OFAC and BIS Changes to Cuba Sanctions Further Ease Trade and Travel Restrictions

by Cozen O'Connor

Cozen O'Connor

On October 14, 2016, the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Commerce Department’s Bureau of Industry and Security (BIS) published another round of amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) relating to U.S.-Cuba trade designed to further enhance engagement and commerce between the two countries.

The latest amendments, which became effective upon publication, further ease sanctions in the areas of trade and commerce, civil aviation, health care, humanitarian assistance, and travel-related transactions. These regulatory changes are some of the most significant revisions to the U.S.-Cuba regulatory landscape since the United States began easing economic sanctions with the ultimate aim to normalize relations between the two countries. The complete OFAC rulemaking can be found here, and BIS changes to the EAR can be found here. Key provisions of the amendments are discussed below.

Contingent Contracts

Perhaps most significantly, OFAC has added a general license authorizing persons subject to U.S. jurisdiction, including U.S. businesses, to negotiate and enter into contingent contracts for transactions currently prohibited by the CACR. Transactions ordinarily incident to negotiating and entering into such contracts are also authorized. The performance of such contracts must be made expressly contingent on prior authorization by OFAC (e.g., by specific or general license) or on authorization no longer being required (e.g., by the lifting of sanctions). If the transaction would require another federal agency to license the transaction, then the contract must also be made contingent upon receiving the appropriate license from that agency.

The general license defines “contingent contracts” to include executory contracts, executory pro forma invoices, agreements in principle, executory offers capable of acceptance such as bids or proposals in response to public tenders, binding memoranda of understanding, and other similar agreements.

This change greatly expands opportunities for U.S. persons to explore and develop business relationships in Cuba, since previous authorizations regarding contract negotiations and execution were limited to specific business sectors or licensed transactions. Further, the change is likely to increase pressure on the next administration and Congress to ease restrictions further so that parties entering into these contracts can realize their economic benefits.

Entry of Vessels Trading with Cuba

OFAC eased the rule that prohibits a vessel that calls Cuba from entering a U.S. port within 180 days of its departure from Cuba. However, because other prohibitions were not addressed, the operational impact to ocean carriers and vessel operators remains unclear.

Pursuant to the amendment, unless a vessel is engaging in or has engaged in transactions that would otherwise prohibit entry, the 180-day prohibition on entering a U.S. port will not apply to “a foreign vessel that has engaged in the exportation to Cuba from a third country only of items that, were they subject to the Export Administration Regulations, would be designated as EAR99 or would be controlled on the Commerce Control List only for anti-terrorism reasons.”1 Thus, a vessel that has previously discharged only EAR99-type goods in Cuba will be able to call at a U.S. port without having to wait 180 days.

Unfortunately, OFAC did not address the prohibition on vessels entering a U.S. port with Cuban interest cargo onboard or the prohibition on importing goods that have been transported through Cuba. While the amendment may allow vessel operators to somewhat more efficiently deploy their vessels and avoid the 180-day waiting period for some vessels that called Cuba, they must nonetheless comply with all other restrictions in order to take advantage of the amended rule. Unless otherwise authorized by OFAC, it is still prohibited for a vessel carrying goods to or from Cuba or carrying goods in which a Cuban national has an interest to enter a U.S. port with such goods on board. For example, with some limited exceptions for Cuban imports to the United States (e.g., for certain goods produced by independent Cuban entrepreneurs), a vessel calling Cuba en route to the United States would not be able to load cargo in Cuba and have that Cuban-interest cargo onboard when the vessel enters a U.S. port. Vessel operators wishing to call Cuba and the U.S. on the same voyage may find it operationally difficult, if not impossible, to call Cuba and then sail directly to a U.S. port.

Imports of Previously Exported Goods

The CACR now allow the importation into the United States or a third country of items that were previously exported or re-exported to Cuba pursuant to a BIS or OFAC authorization, provided that the items are being imported in order to provide service or repair before being re-exported to Cuba or the items are being returned permanently to the United States or the third country. While the authorization permits importation for service and repair, the re-export to Cuba of the serviced or repaired item must be separately authorized by OFAC and/or BIS.

Transit of Aircraft Cargo and Aviation Safety

BIS has made conforming changes to the Aircraft, Vessels and Spacecraft License Exception (AVS License Exception) to allow aircraft transporting authorized cargo from the United States to Cuba to carry other U.S.-origin cargo and then fly to third countries with the cargo that was loaded in the United States. Previously, this authorization only applied to vessels. This license exception is now available to both aircraft and vessels as long as the cargo (1) departs with the vessel or aircraft at the end of its temporary sojourn, (2) is not removed from the vessel or aircraft for use in Cuba; (3) is not transferred to another vessel or aircraft while in Cuba, and (4) is properly authorized for export to the country of ultimate destination.

In addition, OFAC is adding a new authorization that allows persons subject to U.S. jurisdiction to provide civil aviation safety-related services to Cuba and Cuban nationals, wherever located, to promote the safe operation of commercial aircraft.

Cuban Infrastructure Development

A new OFAC general license authorizes U.S. persons to provide Cuba or Cuban nationals with services related to developing, repairing, maintaining, and enhancing Cuban infrastructure, as long as the provision of such services is consistent with BIS licensing. As described in the amendment, “infrastructure” includes “systems and assets used to provide the Cuban people with goods and services produced by the public transportation, water management, waste management, non-nuclear electricity generation, and electricity distribution sectors, as well as hospitals, public housing, and primary and secondary schools.”

Health and Humanitarian Initiatives

OFAC issued three new health-related general licenses. The first allows persons subject to U.S. jurisdiction to engage in joint commercial and non-commercial medical research projects with Cuban nationals. The second allows transactions incident to obtaining U.S. Food and Drug Administration (FDA) approval of Cuban-origin pharmaceuticals. The third allows for the importation into the United States, and the marketing, sale, or other distribution in the United States, of FDA-approved Cuban-origin pharmaceuticals. Persons subject to U.S. jurisdiction engaging in these health-related activities are also authorized to open and maintain bank accounts in Cuba for use in conducting the authorized business.

In addition, OFAC expanded the authorization for grants, scholarships, and awards to Cuba or Cuban nationals to include grants, scholarships, and awards related to scientific research and religious activities.

Travel-Related Transactions

With respect to individual travel to Cuba, OFAC removed the monetary value limitations on what authorized travelers may import from Cuba into the United States as accompanied baggage, including the value limitation on alcohol and tobacco products. In addition, U.S. persons who acquire Cuban-origin merchandise for personal consumption in third countries are no longer required to consume such merchandise abroad, but may now import these goods into the United States as accompanied baggage without value limitations. OFAC also removed the prohibition on foreign travelers importing Cuban-origin alcohol and tobacco products into the United States as accompanied baggage. In all cases, the Cuban origin goods must be imported for personal use, and normal limits on duty and tax exemptions will apply.

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The continued easing of U.S. sanctions relating to Cuba is creating significant opportunities for trade. However, it is important to understand that outside of the revisions specified in the previous and present amendments, no other sanctions with Cuba have been lifted. As such, persons subject to U.S. jurisdiction remain generally prohibited from doing business with Cuba unless licensed by OFAC and/or BIS. Moreover, due to the incremental nature of these changes, it can be difficult to determine whether a particular activity is permissible in its entirety or if it requires further authorization by OFAC or BIS. We would encourage anyone interested in transacting business with Cuba or a Cuban national to seek the advice of legal counsel.

1 Items that fall under the jurisdiction of the U.S. Department of Commerce and that are not listed on the Commerce Control List are designated as EAR99. Most low-technology consumer goods are designated EAR99. Items placed on the Commerce Control List only for anti-terrorism reasons are included in the exception, as Cuba is no longer designated as a State Sponsor of Terrorism and, but for the anti-terrorism designation, such items would likely be EAR99.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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