Articles Posted in Cuba Sanctions

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Both the U.S. Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) have announced new amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) that continue to build upon existing licenses and authorizations facilitating trade with Cuba.  These amendments, effective October 17, 2016, enhance the flexibility of U.S. companies seeking to do business with Cuba or Cuban nationals across various sectors.

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The Office of Foreign Assets Control (OFAC) updated its FAQs for Cuba on April 21, 2016 with substantive guidance that addresses U-turn transactions, export policy, insurance, educational and humanitarian activities and leasing of property in Cuba.

U-Turn Rules. OFAC amended the Cuban Assets Control Regulations (CACR) on March 16, 2016 to permit funds transfers from a bank outside the United States that pass through U.S. financial institutions before being transferred to a bank outside the United States, where neither the originator nor the beneficiary is a person subject to U.S. jurisdiction (so called “U-turn transactions”).

  • FAQ 62 clarifies that this authorization allows transactions originating and terminating at accounts in foreign branches or non-U.S. subsidiaries of U.S. banks (which are subject to U.S. jurisdiction), so long as the account-holder is not.
  • FAQ 63 clarifies that U.S. banks may process U-turn transactions where the Cuban party is a Specially Designated National (SDN).

FAQ 63 also provides guidance for U.S. banks on the due diligence expected when processing Cuba U-turn transactions.  Where a U.S. bank is only an intermediary, it may rely on the information provided by the remitting and receiving banks to determine if the parties are persons subject to U.S. jurisdiction. Where the transfer involves a direct customer, OFAC expects more substantial customer due diligence. In either case, the bank should conduct screening. If a U.S. bank fails to identify and block a prohibited transaction, despite following this guidance, OFAC indicated it would consider the totality of the circumstances in determining how to enforce.

Export Clarifications. FAQ 67 addressed the licensing requirements for removal of items from Cuba for repair or servicing. For items previously exported to Cuba under an authorization, an import from Cuba to the U.S. or a third country for repair/servicing requires OFAC authorization, which will be considered on a case-by-case basis. Separate Bureau of Industry and Security (BIS) authorization would be required for return of the items to Cuba after servicing where subject to the Export Administration Regulations (EAR). However, where the import back to the United States is required under the terms of BIS authorizations used for export/reexport to Cuba, no further OFAC specific license is necessary.

FAQ 68 clarifies that the authorization under section 515.533 of the CACR for persons subject to U.S. jurisdiction to engage in transactions incident to the reexport of 100 percent U.S.-origin items from a third country to Cuba where consistent with BIS licensing policy only applies where the items are 100 percent U.S.-origin.

Insurance. Transactions directly incident to authorized activity generally are permitted under the CACR, and OFAC clarified this authorization includes a variety of types of insurance for individuals traveling to Cuba and exports to Cuba (e.g. cargo or hull insurance).  Insurance companies also may pay or settle claims to Cuban nationals for insurance incident to authorized activities. Providing insurance is otherwise prohibited, including reinsurance for activities in Cuba by foreign parties not subject to U.S. jurisdiction. See FAQs 80 & 81.

Grants to State-Owned Entities. Cuban state-owned entities may be the recipients of certain grants authorized under sections 515.565 and 515.575 of the CACR for education, scholarships, awards and certain humanitarian projects designed to benefit the Cuban people. See FAQ 93.

Leasing of Real Property.  Persons subject to U.S. jurisdiction may lease real property in Cuba where they are authorized to travel to or reside in Cuba. This would include, for example, short-term leases of residences in lieu of hotels when on authorized travel, or the rental of apartments when employed by a business authorized to have a physical or business presence in Cuba. OFAC cautioned that the ability to lease is limited to the time the person is permitted to be in Cuba and real property rights may not be retained thereafter. See FAQ 97.

The updated FAQs are available at:

https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_new.pdf.

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In advance of President Obama’s highly publicized trip to Cuba, the Administration took additional steps to ease restrictions on trade and travel with Cuba. These changes to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) have implications for the banking sector, shippers, the travel industry and other businesses.

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On January 27, 2016 the Department of Commerce, Bureau of Industry and Security (“BIS”) and the Department of Treasury, Office of Foreign Assets Control (“OFAC”) published amendments to the Export Administration Regulations (EAR) (Link) and Cuban Assets Control Regulations (CACR) (Link).  These amendments further loosen aspects of the Cuba embargo in line with the President’s December 2014 initiative:

  • Trade Finance – OFAC added a new general license authorizing payment and financing terms, including letters of credit, for U.S. exports and reexports of 100 percent U.S.-origin items from a third country so long as they (a) are authorized by the BIS and (b) not related to agriculture or commodities.  OFAC’s previous policy restricted financing for exports to cash-in-advance or third-country financing.

 

  • Trade and Business Licensing Opportunities – BIS established a new case-by-case licensing policy to permit exports and reexports “meeting the needs of the Cuban people,” including exports and reexports destined for state-owned enterprises, agencies and other organizations of the Cuban government.  BIS provided a list of examples including agricultural production, artistic endeavors, education, food processing, disaster preparedness, relief and response, public health and sanitation, residential construction/renovation and public transportation.  BIS suggested that the types of eligible items could include water treatment, electrical generation facilities, athletic facilities and other infrastructure beneficial to the Cuban people.  The new licensing policy opens the door for U.S. companies to consider a range of possible exports.  Areas that are still off-limits include items that primarily generate revenue for the state (including tourism and extractive industries) or are destined to Cuban intelligence and security services.

 

  • Travel Authorizations for Business – OFAC expanded the general license for travel to Cuba to include travel-related transactions for market research, commercial marketing, sales or contract negotiations, accompanied delivery, installation, leasing, or servicing in Cuba of items consistent BIS export and licensing policy.  In addition, OFAC expanded its previous authorization for attending professional meetings to also allow organizing such meetings.

 

  • Aviation and Vessels – OFAC expanded the general license relating to carrier services between the United States and Cuba to allow the entry into blocked space, code-sharing, and leasing arrangements, including with Cuban nationals.  Transactions related to travel between the United States and Cuba by aircraft or vessel on temporary sojourn and transactions by personnel required for normal operation and service of such aircraft and vessel also are authorized.  BIS has adopted a general policy of approval for items necessary for safety of civil aviation including the export or reexport of aircraft leased to state-owned enterprises.

 

  • Telecom / Electronics – BIS now “will generally approve license applications for exports and reexports of telecommunications items that would improve communications to, from, and among the Cuban people.”  BIS policy will also be more favorable with respect to items and software related to civil society and news gathering.

 

  • Public Performances.  OFAC expanded the general license for public performances, clinics and workshops to not only those participating in the event but to those organizing it, provided the event is open for attendance and, in relevant situations, participation by the Cuban public.

 

  • Media and Artistic Activities.  OFAC expanded the general license for travel related transactions directly incident to the exportation, importation or transmission of informational materials.  This includes transactions directly incident to professional media or artistic productions, including filming movies and television programs, music recording and the creation of art works in Cuba by travelers with professional experience in these areas.

 

Notwithstanding these changes to the Cuba regulations, it is important to emphasize that the Cuba embargo still remains in force and cannot be lifted without congressional authorization.  Transactions outside the scope of BIS license exceptions or OFAC general licenses remain prohibited unless specifically licensed.

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On Friday, the Federal Communications Commission (FCC) issued an order making it easier for US telecommunications companies seeking authority to provide services to Cuba. In its order, the FCC removed Cuba from what is known as the Exclusion List, which identifies countries that require separate licensing by the FCC. Typically, the FCC grants telecommunications carriers global authority to provide international services. The FCC action was based on guidance from the State Department, which had requested removal of Cuba from the Exclusion List. Cuba had been on the Exclusion List since the list was first established in 1996. The FCC stated that carriers with existing global Section 214 authority will be permitted to serve Cuba without additional authorization. 

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On Monday, September 21, 2015, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) took coordinated action to further ease U.S. restrictions on trade with Cuba and Cuban nationals.

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On July 22, 2015, the Department of Commerce’s Bureau of Industry and Security (BIS) released amendments to the Export Administration Regulations (EAR) implementing the Secretary of State’s May 29, 2015 decision to rescind the designation of Cuba as a State Sponsor of Terrorism. The removal of Cuba from Country Group E:1 and “AT” controls under the EAR requires a number of highly-technical changes to U.S. regulations. The key practical impacts are:

  •  The de minimis level for Cuba will be 25 percent instead of 10 percent (with some exceptions);
  •  License exception AVS will be expanded somewhat for aircraft on temporary sojourn in Cuba;
  • License exception RPL will be available to replace, on a one-for-one basis, parts, components, accessories or attachments for aircraft and other items controlled for national security reasons that were previously lawfully exported or reexported to Cuba; and
  • License exception BAG generally will allow travelers to Cuba to carry encryption commodities and software.

It is important to emphasize that the change to Cuba’s status as a state sponsor of terrorism does not remove the U.S. embargo on Cuba. Cuba remains in Country Group E:2, and any export, re-export, or transfer of goods, software or technology that are subject to the EAR to Cuba must still be licensed or be eligible for export under a license exception. Also, there have been no further changes to the U.S. sanctions policy administered by the Office of Foreign Assets Control (OFAC).

Increase in De Minimis Amount of U.S. Content Allowed for Cuba

Under the de minimis exception of the EAR, foreign-made products incorporating “controlled” U.S. content – that is, items that would require a license if exported separately to the country of ultimate destination – below certain threshold amounts are not subject to the EAR.

Previously, foreign made products that incorporated more than 10% U.S.-origin content were subject to the EAR when exported to Cuba from third countries. The amendments increase the threshold de minimis level to 25%, consistent with the threshold applied to most other countries.

As a result of this change, non-U.S. companies may find it easier in some cases to export products to Cuba incorporating U.S.-origin content. Nonetheless, companies should be mindful of continuing U.S. sanctions rules when assessing de minimis eligibility. In particular, because all U.S. content is controlled for export to Cuba (even items classified under EAR99), products that satisfy the de minimis test for export to other countries may not qualify for export to Cuba under the de minimis exception. Also, several categories of items are not eligible for the de minimis exception, including items incorporating content classified as a “600 series” item.

Changes to License Exceptions

License Exception Aircraft, Vessels and Spacecraft (AVS)

License exception AVS (“Aircraft, Vessels and Spacecraft”) (EAR § 740.15) previously allowed non-Cuban airlines to operate flights into Cuba. The amended regulations remove some restrictions on the use of AVS for Cuba, but the modifications currently seem likely to have a limited impact until such time as export licensing requirements for sales of aircraft and aircraft parts to Cuba are relaxed.

License Exception Servicing and Replacement of Parts and Equipment (RPL)

Certain exports and re-exports to Cuba may now be eligible for License Exception “Servicing and Replacement of Parts and Equipment” (EAR § 740.10). This would allow one-for-one replacement of parts, components, accessories, and attachments to be exported or re-exported to Cuba for aircraft; as well as for commodities controlled for national security (NS) reasons. Note that this license exception may only be used for items previously lawfully exported or reexported to Cuba.

License Exception Baggage (BAG)

License Exception “Baggage” (BAG) (EAR § 740.14) was previously available for Cuba. The amendments have the effect of now authorizing travellers to carry in their baggage encryption items (e.g., laptops containing encryption software) for their own use.

Before using any of the above license exception, it is important to review all of the specific requirements under EAR Part 740 and § 746.2 (providing information of the permitted use of license exceptions for Cuba) as well as the FAQ’s that accompanied the release of the amendments.

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As previously reported, the Obama Administration is actively continuing its rapprochement with Cuba, most recently removing Cuba from the list of state sponsors of terrorism. However, despite this consistent push from the Administration and the strong interest of the U.S. business community to enter the Cuba market as quickly as possible, Congress remains divided on how best to approach Cuba. In recent days, powerful Members of Congress has taken divergent steps to either expand the relationship or put the brakes on the momentum. Continue reading →

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Today the State Department issued a press release announcing that the Secretary of State has finalized the removal of Cuba from the official U.S. list of state sponsors of terrorism, effective May 29:  http://www.state.gov/r/pa/prs/ps/2015/05/242986.htm.

Although this is an important step forward, it does not automatically eliminate any of the current U.S. sanctions.  Many of the sanctions, in fact, were “codified” (that is, converted from regulations to statute) by Congress through the Cuban Liberty and Democratic Solidarity Act of 1996.  Moreover, the export control restrictions for Cuba are in part maintained under an older law – the Trading with the Enemy Act of 1917 – that is unrelated to the requirements for countries designated as state sponsors of terrorism.  The President has authority to relax some aspects of the embargo without Congressional approval – as demonstrated by his prior liberalizing measures – but there are a number of ambiguities in the relevant statutes and it is difficult to predict how aggressive the President will be in moving forward without seeking legislation.

The situation requires careful monitoring, and companies should not assume that any existing sanctions will be quickly repealed.

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The Office of Foreign Assets Control (OFAC) granted specific licenses to operate passenger/cargo ferries from the United States to Cuba earlier this week. Havana Ferry Partners LLC announced on its Facebook page on May 5, 2015 that it had received approval from both OFAC and the Commerce Department’s Bureau of Industry and Security (BIS) to conduct ferry operations from four South Florida ports to Havana, Cuba. Reportedly, several other companies received similar approvals.

Under the Cuban Assets Control Regulations, persons subject to U.S. jurisdiction are authorized to provide carrier services via aircraft to persons authorized to travel to Cuba pursuant to a general license. This means that any person can provide these services, provided that they meet the requirements outlined in the regulations, with no approval necessary. Transportation of authorized travelers by vessels, however, requires a U.S. person to apply for and receive a specific license from OFAC. Accordingly, the vessel operators had to obtain licenses from OFAC.

In addition, under the Export Administration Regulations, a license from BIS is needed for a vessel to travel to Cuba, even though the visits will be temporary.

The ferries will only be able to carry passengers that are authorized by one of the twelve general licenses for travel to Cuba (e.g., professional research/meetings, religious and educational purposes, etc.) or by a specific license. Travel to Cuba for tourism purposes is still not authorized.

The ferry operators will also need to obtain approval from Cuba for the operations to commence.