United States: Trump Administration Implements Tightening Of Cuba Sanctions

On November 8, 2017, the Trump administration followed through on its promise to reverse course on the loosening of US sanctions involving Cuba in recent years, in pursuit of its stated policy to "channel economic activity away from the Cuban military and to encourage the [Cuban] government to move toward greater political and economic freedom for the Cuban people."1

To implement this policy, the US Department of Treasury's Office of Foreign Assets Control (OFAC), the US Department of Commerce's Bureau of Industry and Security (BIS), and the US Department of State took coordinated steps to: (1) identify entities that are associated with the Cuban military, intelligence, or security services or personnel (including many hotels, tourist agencies, and stores), and "with which direct financial transactions would disproportionately benefit such services or personnel at the expense of the Cuban people or private enterprise in Cuba" (Cuba Restricted List);2 (2) heighten trade-related restrictions involving Cuba, including by establishing policies of denial for export licenses to, and prohibiting direct financial transactions with, entities on the Cuba Restricted List; and (3) heighten travel-related restrictions involving Cuba, including by abolishing the exemption for individual "people-to-people" travel to Cuba, and by prohibiting transactions with entities on the Cuba Restricted List even during the course of certain authorized travel to Cuba. These changes, effective November 9, 2017, were implemented through amendments to the Cuban Assets Control Regulations (CACR), administered by OFAC, as well as the Export Administration Regulations (EAR), administered by BIS.

These amendments are likely to have a substantial practical effect. Given the degree to which the Cuban military and intelligence services control the Cuban economy and tourist industry, the amendments will make it significantly more difficult for individuals and entities subject to US jurisdiction to trade with and travel to Cuba. This advisory summarizes the implications of the trade-related and travel-related amendments to the CACR and EAR, after first providing a brief summary of the State Department's new Cuba Restricted List.

I. THE CUBA RESTRICTED LIST AND EXPANDED DEFINITIONS OF "PROHIBITED GOVERNMENT OFFICIALS" UNDER US SANCTIONS PROGRAMS

As directed by President Trump's June 16, 2017, National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba (NSPM), on November 8, 2017, the US Department of State identified and published a list of entities and subentities that are tied to the Cuban government, or its military, intelligence, or security agencies or personnel, and "disproportionally benefit [from]" economic practices "at the expense of the Cuban people."3 The Cuba Restricted List is wholly distinct from the list of Specially Designated Nationals that is maintained by OFAC, and therefore, persons subject to US jurisdiction must continue to consult the Specially Designated Nationals (SDN) List, in addition to the Cuba Restricted List, in determining the legality of any particular dealing involving Cuba.

The Cuba Restricted List consists of approximately 180 Cuban ministries, holding companies and certain specified subentities thereof, hotels, tourist agencies, marinas, stores, and other entities identified as directly serving the Cuban defense and security sectors. Demonstrating the focus on curtailing tourist travel to Cuba, nearly half of these restricted entities are Cuban hotels and tourist agencies.

Importantly, the State Department has made clear that "[e]ntities or subentities that are owned or controlled by another entity or subentity on the Cuba Restricted List are not treated as restricted unless also specified by name on the list."4 In other words, as long as no other restrictions apply, US persons can continue to engage in direct transactions with a Cuban entity that is not on the Cuba Restricted List, even if that entity's parent company is on the Cuba Restricted List. This express limitation of the State Department's Cuba Restricted List is a departure from the traditional "50% Rule" that applies in the context of most OFAC sanctions regimes, and under which the restrictive measures applicable to an OFAC-SDN apply automatically to any entity owned, directly or indirectly, 50 percent or more by one or more SDNs (either individually or in the aggregate), even if that entity is not specifically named on the SDN List.5

As detailed further below, OFAC and BIS have incorporated the Cuba Restricted List into their respective Cuba-related sanctions regimes, largely prohibiting persons subject to US jurisdiction from engaging in direct financial transactions with those entities. Separately, OFAC and BIS have also issued matching, expanded definitions of the term, "prohibited officials of the Government of Cuba" to prohibit transactions with certain individuals independent of the Cuba Restricted List.6 While the CACR and EAR exempt certain transactions from these expanded prohibitions—including "grandfathering in" commercial engagements with entities on the Cuba Restricted List that were in place prior to November 20177—the changes will undoubtedly make it significantly more difficult for individuals and entities subject to US jurisdiction to trade with and travel to Cuba by banning direct transactions with nearly 200 entities that exert significant control over the Cuban economy.

II.TRADE-RELATED AMENDMENTS

In conjunction with the release of the Cuba Restricted List, OFAC and BIS have tightened trade-related restrictions involving Cuba through the changes detailed below. In one instance, BIS actually eased trade-related restrictions involving Cuba—namely, for business involving the Cuban private sector—again highlighting the Trump administration's focus on diverting economic activity from the Cuban military and to the Cuban people.

1. Transactions with Entities or Subentities on the Cuba Restricted List

OFAC has added a new general prohibition to the CACR that prohibits persons subject to US jurisdiction from all direct financial transactions with entities and subentities listed on the Cuba Restricted List.8 Significantly, Section 515.209 keeps intact the Obama-era amendment authorizing US banking institutions to process "U-turn" transactions, which are not "direct" transactions; but rather, transactions that originate and terminate outside of the United States, where neither the originator nor the ultimate beneficiary is a person subject to US jurisdiction.9

OFAC has also made amendments to numerous provisions and general licenses throughout the CACR to limit certain pre-existing exemptions to incorporate the new prohibition on direct financial transactions with entities on the Cuba Restricted List. For example, OFAC amended Section 515.421 of the CACR to clarify that "transactions ordinarily incident to a licensed transaction" (which are generally authorized under the CACR), do not include direct financial transactions with entities on the Cuba Restricted List if the terms of the applicable general license expressly exclude such direct financial transactions.10 As explained further in Part III below, many of the CACR's travel-related licenses now include express prohibitions on direct transactions with entities on the Cuba Restricted List, which means that US persons traveling to Cuba for certain purposes cannot, for example, book hotel rooms at hotels identified on the Cuba Restricted List.

2. Policy of Denial for Exports and Re-Exports for Use by Entities on the Cuba Restricted List, and Expanded Definition of Ineligible End-Users for Certain Licensed Exports and Re-Exports to Cuba

Under the Obama administration, BIS created a case-by-case licensing policy for applications to export or reexport items to Cuba to meet the needs of the Cuban people, including most exports and reexports of such items to state-owned organizations that provide goods and services for the use and benefit of the Cuban people (subject to certain restrictions).11 Examples of items eligible for that case-by-case licensing policy included those for agricultural production, artistic endeavor, education, food processing, disaster preparedness, relief and response, public health and sanitation, residential construction and renovation, public transportation, and the construction of infrastructure that directly benefits the Cuban people.

As part of the November 2017 amendments, BIS has changed this policy to clarify that BIS will generally deny applications for the export or reexport of items for use by entities or subentities on the Cuba Restricted List.

Similarly, BIS has amended three of its license exceptions to expand ineligible Cuban transaction parties. That is, BIS amended its License Exemptions for Gift Parcels and Humanitarian Donations (GFT), Consumer Communications Devices (CCD), and Support for the Cuban People (SCP) (§§ 740.12, 740.19, and 740.21 of the EAR, respectively), to make clear that those exemptions do not permit exports or reexports to any prohibited officials of the Government of Cuba, as that term is now defined under the CACR.

3. Eased Restrictions for Trade Involving the Cuban Private Sector

In one instance, BIS actually eased restrictions involving trade with Cuba—namely, for trade intended to support free enterprise and the private sector in Cuba. Specifically, BIS has simplified and expanded its Support for the Cuban People (SCP) license exception, 15 C.F.R. § 740.21, which authorizes the export and reexport of certain items to Cuba that are intended to improve the living conditions of the Cuban people; support independent economic activity and strengthen civil society in Cuba; and improve the free flow of information to, from, and among the Cuban people.

Through the November 9, 2017 amendments, BIS has created a single provision authorizing the export and reexport to Cuba of items under SCP, without specifying types of items, for use by the Cuban private sector for private sector economic activities. To be eligible for this provision, the items may not be used to primarily generate revenue for the state or used to contribute to the operation of the state, including through the construction or renovation of state-owned buildings.

III. TRAVEL-RELATED AMENDMENTS

The November 9, 2017 amendments also contain a number of provisions that limit existing licenses for travel to Cuba. These amendments were intended to adjust current regulations to ensure adherence to the statutory ban on tourism to Cuba,"12 and therefore, largely tighten the requirements for US persons to qualify for existing categories of authorized travel, as opposed to eliminating them altogether. Similarly, many of the travel-related authorizations implemented by President Obama have remained unchanged. For example, air carriers and vessels are still generally licensed to transport authorized travelers to Cuba, and travel service providers providing authorized travel services may still rely on certifications from customers indicating the provision of the CACR that authorized their travel to Cuba.13Nonetheless, the following new restrictions apply.

1. Categories of Authorized Travel Limited by New Cuba Restricted List

OFAC has made amendments to a subset of the CACR's travel-related licenses to make clear that those exemptions do not allow direct financial transactions with entities on the Cuba Restricted List, even in the course of carrying out the authorized activity.

The new limitation on direct transactions with entities on the Cuba Restricted List applies to all general licenses whose express terms incorporate the limitation. For example, OFAC amended its general license for professional research and professional meetings in Cuba to include a subsection that states; "Nothing in [this general license] authorizes a direct financial transaction [with entities and subentities on the Cuba Restricted List].14 OFAC has added the same provision to the CACR's exemptions for travel to Cuba for family visits, educational activities, religious activities, public performances, support for the Cuban people, the activities of private foundations, as well as the CACR's authorization for travel service providers (such as travel agents and tour group operators) to provide services for travel to Cuba.15In other words, even in the course of carrying out those generally licensed activities, persons subject to US jurisdiction may not engage in direct transactions with entities on the Cuba Restricted List.

On the other hand, OFAC has left out the restrictive provision involving the Cuba Restricted List in the context of the following other travel-related exemptions: official government business, journalistic activity, humanitarian projects, the transmission of information or informational materials, and exports authorized by BIS.16 Therefore, while a traveler in Cuba for a generally licensed professional visit to Cuba would be prohibited from booking a hotel room directly with a hotel included on the Cuba Restricted List, a traveler in Cuba for journalistic activity could book a room at such a hotel.17

The practical result of these new restrictions is that they will significantly hamper US travel to Cuba. The Cuba Restricted List makes almost 100 hotels in Cuba off-limits to certain categories of authorized travel. Thus, while all of the pre-existing CACR travel exemptions are still in place, it may now prove difficult for US persons to travel to Cuba pursuant to those exemptions without implicating the prohibitions surrounding the Cuba Restricted List.

2. Specific Additional Limitations for People-to-People and Other Types of Travel to Cuba

OFAC has also issued specific amendments in the context of three types of authorized travel to Cuba that will make travel to Cuba under those exemptions more difficult: (1) people-to-people travel; (2) educational travel; and (3) travel related to support for the Cuban people.

First, as was widely anticipated, OFAC has amended the people-to-people travel exemption to prohibit individual people-to-people, nonacademic educational travel to Cuba. Now, all people-to-people, non-academic educational travel must be group travel, conducted under the auspices of an organization that is subject to US jurisdiction and that sponsors such exchanges to promote people-to-people contact. Moreover, all group people-to-people travelers must be accompanied by a person subject to US jurisdiction who is a representative of the sponsoring organization.

Second, OFAC has made similar amendments in the context of educational travel to Cuba. Persons subject to US jurisdiction and traveling to Cuba for education travel will now be required to do so under the auspices of an organization that is itself subject to US jurisdiction. In addition, individuals traveling to Cuba under the amended exemption for educational travel must also be accompanied, during the travel, by a representative of the sponsoring organization who is also subject to US jurisdiction, unless the traveler is the representative and obtains a certification letter from the sponsoring organization.

Finally, OFAC is now requiring that any traveler using the CACR's travel exemption for Support for the Cuban People engage in a full-time schedule of activities that result in meaningful interaction with individuals in Cuba. Such activities must also enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people's independence from Cuban authorities. Examples of authorized activities that can appear in the traveler's full-time schedule of meaningful interaction with individuals in Cuba include: renting a room in a private Cuban residence (casa particular), eating at privately owned Cuban restaurants (paladares), and shopping at privately owned stores run by self-employed Cubans (cuentapropistas).

While these amendments went into effect on November 9, 2017, some travel that was authorized previously will continue to be authorized, where the traveler had already completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to certain dates. For people-to-people travel, travelers may rely on the old version of the exemption, if the traveler completed one travel-related transaction prior to June 16, 2017; for educational travel, travelers may rely on the old exemption if they did so before November 9, 2017.

CONCLUSION

These amendments represent a reversal of the Obama administration's efforts to ease US sanctions involving Cuba, instead seeking to deprive economic activity from the Cuban government while attempting to support greater political and economic freedom for the Cuban people. Given the degree to which the Cuban government directs the Cuban economy, however, and without expansion by the Cuban private sector, the practical effect of these changes is that they will significantly inhibit the ability of US persons to trade with and travel to Cuba generally.

Footnotes

1. Office of the Press Secretary, The White House, National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba (June 16, 2017); US Dep't of Treasury, Press Center,Treasury, Commerce, and State Implement Changes to the Cuba Sanctions Rules (Nov. 8, 2017).

2. US Dep't of State, Bureau of Economic and Business Affairs, List of Restricted Entities and Subentities Associated With Cuba as of November 9, 2017.

3. See supra¬e 1, NSPM, §2(a).

4. US Dep't of State, Bureau of Economic and Business Affairs, Frequently Asked Questions on the Cuba Restricted List (emphasis added).

5. Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked, U.S. Dep't of Treasury (Aug. 13, 2014).

6. See 31 C.F.R. §515.337; 15 C.F.R. §§ 740.12(a)(2)(v)(A), 740.19(c)(2)(i), 740.21(d)(4)(ii).

7. See, e.g.,supranote 3, Treasury, Commerce, and State Implement Changes to the Cuba Sanctions Rules, at 2 ("Consistent with the Administration's Interest in avoiding negative impacts on American businesses and travelers, commercial engagements in place prior to the State Department's listing of any entity or subentity will continue to be authorized, as will most previously arranged travel. For example, businesses will be permitted to continue transactions outlined in contingent or other types of contractual arrangements agreed to prior to the issuance of the new regulations, consistent with other regulatory authorizations.");see also 31 C.F.R. §515.209(b)-(c).

8. See 31 C.F.R. §515.509.

9. See 31 C.F.R. §515.209(a) (For purposes of this prohibition, a person engages in a direct financial transaction by acting as the originator on a transfer of funds whose ultimate beneficiary is an entity or subentity on the {Cuba Restricted List} or as the ultimate beneficiary on a transfer of funds whose originator is an entity or subentity on the Cuba Restricted List.");See 31 C.F.R. §515.584(d) (authorizing U-turn transactions).

10. See 31 C.F.R. §515.421(a)(5) ("Any transaction ordinarily incident to a licensed transaction and necessary to give effect thereto is also authorized, except: . . . (5) A direct financial transaction prohibited by § 515.209, where the terms of the applicable general or specific license expressly exclude such a transaction.);See also infra Part III.

11. 15 C.F.R. §746.2(b)(3)(i) and Note 2.

12. See supranote 1, NSPM, §3(b).

13. See 31 C.F.R. §515.572(a); OFAC Frequently Asked Questions Related to Cuba (Updated Nov. 8, 2017), FAQs 38-44.

14. See (31 C.F.R. §515.564).

15. See 31 C.F.R. §§ 515.560, 515.561, 515.564, 515.565, 515.566, 515.567, 515.572, 515.573, 515.574, 515.576 (as amended).

16. See 31 C.F.R. §§ 515.562, 515.563, 515.575, 515.578.

17. OFAC Frequently Asked Questions Related to Cuba (Updated Nov. 8, 2017), FAQ 48.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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