New OFAC, BIS Cuba Regulations Open Trade Doors for US Businesses

Author: Julio A. Fernandez
Date: March 14, 2016

After the announcement by President Obama in December 2014 of the dramatic change in US policy toward Cuba, the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Commerce Department’s Bureau of Industry and Security (BIS) followed quickly with several new regulations and changes to existing rules concerning transactions with the island nation.[1]

Overall, the changes authorized certain travel-related services for US citizens and residents going to Cuba under one of 12 categories of approved travel and the exportation of certain goods for use by the Cuban private sector and some internet-based services unrelated to tourism promotion in Cuba.

BIS and OFAC are active partners in new Cuba regulation

On January 27, 2016, OFAC and BIS announced more amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR), respectively aimed at removing certain restrictions and permitting certain exports to Cuba.[2] Under specified circumstances, the amendments expand the authorized transactions and remove limitations on previously-authorized transactions. Their goal, the agencies said, is to facilitate travel and trade.

Under the travel-related changes to the CACR, “U.S. persons,” as defined by OFAC rules, are given greater rights to enter into airline carrier services and agreements with Cuban parties. Revisions of the CACR, at 80 CFR Sec. 515.572, allow “U.S. persons” to engage in code-sharing and leasing arrangements that facilitate certain air services.

The new OFAC regulations also expand a general license, which authorizes transactions flowing directly from the export, import, or transmission of certain informational materials as defined by the CACR. These now include professional media or artistic productions[3] and certain travel-related transactions related to attendance at professional meetings in Cuba.

OFAC reduced limitations on US entities’ use of “net profits”

OFAC also removed the requirement that net U.S. profits from certain events, such as public performances and athletic competitions, must be donated to independent Cuban nongovernmental organizations (NGOs) or U.S.-based charities. OFAC amended the CACR rule, at 80 CFR Sec. 515.575, to add disaster preparedness and certain humanitarian projects in which U.S. persons may engage, as well as those affecting aircraft and vessels related to authorized travel to Cuba.[4]

The BIS revisions to the EAR, which are now subject to a general policy of approval in license applications, authorize:

(1) Exports and re-exports of telecommunications items intended to improve communications to, from and among the Cuban people,

(2) Exports of commodities and software to human rights organizations and U.S. news bureaus (if certain conditions are met in the underlying transaction), and

(3) Exports of certain agricultural items beyond those now defined in and subject to controls in the EAR.[5]

Under recent BIS amendments to the EAR, at15 CFR 762.(b)(2), exports and re-exports of certain authorized items that are necessary to ensure the safety of civil aviation and operation of civil aircraft will now also be subject to the general policy of approval.

Agriculture, disaster preparedness, food processing among new BIS openings

BIS also now authorizes export and re-export of certain approved items case-by-case, including ones intended for agricultural production, disaster preparedness, education, food processing, wholesale and retail distribution for domestic consumption by the Cuban people, and construction of facilities for treating public water supplies and others.

It is incorrect to assume that these new rules are a sign that U.S. exports to Cuba are widely authorized. Despite the CACR and EAR revisions, the U.S. trade embargo against Cuba remains and many OFAC and BIS restrictions still apply to travel and business transactions between U.S. and Cuban entities.

Look before you leap and know rules of the game

Thus, U.S. parties must assure they have a solid understanding of applicable CACR and EAR regulations before they engage in business travel or exporting. To assure compliance, it is important that they also comprehend the nuances of these recent regulatory revisions.

—Julio A. Fernandez is Principal Consultant at Fernandez Export Advisory LLC, Washington, DC

[1] Final Rule, 80 Fed. Reg. 2291 (January 16, 2015); Final Rule, 80 Fed. Reg. 2286 (January 16, 2015); Final Rule, 80 Fed. Reg. 43314 (July 22, 2015); Final Rule, 80 Fed. Reg. 56915 (September 21, 2015); Final Rule, 80 Fed. Reg. 56898 (September 21, 2015).

[2] Final Rule, 81 Fed. Reg. 4580 (January 27, 2016); Final Rule, 81 Fed. Reg. 4583 (January 27, 2016).

[3] 31 C.F.R. § 515.545(b)(2).

[4] 31 C.F.R. § 515.533(d)(2).

[5] 15 C.F.R. § 746.2.

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