** Stay tuned for an informational event with Marco Gonzalez to
discuss these important changes**
January 16, 2015
By Marco A. Gonzalez, Jr., Esq.
The Obama Administration published today amended regulations following its policy announcement on December 17, 2014 that allows for new business opportunities with and expanded travel to Cuba by Americans and businesses that are subject to U.S. Law. The amendments to the regulations, administered by the Department of Treasury's Office of Foreign Assets Control (OFAC) and the Department of Commerce's Bureau of Industry and Security, go into effect today.
While the Administration emphasized that the embargo over Cuba remains in effect, and that most trade and transactions between the U.S., persons subject to U.S. jurisdiction and Cuba continued to be in force, the changes are expansive. According to the Administration, the changes are designed to empower the Cuban people by increasing contact between Cubans and Americans, expand certain authorized trade, and increase the flow of information and communications between the neighboring countries. Though it will take weeks, if not months, to fully assess the impact of these changes, it is clear that several of the changes will trigger new opportunities for businesses, researchers and academics in the U.S.
Travel
Before the change in policy, federal law permitted licensed, authorized travel to Cuba within 12 specific categories. Licenses can be in the form of a "general license" or "specific license." General licenses are authorizations that include conditions and requirements that are directly embedded in the regulation itself. A person seeking to rely on a general license must abide by its conditions to comply with the regulations, including, in many cases, recordkeeping and reporting requirements. In the event a person seeking travel to Cuba is unable to satisfy all of the conditions of a particular travel category, but is able to "relate" the subject of his or her travel to one or more categories, that person can apply to OFAC to seek a specific license, which will be reviewed and issued on a case-by-case basis. Specific licenses will include conditions that must be complied with and may also contain an expiration date and recordkeeping and reporting requirements.
With the new changes, the administration has issued general licenses that provide expanded opportunities for Americans to travel to Cuba. The 12 categories are:
- Family visits;
- Official business of the U.S. government, foreign governments, and certain intergovernmental organizations;
- Journalistic activity;
- Professional research and professional meetings;
- Educational activities;
- Religious activities;
- Public performances, clinics, workshops, athletic and other competitions, and exhibitions;
- Support for the Cuban People;
- Humanitarian projects;
- Activities of private foundations or research or educational institutes;
- Exportation, importation, or transmission of information or information materials; and
- Certain authorized export transactions.
Each of the general licenses covering these 12 categories of travel include conditions that travelers must comply with as a requisite of travel. While there are some differences in the requirements of each general license, many categories specify that travelers to Cuba cannot engage in recreation or free time "in excess of that consistent with a full-time schedule." Also, in those categories of travel involving groups, e.g., professional meetings or conferences, an entire group does not qualify for the general license merely because some members of the group qualify individually. The bottom line is that travelers relying on a general license must ensure that they are satisfying each and every provision of the license to avoid any issues with OFAC.
Out of the 12 categories of authorized travel to Cuba, businesses may focus on a few that may provide new opportunities with the people of Cuba.
Professional Research and Professional Meetings/Conferences.
One of the 12 categories of general licenses include authorized travel to Cuba by Americans and entities subject to U.S. jurisdiction in the area of professional research and engaging in professional meetings and conferences. The general license for professional research allows travel for the purpose of conducting research directly related to the traveler's profession, professional background, and area of expertise or graduate area studies. Also, travelers under this license must not engage in recreational travel, tourist travel, travel in pursuit of a hobby, or research for personal satisfaction only. And, the traveler's schedule of activities must not include recreational or free time that is in excess of that consistent with a full work schedule.
Travelers relying on the amended regulations for travel to attend professional meetings and conferences in Cuba are also authorized, so long as the subject of the meeting or conference is not for the promotion of tourism in Cuba. The general license also requires that the meeting or conference be directly related to the traveler's profession, professional background or area of expertise, and that it cannot be in the pursuit of a hobby or like interest. Moreover, as in other categories of travel, the traveler can not engage in recreation or free time in excess of that which is consistent with the full time work schedule.
[NOTE: A person relying on a general license to travel to Cuba must retain records concerning the authorized travel transactions. The records should consist of items such an agenda, meeting notes, receipts, memos, emails, to demonstrate that you actually engaged in a full schedule, attended professional meetings or conferences, etc. You may also be subject to reporting requirements.]
Educational Activities.
The amendments also granted a general license to US academic institutions, their employees, professors and agents, to engage in travel to Cuba under certain conditions. Also authorized under this provision is the sponsorship, including payment of a stipend or salary, of the Cuban scholar to teach or engage in other scholarly activity at a U.S. academic institution.
Educational exchanges sponsored by Cuban or U.S. secondary schools involving students participating in the formal course of study are also authorized, including the participation of a reasonable number of adult chaperones. This provision is intended to encourage exchange programs and interaction between U.S. and Cuban high school student so long as the exchanges are part of a formal academic program. The sponsorship and co-sponsorship of noncommercial academic seminars conferences and workshops are also authorized under this provision.
[NOTE: U.S. academic institutions or secondary schools engaged in activities under this general license are allowed to open and maintain a Cuban bank account for the purpose of accessing funds in Cuba for transactions that are incident to authorized activity. U.S. institutions interested in opportunities pursuant to this general license must abide by all of its requirements and review other relevant provisions in the OFAC regulations pertaining to financial considerations.]
People-to-people educational exchanges. When the Obama Administration came into office it amended the OFAC regulations to allow travel to Cuba by Americans under specific people-to-people educational exchange licenses. Now, educational exchanges that do not involve academic study pursuant to a degree program are allowed via a general license, with certain restrictions. The exchanges must take place under the auspices of an organization that is subject to U.S. jurisdiction, and sponsors such exchanges to promote people-to-people contact between Americans and the Cuban people. Travel to Cuba under this general license requires that travelers engage in a schedule without recreation or free time that is in excess of that consistent with a full-time schedule.
The schedule of travel in Cuba must be designed to enhance contact with the Cuban people, support civil society, promote independence, and engage in activities that will result in meaningful interaction between the traveler and individual people in Cuba. The regulations under this general license also require that the sponsoring organization engage an employee or agent that accompanies the group in Cuba to ensure that the fulltime schedule is kept, and that other requirements of the general license are satisfied.
[NOTE: Organizations that seek to sponsor and organize trips to Cuba that would allow self-directed activities by travelers will not qualify for a general license under this provision and those that do engage in such activities would be in violation of the OFAC regulations. However, it may be possible to obtain a specific license from OFAC to engage in self-directed activity consistent with the purpose of fostering people-to-people contact with individuals in Cuba pursuant to the regulations.]
Global Insurance Policies
Insurance carriers subject to U.S. jurisdiction are now authorized to issue or provide coverage for "global health, life, or travel insurance policies for individuals ordinarily resident in a country outside of Cuba who travel to or within Cuba." Prior to this change, authorized travelers to Cuba had limited options to purchase travel and global health insurance coverage. This new change allows U.S. insurance carriers to service those policies and pay claims arising from events that occurred in Cuba.
Travel, Carrier Services
A significant change in the regulations now allows U.S. travel and carrier entities to engage in travel related transactions involving Cuba that are authorized under the previously mentioned 12 categories of travel. Under the previous scheme, U.S. travelers with a general or specific license would need to purchase tickets through a licensed tour operator for a charter flight to Cuba. The new regulations will no longer prevent scheduled U.S. carrier flights to and from Cuba. However, until the Department of Transportation establishes procedures for the restoration of scheduled service to and from Cuba, only charter services will be available. Moreover, U.S. carriers must also comply with other requirements mandated by the Federal Aviation administration and other agencies, and engage in talks with Cuban authorities to facilitate the establishment of routes and scheduled service between the neighboring countries. It is expected that this new amendment will, in time, eliminate a layer of transactions and costs that have made it expensive to travel to Cuba under the previous regulatory scheme.
[NOTE: as in other provisions of these regulations, airlines and travelers must be responsible for maintaining records of their Cuba related travel transactions. Given the rise in OFAC enforcement actions in recent years by the Obama administration, persons subject to U.S. jurisdiction who wish to take advantage of these opportunities must ensure full compliance with the new regulations. ]
As with other provisions in the regulations, specific licenses may be issued on a case-by-case basis for travel and carrier services for transactions that are related to but are other than those authorized pursuant to the general license of this provision.
Transportation establishes procedures for the restoration of scheduled service to and from Cuba, only charter services will be available. Moreover, U.S. carriers must also comply with other requirements mandated by the Federal Aviation administration and other agencies, and engage in talks with Cuban authorities to facilitate the establishment of routes and scheduled service between the neighboring countries. It is expected that this new amendment will, in time, eliminate a layer of transactions and costs that have made it expensive to travel to Cuba under the previous regulatory scheme.
[NOTE: as in other provisions of these regulations, airlines and travelers must be responsible for maintaining records of their Cuba related travel transactions. Given the rise in OFAC enforcement actions in recent years by the Obama administration, persons subject to U.S. jurisdiction who wish to take advantage of these opportunities must ensure full compliance with the new regulations. ]
As with other provisions in the regulations, specific licenses may be issued on a case-by-case basis for travel and carrier services for transactions that are related to but are other than those authorized pursuant to the general license of this provision.
News Organizations
News organizations are now allowed under a general license to engage in all transactions necessary for the establishment and operation of news bureaus in Cuba, subject to certain conditions, so long as the primary purpose of the bureau is too gather and disseminate news to the general public. This general license allows news organizations to hire and employ Cuban nationals so long as their primary purpose would be to gather and disseminate news to the general public.
[Note: Certain transactions under this provision, specifically the export of equipment and other related materials incident to the operation of a news bureau in Cuba, may require a separate authorization from the Department of Commerce.]
Support for the Cuban People.
A primary component of the change in policy by the Administration is the intent to improve the living conditions of the Cuban people, support independent economic activity and strengthen civil society by allowing expanded travel by Americans under a general license. The activities must be that of a recognized human rights organization, independent organizations for the promotion of rapid, peaceful transition to democracy, or individual and non-governmental organizations (NGOs) that promote independence and strengthen civil society. However, such travel is regulated, as other licenses, to having a full schedule and limited recreation and free time not in excess of such a schedule. Also, records pertaining to transactions pursuant to this provision must be kept for a certain period of time.
License Exception SCP
In what may be the most significant departure from the previous regulations, the Administration has created a license exception for the Support of the Cuban People, or "License Exception SCP" within the Department of Commerce (BIS) regulations that allow for expanded exports of items from the U.S. to Cuba. Prior to the change in policy, the export or re-export from the U.S. to Cuba of items now eligible under the new regulations generally required a license from BIS. The new License Exception SCP authorizes the export and re-export of commercially sold (or donated) items to the Cuban people to improve living conditions and support independent economic activity in Cuba.
Such items include:
-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;
-Tools and equipment for private sector agricultural activity; and
-Tools, equipment, supplies, and instruments for use by private sector entrepreneurs.
According to the Department of Commerce's summary to this new rule, "this provision will for example allow the export of such items to private sector entrepreneurs, such as auto mechanics, barbers and hair stylists and restaurateurs." Indeed, it would be a marked departure from previous regulations if this recent change is construed to allow U.S. suppliers of automobile parts to supply local auto mechanics in Cuba. The key here is that exports from the U.S. must be directed to local entrepreneurs in the Island and not directly to the Government of Cuba or Cuban-owned companies. While the ink on the regulations is barely dry, it would not be a surprise if Cuban authorities are at this moment pouring over the regulations to determine how best to administer and facilitate expanded U.S. exports within Cuba.
As these exports are administered by the Department of Commerce, the particular items eligible for export and re-export to Cuba will be limited to those designated as "EAR99" pursuant to the Export Administration Regulations (EAR). By way of background, if an item of export falls under the jurisdiction of the Department of Commerce and is not listed on the Commerce Control List (CCL), it is then designated as EAR99. Most commercial products are designated EAR99 and generally do not need a license to be exported or re-exported. However, exports of an EAR99 item to an embargoed or sanctioned country require a license. What the new License Exception SCP does is that it creates a regulatory exception to obtain a license so long as all other requirements of the regulation are met.
In addition, to improve the free flow of information between the U.S. and Cuba, the License Exception SCP authorizes the export and re-export of certain telecommunications items, including access to the Internet, use of Internet services, infrastructure creation and upgrades. Moreover, this provision authorizes the export and re-export to Cuba of certain items for use by the news media and U.S. News bureaus engaged in gathering and disseminating news to the general public. Items for export under this provision are similarly limited to those designated as EAR99.
License Exception Consumer Communications Devices (CCD)
This provision amends the EARs to remove the donation requirement and update the list of eligible items for export and re-export. Accordingly, this license exception allows for the export and re-export of Consumer Communications Devices, including commodities such as computers, communications equipment and related items, personal computers, mobile cell phones, TVs, digital cameras and radios, that are generally widely are available for retail purchase and are commonly used to exchange information and facilitate into personal communications. Before the change in policy, these items were only authorized for export or re-export if they were donated, which, according to the Administration limited the incentive to send these items to the Cuban people. With the change in policy and the amended regulations, these items are now eligible for commercial sale to eligible recipients in Cuba.
Revisions to the OFAC regulations also allows the exportation and re-exportation of certain internet-based services, with conditions. The export and re-export of internet based services by persons subject to U.S. jurisdiction to Cuba must be "incident to the exchange of communications over the internet such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, blogging, web hosting services that is not intended for the promotion of tourism, and domain name registration services." In case the items are subject to the EARs, they may be exported pursuant to the License Exception Consumer Communication Devices (CCD).
New License Policy for Environmental Protection.
In what is a surprising new provision from the change in policy, the Administration has added a general policy of approval of licenses for the export and re-export to Cuba, items "necessary for the environmental protection of the U.S. and international air quality, waters, and coastlines (including items related to renewable energy and energy efficiency)." The Administration added, that because "environmental threats are not limited by national borders circumstances may warrant the export and re-export of certain items to Cuba to protect U.S. National interests or international interests." Based on this language, it appears that the Administration will allow applications for licenses for the export of equipment, material and other supplies for the purpose of conducting environmental protection transactions and activities in Cuba, so long as they are intended to protect the U.S. and international environmental interests. It remains to be seen whether such licenses will be granted simply to reduce, for example, pollutant air emissions from a particular facility in Cuba that may impact U.S. territory, or engaging U.S. entities to assist with the cleanup of any discharges or spills that may occur in Cuba, or even the export of renewable energy such as windmills solar panels and the like.
Financial Transactions
The change in policy promoted revisions to the regulations that now allow for greater flexibility in conducting financial transactions incident to authorized travel and export transactions with Cuba.
Credit and Debit Cards, Per Diem and the Importation of Certain Goods and Services
The amendments to the OFAC regulations now allow persons subject to U.S. jurisdiction traveling to Cuba under a general or specific license to use U.S. credit and debit cards in Cuba for travel-related and other transactions consistent with their license requirements. The amendments permit U.S. financial institutions to enroll merchants to allow the processing of such transactions. This may take some time to implement in practice but it is expected to make it easier for authorized U.S. travelers to Cuba to purchase goods and services from private businesses and local entrepreneurs.
Another area of significant change is the elimination of the per diem requirement for Americans traveling to Cuba under license. Prior to this change, authorized travelers to Cuba had to abide by the U.S. Department of State per diem spending requirements while in Cuba. Moreover, the change allows authorized travelers to import into the U.S. no more than $400 worth of goods from Cuba (of which not more than $100 could be spent on alcohol or tobacco products).
Certain Micro-financing, Business and Commercial Import Activities
OFAC also amended the rules to authorize certain micro-financing transactions and entrepreneurial and business training to private businesses and agricultural operations by independent Cuban entrepreneurs. Also permitted are all transactions, including payments necessary for the import into the U.S. of certain good and services that are produced by independent Cuban entrepreneurs. The type of imports of certain goods and services under this provision have not yet been published by the Administration.
Regulatory Definition of "Cash in Advance" and Financing of Exports
Pursuant to statutory law, authorized exports to Cuba must be subject to the terms of "cash in advance." The previous regulation defined this term to mean "cash before shipment" of the items for export. This definition imposed a rigid requirement that had the impact of limiting the opportunities for export by authorized U.S. persons. OFAC has amended the definition of cash in advance to mean "payment before transfer of title to, and control of, the exported items to the Cuban purchaser." In addition, the regulations now permit the financing of the purchase of authorized U.S. goods by a "banking institution located in a third country provided the banking institution is not a designated national, a U.S. citizen, a U.S. permanent resident alien, or an entity organized under the laws of the United States or any jurisdiction within the United States." This provision also allows the financing to "be confirmed or advised" by a U.S. bank. It is expected that these changes will lead to greater flexibility in the export of authorized goods and services from the U.S. to Cuba.
Mail and Telecommunications-related Transactions
OFAC's amendments now allows all transactions, including payments, incident to the receipt or transmission of mail between the United States and Cuba by U.S. entities. Also allowed are all transactions incident to the provision of telecommunications services that are related to the receipt of telecommunications concerning Cuba. This includes entering into and performance under roaming service agreements with TELECOM providers in Cuba (Empresa de Telecomunicaciones de Cuba S.A or "ETECSA") by U.S. entities. However, this change in the regulation does not permit any of these transactions if they are aimed to benefit any particular individual in Cuba.
The regulation does permit, however, persons subject to U.S. jurisdiction to enter into and make payments under contracts with TELECOM service providers, or particular individuals in Cuba, for TELECOM services to particular persons in Cuba. Thus, this amendment allows, for example, family members in the U.S. to pay for cell phone or calling card services for relatives in Cuba so long as those individuals are not prohibited officials of the Cuban government or communist party.
Conclusions
There is no doubt that published amendments to the OFAC and Dept. of Commerce regulations significantly expand the capability of greater travel to and trade with Cuba. Over the weeks and months ahead the challenge will be to gain a better understanding of what is actually allowed in practice. Another unknown at this time is how Cuban officials will react to the amendments and whether and to what extent they will implement modifications to their laws so nascent Cuban entrepreneurs are able to take full advantage of new opportunities. It is also expected that some groups, dissatisfied with the implementation of this new policy, may seek to challenge some or all of the amendments in U.S. Federal Courts. However, with many polls since the Administration's announcement showing that a majority of American favor a change in policy with Cuba, and the amendment's focus on greater contact and interaction with the Cuban people, it will not be long before we know whether the proverbial animals have left the barn.
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