Important new changes to the Cuba embargo and what they mean for U.S. businesses



September 25, 2015

Export Controls & Economic Sanctions Alert

Author(s): Anjali Vohra, Alexandra Lopez-Casero, Alycia A. Ziarno

This week, the U.S. Departments of Treasury and Commerce further eased U.S. economic sanctions on Cuba. Although the Cuba embargo remains in effect, some U.S. businesses will now be able to open offices in Cuba, lease office space, market their physical presence in Cuba and employ Cuban (and even U.S.) nationals. The new rules, which can be found here and here, also include significant changes for U.S. providers of telecommunications and Internet-based services, U.S. academic institutions, airlines, vessels, credit card operators, and U.S.-owned and controlled foreign firms, among others. The rules further facilitate travel to Cuba, imports of Cuban-origin mobile applications (and hiring Cuban nationals to develop them), leases and loans of eligible items to private sector end users, opening and maintaining bank accounts in Cuba to use for authorized purposes, and exports related to civil aviation safety. U.S. persons can now (finally) engage legal counsel in Cuba, which will be an important step to help companies better understand and navigate the existing regulatory and business environment in Cuba (apart from the U.S. sanctions). The changes became effective on September 21, 2015.

We will discuss the changes to the Cuba sanctions on a webinar on Thursday, October 1, 2015, at 12:30 EST. Click here to register.

We explain some of the key changes below. We will issue additional alerts in the coming weeks to highlight the changes as they apply to particular industries; for example, telecommunications and Internet-based services, carrier services, transportation and aviation, and education.

Physical presence and operations

Some U.S. businesses and individuals may establish and maintain a physical presence in Cuba, such as an office, retail outlet or warehouse, and may do so through a local representative, such as an employee or contractor.

This important new authorization applies (only) to those U.S. businesses and organizations that are now allowed to engage in business in Cuba under the changes to the Cuba sanctions that the U.S. Department of Commerce (“Commerce”) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) have implemented this year. These are:

  • Exporters of goods authorized for export or reexport to Cuba by Commerce and/or OFAC, either through a general license (blanket authorization) or a specific license, such as: consumer communication devices; materials for the construction or renovation of privately-owned buildings; agricultural products, tools and equipment; equipment, tools and supplies for the nascent Cuban private sector; and certain telecommunications and environmental protection equipment;
  • Providers of authorized telecommunications or Internet-based services;
  • U.S. academic institutions and other organizations involved in authorized educational activities;
  • Authorized air and vessel carriers and other providers of authorized travel services (but U.S. companies may not yet establish a physical presence to open hotels or to provide other lodging services);
  • News bureaus;
  • Entities providing mail or parcel transmission services or cargo transportation services to and from Cuba; and
  • Religious organizations involved in authorized religious activities.

U.S. businesses and organizations that don’t fall under these categories cannot yet open an office in Cuba.

However, those businesses and organizations that do fall under any of these categories will now be able to lease physical premises, market their physical presence locally in Cuba, open and maintain bank accounts in Cuba, and employ Cuban and U.S. nationals in Cuba. For example, exporters of building and/or agricultural equipment and supplies will now be able to open offices in Cuba, as will U.S. airlines and shipping companies. Providers of courses to prepare for U.S. standardized tests (such as the SAT or TOEFL) will now be able to open offices in Cuba and teach those courses to Cuban nationals. U.S. nationals moving to Cuba as part of their employment with a U.S. firm will be authorized to engage in all transactions necessary to establish their domicile in Cuba for the duration of their employment. For example, U.S. employees of U.S. firms in Cuba will be authorized to lease an apartment or another residence in Cuba and access their U.S. assets (such as a U.S. bank) from Cuba.

Telecommunications & Internet-based services

U.S. businesses and individuals are now authorized to establish a business presence in Cuba to provide telecommunications and Internet-based services, as well as to enter into licensing agreements related to such services. They will also be allowed to market their services in Cuba. The new rules allow them to establish and maintain a business presence through subsidiaries, branches, offices, joint ventures, franchises, and agencies or other business relationships with any Cuban individual or entity. They will also be able to export and reexport (from third countries) equipment, tools and other items to Cuba that they need to establish, maintain and operate a physical presence in Cuba.

Training, installation, repair and replacements

U.S. businesses that export authorized products to Cuba, such as consumer communication devices, certain telecommunications equipment, building materials and equipment, and supplies for the Cuban private sector, are generally now authorized to provide related services, such as training related to the installation, repair or replacement of such items. This authorization extends to services related to: exports not eligible for a license exception but authorized pursuant to an individual license; authorized exports of commodities and software that will be used by individuals or private sector entities to develop software that will improve the free flow of information or support private-sector activities; and certain items exported to Cuba from a third country.

Import of mobile applications from Cuba

The new rules further allow the import of mobile applications that originated in Cuba, and employment of Cuban nationals to develop them.

New educational activities

The new rules also authorize persons subject to U.S. jurisdiction, including U.S. academic institutions and their faculty, staff and students, to participate in a range of new educational activities in Cuba:

  • Establishment of academic exchanges and joint non-commercial academic research projects with universities or academic institutions in Cuba;
  • Provision of standardized testing services, including professional certificate examinations, university entrance examinations and language examinations, and related preparatory services for such exams, to Cuban nationals, wherever located;
  • Provision of Internet-based courses, including distance learning and Massive Open Online Courses, to Cuban nationals, wherever located, provided that the course content is at the undergraduate level or below; and
  • The organization of, and preparation for, activities described above by employees or contractors of the sponsoring organization; that is, a person subject to U.S. jurisdiction.
Ordinarily incident transactions

Travel-related transactions directly incident to the conduct of market research, commercial marketing, sales negotiation, accompanied delivery, installation or servicing in Cuba; opening and maintaining or closing bank accounts; or items consistent with the export or reexport licensing policy of Commerce are authorized. OFAC has added examples to clarify that, with few exceptions, transactions ordinarily incident to a licensed transaction and necessary to give effect thereto are also authorized. For example, a specific license authorizing a person to complete a securities sale involving a blocked Cuban company also authorizes other persons to engage in activities that are ordinarily incident and necessary to complete the sale, including transactions by the buyer, the broker, transfer agents and banks.

Finally, a U.S. lawyer will no longer have to apply for a specific license from OFAC to get paid for legal services that they provide to persons in Cuba (although some limitations and requirements remain).

These changes present new opportunities for U.S. companies that sell or provide those types of goods and services that are now authorized under the changes to the Cuba sanctions. U.S. Secretary of Commerce Penny Pritzker announced that the amendments to the regulations “are designed to empower the Cuban people and support the emerging Cuban private sector, bringing us one step closer to achieving President Obama's historic policy goals.” Secretary Pritzker also indicated that these regulatory revisions “will ease restrictions on authorized travel […] and allow more business opportunities for the nascent Cuban private sector.”

A final note of caution

Despite these amendments, U.S. exporters and their foreign subsidiaries must remember that the United States still maintains a comprehensive embargo on trade with Cuba. The changes that OFAC and Commerce have implemented this year present somewhat narrow authorizations within the actual embargo. Also, as Commerce and OFAC chip away at parts of the embargo, there is significant opposition in Congress, as well as pressure on the administration to enforce the existing rules. Companies should remain vigilant to make sure that they follow all existing rules and stay closely within the parameters of any new (limited) authorization.
  • FAQs on the new rules can be found here and here.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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