Cuba Policy Changes Will Complicate New Business But Grandfather Existing Deals

In a much-anticipated speech on Cuba policy today, President Trump announced that, “effective immediately, I am canceling the last administration's completely one-sided deal with Cuba.” That pronouncement notwithstanding, it appears that the Trump Administration’s new policy on Cuba (as set out in a Presidential Memorandum) will leave intact most of the changes made by the Obama Administration and previous administrations, with one important new limitation: a prohibition on certain dealings with a specific list of military-linked entities that will be published by the US Department of State in the near future.  Additionally, the new policy will require so-called “people-to-people” travel to be conducted under the auspices of a sponsoring organization, a requirement that the Obama Administration had lifted. The new policy also:

• Maintains the US Embassy in Havana;
• States that any future liberalization of US trade restrictions on Cuba will be dependent on significant domestic reform in Cuba;
• Reaffirms the US ban on tourism to Cuba;
• Calls on OFAC to audit travel to Cuba to ensure that travelers are in compliance with applicable restrictions; and
• Declines to reinstate the “Wet Foot, Dry Foot” immigration policy, which the Obama Administration had terminated.

This Presidential Memorandum officially resets the course of US-Cuba relations and replaces President Obama’s October 2016 Presidential Policy Directive, on which we previously advised. It is too soon to say how much of an impact these policy changes will have on business and other activity in Cuba. At the very least, it will add a significant new due diligence obligation to screen for any involvement by the listed military entities, and may deter some individuals from travelling to Cuba for “people-to-people” exchanges.  But if the restrictions on dealings with the military are drafted narrowly, or if the Cuban government reorganizes its state-owned sector under civilian control, it seems possible that significant business with Cuba may continue. Also, it is important to note that today’s announcement has no direct, immediate legal effect, and the new restrictions will not come into effect until OFAC amends the Cuban Assets Control Regulations (CACR). The Presidential Memorandum issued today instructs OFAC to “initiate a process to adjust current regulations” to implement this new policy within 30 days. In Frequently Asked Questions (FAQs) accompanying the President’s announcement, OFAC clarified that it “expects to issue its regulatory amendments in the coming months. The announced changes do not take effect until the new regulations are issued.” The White House fact sheet accompanying the President’s announcement states that the government will not penalize lawful past business in Cuba:

“Consistent with the Administration’s interest in not negatively impacting American businesses for engaging in lawful commercial opportunities, any Cuba-related commercial engagement that includes 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 provided that those commercial engagements were in place prior to the issuance of the forthcoming regulations.”

An OFAC FAQ adds: “The forthcoming regulations will be prospective and thus will not affect existing contracts and licenses.” However, despite these encouraging statements, it is important to note that this grandfathering policy may not be a blanket authorization for preexisting business, but rather may only cover specific contracts or transactions concluded prior to the effective date of the coming regulations. Again, we will need to wait to see the regulations before we can offer a more concrete assessment of their impact. Steptoe’s International Group will issue an international law advisory in the coming days that will assess the Trump Administration’s new policy in greater detail.