On January 15, 2015, the US Department of the Treasury, Office of Foreign Assets Control (“OFAC”), and the US Department of Commerce, Bureau of Industry and Security (“BIS”), announced that they have amended the Cuban Assets Control Regulations (“CACR”), 31 C.F.R. part 515, and the Export Administration Regulations (“EAR”), 15 C.F.R. parts 730-774, respectively, to implement policy changes, announced by President Obama on December 17, 2014, intended to ease US restrictions on Cuba. Among other things, these amendments relax the longstanding US embargo against Cuba with respect to financial services, telecommunications/internet services, travel, and remittances, and authorize the export or re-export of certain limited US-origin products to Cuba (primarily relating to telecommunications and private sector building materials and equipment). Despite the relaxation of certain restrictions, the US embargo against Cuba, which has been in place for more than a half-century, remains in effect, and most transactions involving persons or entities subject to US jurisdiction (including foreign entities owned or controlled by US persons) and Cuba remain prohibited, including tourism travel and associated services to Cuba. The primary aspects of the embargo can only be altered by an act of Congress. The President has indicated he will try and work with Congress to consider lifting the embargo, but it does not appear that the sanctions will be entirely removed in the near future. The changes became effective upon publication in the Federal Register on January 16, 2015. OFAC FAQs, BIS FAQs, an OFAC Fact Sheet, and a BIS Fact Sheet were also issued to provide additional guidance.
The CACR amendments loosen prior restrictions by adding new general licenses and expanding existing licenses to authorize a number of activities by persons subject to US jurisdiction related to financial services, telecommunications/internet services, and travel, including allowing: (1) US financial institutions to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions; (2) certain transactions with Cuban nationals who reside outside of Cuba; (3) the provision by travel agents and airlines of authorized travel services; and (4) the forwarding by certain entities of authorized remittances. Additionally, certain key terms have been re-defined and dollar limits on certain transactions have been raised or eliminated.
The complementary BIS rule creates a new license exception entitled Support for the Cuban People (“SCP”) which authorizes the export without a license of certain categories of items to the Cuban private sector, such as building materials for private-sector construction, goods for use by private-sector entrepreneurs, and tools and equipment for private-sector agricultural activity. This license exception also allows for the export or re-export without a license of certain telecommunications items, including internet-related items, intended to improve the free flow of information to, from and among the Cuban people. The rule also expands the scope of existing license exception Consumer Communications Devices (“CCD”) and license exception Gift Parcels and Humanitarian Donations (“GFT”) to authorize the commercial sale of consumer communications devices and the shipment of consolidated gift parcels without a license. Additionally, the BIS rule sets a general policy of approval for license applications to export items necessary for the environmental protection of US and international air quality, waters and coastlines, including items related to renewable energy or energy efficiency.
Highlighted below are some of the key components of the CACR and EAR amendments.
Key regulatory changes
I. Financial services
- OFAC now authorizes, pursuant to a general license, depository institutions subject to US jurisdiction to establish and maintain correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions. Cuban financial institutions remain prohibited from opening accounts at US financial institutions. The regulations also do not allow financial institutions in the United States or otherwise subject to US jurisdiction to provide bank accounts to or for the benefit of Cuba or Cuban nationals (except Cuban nationals lawfully resident in the United States on a permanent basis who meet certain specified requirements).
- OFAC now authorizes, pursuant to a general license, depositary institutions subject to US jurisdiction to reject, rather than block, funds transfers originating and terminating outside the United States where neither the originator nor the beneficiary is a person subject to US jurisdiction so long as no Cuban Government official or member of the Cuban Communist Party has an interest in the transfer. Additionally, depositary institutions subject to US jurisdiction are permitted to process funds transfers originating and terminating outside the United States related to transactions that would be authorized if the originator or beneficiary were a person subject to US jurisdiction.
- OFAC now authorizes, pursuant to a general license, depositary institutions subject to US jurisdiction to unblock any account that was previously blocked solely because of the interest of a Cuban national who is permanently resident outside of Cuba (an “Unblocked National”).
- OFAC now authorizes, pursuant to a general license, US financial institutions to enroll merchants and process credit and debit card transactions for authorized travel-related transactions in Cuba.
II. Telecommunications/internet and consumer communications devices
- OFAC has issued an expanded general license which authorizes transactions, including payments, incident to the provision of telecommunications services to non-Government individuals in Cuba or linking third countries and Cuba. Activities that are now authorized include transactions with Cuban telecommunications service providers in order to provide such services to non-Government individuals in Cuba including, for example, the payment of related activation, usage, roaming or maintenance fees. Persons subject to the jurisdiction of the United States may also, for example, purchase calling cards for people to use in Cuba and/or may pay the bills of such people directly to a telecommunications operator located in Cuba.
- Additional services incident to internet-based communications and related to certain exports and re-exports of communications items are authorized by OFAC general license. The services that may be provided have been expanded to coincide with changes to BIS regulations and can now be provided for a fee to certain end users. For example, transactions incident to providing fee-based internet communications services, e.g., email, social networking, VOIP, web-hosting, or domain-name registration, are now authorized in most circumstances. Also, services related to many kinds of software (including applications) used on personal computers, cell phones, and other personal communications devices are authorized, along with other services related to the use of such devices. Further, services such as cloud storage, software design, business consulting, and the provision of IT management and support related to the use of hardware and software exported or re-exported to Cuba pursuant to BIS authorization are permitted.
- BIS has created a new license exception SCP that authorizes the export and re-export to Cuba of certain items for telecommunications, including access to the internet, use of internet services, infrastructure creation, and upgrades, as well as certain items for use by news media personnel and US news bureaus. Eligible items are limited to those designated as EAR99 or controlled on the EAR’s Commerce Control List (“CCL”) only for anti-terrorism (“AT”) reasons.
- BIS has amended license exception CCD, which previously was limited to donations, to authorize the sale to Cuba of certain consumer communications devices, as well as certain telecommunications and information security-related software. This license exception is limited to certain enumerated items designated as EAR99 or controlled on the CCL only for AT reasons. Commodities and software eligible for export or re-export under this license exception are:
ECCN 5A992.c, ECCN 4A994.b, or EAR99
Consumer disk drives and solid state storage equipment
ECCN 5A992 or EAR99
Input/output control units (other than industrial controllers designed for chemical processing)
Graphics accelerators and graphics coprocessors
ECCN 5A992.c or EAR99
ECCN 5A992.c or EAR99
ECCN 5A991.b.2, ECCN 5A991.b.4, ECCN 5A992.c, or EAR99
Network access controllers and communications channel controllers
ECCN 5A991.b.4 or EAR99
Keyboards, mice, and similar devices
Mobile phones, including cellular and satellite telephones, personal digital assistants, and subscriber information module (SIM) cards and similar devices
ECCN 5A992.c, ECCN 5A991, or EAR99
ECCN 5A992.c or EAR99
Consumer “information security” equipment, “software” (except “encryption source code”) and peripherals
ECCN 5A992.c, ECCN 5D992.c, or EAR99
Digital cameras and memory cards
ECCN 5A992 or EAR99
Television and radio receivers
ECCN 5A992 or EAR99
ECCN 5A992 or EAR99
Batteries, chargers, carrying cases and accessories for all eligible equipment
Consumer “software” (except “encryption source code”) to be used for eligible equipment
ECCN 4D994, ECCN 5D991, ECCN 5D992.c, or EAR99
III. Other trade and commerce
- US-owned or -controlled entities in third countries are generally licensed to provide goods and services (including financial services) to Cuban individuals in third countries, provided that the transaction does not involve a commercial exportation, directly or indirectly, of goods or services to or from Cuba. For example, a foreign subsidiary of a US parent company located in Brazil could provide services or goods to Cuban nationals living in Brazil but could not sell the same individuals any goods or services if it knew the individuals were intending to re-export the goods or services to third parties in Cuba.
- New license exception SCP authorizes the export and re-export to Cuba, without a license, of certain goods for Cuba’s private sector. Items eligible for export or re-export to Cuba pursuant to this provision must be designated as EAR99 or controlled on the CCL only for AT reasons and include: (1) building materials, equipment, and tools for use by the private sector to construct or renovate privately-owned buildings, including privately-owned residences, businesses, places of worship, and buildings for private sector social or recreational use; (2) tools and equipment for private sector agricultural activity; and (3) tools, equipment, supplies, and instruments for use by private sector entrepreneurs. Although only private-sector end-users may receive the goods, Cuban Government entities may act as consignees to receive and assist with delivery of eligible items to eligible end-users.
- License exception SCP also permits the donation of items to Cuba for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities, as well as the temporary export of such items for a two-year period by persons departing the United States. The exception also authorizes the export and re-export to Cuba of certain items to human rights organizations, individuals, or NGOs that promote independent activity intended to strengthen civil society.
- BIS has amended license exception GFT to authorize exports of multiple gift parcels in a single shipment.
- BIS will implement a general policy of approval for applications to export or re-export items necessary for the environmental protection or enhancement of US and international air and water quality or coastlines, including items related to renewable energy or energy efficiency.
- In order to provide expanded financing options for authorized transactions with Cuba, OFAC amended the definition of "payment of cash in advance" from "payment…prior to shipment" to "payment before the transfer of title to, and control of the exported items." Financing must still be provided by a banking institution located in a third country but may be confirmed by a US financial institution.
- Vessels that have visited a Cuban port are now permitted to enter US ports so long as they were engaged in authorized trade or travel with Cuba or engaged in the exportation or re-exportation to Cuba of agricultural commodities, medicine, or medical devices that would be considered EAR99 under the EAR if exported from the United States.
- Licensed US travelers to Cuba are authorized to import $400 worth of goods from Cuba, of which no more than $100 can consist of tobacco products and alcohol combined.
- Certain micro-financing projects and entrepreneurial and business training, such as for private business and agricultural operations, are now authorized.
- Commercial imports of certain independent Cuban entrepreneur-produced goods and services, as determined by the State Department on a list to be published on its website, are now authorized.
- OFAC has issued general licenses that authorize travel-related transactions and other transactions incident to activities within the 12 existing categories of authorized travel, previously authorized by specific license. Tourism-related travel and associated services remain prohibited. The categories of authorized travel are as follows: (1) family visits; (2) official business of the US Government, foreign governments, and certain intergovernmental organizations; (3) journalistic activity; (4) professional research and professional meetings; (5) educational activities; (6) religious activities; (7) public performances, clinics, workshops, athletic and other competitions, and exhibitions; (8) support for the Cuban people; (9) humanitarian projects; (10) activities of private foundations or research or educational institutes; (11) exportation, importation, or transmission of information or informational materials; and (12) certain authorized export transactions.
- US insurers are authorized to provide coverage for global health, life, or travel insurance policies for individuals ordinarily resident in a third country who travel to or within Cuba. Health, life, and travel insurance-related services will continue to be permitted for authorized US travelers to Cuba.
- Travel agents and airlines are permitted to provide flights and services for authorized travel without a specific license. Scheduled flights to Cuba for authorized travel are now permitted so long as all requirements of all agencies (including the US Department of Transportation) are complied with. The general license only applies to authorized travel activities and does not authorize such services to be provided to foreign persons who are not subject to US jurisdiction.
- Payments and related transactions for certain overflights of Cuba by US aircraft are also now authorized.
- The per diem rate previously imposed on authorized travelers’ spending in Cuba will no longer apply and there is no specific dollar limit on authorized purchases. Authorized travelers are permitted to engage in transactions ordinarily incident to travel within Cuba, including the payment of living expenses or acquisition in Cuba of goods for personal consumption there. Additionally, authorized travelers are now allowed to use US credit and debit cards in Cuba. Persons subject to US jurisdiction may rely on the traveler to only use the cards for authorized transactions, provided that such persons do not know or have reason to know that a transaction is not authorized.
- OFAC has amended the CACR to relax restrictions on remittances provided to Cuban nationals by raising maximum remittance levels from $500 to $2,000 per quarter for general donative remittances to Cuban nationals, excluding prohibited officials of the Cuban Government or the Communist Party.
- Persons subject to the jurisdiction of the United States are also now permitted to provide remittances to individuals and independent NGOs for humanitarian projects, support for the Cuban people, and support for the development of private businesses in Cuba.
- The amount of authorized remittances travelers to Cuba may carry has been increased to $10,000 per authorized trip.
- An expanded general license will permit financial institutions, including US-registered brokers or dealers in securities and US-registered money transmitters, to process authorized remittances to Cuba without a license.
We will continue to monitor these developments closely and will provide additional updates as appropriate.