The updates to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulation (EAR) are designed to advance President Obama’s policy to engage and empower the Cuban people.  The changes help facilitate engagement between the U.S. and Cuba.

Major changes were made to the regulations concerning people-to-people educational travel, payment of salaries, merchandise originating in Cuba, banking, finance, commerce, trade, grants, and awards.

Already, there have been some success stories from companies taking advantage of the relaxed embargo regulations, such as Airbnb, Carnival, and American Airlines.

Connecting Cubans and Americans through culture

Americans are now authorized to travel to Cuba for individual people-to-people educational travel that will result in meaningful interactions between the traveler and citizens of Cuba.

Travelers will be required to follow a full-time schedule of educational exchange activities, intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities.

This means that individuals are now able to book their own flights to Cuba and plan their own trips.

Previously, the general license authorizing educational travel required such trips to take place under the supervision of an organization subject to U.S. jurisdiction. All travelers were required to be accompanied by a representative of the sponsoring organization.

This change is intended to make authorized educational travel to Cuba more accessible and less expensive for U.S. citizens, and will increase opportunities for direct engagement between Cubans and Americans.

Travelers under this authorization must retain records related to applicable travel transactions, including records demonstrating a full-time schedule of authorized activities.

If individual is traveling with a U.S.-based organization which sponsors exchanges to promote people-to-people contact, the individual may rely on the entity sponsoring the travel to satisfy those recordkeeping requirements.

The statutory prohibition on travel for tourist activities remains in place.

Cuban nationals can earn a U.S. salary

This next amendment relates to Cuban nationals residing in the United States, under either a non-immigrant status or pursuant to some other non-immigrant travel authorization.

Such individuals are now able to earn a salary or compensation consistent with the terms of their particular visa, as long as the recipient is not subject to any special tax assessments in Cuba.

U.S. companies are now authorized to engage in transactions related to the sponsorship or hiring of Cuban nationals to work or perform in the United States in a manner similar to that of other nationals.

They may do this as long as additional payments are not made to the Cuban government in connection with such sponsorship or hiring.

For example, Cuban athletes, artists, and performers who obtain the requisite visas will be able to travel to the U.S. and earn wages in excess of basic living expenses.

Additionally, transactions in connection with the filing of an application for non-immigrant travel are now authorized.

Americans may enjoy Cuban products abroad

OFAC has authorized trade in Cuban-origin merchandise by individuals for personal consumption while in a third-country.  Individuals may also obtain services from Cuba or a Cuban national related to travel and maintenance within a third country.

This change will enable Americans traveling in Europe, for example, to purchase and consume Cuban-origin alcohol and tobacco products while abroad, similar to the travel exemptions in other sanctions programs.

Increased access to banking and finance

U.S. banking institutions are now authorized to process U-turn transactions in which Cuba or a Cuban national has an interest.

This provision authorizes funds transfers from a bank outside the United States that pass through one or more financial institutions inside the U.S. before being transferred to a bank outside the U.S.

In this case neither the originator nor the beneficiary may be a person subject to U.S. jurisdiction.

American banks are now permitted to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions, including cash and travelers’ checks.

Correspondent accounts at third-country financial institutions used for such transactions may be in U.S. dollar denominations.

Banking institutions are now also authorized to open and maintain bank accounts in the United States for Cuban nationals to receive payments in the U.S. for applicable transactions, and to remit such payments back to Cuba.

Permission expanded for some exporters

OFAC has expanded the existing permissions for a “physical presence” (such as an office, retail outlet, or warehouse) to include those that engage in humanitarian projects, noncommercial activities intended to provide support for the Cuban people, private foundations, and some research or educational institutes.

OFAC has also expanded the existing authorization for a “business presence” (such as a joint venture) to include exporters of goods that are authorized for export or re-export to Cuba.

This also applies to entities providing mail or parcel transmission services, cargo transportation services, and providers of carrier and travel services.

The revised regulations also clarify that the “physical” and “business presence” authorizations permit exporters of authorized or exempt goods to assemble such goods in Cuba.

BIS has made conforming changes to the EAR to generally authorize exports and re-exports of eligible items to establish and maintain a “physical” or “business presence” authorized by OFAC.

The CACR currently authorizes the importation of Cuban origin mobile applications. OFAC has expanded this authorization to allow the importation of Cuban-origin software.

BIS has authorized vessels to transport authorized cargo from the U.S. to Cuba, and then sail to other countries with any remaining cargo that was originally loaded in the United States.

BIS has also adopted a licensing policy of case-by-case review for exports and re-exports of items that would enable exports from Cuba produced by the Cuban private sector.

Humanitarian funding now possible

OFAC has authorized the provision of educational grants and awards, and clarified that an existing authorization applies to the provision of grants and awards for the humanitarian projects authorized in OFAC’s regulations.

This step will further enable U.S. support for educational projects in Cuba, and U.S. participation in philanthropic efforts.

Learn from these big brands finding success in Cuba

Carnival sets sail for Cuba

Carnival Cruise Lines will sail to Cuba through its newest brand, Fathom.  Carnival Corp. will offer these cruises through people-to-people educational missions.

Volunteers will work with local Cubans performing tasks such as teaching English and reforestation, while being immersed in Cuban culture.

Since traveling for humanitarian projects and religious activities are among the 12 approved categories of travel to Cuba, Carnival is able to offer this people-to-people interaction through the Fathom line.

Airbnb gets in ahead of U.S. hotels

Airbnb, a home rental hosting website, has added over 2,000 listings in Cuba. Room rentals began in Cuba when the Castro regime opened the door to private enterprise in a very limited number of categories, including private rentals and restaurants.

As the government expanded those categories to more than 200, “casas particulares”, as the rentals are known, grew into one of the largest and most successful sectors.

Currently, there are more than 28,000 casas particulares in Cuba, with new home rentals hitting the market on a daily basis.

The homes are rented to visitors from Europe, Latin America, Canada, and other destinations. U.S. hotels are not yet permitted to operate in the country.

Major airlines are preparing for flight to Cuba

On February 16, 2016, The United States and Cuba signed an agreement allowing commercial air traffic to resume between the countries for the first time in 50 years.

New flights are expected to operate daily by next fall, with up to 110 daily roundtrip flights traveling from the U.S.  American visitors will still have to qualify under one of the travel categories legally authorized by the U.S. government.

Transportation of authorized travelers – between the United States and Cuba only, without stops in third countries – are now authorized by general license.

Certain related lodging services aboard vessels used for such travel will also be authorized.

American Airlines is one of the airline corporations that has applied to the U.S. Department of Transportation (DOT) to provide service to Havana from the United States.  The proposal includes 10 daily roundtrip flights from Miami, as well as flights from Charlotte, Dallas/Fort Worth, Los Angeles, and Chicago.

Delta Airlines has also proposed flights to Havana in much smaller numbers.  Additionally, JetBlue and other airlines have proposed flights to Havana from Fort Lauderdale, Tampa, Orlando, Newark, JFK, and Boston.

License Exception Aircraft, Vessels, and Spacecraft (AVS) has authorized temporary sojourns to Cuba for certain categories of vessels.

Eligible categories of vessels are cargo vessels for use in the transportation of items; passenger vessels use in the transportation of passengers and/or items; and recreational vessels that are used in connection with travel authorized by the Treasury.

License Exception AVS has authorized aircraft on temporary sojourn to remain in Cuba for up to 7 consecutive days, and vessels on temporary sojourn to remain in Cuba for up to 14 consecutive days.

Travelers may now bring family along for the journey

Close relatives are now allowed to visit or accompany authorized travelers for certain additional activities.  In the January changes, OFAC permitted close relatives to join visits related to official government business, as well as approved educational activities.

Close relatives are now also allowed to visit or accompany authorized travelers for journalistic activity, professional research, religious activities, and activities related to humanitarian projects, private foundations, research or educational institutes.

In these cases a close relative is defined as someone related to a person by blood, marriage, or adoption – and who is no more than three generations removed from that person or a common ancestor with that person.

All authorized travelers are now allowed to open and maintain bank accounts in Cuba in order to access funds for authorized transactions while in Cuba.

Developing closer U.S.-Cuba ties through travel, tourism and business

As a result, a number of U.S. companies are taking advantage of the relaxed embargo regulations, especially companies involved in travel and tourism.  Close relatives are now allowed to accompany authorized travelers.

AVS will permit temporary sojourns for certain vessels, and major airlines will begin travel to Cuba in the near future.

The recent amendments to the CACR and EAR are implementing President Obama’s policy to engage and empower the Cuban people, while helping to facilitate engagement between the U.S. and Cuba.

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

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Cuba and Iran are two of the most talked about topics in export compliance lately, and for good reason: both sanctions regimes are undergoing significant changes that have made headlines all over the world.

But that is about where the similarities end. In this two-part series, we will be comparing how each sanctions regime is changing, providing insight into the impact and underlying politics of sanctions.

Obama throws the door open wide for Cuba, but only a crack for Iran

Rarely do we see a diplomatic shift of the magnitude we saw last year, when President Obama announced his intent to re-establish diplomatic relations with Cuba.

The decision came as a surprise to nearly everyone, including the Office of Foreign Assets Control (OFAC). Since then, we have witnessed changes to this sanctions regime at a nearly unprecedented pace and scope.

While Obama and OFAC can only do so much (congressional action is needed to lift the underlying embargo), the changes made so far have created a range of opportunities for U.S. businesses.

On the other end of the spectrum, we have the Iran sanctions program. Unlike what we’ve seen with Cuba, very little has changed.

The tremendous volume of reporting surrounding the Joint Comprehensive Plan of Action (“JCPOA”), reached July 14, 2015, seems to suggest that the sanctions regime will soon be lifted and Iran will be open for business. In reality, that expectation is far from accurate.

Even if Iran adheres to its JCPOA commitments, as verified by the International Atomic Energy Agency (IAEA), only a very small subset of U.S. sanctions on Iran will be lifted. These will be largely secondary sanctions that only target non-U.S. persons. The majority of the sanctions, in place to achieve humanitarian and anti-terrorism goals, will remain in place.

When considering these two sanctions regimes and recent changes, it is critical to keep in mind that U.S. export policies are based on broad diplomatic goals – mainly anti-terrorism, humanitarian, pro-democracy, and nuclear non-proliferation.

OFAC’s goal is to further these diplomatic goals; of course, in the process they add a thick layer of complexity to conducting business in the U.S.

Understanding the underlying diplomatic goals makes interpreting regulations for sanctions compliance easier, and accepting the additional complexity more bearable.

Cuban sanctions relief reflects 3 main goals

On December 17, 2014, President Obama announced that he was taking steps to “increase travel, commerce, and the flow of information to and from Cuba[,]” to foster “people-to-people engagement.”

Just over one year later, the changes to the Cuba sanction program reflect that goal.

The new, more relaxed regulatory policies rotate around those three areas: travel, commerce, and information.

Travel restrictions were lifted – quickly. Travel within twelve defined categories is now allowed under a general license, whereas before all travel had required a specific license. These twelve categories are:

1. Family visits (§515.561);
2. Official business of the U.S. government, foreign governments, and certain intergovernmental organizations (§515.562);
3. Journalistic activity (§515.563);
4. Professional research and professional meetings (§515.564);
5. Educational activities (§515.565);
6. Religious activities (§515.566);
7. Public performances, clinics, workshops, athletic and other competitions, and exhibitions (§515.567);
8. Support for the Cuban people (§515.574);
9. Humanitarian projects (§515.575);
10. Activities of private foundations, or research or educational institutes (§515.576);
11. Exportation, importation, or transmission of information or informational materials (§515.545);
12. Certain export transactions that may be considered for authorization under existing Department of Commerce regulations and guidelines with respect to Cuba or engaged in by U.S.-owned or -controlled foreign firms (§§515.533 and 515.559).

Travel restrictions loosened to aid trade

As you can see, despite what some travel agents may say, this does not allow for open tourism to Cuba. Of particular interest to U.S. businesses are categories 4, professional research and meetings, and 12, “certain export transactions” related travel. These two allow for travel in pursuit of commercial transactions with Cuba.

In combination with the loosening of travel restrictions, regulations were also eased in areas related to allowing this type of travel. Examples include goods and services that keep air travel safe, consumer communication devices, telecommunications, and certain financial transactions. Most activity connected with these areas do not require a license.

Several months later, OFAC continued to adjust regulations relating to these areas, including expanded eligibility for certain license exceptions, such as for private aircraft on temporary sojourn.

Around the same time, the U.S. also removed Cuba from Country Group E:1, designated state sponsors of terrorism. This provided for the loosening of many arms control and dual-use item regulations.

In September 2015, OFAC announced more changes to ease restrictions, all primarily extending from the same general categories.

For travel, it allowed for the opening and closing of related accounts. Business carrier services were also granted more leeway for export-related travel to allow necessary products and services for safe air travel, including travel directly to or from the U.S.

Things are getting easier for US-Cuban business

Changes were also made to regulations regarding business conduct. A physical presence and operations in Cuba are now permitted for certain categories of U.S. businesses, most related to communications, such as news bureaus, mail transmission services, and internet based services.

To accomplish these activities, U.S. businesses are permitted to send U.S. employees to Cuba and open bank accounts. In the reverse direction, limited hiring of Cuban nationals is also permitted.

U.S. businesses that provide goods or services related to these general categories should explore the opportunity to begin conducting business. However, companies should remain cautious and diligently review remaining sanctions to make sure they do not inadvertently run afoul of them.

Despite the significant opening of commerce, travel, and information flow with Cuba, the underlying boycott remains law and OFAC continues to enforce it.

OFAC has stated that it is “optimistic” about the continued relaxation of the relationship between the two countries. However, since significant further changes will require Congressional action, and 2016 is an election year, there are no guarantees.

Is your business considering venturing into the opening Cuban market? What are some of the best import export opportunities in the Cuban market?

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