OFAC to Revise, Ease Cuba Sanctions Program
On December 17, 2014 President Obama announced historic steps his administration will take to usher in a new, more inclusive era of US-Cuba relations. In its release, the White House acknowledges that the current embargo of fifty-three years has “failed to accomplish our enduring objective of promoting the emergence of a democratic, prosperous, and stable Cuba.” The embargo effectively isolated Cuba and damaged its economy, but it effectuated no positive change there. After decades of pursuing the same policy, it no longer serves “America’s interests, or the Cuban people, to try to push Cuba toward collapse.”
Instead of pushing Cuba towards becoming a failed state, the United States now wants to effectuate change there by increasing diplomatic, commercial, and travel transactions between Cuba and the United States. It’s often said that America’s best ambassadors are its markets and its people. By easing the current sanctions regime President Obama hopes to make available a full range of tools the United States can use to promote positive change in Cuba.
But what does this announcement mean and how will it be put into effect? President Obama’s announcement, as historic as it was, does not yet have the force of law. For this announcement to become law, several federal agencies with jurisdiction over US-Cuban affairs will have to implement regulatory changes. In this case, the Departments of State, Treasury, and Commerce will have to effectuate the key components of President Obama’s policy announcement.
Establishing diplomatic relations with Cuba
The Department of State has been instructed to immediately initiate discussions with Cuba on the reestablishment of diplomatic relations. This includes establishing an embassy in Havana for the first time since 1961.
Loosening sanctions and export control regulations to more effectively empower the Cuban people’s pursuit of democracy and free markets
The Departments of Treasury (OFAC) and Commerce (BIS) will soon introduce regulatory amendments that will significantly, but strategically, ease the US embargo against Cuba. The changes will most likely be implemented in the form of multiple general licenses and statements of licensing policy. These changes will be made to the Cuban Assets Control Regulations, 31 CFR Part 515 (the CACR) and the Export Administration Regulations, 15 CFR 730-774 (the EAR).
Shortly after the President’s announcement, OFAC informed the public that it:
“expects to issue its regulatory amendments in the coming weeks. None of the announced changes takes effect until the new regulations are issued.”
The expected changes include the following:
1. Expanding authorized travel to Cuba
The twelve existing categories of travel to Cuba will be authorized pursuant to general licenses. I assume this means that the existing categories of travel that currently need specific licenses (e.g., people-to-people exchanges) will be converted to general licenses. This should simplify traveling to Cuba by removing regulatory red tape. Unlike specific licenses, a traveler will not have to apply with OFAC for a license to utilize a general license.
2. Generally licensing travel service providers
Those who actually arrange travel to and from Cuba for authorized travelers will no longer need a specific license. Without this regulatory hurdle, every travel agent and tour company in the United States will likely be authorized to arrange travel to Cuba. Imagine being able to book your next Cuban trip on Expedia or Priceline. This may be the single most significant travel-related development. It may effectively put Cuba within the reach of average Americans.
3. Business training for private Cuban businesses and small farmers
OFAC will implement policy changes making it easier for Americans to provide business training to private Cuban businesses and small farmers. President Obama’s announcement does not specify how these changes will be implemented, but given how OFAC has implemented similar policy changes in the past, one can expect general licenses and/or favorable statements of licensing policy for specific licenses.
4. Raising the maximum quarterly remittance level from $500 to $2000
This amendment will increase the amount of money a U.S. person can send to Cuba in any given quarter. In 2012 over $2 billion in remittances was sent to Cuba from the United States. This amendment is intended to increase the amount of total remittances to Cuba, help support the democratization of Cuba, and spark the continued growth of Cuba’s emerging private sector.
5. Generally licensing remittances for humanitarian projects, support for the Cuba people, and support for the development of private businesses in Cuba
Donative remittances to Cuba for humanitarian projects and private business development will no longer require a specific license. When taken together with the increased maximum remittance, the removal of this regulatory hurdle should effectively increase donative investment in Cuba’s emerging private sector. It should also increase funding to support projects that will directly improve the lives of Cuban people.
6. Generally licensing remittance forwarders
The removal of this regulatory hurdle should effectively authorize every American money services business (MSB) to transfer authorized remittances to Cuba. MSBs will no longer have to apply for a license to forward remittances to Cuba. Furthermore, MSBs will no longer have to forward remittances through a third country because the regulations will also be amended to authorize a direct banking relationship with Cuba.
7. Authorizing expanded commercial sales and exports from the United States of certain goods and services
Items that will be authorized for export include certain building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment for farmers. This authorization might be drafted similarly to General License D-1 from the Iran sanctions program. Expect a general license listing the particular commodities and/or commodity classifications that will be authorized for export to Cuba.
8. Authorizing travelers to import additional goods from Cuba
Those travelling to Cuba will be able to bring up to $400 worth of goods back with them. Up to $100 of this amount can consist of tobacco products and alcohol. This should encourage travelers to spend more money in Cuba, which should bolster its private sector. Prior to this change, Americans authorized to travel to Cuba were effectively limited to bringing back Cuban books and artwork.
9. Authorizing certain banking transactions between the United States and Cuba
For the first time in decades, U.S. financial institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions. This authorization might be drafted similarly to General License No. 16 (now removed and reissued as part of the Burmese Sanctions Regulations).
Furthermore, the definition of “cash in advance” will be unequivocally expanded to include “cash before transfer of title.” This amendment should make it easier to facilitate authorized trade with Cuba.
U.S. credit and debit cards will be permitted for use by travelers to Cuba. Prior to this change, U.S. persons had to rely on cash transactions while in Cuba.
10. Authorizing the commercial exportation of consumer devices, software, and hardware to Cuba to support communications and internet connectivity
This authorization might be drafted similarly to General License D-1 from the Iran sanctions program. Expect a general license listing the particular goods and/or commodity classifications that will be authorized for export to Cuba. In a very practical sense, this may be the beginnings of big business between Cuba and the United States, as U.S. companies look to sell their consumer electronics and other commodities to Cuban people.
Additionally, telecommunications providers will be allowed to establish the necessary mechanisms, including infrastructure, in Cuba to provide commercial telecommunications and internet services.
11. Updating the application of Cuba sanctions in third countries
In an effort to reduce the regulatory burdens associated with being a U.S. owned or controlled entity in a third country, OFAC will issue a general license authorizing such companies to provide services to, and engage in financial transactions with, Cuban individuals in third countries.
The amendments will also authorize U.S. persons to participate in third country professional meetings and conferences related to Cuba.
12. Unblocking the accounts of Cuban nationals who have relocated outside of Cuba
Instead of requiring Cuban nationals living in third countries to apply for a specific license to unblock their accounts, banks will soon have the authority to unblock those accounts on their own (presumably after they can verify that the Cuban national has relocated outside of Cuba).
This new approach to Cuba is definitely historic. However, the proposed changes in law may not be permanent. Back in 1977 President Carter, through OFAC, eased the travel restrictions through the issuance of general licenses. Five years later President Reagan revoked those general licenses, reinstituting the travel ban we are all so familiar with.
I doubt the next administration will revoke all of these changes given how publicly unpopular the embargo on Cuba has become. However, it is not totally outside the realm of possibility that the next administration will tighten parts of President Obama’s new course on Cuba.
Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes. Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve