U.S.-owned or U.S.-controlled entities in third countries will be permitted to provide goods and services to a Cuban national located outside of Cuba, so long as that transaction does not involve a commercial exportation, directly or indirectly, of goods or services to or from Cuba.[46]  Note that U.S.-owned or U.S.-controlled entities in third countries are not permitted to export to Cuba commodities produced in the authorized trade territory,[47] nor are such entities authorized to reexport to Cuba items of U.S. origin.[48]  Further, persons subject to U.S. jurisdiction are still prohibited from engaging in transactions with respect to any merchandise outside the U.S. if such merchandise is Cuban-origin, has been located in or transported from Cuba, or is made or derived from Cuban-origin materials.[49]  OFAC has also revised the CACR to unblock accounts of Cuban nationals who have permanently relocated outside of Cuba.  Pursuant to a general license, OFAC has authorized banking institutions to unblock such accounts.[50]

OFAC is also revising the regulations to authorize persons subject to U.S. jurisdiction to sponsor and participate in third-country professional meetings and conferences attended by Cuban nationals.[51]  However, such meetings or conferences may not relate to tourism in Cuba.[52]

Diplomatic Relations and Official Government Business

In accordance with President Obama’s announcement regarding the reestablishment of diplomatic relations with Cuba, OFAC will authorize the provision of goods or services in the U.S. to the official missions of the Government of Cuba and their employees, provided that such goods and services are for the conduct of official business.[53]  In addition, a general license covering Cuba-related transactions by employees, grantees, and contractors of the U.S. Government, foreign governments, and certain international organizations in their official capacities has been expanded.[54]  Persons relying on this general authorization must retain certain records related to authorized travel transactions[55], and specific licenses may be issued for transactions related to official government business that do not qualify for the general license[56].

Recommendations 

These amendments to the EAR and CACR reflect a significant shift in U.S. policy towards the Communist island, and while they now permit U.S. firms to engage in a wider range of business activities in Cuba, our friends and clients should exercise caution in re-entering Cuban markets.  In particular U.S. firms considering doing business in Cuba should take a number of steps.

First, U.S. companies should ensure that their particular business activities are permitted under the new regulations.  Cuba is not "open for business," but rather OFAC and BIS now permit certain transactions to occur with the country and its citizens. 

Second, U.S. companies entering the market should be aware that many sanctions on Cuba remain in place, and OFAC will be aggressively enforcing those regulations.  While certain activities are now permissible, U.S. firms operating in Cuban markets must be cautious and ensure that transactions incidental to their primary, permitted business activities in the country do not violate U.S. sanctions prohibitions.     

Gibson, Dunn & Crutcher will continue to monitor further developments on these significant regulatory changes.  If you have any questions concerning compliance with U.S. government regulations concerning Cuba, please do not hesitate to contact us.

   [1]   Cuban Assets Control Regulations, 80 Fed. Reg. 2,291 (Jan. 16, 2015) (to be codified at 31 C.F.R. pt. 515) (hereinafter "New OFAC Regulations").

   [2]   Cuba: Providing Support for the Cuban People, 80 Fed. Reg. 2,286 (Jan. 16, 2015) (to be codified at 15 CFR pts. 736, 740, 746, and 748) (hereinafter "New BIS Regulations").

   [3]   Client Alert, Gibson, Dunn & Crutcher LLP, U.S. Government Takes First Step Toward Normalizing Relations with Cuba; Restores Diplomatic Ties and Eases Trade Sanctions (Dec. 18, 2014), http://www.gibsondunn.com/publications/pages/US-Government-Takes-First-Step-Toward-Normalizing-Relations-with-Cuba.aspx.

   [4]   Press Release, The White House, Fact Sheet: Charting a New Course on Cuba (Dec. 17, 2014), http://www.whitehouse.gov/the-press-office/2014/12/17/fact-sheet-charting-new-course-cuba.

   [5]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,286 (Jan. 16, 2015).

   [6]   Id. at 2,286-87. (codified at 15 C.F.R. § 740.21(b)).

   [7]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.21(b)). Items controlled by the Commerce Department and subject to the EAR include any items not controlled for export, reexport or transfer by another agency of the United States.  15 C.F.R. §§ 730.3, 734.3.  Items that fall under the jurisdiction of the Commerce Department but are not listed in the Commerce Control List, 15 C.F.R. Part 774 Supp. No. 1, are designated "EAR99."  Most commercial products are designated "EAR99."  With certain exceptions, preauthorization is not required for the export or reexport of EAR99 goods.  Transactions in which the goods are destined for embargoed countries such as Cuba are among the exceptions and generally require licensing.

   [8]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.21(c)(1)).

   [9]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.21(c)(2)).

  [10]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. §§ 740.21(c)(1),  740.21(c)(2)(ii)).

  [11]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.21(c)(3)).

  [12]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.21(c)).

  [13]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.21(d)).

  [14]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.21(d)).

  [15]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,287 (codified at 15 C.F.R. § 740.19).

  [16]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,288 (codified at 15 C.F.R. § 740.12).

  [17]   New BIS Regulations, 80 Fed. Reg. 2,286, 2,288.

  [18]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,292 (codified at 31 C.F.R. § 515.542(d)).

  [19]   31 C.F.R. § 515.542(d).

  [20]   31 C.F.R. § 515.542(f).

  [21]   31 C.F.R. § 515.578(a)(2).

  [22]   31 C.F.R. § 515.578(a)(2)(ii).

  [23]   31 C.F.R. § 515.578(a)(1).

  [24]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,291 (codified at  31 C.F.R. §§ 515.533, 515.545, 515.560 through 515.567, and 515.574 through 515.576).

  [25]   31 C.F.R. §§ 515.560(a).

  [26]   31 C.F.R. § 515.872(a)(1)-(2).

  [27]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,291 (codified at 31 C.F.R. §§ 515.560(c)(5), 515.584(c)).

  [28]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,291.

  [29]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,291 (codified at 31 C.F.R. § 515.560(c)(5)).

  [30]   31 C.F.R. § 515.560(c)(3).

  [31]   31 C.F.R. § 515.584(a).

  [32]   31 C.F.R. § 515.584(a), Note.

  [33]   31 C.F.R. § 515.584(c).

  [34]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,292.

  [35]   31 C.F.R. § 515.533(a)(2)(i).

  [36]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,291-92 (codified at 31 CF.R. § 515.575(b)).

  [37]   31 C.F.R. § 515.575(b).

  [38]   31 C.F.R. § 515.582.

  [39]   31 C.F.R. § 515.570(b)(1).

  [40]   31 C.F.R. § 515.570(b)(3).

  [41]   31 C.F.R. § 515.560(c)(4)(i).

  [42]   31 C.F.R. § 515.560(d).

  [43]   31 C.F.R. § 515.570(g)(1)-(3).

  [44]   31 C.F.R. § 515.572(a)(3).

  [45]   31 C.F.R. § 515.572 (b).

  [46]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,292 (codified 31 C.F.R. § 515.585).

  [47]   31 C.F.R. § 515.585, Note 1; see 31 C.F.R. §515.559.  Pursuant to 31 C.F.R. § 515.322, the term authorized trade territory includes all countries, including any colony, territory, possession, or protectorate, with the exception of  the U.S. and Cuba.

  [48]   31 C.F.R. § 515.585, Note 2; see 31 C.F.R. § 515.533.

  [49]   31 C.F.R. § 515.585, Note 3; see 31 C.F.R. § 515.204.

  [50]   31 C.F.R. § 515.505(b).

  [51]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,292 (codified 31 C.F.R. § 515.581).

  [52]   31 C.F.R. § 515.581.

  [53]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,292 (codified at 31 C.F.R. § 515.586).

  [54]   New OFAC Regulations, 80 Fed. Reg. 2,291, 2,292 (codified at 31 C.F.R. § 515.562).

  [55]   31 C.F.R. § 515.562, Note

  [56]   31 C.F.R. § 515.562(d).