New Sanctions-Easing Initiative Could Mean New Opportunities in Cuba

President Obama announced changes to U.S.-Cuba policy yesterday, opening diplomatic relations with Cuba more than 50 years after the imposition of the Cold War-related sanctions against the country. The full scope of the sanctions easing is still unknown, due to the need to coordinate the withdrawal and any major changes to the sanctions through Congress (due to a 1996 law known as the Helms-Burton Act). Nonetheless, the Administration has stated that the measures announced so far (which is within the regulatory realm where the Administration is free to act) is only a first step in the easing of the Cuban sanctions. With key Senators Rubio (R-Fl) and Menendez (D-NJ) rushing out press statements to disprove of the President working with the leader of Cuba, it is apparent that there will be no quick path through Congress to ease the full sanctions that have been in place for 54 years.

Nonetheless, while these first steps to normalizing relations do not lift the embargo, they do ease certain export control and economic sanctions in the following ways:

• Travel and Tourism. Although general tourist travel is still not authorized, existing travel and remittance allowances are being expanded.
• Import. Authorized U.S. travelers now will be able to import limited amounts of Cuban goods to the United States (including Cuban cigars and liquor).
• Financial Services. Limited financial services are authorized if they are related to approved transactions, including for the opening of correspondent accounts at Cuban banks by U.S. financial institutions. U.S. travelers also will now be able to use U.S. credit and debit cards when lawfully traveling within Cuba.
• Telecommunications (Export of Certain IT Equipment). Current general licenses for the export of telecommunications and internet equipment, which are intended to open up the Cuban people to the free exchange of ideas, will be expanded, including for hardware and equipment required to update Cuba’s telecommunications infrastructure.
• Third-country Sanctions. The application of certain sanctions that apply to third countries is relaxed so as to permit foreign subsidiaries of U.S. companies to deal with Cuban nationals who are located outside of Cuba.

According to the Office of Foreign Assets Control (“OFAC”), the U.S. Treasury office responsible for administering the Cuban and other U.S. sanctions, OFAC will be issuing new regulations “in the coming weeks.” Further, according to OFAC, “[n]one of the announced changes takes effect until the new regulations are issued.”

Given the need to consult with Congress, a wholescale relaxation of the key restrictions, including the restrictions on establishing business deals that create a property interest in Cuba, will not happen overnight. Increased opportunities for U.S. travel to Cuba and the ability to enter the market by U.S. persons, however, are now possibilities that are in play, and that is not something that anyone has been able to say for more than a half century. Removing Cuba from the list of state-sponsored terrorism — which is an initiative that the Administration is now beginning to evaluate — also would open up exports of dual-use items for non-military purposes.

For Latin American multinational companies already conducting business in the United States and Cuba (in a fashion that is compatible with existing Cuban regulations), the difficulties of doing so outside of OFAC jurisdiction might ease in coming days. Nonetheless, as the imposition of large penalties on companies that deal with Iran over the last year demonstrates, even in a period of easing sanctions OFAC is still vigilant regarding the penalties it imposes for violations of its regulations.

Businesses will want to watch closely how Congress handles the subsequent debate on sanctions. Next year’s Republican-led Senate could provide some staunch opposition to broader policy changes. There are many restrictions that cannot be changed without congressional action, but there are some significant things the President can do without congressional support. The OFAC regulations that are issued in the coming weeks will provide the first indications of the scope of long-term easing, as will any early debate on the issue when the new Congress convenes in 2015.