On December 17, 2014, President Obama announced steps to ease the 54-year old embargo on Cuba
and begin to restore diplomatic relations. Although the full extent of easing has yet to be determined, this historic policy shift may open new opportunities for U.S. and multinational corporations. With several different laws governing the Cuba embargo, however, companies will need to carefully monitor developments within the Administration and Congress to determine the actual scope of authorized activities.
Presidential action will proceed on two fronts. In the coming weeks, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) will revise the Cuban Assets Control Regulations (“CACR”) while the Commerce Department will revise the Export Administration Regulations (“EAR”), which governs the export of most U.S.-origin goods. In addition to these amendments, the proposed changes will also occur through new general licenses issued under the CACR and EAR. At this juncture we anticipate changes in five key areas:
- Banking & Financial Services. The amended CACR will facilitate travel between Cuba and the United States by permitting the use in Cuba of U.S. credit and debit cards. U.S. banks also will be able to open correspondent accounts at Cuban financial institutions. Following the model used for the easing of financial sanctions on Burma, OFAC will likely issue interim general licenses under the CACR while diplomatic negotiations with Cuba proceed.
- Travel & Tourism. OFAC will issue new general licenses under the CACR built on existing authorizations for cultural, educational, and humanitarian exchanges, and other specified types of travel in Cuba. Notable examples include family visits, professional research and professional meetings, and travel related to the import or export of authorized goods and services. The result will be twelve distinct licenses authorizing Cuba travel and certain related transactions.
- Exports & Imports. Pending amendments to the CACR and EAR will facilitate direct trade in carefully delimited areas, such as for exports of building materials for private residences and agricultural equipment for Cuban farmers. The proposed changes will also allow companies that currently export agricultural and medical products to Cuba to conduct transactions directly through U.S. financial institutions rather than third-party foreign banks.
- Technology & Telecommunications. A combination of general licenses and amendments to the regulations will also authorize the commercial export of certain telecommunications services. Building on earlier licenses for personal communications services, these changes will likely expand exemptions for consumer electronics, software, and hardware used in telephone and Internet applications. The White House is also considering measures that would allow U.S. telecommunications companies to provide commercial telephone, internet, and related services in Cuba, including through the construction of new communications infrastructure.
- Multinational Corporations. Finally, the Obama administration will reportedly ease extraterritorial sanctions on Cuba by allowing the foreign affiliates of U.S.-based multinational corporations to engage in approved transactions with Cuba and Cuban nationals. These measures may ease similar restrictions on Latin American and European corporations with U.S. affiliates. Related changes include unblocking the U.S. bank accounts of Cuban citizens living outside Cuba and authorizing foreign vessels to travel directly between U.S. and Cuban ports.
Companies evaluating these proposals should proceed with two caveats in mind. First, the proposed measures will not take effect until the Treasury and Commerce departments issue new regulations and general licenses. Although OFAC has promised these changes within the coming weeks, companies should not enter into new transactions, contracts, or agreements involving Cuba unless they are authorized under U.S. law.
Second, it is unclear how far regulatory easing will go, particularly given that the Cuban Liberty and Democratic Solidarity Act of 1996 (also known as the “Helms-Burton Act”) imposes sanctions that only Congress can withdraw. This means that the Administration can only proceed in those areas where the Helms-Burton Act does not pre-empt presidential discretion or other delegated authorities.
The proposed changes to the Cuban embargo demonstrate how quickly the rules for dealings with sanctioned countries, governments, and persons can change. As the U.S. Government responds to world events, companies contemplating transactions with countries like Cuba, Iran, Russia, Sudan, and Syria need to understand both the current rules and how these rules are changing. Transactions with sanctioned countries and persons should only occur when such arrangements are authorized by law, and when companies have appropriate policies, procedures, training, and internal controls to ensure compliance with the relevant regulations or licenses.
This Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following:
Francisco J. Cerezo
Chair, Latin America Practice
Chair, Export Controls & National Security Practice
Christopher M. Swift
Export Controls & National Security Practice