Obama Administration continues easing of Cuba sanctions

Obama Administration continues easing of Cuba sanctions
Steptoe & Johnson LLP
Cuba, USA October 16 2015

On September 18, 2015, the US Department of Treasury, Office of Foreign
Assets Control (OFAC) and the US Department of Commerce, Bureau of
Industry and Security (BIS) respectively amended the Cuban Assets
Control Regulations (CACR) and the Export Administration Regulations
(EAR) to further ease the US embargo against Cuba and authorize certain
business activities with Cuba in targeted sectors. Following
coordinated OFAC and BIS action in January 2015, on which we previously
advised, this is the second major round of amendments in the past year
to the CACR and Cuba-specific provisions of the EAR. According to a
Treasury Department fact sheet, the Obama Administration is "further
delivering on the new direction toward US relations with Cuba that
President Obama laid out last December."

The amendments, which took effect on September 21, 2015, are intended to
further reduce the need for specific licensing for activities in certain
sectors that the Administration has targeted for sanctions relief,
including telecommunications, internet-based services,
transportation/travel, and others noted below. The amendments also will
lift many remaining restrictions on remittances, administration of
trusts and estates, and other family-related areas. The general
licenses for certain basic business operations in Cuba are particularly
noteworthy, and will for the first time since imposition of the embargo
authorize persons subject to US jurisdiction in certain targeted
industries to establish a physical business presence in Cuba. Even with
these developments, however, the Cuban sanctions regime remains highly
complex and onerous, and cannot be fully lifted without action by Congress.

CACR Amendments

Background

The CACR, 15 C.F.R. Part 515, generally restricts persons "subject to US
jurisdiction"—a term that includes US citizens, US lawful permanent
residents, US-incorporated entities, and foreign entities owned or
controlled by the foregoing—from dealing in the property of Cuban
nationals and engaging in trade and numerous other transactions with
Cuba. 31 C.F.R. § 515.329. As noted above, in January 2015 OFAC
amended the CACR to authorize certain activities related to
telecommunications, travel, support for the Cuban people, financing of
certain exports, and remittances. This most recent liberalization takes
the earlier round of relaxations even further.

Establishing a Business Presence in Cuba

US companies and entities in certain sectors will now be generally
licensed by OFAC to conduct "all transactions necessary to establish and
maintain a physical presence in Cuba," subject to certain limitations.
31 C.F.R. § 515.573. Sectors covered by this new provision include news
bureaus, providers of telecommunications or internet-based services,
mail carriers, certain cargo transportation and travel providers, and
exporters of certain goods (e.g. agricultural products and private
construction products) with valid export authorization. Such companies
will be authorized to lease space (e.g. offices, retail stores or
warehouses), secure related goods and services, open bank accounts, and
employ both Cuban nationals and US persons in Cuba. Other sectors not
specifically enumerated, including insurance and reinsurance, are not
covered under this general license, and such US companies would require
a specific license to conduct transactions necessary to establish and
maintain a physical presence in Cuba. As discussed in more detail
below, notwithstanding this general license, export or reexport to Cuba
of certain items subject to the EAR may require specific authorization
from BIS.

Providers of telecommunications and internet-based services, and
services related to exports of certain consumer communication devices,
will additionally be authorized to license and market their services and
to engage in "all transactions necessary to establish and maintain a
business presence in Cuba, including through subsidiaries, branches,
offices, joint ventures, franchises, and agency or other business
relationships with any Cuban national, and to enter into all necessary
agreements or arrangements with such entity or individual," for the
purpose of engaging in the authorized activities. 31 C.F.R. §§ 515.578,
542. Because many Cuban industries still require local partnerships,
this new general license will greatly simplify the regulatory burden of
establishing – and changing the terms of – those partnerships and other
business relationships in the covered sectors.

Legal Services

CACR amendments include a general license for "all transactions,
including payments" for certain legal services from Cuba or from a Cuban
national that involve legal advice and counseling on the requirements
of, and compliance with, Cuban law in relation to otherwise authorized
transactions. This provision will facilitate market entry by allowing
US companies easier access to legal services related to Cuban laws and
business practices. In addition, OFAC has expanded the existing general
license authorizing US persons to provide certain legal services to
Cuba, so specific licenses will no longer be required to receive payment
for such services, subject to certain restrictions and reporting
requirements. 31 C.F.R. §§ 515.512, 588.

Remittances

In a move with potentially significant implications for Cuba's economy
and the purchasing power of Cuban people, OFAC has removed entirely the
limit on the amount of donative remittances that can be sent to Cuba,
previously $2,000 per quarter, along with the limit on the amount of
such funds individuals can carry to Cuba. 31 C.F.R. §§ 515.570(b),
560(c)(4)(i), 560(d)(2). Friends and family of Cuban persons should
also take note that they can now apply to OFAC to unblock and return
remittances that were previously blocked for exceeding the limits then
in place. Similarly, certain remittances from blocked sources are
authorized, including funds deposited in a blocked account in a US bank
held in the name of or for the benefit of a Cuban national as a result
of certain payments from a life insurance policy or annuity contract,
provided that the remittances are not made for emigration-related
purposes. 31 C.F.R. § 515.570(f). Restrictions remain on remittances
to prohibited Cuban government officials and prohibited members of the
Cuban Communist Party.

Travel

Building on the January 2015 authorization to provide carrier services
for travelers, the revised regulations authorize US persons to provide
carrier service by vessel. 31 C.F.R. § 515.572. In addition, they are
now also authorized to provide lodging services onboard vessels to
authorized travelers while the vessel is traveling to, from, or within
Cuba, including when docked at a port in Cuba. Furthermore, OFAC has
authorized close relatives of authorized travelers to visit or accompany
authorized travelers for a broader set of activities than those that
were authorized in January, now including journalistic activity,
professional research, religious activities, and others, though OFAC has
not provided guidance on the permissible activities of family members
while the authorized travelers are engaged in a full-time schedule of
authorized activities. Also noteworthy is that authorized travelers
will be able to open and close bank accounts in Cuba to support
authorized transactions. 31 C.F.R. §§ 515.560, 561.

Other Changes

By adding a new provision authorizing, with limited exceptions, any
transaction "ordinarily incident to a licensed transaction and necessary
to give effect thereto," OFAC guidance states that it is merely
"clarifying" its policy. While many have viewed such a provision to be
"read-in" to the CACR, this is nonetheless a welcome confirmation of
OFAC's approach to incidental activity. This provision would cover, for
instance, most payment transactions necessary to carry out authorized
activity.

Other particularly noteworthy developments – though far from an
exhaustive list of the numerous additional changes made by these new
rules – are as follows:

- An expanded authorization for persons subject to US jurisdiction to
provide goods and services to Cuban national individuals located in a
third country, and authorization for US banking institutions to open,
maintain, and close bank accounts for such Cuban nationals
- A new case-by-case licensing policy for exports and reexports to Cuba
of items for the safety of civil aviation and commercial passenger aircraft
- An expanded general license for educational activities allowing the
provision of internet-based courses in Cuba (but only at the
undergraduate level or below), academic exchanges, joint non-commercial
academic research, and sponsorship of conferences in Cuba "on global
issues involving Cuba"
- A significantly expanded general license for administering estates and
trusts in which a Cuban national has an interest
- A new general license for importing into the United States mobile
applications developed in Cuba and for hiring Cuban developers
EAR Amendments

BIS amended the EAR to expand the scope of certain license exceptions
for Cuba and create a new licensing policy to further promote private
sector economic activity in Cuba, facilitate travel to Cuba for
authorized purposes, and help ensure safety in civil aviation and safe
operation of commercial passenger aircraft.

Background

The EAR at 15 C.F.R. § 746.2 have long imposed a licensing requirement
for the export and reexport to Cuba of all items "subject to" the EAR, a
term that includes US-origin items, items located in the United States,
foreign-made items that incorporate more than a de minimis level of US
content, and certain foreign-made items that are the "direct product" of
US-origin technology. As noted above, in January 2015 BIS created new
license exception Support for the Cuban People (SCP) to authorize
certain exports in support of Cuba's private sector. At the same time,
BIS expanded license exception Consumer Communications Devices (CCD) to
authorize exports to Cuba of certain communications-related items, such
as computers, mobile phones, televisions, radios, and digital cameras.

Expansion of License Exception Support for the Cuban People (SCP)

License Exception SCP authorizes certain exports and reexports to Cuba
intended for specified purposes, including improving Cuban people's
living conditions, supporting their independent economic activity, and
improving the free flow of information to, from, and among the Cuban
people. § 740.21(a). Please see our previous advisory for details.

The new rule expands the scope of License Exception SCP as follows:

- The rule amends Sections 740.21(b) and (d)(1) to clarify that leases
and loans, and not just commercial sale or donation, are covered within
the scope of License Exception SCP for items intended for improving
living conditions, supporting independent economic activity in Cuba, and
improving the free flow of information to, from, and within Cuba.
The rule expands Section 740(c)(2) – which previously authorized
temporary exports to Cuba of items by persons traveling from the United
States for their use in scientific, archeological, cultural, ecological,
educational, historic preservation, or sporting activities, or for their
use in the traveler's professional research – to include certain
temporary reexports to Cuba, so that travelers leaving not only from the
United States but also from a foreign country are permitted to carry
with them authorized items to Cuba for eligible end-uses. To qualify
under this portion of the License Exception, items must remain under the
traveler's "effective control" while in Cuba (i.e., travelers need to
either retain physical possession of the item, or secure the item in a
safe environment such as a hotel safe, bonded warehouse, or locked or
guarded exhibition facility).
- The rule adds Section 740.21(d)(4) to permit the export or reexport to
Cuba of commodities or software that will be used by individuals or
private sector entities in Cuba to develop software to improve the free
flow of information, improve living conditions, or support independent
economic activity in Cuba. This provision of SCP does not apply to
certain exports to Cuban Government-related individuals and entities.
- The rule adds Section 740.21(e)(1) to authorize the export and
reexport to Cuba for certain items for use by US citizens and permanent
residents and companies organized in the United States to establish,
maintain, or operate a physical presence in Cuba in order to engage in
authorized activities. Resulting payments connected with such presence
(e.g., lease payments and transactions necessary to secure related goods
and services) are permitted to the extent authorized by Section 515.573
of the CACR, which is described in more detail above. Eligible
end-users including, among others, (i) providers of mail, parcel and
cargo delivery services; (ii) entities involved in certain educational
activities; (iii) religious organizations; (iv) providers of travel and
carrier services; (v) persons involved in the provision to Cuba of
information and informational materials; (vi) and persons authorized by
BIS to export items to Cuba pursuant to a specific license or certain
license exceptions, including, among others, License Exception
Agricultural Commodities (AGR) and SCP.
- In addition, Section 740.21(e)(2) provides a similar authorization for
exports in connection with the establishment, maintenance, and operation
of a physical presence in Cuba to end users authorized by OFAC to
provide telecommunications services, to establish telecommunications
facilities, or to provide internet-based services in Cuba. This
provision is broader than that found in 740.21(e)(1) in that it covers
exports to not only US persons who have established a physical presence
in Cuba, but extends to their authorized "subsidiaries, branches,
offices, joint ventures, franchises, and agency or other business
relationships with any entity or individuals who is a national of Cuba."
Together with Section 740.21(e)(1), this amendment significantly
reduces the licensing burden on companies falling within certain
specified industries that are establishing physical operations in Cuba.
- The rule adds Section 740.21(f) to authorize the temporary (not more
than one year) export and reexport to Cuba of certain items such as
commodities, software and technology used for installation, service or
repair of items subject to the EAR that have been exported or reexported
to Cuba under a license or license exception.
Items are generally eligible for export or reexport to Cuba under
License Exception SCP only if they are EAR99 or controlled on CCL only
for anti-terrorism reasons. BIS clarified that Cuban government import
agencies and other government owned, operated or controlled companies
may act as consignees for eligible items to the private sector. BIS
Cuba FAQs n. 9 (Sep. 21, 2015). Also, certain eligible items exported
to improve telecommunications infrastructure pursuant to Section
740.21(d)(1) may be sold to Cuban government owned, operated, or
controlled companies.

Other Changes

Additionally, the BIS rule:
- Expands the scope of License Exception Consumer Communication Devices
(CCD), 740.19(a) of the EAR, to correct an inadvertent limitation by
allowing use of CCD for qualifying leased or loaned items, in addition
to items commercially sold or donated.
- Revises the EAR to make various aspects of License Exception Aircraft,
Vessels and Spacecraft (AVS) available for Cuba. Among other things,
this change allows certain vessels to travel on temporary sojourn to
Cuba, including cargo, passenger, and recreational vessels that are used
in connection with travel authorized by OFAC, and to remain in Cuba for
up to 14 days. As discussed above, OFAC has issued a general license
that authorizes US persons to provide carrier services by vessel to
authorized travelers. 31 C.F.R. § 515.572.
- Amends the licensing policy for Cuba in Section 746.2 of the EAR to
add a policy of case-by-case review for license applications for exports
and reexports of items to ensure safety in civil aviation and safe
operation of commercial passenger aircraft.
- Specifies that a license is required for the release of technology or
source code on the CCL to Cuban nationals in the United States or a
third country, but not for the deemed export or deemed reexport of
technology or source code designated as EAR99.

Conclusion

With this latest set of regulatory amendments, the Obama Administration
arguably is pushing the limits of its authority to roll back the
embargo. A full relaxation of Cuba sanctions would require action by
Congress, which, as noted in our International Compliance Blog, the
President urged Congress to take when he announced the opening of the US
embassy in Havana in July. These new OFAC and BIS measures appear
designed to support the new US policy to engage and empower the Cuban
people. These measures set the groundwork for future business
opportunities in Cuba by improving telecommunications services,
facilitating travel, mail and cargo delivery, bolstering the purchasing
power of Cuban people, making it easier to do business with the Cuban
private sector, and allowing US companies to obtain legal advice in Cuba
to support their business operations. For companies operating in the
industries that OFAC and BIS are targeting with these new and expanded
general licenses, these regulatory changes will have a significant
impact as these companies establish physical business presence in Cuba
and engage in newly authorized transactions. Nearly all activities in
other sectors that have not been targeted for relief will continue to
require a license as long as the statutory embargo remains in place.

Source: Obama Administration continues easing of Cuba sanctions -
Lexology -
http://www.lexology.com/library/detail.aspx?g=2fc86171-3d58-49ca-9cff-fa8ef2117b1f