January 19, 2015

　　On Jan. 16, 2015 final rules issued by both the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS). These rules are intended to implement the policy changes announced by President Obama in December.

　　On Dec. 17, 2014, President Obama announced a set of measures the administration intends to implement in order to move toward normalized relations with Cuba, including establishing diplomatic relations, removing some existing restrictions on travel, etc.

　　A key element of the announcement authorizes expanded commercial sales/exports from the United States of certain goods and services “to empower the nascent Cuban private sector.” This expansion specifically includes “certain building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment for small farmers.”

　　Currently, exports to Cuba by U.S. firms and their branches and subsidiaries are governed by the Cuban Assets Control Regulations administered by OFAC, in conjunction with the Export Administration Regulations (EAR) administered by BIS. These rules have generally prohibited trade with and travel to Cuba unless licensed or otherwise authorized by OFAC and/or BIS. Under the previous OFAC regulations, codified at 31 C.F.R. Part 515, all persons subject to U.S. jurisdiction, including branches and subsidiaries of U.S. companies, are prohibited from exporting to or importing from Cuba, or otherwise engaging in transactions involving Cuban interests, unless they are licensed by OFAC or authorized by BIS.

　　The new OFAC regulations facilitate travel to Cuba for authorized purposes, allow U.S. financial institutions to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, authorize certain transactions with Cuban nationals located outside of Cuba, and allow a number of other activities related to, among other areas, telecommunications, financial services, trade, and shipping. OFAC has published a list of “frequently asked questions”on these changes.

　　The corresponding BIS regulations amend the Export Administration Regulations to create License Exception Support for the Cuban People (SCP) “to authorize the export and reexport of certain items to Cuba that are intended to improve the living conditions of the Cuban people; support independent economic activity and strengthen civil society in Cuba; and improve the free flow of information to, from, and among the Cuban people.” Among the products specifically included in this new export authorization are “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.”

　　The BIS regulation also includes a category of “goods for use by private sector entrepreneurs such as auto mechanics, barbers and hairstylists and restaurateurs; and tools and equipment for private sector agricultural activity.” Items eligible for export and reexport to Cuba pursuant to this provision are limited to those designated as EAR99 (i.e., items subject to the EAR but not specified in any Export Control Classification Number (ECCN)) or controlled on the Commerce Control List (CCL) only for anti-terrorism reasons. The Commerce Department has also posted a fact sheet on this issue.

　　While the new rules do relax some existing regulatory barriers to trade normalization with Cuba, the existing restrictions imposed by Helms-Burton and the Trading with the Enemy Act of 1917, along with restrictions on trade with state sponsors of terrorism, etc., still remain in place. Only Congress has authority to lift the trade embargo provisions codified in legislation; for example, by making significant amendments to the Helms-Burton Act. Helms-Burton itself requires a showing of “demonstrable progress” in returning property expropriated by the Cuban government as a prerequisite for lifting the U.S. embargo. The announcement of trade normalization did not suggest any agreement by the Cuban government to address the expropriation issue.

　　OFAC is also amending its regulations to revise the regulatory interpretation of “cash in advance” from “cash before shipment” to “cash before transfer of title and control” to allow expanded financing options for authorized exports to Cuba, which it indicates is intended to allow expanded financing options for authorized exports to Cuba. OFAC is also providing a “general license” for travel-related transactions incident to sales of certain items. The travel-related transactions set forth in § 515.560(c) and such additional transactions as are “directly incident to the conduct of market research, commercial marketing, sales negotiation, accompanied delivery, or servicing in Cuba of items consistent with the export or reexport licensing policy of the Department of Commerce are authorized, provided that the traveler’s schedule of activities does not include free time or recreation in excess of that consistent with a full-time schedule.” The rules also require that persons who use this general authorization retain specific records related to the authorized travel transactions.

　　This essentially means that individuals who meet the conditions laid out in the regulations will not need to apply for a license to travel to Cuba. The previously imposed per diem rate for authorized travelers will no longer apply, and there is no longer a specific dollar limit on authorized expenses. Authorized travelers will be allowed to engage in transactions ordinarily incident to travel within Cuba, including payment of living expenses and the acquisition in Cuba of goods for personal consumption there. Additionally, travelers will now be allowed to use U.S. credit and debit cards in Cuba.

　　Contact ACA’s Allen Irish for more information.