Alert
Alert
12.18.14
President Obama made an unexpected announcement this week signaling a “new course” for Cuba after more than fifty years of comprehensive U.S. sanctions. Reestablishing diplomatic relations is a major change. In terms of business impact, however, the announcement signaled small openings and incremental extensions of existing licensing policy. Existing legislation mandates the embargo and codifies the Cuban Assets Control Regulations at 31 C.F.R. Part 515 (CACR), limiting what the President can accomplish without support from Congress. Thus, major changes to U.S. sanctions and export control policy will not happen in the short term. However, the President does have limited licensing discretion and the signaled changes may open business opportunities for certain exports markets including telecommunications, building materials, agricultural equipment, and certain goods for use by Cuban entrepreneurs. Simplification of existing travel authorizations as well as authorization for certain banking and credit card services are also planned. None of these anticipated changes will be effective until regulations are issued by the relevant U.S. agencies.
Background on U.S. Cuba Embargo
The CACR, administered by the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) implements a comprehensive trade, investment, financial and travel embargo on Cuba prohibiting U.S. persons, including owned or controlled foreign subsidiaries of U.S. companies, from engaging in transactions in which Cuba or a Cuban national has a property interest. First implemented in July 1963 under the authority of the Trading with the Enemy Act (TWEA), the sanctions have been strengthened by the Cuba Democracy Act of 1992, which, among other things, prohibited the issuance of licenses for foreign U.S.-owned companies to trade with Cuba. The Cuban Liberty and Democratic Solidarity Act of 1996 (Helms/Burton) codified the CACR, requiring the President to instruct the Treasury and Justice Departments to enforce fully the CACR and prescribing conditions for the termination of the embargo including a determination that a transition government in Cuba is in power.
However, despite these statutory provisions, OFAC has licensing authority under the CACR to permit certain transactions within the scope of the sanctions and the Commerce Department’s Bureau of Industry and Security (BIS) has licensing authority for exports and re-exports of U.S. origin goods and technology to Cuba. This allows some limited degree of executive discretion which both OFAC and BIS have used to issue licenses and to establish license exceptions for certain travel transactions, temporary sojourns of aircraft, agricultural exports and telecommunications services for Cuba, among other activities.
Announced Changes in U.S. Policy
On December 17, 2014, President Obama announced his intent to make licensing changes for Cuba which include:
Next Steps and Challenges
All of the proposed changes must be implemented and are not yet in effect. It will be important to review the specific language of the planned general licenses and regulatory updates. OFAC has announced that it intends to issue regulatory amendments to the CACR in the coming weeks, and BIS will implement changes to the Export Administration Regulations. Among these changes, President Obama has directed the State Department to review Cuba’s status as a “state sponsor of terrorism” over the next six months, and removal from that list could open the path for potential relaxation of export control restrictions.
Congress is divided on Cuba sanctions reform. A number of legislators, including the chairs and ranking members of key committees, are opposed to the President’s announcement. As discussed above, broader relaxation of the Cuba embargo will require congressional action. There are strong constituencies that will fight reform efforts, especially as the United States heads into a Presidential election cycle.
Download: A New U.S. Course for Cuba Relations: What Does It Mean for Business?