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Obama Administration Eases Some of the Restrictions on Cuba, But Broad and Long-Standing Economic Sanctions Remain in Place

The Obama Administration has announced the easing of some of the restrictions that comprise the decades-long U.S. economic embargo on Cuba. The new measures are targeted at promoting cultural exchanges with Cuba by permitting increased contacts between Cuban-Americans and their Cuban relatives, expanding telecommunications services, and increasing humanitarian donations. The broader Cuba trade and investment restrictions remain in place, however.

Summary of New Measures

The new measures were communicated through a memorandum to the Secretaries of State, Treasury and Commerce, directing them to take certain actions towards the “promotion of democracy and human rights in Cuba.” (This memorandum is linked here.) The agencies will implement the President’s directives through the issuance of general licenses or regulatory amendments. The precise scope of these measures will become clearer once the agencies responsible for implementation take such steps. The effective date of the measures will also be made clear through the implementation process.

The measures focus on four areas: travel to visit family in Cuba; remittances to family in Cuba; telecommunications; and humanitarian donations.

Travel:

• The first measure is a lifting of the restrictions on U.S. persons and permanent residents’ travel to visit family in Cuba. These measures follow closely on the heels of an easing of restrictions on travel that were mandated by the Omnibus Appropriations Act of 2009 (the “Act”). Specifically, Congress directed that none of the funds available under that Act could be used to administer or enforce regulatory restrictions on family travel that were put into effect on June 16, 2004 by the Bush Administration. The Treasury Department’s Office of Foreign Assets Control (“OFAC”) implemented that provision of the Act on March 11, 2009 by issuing a general license permitting one annual visit to immediate family and close relatives (defined to include family members that are no more than three generations removed), for a period not to exceed two weeks.
• The new measure will expand this general license for family travel to permit unlimited travel for unlimited periods to visit family members in Cuba. As with the current general license, the expanded authority will continue to apply to visits to persons within three degrees of family relationship, and will also permit travel by persons that share a common dwelling with the family that is authorized to travel to Cuba.

Remittances:

• Remittances by U.S. citizens and permanent residents to Cuban family members have been significantly restricted; the new measures expand the range of family remittances (including persons within three degrees of family relationship) that may be authorized, including removing limits on amount and frequency, and authorizing U.S. banks to forward such authorized remittances. This measure will not permit remittances to certain Cuban Government officials or members of the Cuban Communist Party. (Presumably, a list of such individuals will be made available, although this is not clear.)
• Telecommunications: U.S. telecommunications services providers have been able to engage in limited service between the United States and Cuba on existing cable and satellite facilities. The new measures expand these opportunities significantly, including: permitting U.S. service providers to offer domestic Cuban service; authorizing the construction and operation of new telecommunications facilities between Cuba and the United States; authorizing U.S.-Cuba roaming service agreements; authorizing the export of communications equipment and devices to Cuba; and permitting U.S. persons to pay for telecommunications service for Cuban individuals (except certain Communist Party members and Cuban Government officials.) Most of these activities will require specific licenses.
• Humanitarian Donations: The export of goods to Cuba, including humanitarian donations, has been limited and in almost all cases requires specific licenses. The new measures will permit the export of a greater range of items without a specific license, to a larger group of eligible donees. (As with the other measures, Cuban Government officials and Cuban Communist Party members are excluded.)

Implications and Prospects for Greater Easing of Restrictions

The new measures represent a clear departure from the Bush Administration’s Cuba policies, and are perhaps the most substantial easing of the sanctions that has occurred over the 40-plus years that these restrictions have been in place. As with past efforts to ease restrictions, the focus of the new measures is on promoting cultural and humanitarian activity, rather than commercial activity. The Obama Administration has signaled that it may take further steps to ease the embargo, although the timing and scope of such steps will depend in part on the response of the Cuban Government to these measures. Congress will also be a key player in any further easing of the sanctions; indeed, most of the remaining restrictions can only be lifted through an act of Congress. U.S. companies must thus be mindful of these existing restrictions as they contemplate the possibility of future opportunities in Cuba.

Remaining Restrictions on Cuba

The United States has maintained a comprehensive economic embargo of Cuba since 1963 pursuant to the Cuban Asset Control Regulations (“CACRs”), which are administered by OFAC with policy direction from the U.S. State Department. The CACRs prohibit almost all transactions between the United States and Cuba or involving a U.S. person and Cuba. Without specific authorization, any “person subject to the jurisdiction of the United States” may not do business in Cuba or with Cuban nationals or businesses. “Persons subject to the jurisdiction of the United States” includes U.S. residents, U.S. corporations and their U.S. or foreign subsidiaries, and any person actually within the United States.

The range of transactions that are prohibited is extensive:

• Any unlicensed financial transactions with Cuba and Cuban nationals are prohibited, including investments in Cuba, and the provision of financial services (such as banking and insurance) that relate to Cuban trade.
• Travel transactions outside the scope of the new measures to be implemented by the Obama Administration will remain prohibited, furthering a policy of not supporting Cuba’s tourism industry, which is one of its largest sources of foreign capital.
• The restrictions on trade include prohibitions on dealing in Cuban-origin goods, and the prohibition on the export and re-export of U.S.-origin products, technology, or services to Cuba. U.S. persons also may not export non-U.S.-origin items to Cuba from foreign locations.
• The regulations also include “blocking,” or asset freezing measures: U.S. persons are required to block any property in which Cuba or a Cuban national has an interest if such property comes under a U.S. person’s possession or control. In addition, blocked assets must be reported to OFAC. Cuban property interests are broadly defined to include virtually any property interest, including goods, financial instruments, intellectual property rights, leaseholds, “and any other property, real, personal or mixed, tangible or intangible, or interest or interests therein, present, future or contingent.”
• These restrictions can have effects beyond direct trade with Cuba. U.S. companies must also be cautious that their dealings with non-U.S. companies do not have the effect of facilitating a non-U.S. company’s transactions in Cuba, as such activities are also typically prohibited.

Other U.S. Economic Sanctions Programs

U.S. companies that operate internationally must also be mindful of other sanctions programs, which are also administered by OFAC. The Cuban economic sanctions program is one of three comprehensive sanctions programs directed at countries, along with Iran and Sudan. Transactions involving Burma, North Korea and Syria are subject to certain less comprehensive restrictions. OFAC also administers economic sanctions that restrict or prohibit business by U.S. persons with certain specific individuals and entities, wherever they may be located. These are: (i) Cuban nationals; (ii) “Specially Designated Nationals” of the Balkans, Belarus, Burma, Cuba, Cote D'Ivoire, Democratic Republic of the Congo, Iraq, Liberia, Sudan, Syria and Zimbabwe (these can include certain state-owned entities or individual governmental representatives or agents of those countries); (iii) certain “Specially Designated Narcotics Traffickers,” or significant Foreign Narcotics Traffickers; (iv) certain “Specially Designated Terrorists,” “Specially Designated Global Terrorists” or “Foreign Terrorist Organizations;” and (v) designated persons or entities involved in the proliferation of weapons of mass destruction.

Companies that violate U.S. economic sanctions laws are subject to potentially significant civil and criminal penalties. The maximum civil penalties for most economic sanctions programs was recently increased to $250,000 per violation (for the Cuban sanctions, the maximum civil fine is $65,000, however), with criminal fines of up to $1,000,000 and 20 years imprisonment for individuals.

O’Melveny & Myers has significant depth of experience in the economic sanctions and export controls areas. Its lawyers are actively engaged in conducting internal investigations and transactional due diligence; responding to criminal and regulatory enforcement inquiries and proceedings; evaluating and implementing compliance programs, and providing prospective advice about economic sanctions and export control issues in international business transactions. Our clients include U.S. and international companies, among them Fortune 100 companies, the world’s largest financial institutions, and diversified U.S. and offshore companies. Partners who practice in this area include Greta Lichtenbaum, Ted Kassinger, and Grey Bryan.