United States: US Announces New Cuba Sanctions Policy, Changing The Landscape In Key Sectors

On June 16, 2017, US President Donald Trump unveiled his much-anticipated Cuba sanctions policy in what was billed as a major speech in Miami, Florida. While implementing regulations have yet to be published, the president's announcement and related guidance refocus US Cuba policy toward more restrictive measures and away from the several rounds of sanctions relief that had been implemented by the Obama administration.

Two of the key policy changes involve enhanced restrictions on travel and commerce, namely:

  • Ending individual "people-to-people" authorized travel to Cuba, and
  • Prohibiting commercial transactions involving Cuban military and intelligence agencies or their commercial affiliates, such as Grupo de Administración Empresarial (GAESA).

These changes could have significant impacts across a range of sectors, especially travel, tourism and hospitality, and associated services, such as banking, insurance and transportation. These effects are also likely to be felt by businesses around the world—including outside of the US and Cuba—because of the wide jurisdictional reach of the US Cuba sanctions.

Per the president's directive, the US Department of Treasury's Office of Foreign Assets Control (OFAC) and the US Department of Commerce will, within 30 days, begin the process of issuing regulations to implement the new policy, though the policy changes will not take effect until the regulations are finalized—a timeline the president said may take several months. Also, there will be carve-outs for existing transactions that are currently lawful but would violate the new restrictions upon their taking effect.

Given the dynamic policy environment, and the potentially significant penalties for sanctions violations, active monitoring of the US Cuba sanctions landscape will remain critical. A compliance review of existing or planned Cuba investments and operations may be prudent for any company doing business on the island, as well as for any company whose counterparties or customers do business in Cuba.

Background and context of President Trump's new policy

The US has maintained a trade embargo against Cuba since the late 1950s. As codified under the Cuban Assets Control Regulations (31 CFR Part 515), US sanctions generally prohibit "persons subject to US jurisdiction"1 from engaging in commercial transactions with the government of Cuba, Cuban entities and Cuban nationals, subject to certain exceptions, such as for humanitarian trade. US Cuba sanctions also generally prohibit persons subject to US jurisdiction from traveling to Cuba.

During the Obama administration, the US and Cuba re-established diplomatic relations, President Obama visited Cuba, and the US provided multiple rounds of sanctions relief, including easing the general ban on commerce and establishing 12 categories of authorized travel (while maintaining the general prohibition on persons subject to US jurisdiction from engaging in "tourist" travel). The authorized travel types include:

  1. Family visits
  2. Official business of the US government, foreign governments and certain intergovernmental organizations
  3. Journalistic activity
  4. Professional research and professional meetings
  5. Educational activities
  6. Religious activities
  7. Public performances, clinics, workshops, athletic and other competitions, and exhibitions;
  8. Support for the Cuban people
  9. Humanitarian projects
  10. Activities of private foundations or research or educational institutes
  11. Exportation, importation, or transmission of information or information materials
  12. Certain authorized export transactions

The embargo, however, remained US law and the relief measures were implemented by executive order, not by statute. Accordingly, President Trump (or any future president) can repeal or modify this relief as he or she sees fit, within the very broad parameters of executive branch authority.

In his June 16, 2017, announcement of the new Cuba policy, President Trump said that the US is adopting a new approach designed to achieve four objectives: (i) enhancing compliance with the embargo, particularly the ban on tourism; (ii) holding Cuba accountable for human rights abuses; (iii) advancing the national security and foreign policy interests of the US and the Cuban people; and (iv) laying groundwork for the Cuban people to develop greater economic and political liberty. The president noted that the new policy is, among other things, specifically intended to roll back some of the Obama administration sanctions relief and to increase the pressure on the Cuban government and its military, intelligence and security agencies.

New travel restrictions: Ending individual people-to-people travel

President Trump directed OFAC to end individual people-to-people travel to Cuba.

Under current policy, such travel has been permitted and has been defined to cover persons subject to US jurisdiction who engage in educational travel to Cuba that: (i) does not involve academic study pursuant to a degree program; and (ii) does not take place under the auspices of a US organization that sponsors such exchanges to promote people-to-people contact.

While the President directed OFAC to end this authorization, OFAC, in its June 16, 2017, guidance, noted that individual people-to-people travelers who have either purchased a ticket or made a reservation prior to the June 16, 2017, announcement will be authorized to make all additional travel-related transactions for that trip, regardless of whether the trip occurs before or after OFAC's new regulations are issued. Further, any "travel-related arrangements that include direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted"2 so long as those travel arrangements were made prior to the issuance of the regulations.

New sanctions targeting GAESA and its affiliates

As part of the new US policy to increase pressure on Cuba's government, President Trump ordered OFAC and the Department of Commerce to enact regulations prohibiting persons subject to US jurisdiction from engaging in direct financial transactions with the Cuban military, intelligence and security services, including their commercial affiliates, such as GAESA. According to initial OFAC guidance, the US State Department will publish a list of entities with which direct transactions generally will not be permitted, and OFAC and/or the Departments of Commerce and State will also release guidance on the specifics of the prohibition. The specifics of the list and guidance will be critical to understanding the scope and nature of these new sanctions, as the policy, by its terms, only refers to "direct" transactions—raising questions about what this means in context and how a transaction might be defined as "direct" (and prohibited) or not direct (and thus potentially not prohibited).

But the embargo remains—as does other Obama-era sanctions relief

In his June 16, 2017, announcement, President Trump underscored that the US embargo on Cuba remains in place, and that the US would continue to oppose calls in the United Nations or other international forums for its termination. The president noted in particular that "any further improvements in the United States-Cuba relationship will depend entirely on the Cuban government's willingness to improve the lives of the Cuban people, including through promoting the rule of law, respecting human rights, and taking concrete steps to foster political and economic freedoms."3

However, President Trump did not repeal all of the Obama-era sanctions relief or revoke diplomatic ties.

Thus, for example, the new US Cuba policy does not end group people-to-people travel authorizations or any of the other categories of authorized travel to Cuba. Nor does the new US Cuba policy affect remittances, or the types of humanitarian trade in food, agricultural commodities and medical supplies permitted under existing law. The planned restrictions on transactions with the Cuban military, intelligence and security agencies also would not affect otherwise-authorized transactions with persons and entities that are not affiliated with those arms of the Cuban government.

Additionally, as noted above, the new policy is not effective until it is implemented by OFAC, the Departments of Commerce and State and, potentially, other agencies as may have jurisdiction (e.g., the US Department of Transportation). And, once effective, the policy will include carve-outs for travel that is initiated prior to the issuance of the regulations, as well as for Cuba-related commercial engagements with entities related to the Cuban military, intelligence or services that were in place prior to the issuance of the regulations.

Next steps

As OFAC and other relevant US government agencies develop regulations to implement the president's new approach, active monitoring of the policy landscape will remain critical due to the potential for severe penalties for sanctions violations; the President's call for OFAC to audit travel to ensure compliance; and the wide sectoral and geographic scope of the potential impact of the new restrictions. For example, the new US Cuba policy would appear to raise a range of questions—and issues—for both US and non-US:

  • Banks, insurers and reinsurers;
  • Airlines and cruise ship companies;
  • Hotel and hospitality businesses; and
  • Lenders, suppliers and vendors for Cuban companies or non-Cuban companies doing business in that country.

Accordingly, businesses in these and other sectors should consider reviewing existing and planned Cuban investments and operations, and using the time before the new regulations take effect to identify and address the new sanctions landscape. This could include considering measures to enhance sanctions screening, flagging existing contractual representations and covenants, and otherwise aligning compliance programs and business plans to the government's new approach to Cuba.

Footnotes

1 The term "person(s) subject to US jurisdiction" includes: (1) any individual, wherever located, who is a citizen or resident of the United States; (2) any person within the United States; (3) any corporation, partnership, association, or other organization organized under the laws of the United States or of any State, territory, possession, or district of the United States; and (4) any corporation, partnership, association, or other organization, wherever organized or doing business, that is owned or controlled by any of the persons mentioned in categories (1)-(3). 31 C.F.R. §515.329.

2 OFAC, Frequently Asked Questions on President Trump's Cuba Announcement, June 16, 2017, at Q.5.

3 Fact Sheet on Cuba Policy, The White House (June 16, 2017, 1:05 PM), https://www.whitehouse.gov/blog/2017/06/16/fact-sheet-cuba-policy

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