On March 15, 2016, the U.S. government announced a further set of amendments to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR), continuing the implementation of its new policy direction towards Cuba that began just over a year ago. The most recent changes, which took effect yesterday, are intended to bolster the ability of Americans to visit and conduct business in Cuba and lower the barriers to U.S. dollar financial transactions with Cuban nationals. Industries that will benefit from the changes include the travel, shipping, banking and finance, telecommunications, educational and humanitarian sectors.
The amendments were issued by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) and the Department of Commerce's Bureau of Industry and Security (BIS) in the form of final rules published in the Federal Register.
Actions Taken by OFAC
OFAC has amended the CACR to loosen restrictions in six main areas: (1) travel and related transactions; (2) banking and financial services; (3) trade and commerce; (4) shipping; (5) telecommunications; and (6) educational and humanitarian projects. OFAC also updated its FAQs related to trade with Cuba.
1. Travel and Related Transactions
- Travel to Cuba: Section 565(b) of the CACR no longer requires people-to-people educational travel to be conducted through an organization that sponsors such exchanges. This section now authorizes individuals to travel to Cuba without such a sponsorship if they engage in a full-time schedule of educational exchange activities intended to "enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people's independence from Cuban authorities." These activities must involve "meaningful interaction" with individuals in Cuba. Record-keeping requirements and other conditions apply.
- Salary Payments to Cubans in the United States: While the CACR previously prohibited the payment of salaries to non-immigrant Cuban nationals in the United States that exceeded amounts necessary to cover living expenses, the March 16th amendments permit non-immigrant Cuban nationals in the United States to earn a salary so long as the salary is not subject to specific tax assessments in Cuba. Section 571(e) now authorizes all transactions related to the sponsorship or hiring of a Cuban national to work in the United States, but provides that an employer may not make additional payments to the Cuban government in connection with the sponsorship or hiring of a Cuban national. This provision also authorizes transactions related to the filing of an application for non-immigrant travel authorization.
- Purchase of Cuban-origin Merchandise: Individuals in a third country who are subject to U.S. jurisdiction may now purchase or obtain Cuban-origin goods for personal consumption while in a third country, and receive or obtain services from Cuba or a Cuban national that are ordinarily incident to travel and maintenance within a third country. Under this provision, for example, Americans traveling abroad may purchase and consume Cuban cigars or rum, but new Section 585(c) does not authorize U.S. persons to import such merchandise into the United States from third countries.
2. Banking and Financial Services
- U-turn payments through the U.S. banks: The March 16th amendments authorize U.S. financial institutions to process so called "U-turn" transactions in which Cuba or a Cuban national has an interest. U-turn transactions involve the transfer of funds from a foreign bank which pass through a U.S. bank before being transferred to a second foreign bank. However, all such transactions where the originator or beneficiary is a person subject to U.S. jurisdiction remain prohibited unless otherwise authorized or exempt under the CACR. Previously blocked funds transfers that would have qualified for processing under the amended Section 584(d) or certain provisions relating to official business of the U.S. government or certain non-governmental organizations may now be unblocked and returned to the originators.
- Processing of U.S. dollar monetary instruments: The new general license in Section 584(g) of the CACR authorizes U.S. banks to process U.S. dollar monetary instruments (e.g., cash, travelers' checks) presented indirectly by Cuban financial institutions -- i.e., through a correspondent bank located in a third country -- provided that the underlying transaction is authorized, exempt or not prohibited pursuant to the CACR. Correspondent accounts used for transactions authorized pursuant to this section may be denominated in U.S. dollars, but the new general license does not authorize banks subject to U.S. jurisdiction to open correspondent accounts for Cuban banks.
- Certain bank accounts for Cuban nationals: New Section 584(h) authorizes banks to open and maintain accounts solely in the name of Cuban nationals located in Cuba for the sole purpose of receiving payments in the United States for authorized or exempt transactions and remitting such payments to Cuba.
3. Trade and Commerce
- Business and physical presence: OFAC has consolidated all authorizations related to establishing and maintaining a business or physical presence in Cuba under Section 573, which also has been amended to include additional categories of persons subject to U.S. jurisdiction eligible to establish and maintain business or physical presence in Cuba. Establishing a business presence involves establishing subsidiaries, branches or offices or relationships with Cuban nationals such as joint ventures, franchises or agency or other business relationships. Establishing a physical presence involves leasing premises, hiring employees and so on.
Under the revised Section 573, certain categories of persons subject to U.S. jurisdiction may establish both a business and a physical presence in connection with certain activities authorized or exempt under the CACR, including providers of telecommunications or internet-based services, exporters, entities providing mail or parcel transmission or cargo transportation services and providers of travel and carrier services. Under this authorization, exporters may assemble exported or reexported items but may not incorporate Cuban origin goods or process Cuban raw materials into finished goods.
Certain categories of persons subject to U.S. jurisdiction may establish only a physical presence in connection with certain activities authorized or exempt under the CACR, namely: news bureaus; entities organizing or conducting educational activities; religious organizations; entities engaging in non-commercial activities authorized by Section 574 (Support for the Cuban People); entities engaging in humanitarian projects; and private foundations or research or educational institutes.
- Waiver of Section 207 for vessels engaged in authorized trade: While not amended by the March 16th final rule, Section 550 operates to lift the 180-day ban on entry to U.S. ports for vessels authorized by the revised License Exception AVS to carry cargo bound for third countries while on temporary sojourn to Cuba, subject to certain conditions. See our discussion of the BIS amendments to License Exception AVS below.
- Telecommunications and internet-related services: Section 578 now allows the importation of Cuban-origin software. In addition, various technical and conforming edits were made to other sections applicable to the telecommunications industry.
6. Educational and Humanitarian
- Grants and awards: New provisions in Section 565 authorize educational grants, scholarships or awards to Cuban nationals or in which Cuba or a Cuban national otherwise has an interest and sponsorship of Cuban scholars to teach or engage in scholarly activity at U.S. academic institutions.
- Humanitarian: A new note to Section 575(a) confirms that the section authorizes grants or awards for humanitarian projects designed to directly benefit the Cuban people.
Actions Taken by BIS
BIS amended the EAR to: (1) broaden license exception AVS (Aircraft, Vessels and Spacecraft) as it relates to certain cargo vessels; (2) make technical changes to the license exception authorizing exports of certain items to persons authorized to establish and maintain a physical or business presence in Cuba; (3) amend BIS licensing policy regarding exports and reexports of items that would enable or facilitate export of items produced by the private sector in Cuba; and (4) remove in-transit shipment prohibitions in certain circumstances. BIS also updated its FAQs with respect to exports and reexports to Cuba.
1. License Exception AVS
BIS revised License Exception AVS found in 15 C.F.R. 740.15 to authorize vessels to travel to Cuba with cargo destined for other markets, provided that such cargo departs with the vessel at the end of its temporary sojourn, does not enter the Cuban economy and is not transferred to another vessel while in Cuba. This change will allow operators of vessels that carry cargo from the United States to Cuba and to other countries greater flexibility in selecting efficient routes. Vessel operators are reminded, however, to consult U.S. Coast Guard regulations before entering Cuban waters.
2. License Exception SCP
BIS will revise License Exception SCP (Support for the Cuban People) to authorize export or reexport of EAR99 items and items controlled on the Commerce Control List only for anti-terrorism reasons for use by persons authorized by OFAC to establish and maintain a physical or business presence in Cuba under the general license contained in Section 573 of the CACR (see above) or pursuant to a specific license issued by OFAC. Prior to this rule, License Exception SCP enumerated the activities for which OFAC had authorized such physical or business presence by general license. This change will eliminate the need for additional revisions to License Exception SCP if the OFAC general license is further expanded in the future.
3. EAR Licensing Policy
Revisions to Section 746.2 of the EAR extends application of the BIS policy of case-by-case review for applications for licenses to export or reexport items to Cuba that will enable or facilitate exports from Cuba's private sector. BIS also revised Note 1 to this section to specify that licenses issued under this policy will continue to prohibit reexports or uses that enable or facilitate exports from Cuba if such reexports or uses primarily generate revenue for the Cuban government.
4. In-transit Shipments
Section 736.2(b)(8) of the EAR, which prohibits shipments from transiting certain destinations, now provides that the prohibition does not apply if a license or license exception authorizes the in-transit shipment. U.S. exporters wishing to take advantage of this change should consult with their freight forwarders regarding available routes prior to submitting export license applications so that they can seek any desired relief from the in-transit shipment prohibition.
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Also published as a Trade Compliance Flash on March 17, 2016.