President Obama has announced that he is "charting a new course on Cuba," including re-establishing diplomatic relations and easing the five-decade-long economic embargo. The President also directed the Secretary of State to review Cuba's designation as a "state sponsor of terrorism," a designation first imposed in 1982. Although the changes announced on December 17, 2014, will have a near-term impact on certain US business dealings with Cuba, most businesses will need to await additional easing of the sanctions. Furthermore, none of the announced changes is effective until new regulations are promulgated by the US Office of Foreign Assets Control (OFAC) and the US Department of Commerce.
Impact on Travel-Related Businesses
Travel-related businesses can expect some increase in US travel to Cuba.
- The current restrictions on US travel to Cuba will be eased slightly, though tourist travel and most business travel will remain prohibited. General licenses will be made available for all authorized travelers in the following existing categories: (i) family visits; (ii) official business of the US government, foreign governments, and certain intergovernmental organizations; (iii) journalistic activity; (iv) professional research and professional meetings; (v) educational activities; (vi) religious activities; (vii) public performances, clinics, workshops, athletic and other competitions, and exhibitions; (viii) support for the Cuban people; (ix) humanitarian projects; (x) activities of private foundations or research or educational institutes; (xi) exportation, importation, or transmission of information or information materials; and (xii) certain export transactions that may be considered for authorization under existing regulations and guidelines.
- Authorized US travelers to Cuba will be able to bring back up to $400 worth of Cuban goods, of which no more than $100 worth can consist of tobacco products and alcohol combined.
- Also, US persons will be permitted to participate in third-country professional meetings and conferences related to Cuba.
Impact on Communications Businesses
Communications businesses, which have been able to do limited business with Cuba under the embargo, will have new opportunities.
- The commercial export of certain consumer communications devices, related software, applications, hardware, and services, as well as items for establishing and updating communications-related systems, will be authorized.
- Telecommunications providers will be allowed to establish the necessary mechanisms, including infrastructure, in Cuba to provide commercial telecommunications and Internet services.
Impact on Agricultural and Medical Businesses
These businesses have been able to deal with Cuba under exceptions to the embargo, and the President intends to facilitate such businesses and slightly expand the exceptions.
- The definition of the term "cash in advance" will be revised to specify that it means "cash before transfer of title," in order to expedite exports of certain agricultural goods, medicines, and medical products already permitted under current law, as well as financing for newly authorized exports. The previous "cash in advance" requirement had posed difficulties for US businesses attempting to make lawful sales of agricultural and medical items to Cuba.
- In addition to the longstanding exception for sale of agricultural goods, the sale of agricultural equipment for small farmers will be permitted.
Impact on Construction Businesses
Residential construction businesses will have new opportunities in Cuba.
- The virtual ban on US exports to Cuba will be eased slightly. Items that will be authorized for export include certain building materials for private residential construction. More generally, exports of goods for use by private-sector Cuban entrepreneurs will be permitted.
Impact on Financial Services Businesses
The new policy will ease certain financial transactions between US and Cuban persons.
- US financial institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions.
- US credit and debit cards will be permitted for use by authorized travelers to Cuba.
- Regarding remittances to Cuba by US persons, remittance levels will be raised from $500 to $2,000 per quarter for general donative remittances to Cuban nationals (except to certain officials of the government or the Communist party). Moreover, donative remittances for humanitarian projects, support for the Cuban people, and support for the development of private businesses in Cuba will no longer require a specific license. Remittance forwarders also will no longer need a specific license.
- US-owned or -controlled entities in third countries will be generally licensed to provide services to, and engage in financial transactions with, Cuban individuals in third countries.
- General licenses will unblock US bank accounts of Cuban nationals who relocate outside of Cuba.
Further Changes to Come?
Beyond the foregoing changes, there are many uncertainties. The 1996 Cuban Liberty and Democratic Solidarity (Libertad) Act (commonly known as the Helms-Burton Act) codified the embargo, making it impossible for any president to rescind the embargo without congressional approval. Although many members of Congress consider the embargo outdated and ineffective, key congressional leaders remain supportive of it.
The presidential politics of the next two years, as well as the Republican majorities in the Senate and the House beginning in January, will make it less likely that the embargo will be eliminated soon. The politics of the issue, however, could be reshaped if the business community makes lifting the embargo a priority. The Helms-Burton Act itself, which targets non-US persons that do business with Cuba, is not likely to be relegated to history any time soon, though President Obama's new policy suggests that the Helms-Burton Act will not be aggressively enforced during his remaining years in office.
In the absence of a congressional consensus, there is much that the President can still do. Using his regulatory authority, the President could direct OFAC, which is the Treasury Department agency that administers the embargo, to issue General Licenses to expand US business engagement with Cuba. General Licenses would leave the body of embargo regulations in place but would provide exceptions from those regulatory restrictions, just as has been the case for certain telecommunications transactions for some years. Over the next two years, it is quite possible that new General Licenses will be issued, and US businesses with an interest in initiating or expanding business with Cuba should consider pressing the administration to issue pertinent General Licenses.
Just as General Licenses can be issued under presidential authority, without congressional approval, so can they be rescinded. The largest question shadowing the President's "new course on Cuba" is whether that course will be reversed by whichever president takes office in January 2017. The answer may well depend on whether the changes made over the next two years, the US business engagements that thereby occur, and the impacts on the Cuban people are viewed as both politically and economically irreversible.
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2014. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.