OFAC and BIS Release Regulations Relaxing Some Trade with Cuba

The new regulations follow President Barack Obama’s announcement on December 17, 2014 regarding US policy toward Cuba. In general, the new rules issue a series of general licenses (and license exceptions) and authorizations that greatly simplify the process for those traveling to Cuba and significantly expand the number of permitted activities. There remain, however, significant limitations and restrictions on travel due to current US law, and there are specific requirements to be followed for each permitted activity. Further, in many cases the activity is permitted only if the Cuban government is not involved, which will be a challenge as the economy is dominated by the government.

The new regulations are a significant departure from past policy, and are packed with changes that will impact financial services, telecommunications, small business, and nonprofit providers. Both OFAC and BIS have issued detailed fact sheets and FAQs with the new regulations which we recommend reviewing. (See the OFAC Regulations, OFAC Cuba Fact Sheet, and OFAC Cuba FAQs, as well as the BIS Regulations, BIS Cuba Fact Sheet, and BIS Cuba FAQs.)

The regulations are complex, but we provide a snapshot below of a few of the more important changes for specific business sectors, in alphabetical order:

Agriculture

• US companies can export or re-export tools and equipment designated as EAR99 or controlled on the Commerce Control List for Anti-Terrorism (AT) reasons only if these items are for use in private sector agricultural activity.
• Commerce has clarified that “private sector” is defined as encompassing “economic activity generated by private individuals and groups as enterprises for profit and also that which is generated by non-profit organizations and charities. Companies and corporations that are government owned, operated or controlled are not considered private sector.”
• Commerce also clarified that Cuban government import agencies and other government owned, operated, or controlled companies and corporations may act as consignees to receive and affect delivery of eligible items to the private sector; however, they may not be the end users of these items.
• NOTE: Most larger business in Cuba are viewed as Government controlled so consider the buyer carefully.

Construction

• US companies can export or re-export building materials, equipment, and tools designated as EAR99 or controlled for AT reasons only if these items are for use by the private sector to construct or renovate privately-owned buildings.
  • Privately-owned buildings include residences, businesses, places of worship, and buildings for private sector social or recreational use.
  • NOTE: Consider carefully who owns the building/business at issue.

“Private Sector Entrepreneurs”

• US companies can export or re-export tools, equipment, supplies, and instruments designated as EAR99 or controlled for AT reasons only if these items are for use by “private sector entrepreneurs”:
  • Private entrepreneurship, such as auto mechanics, barbers and hairstylists, and restaurateurs, is limited in Cuba but they could rely on a wide range of goods.
• Commerce has clarified in its FAQs that “private sector” is defined as encompassing “economic activity generated by private individuals and groups as enterprises for profit and also that which is generated by non-profit organizations and charities. Companies and corporations that are government owned, operated or controlled are not considered private sector.”
• Commerce also clarified that Cuban government import agencies and other government owned, operated, or controlled companies and corporations may act as consignees to receive and effect delivery of eligible items to the private sector; however, they may not be the end users of these items.

Civil Society — Donations Only

• There is a general license for donations related to authorized humanitarian projects in, or related to, Cuba. These include medical and health, environmental, educational, civil society, journalism advocacy, community, small-scale development, and other similar projects.
• US companies or individuals can donate items designated as EAR99 or controlled for AT reasons only that are intended to “strengthen civil society in Cuba,” including:
  • With certain limitations, items for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities.
    • The activities may not relate to the “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul, or refurbishing of any item enumerated or otherwise described on the United States Munitions List.
• US companies or individuals can export or re-export items designated as EAR99 or controlled for AT reasons only that are destined for the following entities:
  • Human rights organizations;
  • Individuals; and
  • NGOs “that promote independent activity intended to strengthen civil society.”
• Gift parcels and humanitarian donations may now be exported in single shipments of multiple parcels for delivery to individuals residing in Cuba.

Consumer Electronics and Software

• Subject to certain conditions, US companies can export or re-export consumer communications devices that are widely available for retail purchase and that are commonly used to exchange information and facilitate interpersonal communications, as well as certain telecommunications and information security related software, including:
  1. Consumer computers designated EAR99 or classified under Export Control Classification Numbers (ECCN) 5A992.c or 4A994.b;
  2. Consumer disk drives and solid state storage equipment classified under ECCN 5A992 or designated EAR99;
  3. Input/output control units (other than industrial controllers designed for chemical processing) designated EAR99;
  4. Graphics accelerators and graphics coprocessors designated EAR99;
  5. Monitors classified under ECCN 5A992.c or designated EAR99;
  6. Printers classified under ECCN 5A992.c or designated EAR99;
  7. Modems classified under ECCNs 5A991.b.2, 5A991.b.4., or 5A992.c or designated EAR99;
  8. Network access controllers and communications channel controllers classified under ECCN 5A991.b.4 or designated EAR99;
  9. Keyboards, mice, and similar devices designated EAR99;
  10. Mobile phones, including cellular and satellite telephones, personal digital assistants, and subscriber information module (SIM) cards and similar devices classified under ECCNs 5A992.c or 5A991 or designated EAR99;
  11. Memory devices classified under ECCN 5A992.c or designated EAR99;
  12. Consumer “information security” equipment, “software” (except “encryption source code”), and peripherals classified under ECCNs 5A992.c or 5D992.c or designated EAR99;
  13. Digital cameras and memory cards classified under ECCN 5A992 or designated EAR99;
  14. Television and radio receivers classified under ECCN 5A992 or designated EAR99;
  15. Recording devices classified under ECCN 5A992 or designated EAR99;
  16. Batteries, chargers, carrying case,s and accessories for the equipment described in this paragraph that are designated EAR99; and
  17. Consumer “software” (except “encryption source code”) classified under ECCNs 4D994, 5D991, or 5D992.c or designated EAR99 to be used for equipment described in paragraphs (b)(1) through (b)(16) of this section.
• The above consumer communications may be sold to Cuban government owned, operated, or controlled companies and corporations for resale to the Cuban people.
• US companies can provide services such as cloud storage, software design, business consulting, and the provision of IT management and support related to use of above hardware and software or services to install, repair (including repair training), or replace such items.
• US companies can also provide services related to many kinds of software (including applications) used on personal computers, cell phones, and other personal communications devices along with other services related to the use of such devices.
• US companies may also enter into transactions to provide fee-based services related to authorized exportations and reexportations of these communications items and internet-based communications, including:
  • Instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, blogging, web hosting (provided that it is not for the promotion of tourism), and domain name registration services.
• These same US companies can also engage in certain travel-related transactions and other transactions that are directly incident to the conduct of market research, commercial marketing, sales negotiation, accompanied delivery, or servicing in Cuba of authorized items (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).

Environmental Protection

• BIS has established a policy of approving license applications to export or reexport items necessary for the environmental protection of US and international air quality waters, and coastlines (including items related to renewable energy or energy efficiency). Please note that this is not a license exception, but instead a policy of approval for license applications. Exporters/reexporters of items subject to the EAR will still need to apply to BIS for a license to make these exports/reexports.

Financial Services

• Financial institutions may process payments of credit cards, debit cards, checks, etc. negotiated in Cuba.
• US brokers and registered money transmitters may provide remittance services.
• Depository institutions can open correspondent accounts at Cuban financial institutions to process the new authorized transactions.
• US financial institutions can enroll merchants to process credit/debit card transactions.
• The requirement of “cash in advance” for export transactions has been modified to allow for payment before title and control the exported property transfers. This aligns with Incoterms and more normal financing terms (letters of credit).
• Financing by banks located in third countries is permitted as long as the bank is not organized under the laws of the US and is not a branch. Financing may be confirmed or advised by a US bank. Again, this allows for normal foreign issued letters of credit.
• No more per diem limitations on travel spending.
• Limits on remittances to Cuba have been raised from $500 to $2,000 per quarter.
• Unlimited remittances for humanitarian projects and development of private business.
• Micro-financing activities permitted for private business and agriculture.
• OFAC is unblocking accounts for Cuban nationals who now reside outside of Cuba.

General Business

• There is a general license permitting travel-related transactions for marketing, sales negotiation, and servicing of items approved for export under the new Commerce rules.
• US persons may import certain approved goods and service produced in Cuba that will be identified by the State Department on a “to be published” approved list.

Insurance

• US insurance companies may offer global policies (travel, health, and life) to third-country nationals (e.g., Canadians) traveling to Cuba.
• US insurers may insure aircraft and provide travel/health insurance to US travelers authorized to travel between the US and Cuba.

Media

• Full-time journalists, supporting broadcast or technical personnel, and freelance journalists are authorized to travel to Cuba (the traveler’s schedule of activities must not include free time or recreation in excess of that consistent with a full-time schedule).
• US companies can export or re-export items designated as EAR99 or controlled for AT reasons only that are for use by news media personnel engaged in the gathering and dissemination of news to the general public and who are:
  1. Regularly employed as journalists by a news reporting organization;
  2. Regularly employed as supporting broadcast or technical personnel;
  3. Freelance journalists with a record of previous journalistic experience working on a freelance journalistic project; or
  4. Broadcast or technical personnel with a record of previous broadcast or technical experience who are supporting a freelance journalist working on a freelance journalistic project.
• US news bureaus engaged in the gathering and dissemination of news to the general public can export or re-export items designated as EAR99 or controlled on the Commerce Control List only for anti-terrorism reasons for their use.
• US publishing companies can, subject to appropriate conditions, engage in travel-related transactions and other transactions that are directly incident to the exportation, importation, or transmission of information or informational materials in Cuba (the traveler’s schedule of activities must not include free time or recreation in excess of that consistent with a full-time schedule in Cuba).

Shipping

• Foreign vessels may enter the US after stopping in Cuba as long as they were not previously tagged for prohibited transactions.
• Passenger vessels are NOT authorized to transport persons except for a foreign vessel carrying students.

Telecommunications

• US companies can export or re-export telecommunication items designated as EAR99 or controlled for AT reasons only that improve the “free flow of information to, from, and among the Cuban people,” including items for:
  • Access to the Internet;
  • Use of Internet services; and
  • Infrastructure creation and upgrades.
• Subject to certain terms and conditions, US companies may sell these items to Cuban government owned, operated, or controlled companies and corporations for telecommunications infrastructure creation and upgrades.
• US companies can enter into transactions, including payments, incident to the provision of telecommunications services related to the transmission or the receipt of telecommunications involving Cuba, including the entry into and performance under roaming service agreements with telecommunications services providers in Cuba, such as ETECSA.
• US companies can also enter into, and make payments under, contracts with telecommunications service providers, or particular individuals in Cuba, for telecommunications services provided to particular individuals in Cuba (as long as such individuals in Cuba are not prohibited officials of the Government of Cuba or prohibited members of the Cuban Communist Party):
  • This includes payment for activation, installation, usage (monthly, pre-paid, intermittent, or other), roaming, maintenance, and termination fees.
• US companies can also engage in transactions, including payments, incident to the establishment of facilities, including fiber-optic cable and satellite facilities, to provide telecommunications services linking the US or third countries and Cuba, including facilities to provide telecommunications services in Cuba.
• Subject to certain terms and conditions, US companies may sell items to Cuban government owned, operated, or controlled companies and corporations for telecommunications infrastructure creation and upgrades.
• “Telecommunications services” in general includes data, telephone, telegraph, internet connectivity, radio, television, news wire feeds, and similar services, regardless of the medium of transmission, including transmissions by satellite.
• US companies using these authorizations must notify OFAC in writing within 30 days after commencing or ceasing to offer such services, as applicable, and must furnish by January 15 and July 15 of each year semiannual reports providing the total amount of all payments made to Cuba or a third country related to any of the services authorized during the prior six months.

Travel

• A general license now covers travel agents and airlines to provide authorized travel and carrier services.
• A general license now covers persons wishing to travel to Cuba under one of the 12 existing travel categories (e.g., family, educational activities, journalists, religious, professional research/meetings, humanitarian projects, certain sports competitions, public performances, exhibitions, etc.). There is no need to get a specific license, but you do need to conform to enumerated requirements under each travel category. The new rules do not authorize tourist travel. The rules also allow travel related transactions incident to approved travel, allow for use of US credit and debit cards, and allow visitors to bring back up to $400 in goods.
• An authorized traveler may take up to $10,000 to Cuba.
• US hotels may sponsor or provide services to events in third countries attended by Cuban nationals.

Universities/Professional Researchers

• Persons departing the United States can temporarily export items designated as EAR99 or controlled for AT reasons only that will be used in their professional research, including:
  • With certain limitations, items for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities:
    • The activities may not relate to the “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul or refurbishing of any item enumerated or otherwise described on the United States Munitions List.
• The research must be directly related to the traveler’s profession, professional background, or area of expertise, including graduate-level full-time study.
• Authorized items must be returned to the United States within two years unless:
  • The items were consumed in Cuba; or
  • The exporter applied for, and obtained, before two years expire, a license from the BIS authorizing the items to remain in Cuba longer than two years.

The new regulations are complex so the above summaries are for general information purposes and are not intended to be and should not be taken as legal advice.

Arent Fox has significant experience in helping companies navigate and comply with US sanctions laws and export controls as well as interfacing with the OFAC and the BIS on a company’s behalf. If you have any questions regarding the above, please contact the authors.