Overview
The conventional wisdom in Washington’s legal and policy circles is that the core aspects of the US economic sanctions embargo on Cuba are mandated by statute, and therefore all the President can do is tinker around the edges, that is, in areas where Congress has been silent, or at least has not specifically addressed a particular question. Despite the great fanfare that has accompanied President Obama’s efforts to relax the embargo, since the reestablishment of diplomatic relations with Cuba, the reality has been quite modest: primarily, the moves have made basic business operations simpler in a narrow group of sectors such as transportation, telecommunications, education and non-profits, and in areas like travel and family remittances, along with a few others. For many industries, the remaining legal restrictions continue to deter market entry. Obama Administration officials have stated that they would like for the embargo to be lifted entirely, to allow a normal level of commerce with Cuba, while acknowledging continuing obstacles on the Cuban side. The Administration has indicated that the reason they have moved so cautiously in lifting some of the restrictions over the past few years is because of the statutes that remain on the books that they do not have the power to overturn by executive action.
However, on October 17, 2016, the Treasury Department’s Office of Foreign Assets Control (OFAC) published a new general license at Section 515.534 of the Cuban Assets Control Regulations (CACR) that appears to show a crack in the Administration’s public position about why it cannot do more to lift the embargo. The new general license authorizes US persons to negotiate and enter into contingent contracts that contemplate transactions that are prohibited by the CACR, provided that the performance of the contracts (e.g. actually providing goods or services or receiving payments) is made contingent on OFAC (and any other federal agency whose authorization is required) authorizing the underlying transactions or on such an authorization no longer being required. In other words, while large areas of business remain off limits due to sanctions restrictions, now, for the first time in decades, companies can at least enter into contractual discussions and even sign binding contracts, as long as those deals cannot enter into force until they are authorized in full by the US government. In addition to contracts, this covers executory pro forma invoices, agreements in principle, executory offers capable of acceptance such as bids or proposals in response to public tenders, binding memoranda of understanding, and similar agreements. A much narrower general license to negotiate and enter into executory contracts for authorized exports or reexports to Cuba was previously included at Section 515.533(b) of the CACR, so this represents a significant expansion of the scope of this type of authorized activity. By allowing US companies to go into Cuba virtually free of constraints for business development purposes, the Obama Administration has taken a big step towards implementing its strategy of making its discretionary loosening of the Cuba embargo by executive action “irreversible” by the next administration, by building a strong set of vested interests behind the current path of normalization.
But the bigger question raised by this move is what authority the President, and OFAC, relied on to issue this new regulation, and what that says about the ultimate extent of executive authority to lift core aspects of the Cuba embargo without getting Congress involved. Again, the prevailing, if ill-defined, view among much of the sanctions bar is that most of the remaining legal restrictions on doing business with Cuba are codified by statute and therefore outside the reach of executive action. However, the new general license OFAC has published at Section 515.534 of the CACR cuts directly to the core of the embargo. For many years, Section 515.201 of the CACR has prohibited US persons from conducting any transactions “by, or on behalf of, or pursuant to the direction of a foreign country designated under this part [i.e. Cuba], or any national thereof, or [involving] property in which a foreign country designated under this part, or any national thereof, has at any time on or since the effective date of this section had any interest of any nature whatsoever, direct or indirect.” Essentially, that foundational aspect of the embargo prohibits all commerce between the United States or US persons and Cuba or Cuban nationals, unless an exemption or authorization applies to a particular transaction. The “property” of Cuban individuals and entities is generally treated as “blocked,” meaning that US persons generally cannot conduct any transactions or dealings with Cuban individuals or entities. OFAC has interpreted this type of prohibition to include entering into executory contracts involving “blocked” property, so OFAC’s recent decision to allow such contracting activity, contingent on future authorization, is an interesting change of course that may call into question the effect of the “statutory embargo,” as it is sometimes called. Put another way, OFAC has authorized contracting activity that falls directly within the core prohibition of the CACR. If they can chip away at the core prohibition in this way, what limits do they face? There may be a surprising answer.
There are some aspects of the statutory embargo that are clear and specific, and therefore very unlikely to be challenged by the executive branch, such as the restrictions on payment and financing terms for certain agricultural sales to Cuba set out in § 7207(b) of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) or the prohibition on tourist travel in § 7209(b) of TSRA. But much of the statutory embargo is vague, and arguably subject to a broad exception for OFAC to authorize activity at its discretion. Section 102(h) of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 codifies into statute “the economic embargo of Cuba, as in effect on March 1, 1996,” and states that “all restrictions” under the CACR “shall be in effect upon the enactment of this Act, and shall remain in effect,” unless a democratically elected government were to take power in Cuba. So Section 102(h) of the Libertad Act codifies into statute the prohibition on dealing with “property” of Cuban nationals, which includes entering into executory contracts. Yet, somehow, OFAC just authorized exactly that. While OFAC did require that such contracts be contingent on future authorization, that still appears to be a departure from the statutory mandate. Certainly some would argue that it is. And OFAC definitely did not do this pursuant to a finding that Raul Castro has been democratically elected, as the statute allows. The answer here may lie in a potentially broad provision of the CACR, which was also codified into statute, allowing OFAC to authorize activity, apparently at its discretion. See Section 515.201 (“All of the following transactions are prohibited, except as specifically authorized by the Secretary of the Treasury (or any person, agency, or instrumentality designated by him) . . .”). If OFAC has relied on this provision to find that it has the authority to undo a core aspect of the statutory embargo like the prohibition on executory contracts, there would be few limits to what President Obama or a future president could do to lift the embargo, again short of undermining clear and specific statutory mandates like agricultural financing and tourist travel.
Moreover, the President has inherent constitutional authority to take executive action in the interest of US national security, under the “commander in chief” power set out in Article II of the US Constitution, and to control important aspects of US foreign affairs under “the executive power” in Article II. Those authorities can be in tension with Congress’ Article I power to regulate foreign commerce, among other things. But Congress is at the disadvantage of having to pass legislation in order to weigh in on the debate, something it has had quite some difficulty accomplishing in the last several years. Furthermore, there are individual constitutional rights, such as the right to travel, that call into question the continuing validity of important aspects of the statutory embargo, given that the national interests that justified regulating over these rights during the Cold War no longer apply. In light of the strong statements from the leadership of the Republican Party that they will fight to keep the Cuba embargo in place, and indications by Hilary Clinton that she would continue President Obama’s policy of loosening the restrictions on Cuba, the question of executive authority in this area could be the key to predicting the likely course of US economic sanctions policy on Cuba in the coming years. It appears that the president does have the authority to lift all but a few narrow aspects of the Cuba embargo by unilateral executive action. Developments in this area over the next year or two may therefore turn more on political considerations than legal obstacles.
