Co-Author, Santos Ramos

On June 16, 2017, President Trump announced changes to United States’ Cuban sanctions regime which will stem the tide of liberalization that Obama Administration set in motion 2014. While the regulatory changes have not yet taken effect, the Department of Treasury’s Office of Foreign Assets Control (OFAC) released updated its online resources to reflect the Trump Administration’s forthcoming changes.  Most notably, under the announced changes, individual “people-to-people” travel will no longer be permitted and any trade or business ventures involving Cuba’s military, intelligence and security services is strictly prohibited.

Travel

Trump Administration’s new Cuban travel policies crack down on the potential for individual ‘vacation’ travel to Cuba. Under the Obama Administration’s reforms to the Cuban sanctions, individuals could travel to Cuba as long as they affirmed that they were engaged in permitted activities, such as educational and artistic study, news reporting, or other endeavors designed to promote and aid the Cuban people.  Under the newly announced changes, individuals will no longer be able to travel to Cuba on their own for “people-to-people travel” (i.e., educational travel that does not involve any academic study towards the pursuit of a degree and is not under the auspices of an organization). Group people-to-people travel will still be permitted as long as the group is led by a U.S.-based organization and maintains a full-time schedule of educational or other permitted activities. Unfortunately for those who may have already booked their tickets to Havana, the new regulation will not be prospective, meaning that any travel that does not conform with the new regulations (even if previously planned) will be prohibited.

Trade and Business

Companies seeking to do business in Cuba will also have to navigate stricter regulations. While trade and business ventures with the Cuban government remained restricted under the Obama Administration’s revised sanctions, the new rules will more clearly delineate entities which are associated with Cuban military conglomerate Grupo de Administración Empresarial SA (GAESA). GAESA, which is comprised of Cuban military, intelligence, and security services, has an extensive web of subsidiaries and ownership interests which some estimate touch as much as 60 percent of the Cuban economy. OFAC and Department of Commerce, Bureau of Industry and Security (BIS) will publish an extensive list of prohibited entities when the new regulations are completed. The new trade policy will be prospective, however, meaning that any contracts and licenses executed and issued prior to effective date of the new regulations will not be terminated.

What Should U.S. Companies Do?

U.S. companies which have already entered into contracts with a GAESA-related companies will be able to continue operating without any change. Any U.S. company seeking to begin or expand business in Cuba after the new policy takes effect, however, must heed the warning that any transaction with GAESA-related entities is prohibited. Moreover, while OFAC and BIS will strive to produce a comprehensive list of GAESA-related entities, it may prove to be a difficult and ever-evolving challenge.  Accordingly, despite any published list of entities, it will almost certainly remain the responsibility – and potential liability – of U.S. companies to know with whom they are conducting business. In addition, U.S. companies must be vigilant about any renewals of contracts or licenses with GAESA-related entities, as there has been little guidance as to whether renewing an existing contract will be considered continued operation or a new, prohibited engagement.

The Miami Herald is reporting that the Cuban government used the Panamanian law firm Mossack Fonseca to create at least 25 corporations registered in the British Virgin Islands, Panama and the Bahamas. Mossack Fonsenca, and its clients, have come under immense scrutiny since the leak of hundreds of thousands of pages of the firm’s files, which have been come known as the “Panama Papers”, revealed elaborate tax shelters used by some of the world’s wealthiest individuals and organizations.

In a June 7, 2016 report, the Miami Herald alleges that at the Cuban government used Mossak Fonseca to set up numerous corporations and then used these off-shore entities to conduct business, including numerous exchanges of oil for Cuban goods, which was prohibited by the US embargo on Cuba. Although the Panamanian firm’s aid or involvement with the Cuban government is likely beyond the jurisdiction of US officials, the potential ramifications for US corporations who may have dealt with the alleged off-shore Cuban entities is uncertain.

Under Cuban Assets Control Regulations (31 C.F.R. Part 515), an entity can potentially avoid penalties if it is able to demonstrate that is did not willfully violate the regulations, had no reason to know or suspect that it was involved in a prohibited transaction, and the entity reported the prohibited transaction to the Office of Foreign Assets Control (OFAC) as soon as it became aware of the violation. (31 C.F.R. 515.203). It is also possible that individual transactions may have been authorized pursuant to specific licenses issued by OFAC. The critical issue, therefore, is whether any US entities knew or should have known that they were dealing with an entity connected to the Cuban government. As investigations of the Panama Papers continue, correspondence contained therein could potentially demonstrate knowledge by US companies about the Cuban connections of the off-shore entities identified in the Miami Herald report.

US companies who may have engaged the Cuban off-shore entities should be proactive and investigate what, if any, contact they may have had with these entities as self-reporting any transactions to OFAC is a necessary first step in cooperation. Depending on the size of the organization, using a third-party investigator, such a law firm, may ensure the preservation of documents and, in turn, the integrity of the investigation should an investigation by OFAC become necessary.

President Obama announced on Thursday that he would travel to Cuba in March and meet with Cuban President Raúl Castro. The two men first met face-to-face during a summit in Panama last year, but President Obama has never visited Cuba. In fact, President Obama will be the first sitting American president to visit Cuba in 88 years. The last president to visit Cuba was President Coolidge who attended the Pan American Conference in Havana in January 1928.

Recently, there has been significant communication between the two countries, including American officials traveling to Havana on Tuesday to sign a pact that will for the first time in decades allow scheduled commercial flights between the two countries. Cuban officials are also in Washington this week to discuss ways of expanding business ties between the two countries.

Despite the President’s announcement in December 2014 regarding significant changes in the U.S. policy toward Cuba to normalize relations between the two countries, the Cuba embargo remains in place. Most transactions between the United States, or persons subject to U.S. jurisdiction, and Cuba continue to be prohibited, and OFAC continues to enforce the prohibitions of the Cuban Assets Control Regulations (CACR).

Effective on January 27, 2016, there have been several changes to the trade relationship between the two countries. These changes are targeted at further engaging and empowering the Cuban people by facilitating authorized travel to Cuba; certain authorized commerce; and the flow of information to, from, and within Cuba.  For more information about the loosening of Cuban sanctions, see our earlier post here.

As U.S. sanctions on Cuba continue to thaw, some long standing disputes have been reignited.  Perhaps chief among them is the decades-old battle over the trademark for “Havana Club” rum.

The original distillery that produced Havana Club rum was expropriated by the Castro regime in the 1960s.  After the original distiller’s trademark registration had lapsed, the Cuban government registered the mark in the United States in 1976.  The Cuban government assigned its rights in the mark to spirit producer Pernod Ricard in 1993.  Meanwhile, distiller Bacardi Ltd., which had fled Cuba in the 1950s, acquired rights to the Havana Club mark from the family of the original distiller in 1994.

After litigation in U.S. courts over the right to use the mark ensued, U.S. Congress passed the Omnibus Appropriations Act in 1998, which included Section 211, known as the “Bacardi Act.” Section 211, which was reportedly crafted at the behest of Bacardi, protected the trademarks of companies which had been expropriated by the Cuban government and, in turn, solidified Bacardi’s claim to the Havana Club mark through its connection to the original distillers.  In 2001, the World Trade Organization found that Section 211 was illegal because it was aimed at a single country, Cuba. The United States has, however, largely ignored the WTO ruling.

As part of the recent reduction of restrictions on Cuba, Pernod Ricard (through a joint venture with Cubaexport) has been been permitted to renew the Havana Club once owned by the Cuban government.  In a recent letter to the U.S. Treasury Secretary and the U.S. Secretary of State, twenty-five members of Congress demanded an explanation as to how OFAC has permitted Cubaexport-Pernod Ricard to renew the Havana Club mark in light of Section 211.  The members of Congress, largely representing Florida districts, are particularly concerned the U.S. government is ignoring Section 211 and is instead choosing to recognize the rights once held by the Castro regime which expropriated the goodwill of the brand decades ago.  Neither the Department of Treasury nor the State Department has yet issued a response.

The Havana Club saga is a cautionary tale which demonstrates that even though formal U.S. regulations are being scaled back, the broader relationship between the countries remains politically charged and full of pitfalls.  Navigating both the black letter regulations and the larger landscape of Cuban-U.S. relations requires skilled advocates and patience as “normalization” continues to take root.

Effective today, January 27, 2016, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) have further reduced sanctions affecting U.S. relations with Cuba.  The amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) represent significant steps toward the liberalization of commerce and travel which were first announced by the Obama administration in December 2014.

Cuba's flag
Copyright: mishchenko / 123RF Stock Photo

Among the reductions in current regulations are new allowances for financing, exportation, and travel.

  • Financing  – Restrictions on payment and financing terms for authorized non-agricultural exports and reexports have been removed and U.S. banking institutions are now permitted to provide financing for such transactions.  The U.S. Department of Commerce has indicated that payments of cash in advance; sales on an open account; and financing by third-country financial institutions or U.S. financial institutions will all permissible under the newly revised regulations.
  • Exports – OFAC and BIS have expanded general licenses for goods and services which aid the Cuban people.  General licenses related to the export and reexport of telecommunications items, agricultural items, civil aviation safety items, and news gathering software and technology items have all be expanded.  OFAC and BIS have also announced a case-by-case licensing policy which will facilitate the exportation of goods (including artistic and cultural endeavors as well as education, infrastructure, public health, and sanitation items) which will benefit the Cuban people even if their exportation necessarily involves the Cuban government or other state-owned enterprises with whom commercial interaction is generally prohibited under current U.S. regulations.
  • Travel – OFAC authorized travel for additional business-related reasons as well as authorizing additional transactions which are incident to authorized travel.  Among the newly authorized reasons for travel are the production of media and artistic programs (including, television programs, films, music recordings, the creation of artworks by Cuban artists), and the organization of professional conferences, sports competitions, artistic exhibitions, and public performances, as well as additional types of humanitarian projects such as disaster preparedness projects. It is now also permissible to travel to Cuba and engage in market research, marketing, sales and contract negotiation, delivery, installation, and leasing of items which are incident to otherwise authorized activities in Cuba.

Although relations between the U.S. and Cuban continue to take strides toward liberalization, numerous sanctions regulations remain in full effect and can carry significant penalties if violated.  Accordingly, companies looking for opportunities in Cuba must, with the the help knowledgeable counsel, remain vigilant in their adherence to existing regulations despite the progress of the past year and the promising trend of rapid deregulation.

Cuba's flag
Copyright: mishchenko / 123RF Stock Photo

On September 21, 2015, both the Department of Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) announced significant reductions in the regulation of transactions between US individuals and entities and Cuban nationals.

OFAC Regulatory Changes

The revised regulations and interpretive guidance are effective immediately and demonstrate substantial progress in the normalization of relations between the United States and Cuba which were historically first announced earlier this year.  Among the most significant changes to OFAC’s Cuban Assets Control Regulations include new permissions that:

  • US entities may establish a physical presence, as well as Cuban bank accounts, to further authorized businesses related to mail, parcel and cargo services, news bureaus, telecommunications and internet-based services, educational services, religious organizations, and travel and carriers services.
  • US entities may operate carrier services via vessels to and from Cuba, though travel to Cuba for tourism remains prohibited.
  • US entities may provide goods and services to Cuban nationals who are located outside of Cuba.
  • US entities may engage in legal services, emergency medical services, humanitarian, and diplomatic activities for the benefit of Cubans and Cuban nationals.

BIS Regulatory Changes

Similarly, the BIS has revised and clarified the Export Administration Regulations to facilitate the movement of authorized goods and people to and from Cuba by:

  • Expanding the categories of vessels which are authorized to temporarily sojourn in Cuba to include cargo, transport and recreational vessels.
  • Expanding the time aircraft can sojourn in Cuba.
  • Permitting export and reexport of: software to improve the “free flow of information” to, from and around Cuba; items incidental to establishment of authorized businesses; and, on a temporary basis, certain proprietary “tools of the trade” necessary to establish and support authorized business ventures.

Although these substantial revisions to OFAC and BIS regulations indicate that the Obama administration is committed to rapid liberalization, many significant regulations remain.

With limited guidance on how these new regulations will be interpreted and implemented, any U.S. individual or entity considering entry into the Cuban market should seek specific advice as to whether their proposed venture complies with all current regulations before they agree to any transactions with Cuban nationals.