President Obama Announces Historic Thaw in Cuban Diplomatic and Trade Relations
In a live press conference yesterday, President Barack Obama announced the beginning to a thaw in more than 50 years of chilly relations with Cuba.
“It is clear that decades of US isolation of Cuba have failed to accomplish our enduring objective of promoting the emergence of a democratic, prosperous, and stable Cuba,” President Obama said from the White House. In his speech, the President announced the resumption of diplomatic relations with Cuba, which were severed in 1961. This is the result of 18 months of secret talks facilitated by the Vatican and Canada, a final agreement between Obama and Cuban President Raul Castro, and the exchange of prisoners yesterday between the two countries.
The President’s address noted three major points:
- Reestablishing diplomatic relations and the US Embassy in Cuba;
- Tasking Secretary of State John Kerry with reexamining Cuba as a state sponsor of terrorism and the desire to remove sanctions (through work with the legislature); and
- Increasing authorizations for travel and commerce into and with Cuba via amendments to Department of Treasury Office of Foreign Assets Control (OFAC) and Commerce, Bureau of Industry and Security (BIS) regulations.
The White House has issued a FACT SHEET explaining the key components of this new course on Cuba. Below are some highlights, to be implemented by amendments to regulations of the Departments of the Treasury and Commerce:
- Permit US financial institutions to open correspondent accounts in Cuban financial institutions to facilitate the processing of authorized transactions.
- License US-owned or -controlled entities in third countries to provide services to, and engage in financial transactions with, Cuban individuals in third countries.
- Ease travel restrictions for all 12 existing categories: family visits, official government business, journalism, professional research, educational activities, religious activities, public performances and athletic competitions, support for Cuban people, humanitarian projects, private foundations and educational institutions, exchange of information, and certain export transaction that may be considered for authorization under existing regulations and guidelines.
- Permit travelers in Cuba to use US credit and debit cards.
- Authorize the export to Cuba of certain consumer communications devices, related software, applications, hardware, and services, and items for the establishment and update of communications-related systems.
- Allow telecommunications providers to establish the necessary mechanisms, including infrastructure, in Cuba to provide commercial telecommunications and internet services, which will improve telecommunications between the United States and Cuba.
- Authorize commercial sales and exports from the US of building materials, goods for use by private sector entrepreneurs, and agricultural equipment for small farmers.
- Unblock US bank accounts of Cuban nationals who have relocated outside of Cuba.
- Allow foreign vessels engaged in humanitarian aid with Cuba to enter the US.
- Increase the amount of money people can send to Cuban nationals from $500 to $2,000 per quarter, and remove license requirements for humanitarian effort, support for the Cuban people and private business development donations.
- Allow Americans to import $400 in Cuban goods, of which no more than $100 can consist of tobacco products and alcohol combined.
- Aid Cuba on improving human rights and democratic reforms, as well as issues such as migration, counternarcotics, environmental protection and human trafficking.
- Discuss maritime boundary issues with Cuban and Mexican governments, including in the Gulf of Mexico.
OFAC has already published the following Frequently Asked Question in connection with the President’s announcement on changes to US Policy with respect to Cuba:
Q. How will OFAC implement the changes to the Cuba sanctions program announced by the President on December 17, 2014? Are the changes effective immediately?
A. OFAC will implement the Treasury-specific changes via amendments to its Cuban Assets Control Regulations. The Department of Commerce will implement the remainder of the changes via amendments to its Export Administration Regulations. OFAC expects to issue its regulatory amendments in the coming weeks. None of the announced changes takes effect until the new regulations are issued.
Therefore, as OFAC explains, the President announced changes relating to economic sanctions on Cuba will not go into effect until OFAC (and BIS) amend their respective regulations. Until those regulations are changed, companies are advised to maintain the status quo on Cuban transactions.
The changes to the regulations described above are, for the most part, incremental — a series of baby steps towards a relaxation of the longstanding US economic sanctions on Cuba. A case in point is the bullet above announcing the plan to “license US-owned or -controlled entities in third countries to provide services to, and engage in financial transactions with, Cuban individuals in third countries.” At first glance, it appears a rolling back of the extraterritorial sanctions applied to US owned and controlled companies abroad, sanctions that have been met with blocking laws in Canada, the European Union, and Mexico. On a closer read, however, the relaxation would only apply to financial transactions with Cuban individuals in third countries. Thus, to take an example, this change, once implemented, would likely officially authorize the subsidiary of a US headquartered hotel chain to allow Cuban nationals to stay at their hotels in Mexico. Clearly, we will need to await the regulations, as well as the reaction by the Cuban government, to see the full extent of the changes.
Arent Fox has significant experience in helping companies navigate and comply with US sanctions laws and export controls. If you have any questions regarding the above, please contact Matthew Nolan, Kay C. Georgi, and Tina Termei with Arent Fox’s International Trade practice.