The effort to normalise U.S. relations with Cuba began on 17 December 2014, when President Obama first announced major changes in U.S. policy toward Cuba. This normalisation manifested itself through the removal of Cuba’s designation as a ‘State Sponsor of Terrorism’ and the lifting of sanctions targeted at travel and personal remittances. The Obama administration expanded travel opportunities to Cuba, which created an influx of commercial roundtrip flights to Havana. While U.S. persons were still prohibited from travelling to Cuba for tourism, they were able to travel to Cuba pursuant to a general licence under one of 12 authorised categories. Telecommunications providers were also granted certain authorisations to establish the necessary infrastructure in Cuba to provide commercial telecommunications and internet services.

The following summarises some of President Obama’s relevant changes to the U.S.-Cuba sanctions from 2014 to 2016:

• Travel. The Obama administration set out 12 general licence categories which enabled U.S. persons to travel to Cuba. These categories included travel as part of an ‘educational’ experience so long as certain conditions were met, such as maintaining a full-time schedule of educational activities to enhance contact with the Cuban people, support civil society in Cuba, or promote the independence of the Cuban people. The other authorised categories of travel included: family visits; official business of the U.S. government, foreign governments, and certain IGOs; journalistic activity; professional research and meetings; religious activities; public performances, clinics, workshops, athletic and other competitions; support for the Cuban people; humanitarian projects; activities of private foundations; exportation, importation, or transmission of information or information materials; and certain authorised export transactions.
• Establishing a physical and business presence in Cuba. President Obama initiated changes which allowed U.S. persons to establish a physical and business presence in Cuba. Exporters of agricultural commodities, medicine, medical devices, and telecommunications items, for example, were authorised to establish a business presence in Cuba.
• Telecommunications and internet services. The easing of Cuban sanctions enabled the export of certain telecommunications equipment, including the sale of consumer communications devices, and related software, hardware, and services. Telecommunications providers were authorised to develop infrastructure in Cuba to provide commercial telecommunications and internet services.

Summary of the Trump Administration’s New Cuba Policy

Although Mr. Trump stated in 2015 that “the concept of opening with Cuba is fine”, by 2016, he was taking a harder stance, stating: “If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate the deal.”

After the 2016 election, President Trump announced that he would reimpose stricter sanctions against Cuba and on 16 June 2017 he took action to that effect, summarising his administration’s Cuba policy as follows:

• End economic practices that disproportionately benefit the Cuban government or its military, intelligence, or security agencies or personnel at the expense of the Cuban people.
• Ensure adherence to the statutory ban on tourism to Cuba.
• Support the economic embargo of Cuba under section 4(7) of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, including opposing measures that call for an end to the embargo at the United Nations and other international forums and through regular reporting on whether the conditions of a transition government exist in Cuba.
• Amplify efforts to support the Cuban people through the expansion of internet services, free press, free enterprise, free association, and lawful travel.
• Not reinstate the ‘wet foot, dry foot’ policy, which encouraged thousands of Cuban nationals to risk their lives to travel unlawfully to the United States.
• Ensure that engagement between the United States and Cuba advances the interests of the United States and the Cuban people. These interests include: advancing Cuban human rights; encouraging the growth of a Cuban private sector independent of government control; enforcing final orders of removal against Cuban nationals in the United States; protecting the national security and public health and safety of the United States, including through proper engagement on criminal cases and working to ensure the return of fugitives from American justice living in Cuba or being harboured by the Cuban government; supporting U.S. agriculture and protecting plant and animal health; advancing the understanding of the United States regarding scientific and environmental challenges; and facilitating safe civil aviation.

Travel-Related Restrictions

The new Cuba policy includes additional restrictions on U.S. persons travelling to Cuba. Specifically, U.S. travellers may be subject to a Treasury Department audit of their trip to ensure it falls under an authorised general licence category, and they will be required to maintain records of their Cuban travel for five years after the date of travel. Educational trips and use of the ‘people-to-people’ general licence, for example, will face greater scrutiny. The new policy now only permits U.S. persons to use the people-to-people general licence when travelling as part of a group tour.

Educational groups will again be required to travel with a guide from the U.S. organisation sponsoring the trip, and U.S. citizens travelling for “non-academic education”, or to provide support for the Cuban people, will be required to demonstrate that they have a full-time schedule of activities enhancing contact with the Cuban people, supporting civil society in Cuba, or promoting the Cuban people’s independence from Cuban authorities. They must also “meaningfully interact with individuals in Cuba”. Under the Obama administration, these requirements had largely been eliminated or ignored.

Because GAESA controls many of Cuba’s foreign-run hotels and tour services, these prohibitions will restrict Americans from partaking in tour services and staying at hotels or dining at restaurants run by GAESA. U.S. persons may continue to send money to rent properties, such as those offered on Airbnb. Commercial flights and cruises to Cuba may also continue as the payment of landing fees at military-run airports and seaports is exempt.

Importantly, these restrictions will not apply until OFAC issues new regulations implementing the policy, and will not impact those who have already engaged in at least one travel-related transaction involving Cuba. In its FAQ relating to this policy change, OFAC confirmed that as long as “the traveler has already completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to the President’s announcement on June 16, 2017, all additional travel-related transactions for that trip, whether the trip occurs before or after OFAC’s new regulations are issued, would also be authorized, provided the travel-related transactions are consistent with OFAC’s regulations as of June 16, 2017”. This measure was designed not to penalise those who had already begun substantively planning their travel to Cuba under the prior guidelines.

Transactions with GAESA

The new Cuba policy will significantly limit future business ventures between U.S. companies and Cuban entities controlled by GAESA. The Secretary of Treasury and Secretary of Commerce will have 30 days to identify and publish a list of entities “under the control of, or acting for or on behalf of” the Cuban military, intelligence, or security services or personnel (such as GAESA), as well as any of their affiliates, subsidiaries or successors, to prohibit direct financial transactions disproportionately benefitting them.

GAESA serves as the economic arm of the Revolutionary Armed Forces and controls about 60 per cent of the Cuban economy, including many state-owned hotels, restaurants, banks, and gas stations.¹ The prohibition on transactions with GAESA extends to subsidiaries and affiliated companies of the organisation. Similar to the forthcoming travel restrictions, OFAC has stated that changes will not take effect until OFAC issues its new regulations. Further, “[c]onsistent with the administration’s interest in not negatively impacting American businesses for engaging in lawful commercial opportunities, any Cuba-related commercial engagement that includes direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted provided that those commercial engagements were in place prior to the issuance of the forthcoming regulations.” See OFAC FAQs (issued on 16 June 2017).

President Trump’s new policy will now ban financial transactions with the following entities linked to GAESA:²

• ANTEX (staffing agency for joint ventures)
• AUSA (warehousing and customs at Port of Mariel)
• Banco Financiero Internacional (banking)
• CIMEX (financial services, high-end retail stores, import/export)
• ECASOL (cooking oil trade)
• GEOCUBA (mapping services)
• Grupo Bahía de La Habana (Havana Bay clean-up)
• Grupo de Turismo Gaviota (tourism, including hotels, hotel supplies, marinas, car rentals, flights, tours and rentals)
• HABAGUANEX (Old Havana hotels, restaurants and shops)
• Inmobiliaria Almest (real estate)
• PETRAF (petroleum and gas supply)
• SASA (car services)
• SERMAR (ship repairs)
• TECNOIMPORT (technology import/export)
• TECNOTEX (technology import/export)
• TRD (hard-currency exchanges)
• TRIMAGEN (film production import/export)
• Unión Agropecuaria Militar (agro-military complex)
• Unión de Construcciones Militares (military construction)
• Unión de Industrias Militares (military-industrial complex)

Expansion of the Definition of ‘Prohibited Officials’

The new policy directive will significantly expand the definition of ‘prohibited officials of the Government of Cuba’, with whom transactions are prohibited, to include the following: ministers, vice-ministers, members of the Council of State and Council of Members; members and employees of the National Assembly of People’s Power; members of any provincial assembly; local heads of the Committees for the Defense of the Revolution; director generals, sub-director generals and higher in all Cuban ministries and state agencies; employees of the Ministry of the Interior (MININT) and Ministry of Defense (MINFAR); secretaries and first secretaries of the Confederation of Labor of Cuba (CTC) and its constituent unions; editors of Cuban state-run media organisations and programmes, including newspapers, television, and radio; and members and employees of the Cuban Supreme Court.

Previously, the definition of ‘prohibited officials of the Government of Cuba’ only included members of the Council of Ministers and flag officers of the Revolutionary Armed Forces. See 31 C.F.R. 515.337.

Transactions Which Are Not Prohibited

The new Cuba policy will not prohibit transactions that:

• Concern federal government operations, including Naval Station Guantanamo Bay and the United States mission in Havana
• Support programmes to build democracy in Cuba
• Concern air and sea operations that support permissible travel, cargo, or trade
• Support the acquisition of visas for permissible travel
• Support the expansion of direct telecommunications and internet access for the Cuban people
• Support the sale of agricultural commodities, medicines, and medical devices to Cuba in accordance with the Trade Sanctions Reform and Export Enhancement Act of 2000 (22 U.S.C. 7201 et seq.) and the Cuban Democracy Act of 2002 (22 U.S.C. 6001 et seq.)
• Relate to sending, processing, or receiving authorised remittances
• Otherwise further the national security or foreign policy interests of the United States
• Are required by law

In addition, OFAC has put forth an FAQ regarding President Trump’s policy announcement, and has stated that the new policy will not affect authorisations for sending remittances to Cuba. The FAQ is available here. The new policy currently does not appear to impact changes put in place by President Obama relating to permissible exports to Cuba or the ‘180-day rule’, which is relevant to non-U.S. shipping companies that have voyages to Cuba and the United States.

What This Means for You

Changes to the Cuba sanctions will likely have a significant impact on the airline, hospitality, and travel industries, which benefited from the Obama administration’s relaxed approach to travel to Cuba. Businesses which had intended on taking advantage of eased restrictions under the Obama administration, but had not yet formalised their plans, will likely now need to reconsider their options. Businesses that have already engaged in transactions with or related to affected entities are permitted to continue those arrangements provided they were in place before issuance of the upcoming regulations. Businesses that have already obtained specific licences before the forthcoming regulations will not be affected as OFAC has stated “the forthcoming regulations will be prospective and thus will not affect existing contracts and licenses”. See OFAC FAQ (16 June 2017). Businesses that had begun operations in Cuba pursuant to President Obama’s changes should continue to monitor the situation under the new administration and be prepared to address any additional changes in sanctions regulations that may impact their operations.

Conclusion

The imposition of new Cuba sanctions has heralded a generally more restrictive era than that under the Obama administration with regard to U.S.-Cuba relations. Under the Trump administration, we may continue to see the imposition of additional sanctions targeted at the Cuban government, which may restrict U.S. business opportunities related to these entities.
If you have any questions about the recent changes in the U.S.-Cuba sanctions programme, please contact any of the authors of this client alert or sanctionsteam@reedsmith.com.

1. miamiherald.com and theguardian.com
2. miamiherald.com

Client Alert 2017-147