On January 27, 2016, the U.S. Commerce Department Bureau of Industry and Security (BIS) and the U.S. Treasury Department Office of Foreign Assets Control (OFAC) amended their regulations to further facilitate trade between the United States and Cuba. This is only the most recent set of steps the U.S. government has taken since President Obama announced, in December 2014, that the United States would move toward normalizing relations with Cuba.

While many limitations on trading with Cuba remain in place, the recent amendments ease restrictions related to certain exports and re-exports to Cuba, and travel to the island. The amendments also should make it easier to engage in financial transactions in and with Cuba (so long as the underlying conduct is permitted). Below is a brief summary of the amendments; the amendments themselves are available at 81 Fed. Reg. 4580 (BIS) and 81 Fed. Reg. 4583 (OFAC).

BIS Amendments. BIS controls exports and re-exports of commercial or so-called “dual use” items. Until January 2015, with limited exceptions, BIS prohibited virtually all exports and re-exports of U.S. commercial goods to Cuba. (U.S. defense exports, which are controlled by the State Department, have been and continue to be prohibited for export or re-export to Cuba. This prohibition is unlikely to be lifted any time soon.)

Since January 2015, BIS has taken a number of steps to amend the Export Administration Regulations (EAR), pursuant to which it regulates exports and re-exports of dual-use items. By its action on January 27, 2016, although a license is still required to export most items to Cuba, BIS now subjects some previously restricted categories of exports and re-exports to a general policy of approval. This new, more permissive policy applies to, among other things, certain items related to aviation safety and telecommunications.

The general policy of approval also applies to certain exports to “individuals and non-governmental organizations that promote independent activity intended to strengthen civil society.” Neither BIS nor OFAC define what constitutes “strengthening civil society,” so it is unclear how broadly this licensing policy will apply.

Separately and in addition, BIS lifted its general policy of denial on certain exports and re-exports of certain items when the items are intended to meet the needs of the Cuban people. (Such items are now subject to standard, case-by-case review.) Among the items that are now subject to case-by-case review are those for:

  • Residential construction
  • Public transportation
  • Agricultural production
  • Public health and sanitation
  • Food processing
  • Disaster relief
  • Artistic endeavors
  • Education
  • Sale to wholesalers and retailers for domestic consumption by the Cuban people

The last category, in particular, seems to create a range of opportunities for mainstream U.S. companies to enter into the Cuban market.

In addition, this more permissive licensing policy will be applied to exports and re-exports related to construction of certain public works and sports facilities, as well as other infrastructure projects that directly benefit the Cuban people. And even exports to certain state-owned enterprises and agencies and organizations of the Cuban government will be eligible for case-by-case review.  This is of note given that the government of Cuba maintains a hand in many commercial enterprises and industries in Cuba.

However, there are restrictions on exports of those items subject to case by case review. In particular, if the item to be exported or re-exported is for use by a Cuban state-owned enterprise, agency, or other organization (or potentially in a project) that primarily generates revenue for the state, BIS will generally deny the license application. For example, an application to export items to a Cuban agency engaged in tourism or the extraction or production of minerals or other raw materials generally will be denied. And an application to export or re-export items to the Cuban military, police, intelligence or security services also generally will be denied.

It remains to be seen how broadly BIS will apply these more permissive license policies, and how the agency will view different Cuban government entities. However, we believe that an exporter that can demonstrate that its products fit within one of these categories – and so long as the Cuban recipients are not prohibited parties or subject to a policy of denial – will have a very reasonable chance of obtaining a license.

OFAC Amendments. OFAC administers most U.S. economic sanctions and embargoes including, of course, the long-standing U.S. embargo on Cuba. As a general matter, OFAC sanctions apply to U.S. persons, though in the case of U.S. sanctions on Cuba, OFAC restrictions also extend to non-U.S. subsidiaries of U.S. companies.

Like BIS, and often in concert with BIS, since January 2015, OFAC has introduced a number of regulatory amendments and other steps to ease trade between the United States and Cuba. The measures taken by the agency on January 27, 2016 should help meet that goal. First, OFAC amended the Cuban Assets Control Regulations (CACR), the principal regulations that govern U.S. sanctions on Cuba, to remove certain payment and financing restrictions for authorized exports and re-exports to Cuba. Although certain financial transactions were permitted before the amendments, according to news reports, because of the significant penalties that can be imposed for getting it wrong, many financial institutions were hesitant to process transactions involving Cuba. This newly introduced amendment should make it easier for authorized exporters to obtain financing and additional support.

OFAC has also further eased travel to Cuba for authorized purposes by allowing blocked space, code-sharing and leasing arrangements with Cuban airlines and by authorizing additional travel-related and other transactions directly incident to the temporary sojourn of aircraft and vessels. As a number of airlines begin providing regular travel services between the United States and Cuba, this should make it easier for – again, if authorized – U.S. travelers to visit the island.

Finally, OFAC amended the CACR to authorize additional transactions related to professional meetings and other events, disaster preparedness and response projects, and information and informational materials. Now authorized, for example, are many transactions directly incident to contract negotiation, installation or leasing in Cuba of items consistent with BIS’s licensing policy. This authority buttresses the authority OFAC previously granted for U.S. persons to conduct market research, commercial marketing, sales negotiation, accompanied delivery or servicing of such items in Cuba. To be clear, these activities must be conducted in accordance with BIS licensing policy, e.g., you probably cannot engage in contract negotiations regarding an export that is not likely to be authorized by BIS. Yet this authorization appears to be a further indication that the U.S. government expects and is encouraging trade between the United States and Cuba to grow.

Conclusion. Although these changes are significant, the United States continues to maintain an embargo on much trade with Cuba. The export or re-export to Cuba of all non-exempt/excepted items subject to the EAR still requires a BIS license, and many transactions with Cuba or the Cuban people still remain off-limits. But it is likewise clear that, by these amendments, the United States intends to further engage and empower the Cuban people and promote political, social and economic reform in Cuba. As a result, there increasingly are opportunities – if carefully managed and aligned with U.S. government authorizations – for U.S. companies and individuals to engage in trade with Cuba.

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Photo of Thad McBride Thad McBride

Thad McBride advises public and private companies on the legal considerations essential to successful business operations in a global marketplace. He focuses his practice on counseling clients on compliance with U.S. export regulations (ITAR and EAR), economic sanctions and embargoes, import controls (CBP)…

Thad McBride advises public and private companies on the legal considerations essential to successful business operations in a global marketplace. He focuses his practice on counseling clients on compliance with U.S. export regulations (ITAR and EAR), economic sanctions and embargoes, import controls (CBP), and the Foreign Corrupt Practices Act (FCPA). He also advises clients on anti-boycott controls, and assists companies with matters involving the Committee on Foreign Investment in the United States (CFIUS). Thad supports international companies across a range of industries, including aviation, automotive, defense, energy, financial services, manufacturing, medical devices, oilfield services, professional services, research and development, retail, and technology. Beyond advising on day-to-day compliance matters, Thad regularly assists clients in investigations and enforcement actions brought by government agencies, including the U.S. Department of Justice (DOJ), the U.S. Treasury Department Office of Foreign Assets Control (OFAC), the U.S. State Department Directorate of Defense Trade Controls (DDTC), Customs and Border Protection (CBP), the U.S. Commerce Department Bureau of Industry & Security (BIS), and the Securities & Exchange Commission.