Overview
Introduction
On April 14, 2015 the Obama Administration announced that the United States would remove Cuba from the list of state sponsors of terrorism. Separately, on April 16, 2015, the Treasury Department’s Office of Foreign Assets Control (OFAC) released an updated set of frequently asked questions (FAQs) on the Cuba sanctions program. While the removal of Cuba from the state sponsor list will not materially alter the current embargo by further easing economic sanctions restrictions against the Government of Cuba, it is an indicator of the potential for continuing change in the US-Cuba relationship. The new OFAC FAQs focus on the changes to the Cuban Assets Control Regulations (CACR) that were made on January 15, 2016, on which we previously advised. The FAQs offer certain insights regarding debit and credit card use, microfinancing and other topics, though overall they do not provide any fundamentally new interpretations of the CACR.
State Sponsor List
In December 2014, President Obama directed the State Department to review Cuba’s designation as a state sponsor of terrorism, which had been in effect since 1982. After reviewing the matter, the State Department recommended that the President rescind Cuba’s designation. The President’s decision to proceed now triggers a congressional review period. The review period expires 45 days after the announcement, at which time the executive action takes effect.
US Government officials have stressed that this decision does not mean that the United States has resolved all, or even most, of its concerns regarding Cuba. According to a press statement from Secretary of State John Kerry, those disagreements fall outside of the state sponsorship criteria, and this review “focused on the narrow questions of whether Cuba provided any support for international terrorism during the previous six months, and whether Cuba has provided assurances that it will not support acts of international terrorism in the future, consistent with the statutory standard for rescission.” The statement noted that the western hemisphere and the world “look very different today than they did 33 years ago,” when Cuba was originally designated due to its support for armed groups in Latin America.
Nor will Cuba’s removal from the state sponsor list have any significant immediate impact on the scope of the US embargo. The decision will remove a statutory requirement under Section 6(j)(1)(B) of the Export Administration Act of 1979 to obtain a license for any export to Cuba of goods or technology that “could make a significant contribution to the military potential of [Cuba], including its military logistics capability, or could enhance the ability of [Cuba] to support acts of international terrorism.” However, the Commerce Department’s Bureau of Industry and Security (BIS) has explicitly stated on its website that Cuba’s removal from the state sponsor list “does not relieve, suspend or terminate any of the license requirements or other controls” on Cuba in the Export Administration Regulations (EAR), and all items subject to the EAR still require a license or other authorization. Moreover, BIS has not modified its general policy of license denial for all exports to Cuba of items subject to the EAR, other than the changes it made in January on which we previously advised.
The President’s decision also removes Cuba from the statutory arms embargo under Section 40 of the Arms Export Control Act and the prohibition on foreign assistance under Section 620A(c)(2) of the Foreign Assistance Act of 1961. However, Cuba remains listed as a proscribed country under Section 126.1 of the International Traffic in Arms Regulations (ITAR) and is therefore still generally subject to a license policy of denial for munitions exports.
BIS and/or other agencies such as the Treasury Department’s Office of Foreign Assets Control (OFAC) may take further regulatory action after the removal of Cuba takes effect at the end of the 45-day congressional review period. For example, OFAC may amend the Terrorism List Governments Sanctions Regulations, at 31 C.F.R. Part 596, to remove Cuba from the list of state sponsors in Section 596.201. But similar restrictions on financial transactions with the Government of Cuba will remain, based on other authorities underlying the embargo. Dealings in Cuba may no longer be deemed qualitatively material for the purpose of required disclosures to the Securities and Exchange Commission (SEC) by virtue of the fact that Cuba is a state sponsor. However, companies may still be required to disclose risks related to Cuba for other reasons. Overall, Cuba’s removal from the state sponsor list will not materially alter the current sanctions or export control restrictions on that country, whether in terms of dual-use goods, munitions or other dealings, although it marks a key turning point in diplomatic relations between the United States and Cuba.
Frequently Asked Questions
OFAC’s updated Cuba FAQs, which are unrelated to the state sponsorship delisting, largely summarize recent changes to the CACR, without elaboration. However, certain FAQs are worth noting:
- FAQ # 35 states that US banks can process credit and debit card transactions for third-country nationals traveling to Cuba for purposes other than those that are generally authorized under § 515.560 of the CACR. This expands on § 515.584(c), which simply authorizes “all transactions incident to the processing and payment of credit and debit cards involving travel-related and other transactions consistent with §515.560.”
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- Relatedly, FAQs # 33 and 34 advise travelers to check with their bank to determine if it has set up the necessary mechanisms to process credit and debit card transactions in Cuba, noting that banks are not required to process those transactions.
- FAQ # 42 clarifies that if a transaction was previously blocked, but the CACR was later amended to allow similar transactions, the earlier transaction will not be considered unblocked unless the CACR amendment included a general license unblocking previously blocked funds. The rationale behind this is that transactions must be authorized at the time they are processed.
- FAQs # 47 and 48 clarify that § 515.580 of the CACR (authorizing the provision of global health, life, and travel insurance policies for third-country nationals traveling to Cuba) applies regardless of whether the policies are issued only to a single individual or to a group, such as to all employees of a company. It also clarifies that § 515.580 does not authorize issuing policies specific to travel to Cuba or issuing policies to non-US travel agents that are solely in the business of planning trips to Cuba.
- FAQ # 50 states that the telecommunications general license in the CACR (§ 515.542) allows US persons to purchase calling cards for people to use in Cuba and also allows US persons to pay bills directly to a telecommunications operator in Cuba.
- FAQ # 55 clarifies the scope and meaning of the provision for microfinancing projects in § 515.575 of the CACR, specifying that it authorizes financial services to unemployed, underemployed, and low-income Cubans who have little or no access to conventional banks or comparable resources, and which may include a limited return on investment. It also clarifies that § 515.570(g)(1) allows remittances to support authorized microfinancing projects, such as relatively limited contributions of funds to support individual entrepreneurs in sectors that need access to working capital, investment loans, insurance or training in order to start or expand their operations.
Conclusion
Cuba’s removal from the list of state sponsors of terrorism is a largely symbolic step that is part of the Obama Administration’s diplomatic opening with Cuba. It will not have a material immediate impact on the scope of the export controls and sanctions restrictions on that country, but it is a key step in setting the groundwork for any future changes to the scope of the US embargo on Cuba. The bigger picture remains that the core aspects of the Cuba embargo have been codified into law by Congress, and congressional action will be needed to fully lift the current sanctions.
The new OFAC FAQs largely summarize the January CACR amendments without elaboration, although they provide certain notable insights, listed above. It is possible that OFAC will issue further guidance as it continues to receive questions from industry regarding the recent relaxation of sanctions.
