Statement of

R. Richard Newcomb

Director, Office of Foreign Assets Control

United States Department of the Treasury

before the

Subcommittee on Human Rights and Wellness

Committee on Government Reform

U.S. House of Representatives

October 16, 2003

I. Introduction

I

Chairman Burton, Members of the Subcommittee,

Thank you for the opportunity today to address issues concerning U.S.
economic sanctions on Cuba.

The embargo on Cuba is one of the oldest, most comprehensive and
complicated programs we administer, and one that generates considerable
interest on the part of the public. The embargo continues to serve as an
important part of the Administration's policy to support and encourage a
peaceful transition to democracy and a free market in Cuba. OFAC plays a
crucial role in the implementation, administration and enforcement of
this policy. OFAC's jurisdiction extends to transactions by persons
subject to U.S. jurisdiction, wherever in the world located, involving
property in which Cuba or a national thereof has any interest
whatsoever, direct or indirect. Such transactions are normally
prohibited absent OFAC authorization.

In February of last year, I testified before the Subcommittee on
Treasury and General Government Appropriations, Committee on
Appropriations of the United States Senate, on the administration and
enforcement of restrictions on travel to Cuba (the "2002 Hearings").
Since then, the Administration, and OFAC in particular, have instituted
a number of additional measures to facilitate authorized travel to Cuba
and ensure that the prohibitions against unauthorized travel are
properly enforced.

In the first instance, these measures involve our efforts across the
board to promote the transparency, consistency and efficiency of our
administrative process. In that regard, we have published two
comprehensive sets of guidelines. The first sets forth criteria for
submitting license applications to travel to Cuba pursuant to the eleven
categories of activities for which licenses may be issued. The second
sets forth enforcement procedures governing OFAC's response to
violations of our sanctions programs, including those involving travel
to Cuba.

We have also taken measures to implement current foreign policy
initiatives, both with respect to the President's stated commitment to
facilitate humanitarian aid to Cuba and in order to curb the abuse of
licenses issued for travel related to non-accredited educational
exchanges, where travelers were engaging primarily in tourist
activities. A decision was made to eliminate this provision. Finally, we
have made progress in carrying out certain statutory mandates to
facilitate travel relating to the export of agricultural commodities to
Cuba and to initiate hearings before an administrative law judge on the
imposition of civil penalties for engaging in unauthorized
travel-related transactions.

I am submitting for the record our brochure on Cuba entitled: "What You
Need to Know About the U.S. Embargo," which covers all facets of this
economic sanctions program, as well as an historical overview and
chronology demonstrating how the policy has shifted in the past with
respect to Cuba travel.

II\. Travel and Trade -- Statutory Underpinnings

The Regulations prohibit most imports into the United States of
Cuban-origin goods, as well as transactions by persons subject to U.S.
jurisdiction wherever in the world located involving trade between
third-countries and Cuba. My remarks, however, will center primarily on
the issue of travel, since in this program, the Department of Commerce
retains licensing jurisdiction over most export and reexport
transactions from the United States directly to Cuba. OFAC's primary
role in this regard is to regulate the manner of financing of such
exports and license travel-related transactions relating to exports of
the kind authorized by the Department of Commerce.

As you are aware, over the years, Congress has been actively involved in
the formulation of policy with regard to Cuba. In 1992, the Cuban
Democracy Act (the "CDA") added civil penalty authority and required the
creation of an administrative hearing process for civil penalty cases
and the establishment of an OFAC office in Miami to assist in
administering and enforcing the Cuba program. The Cuban Liberty and
Democratic Solidarity (Libertad) Act of 1996 (the "Libertad Act")
required that the underlying prohibitions set forth in the Regulations
are to remain in place until there is a transition to a
democratically-elected government in Cuba.

Most recently, in 2000, Congress passed the Trade Sanctions Reform and
Export Enhancement Act (the "TSRA"), providing for the licensing of
agricultural commodities, medicine and medical supplies to countries
against which the United States maintains trade prohibitions. TSRA also
restricts the President's discretionary authority to authorize
travel-related transactions to, from, or within Cuba. Under section 910
of the TSRA, that authority is restricted to travel-related transactions
related to activities ". . . expressly authorized in paragraphs (1)
through (12) of section 515.560 of title 31, Code of Federal
Regulations, or in any section referred to in any of such paragraphs (1)
through (12) (as such sections were in effect on June 1, 2000)." Any
activity falling outside of these twelve categories is defined in this
section of the TSRA as "tourism" and may not be the basis for issuing a
license. A synopsis of these twelve categories of activities for which
travel-related transactions are authorized pursuant to a general license
or that may be authorized upon the issuance of a specific license is
found at page nine of OFAC's *Comprehensive Guidelines for License
Applications to Engage in Travel-Related Transactions Involving Cuba
(the "Comprehensive Application Guidelines")*, a copy of which is being
submitted for the record. I will also describe these categories shortly
when I discuss how license applications are processed.

III\. Administrative Process

A. Licensing

Following through on a commitment I made at the 2002 Hearings, OFAC
published the *Comprehensive Applications Guidelines* on its website on
April 29 of this year, providing clearly articulated criteria for
applying for licenses pursuant to each of the eleven categories of
activities for which specific licenses may be granted. Examples are
often included to provide additional guidance to applicants in
furtherance of our goal to promote transparency and understanding by the
public of OFAC's administrative process. The criteria set forth in the
*Comprehensive Application Guidelines* seek to ensure that existing
policy is clear and properly carried out through OFAC's licensing
process. In addition, the *Comprehensive Application Guidelines* seek to
eliminate the abusive practice of allowing unaffiliated persons to
travel under a license issued to another party, and ensure that there
exists a sufficient nexus between the qualifications of persons
traveling under the authority of a license and the full-time agenda of
authorized activities they will engage in while in Cuba.

*The Miami Office*: The largest volume of license applications processed
by OFAC has traditionally involved travel to Cuba, and by far the
largest portion of those applications -- more than 90% - relates to
visits to close relatives. The manual processing of these applications
is time-consuming and often perfunctory because of the volume of
submissions and the policy in support of licensing family reunification,
which is considered humanitarian *per se*. This category of travel is
handled by OFAC's Miami office, which processed nearly 20,000 such
applications during 2002. Again, because of the humanitarian nature of
these travel requests, that office handles such requests promptly,
usually completing and mailing the licensing response within 24 hours of
receipt.

Another of the Miami office's primary responsibilities is to regulate
certain activities of 202 entities nationwide, which are currently
licensed to: (1) provide travel and carrier services to authorized
travelers; and (2) remit funds to Cuban households on behalf of
individuals who are subject to U.S. jurisdiction in the amounts and
frequency authorized under the Regulations. Almost two-thirds of these
licensed entities are headquartered in Miami.

Integral to this regulatory program is the licensing and compliance
oversight of the direct charter flights to Cuba currently authorized
from Miami, Los Angeles and New York to carry authorized travelers. The
Miami office also investigates alleged violations of the Regulations and
processes enforcement referrals from the Bureau of Immigration and
Customs Enforcement and the U.S. Coast Guard. I am submitting for the
record a copy of OFAC's most recently issued *Circular*, setting forth
guidelines applicable to the service providers.

*The Washington Office*: The remaining categories of travel-related
license applications are processed at OFAC's main office in Washington,
DC, and involve: 1) free-lance journalism; 2) professional research and
attendance at professional meetings not covered by the general license;
3) educational exchanges involving academic study pursuant to a degree
program; 4) religious activities; 5) participation in a public
performances, clinics, workshops, athletic or other competitions, or
exhibitions in Cuba; 6) support for the Cuban people as provided in the
CDA; 7) humanitarian projects; 8) information collection activities of
private foundations or research or educational institutes; 9)
informational materials, agricultural and medical exports and other
exports authorized by the Department of Commerce; and 10) exports of
medicine or medical supplies and certain telecommunications equipment or
reexports of U.S.-origin agricultural commodities from a third country
to Cuba. The Washington office also processes all non-travel license
applications involving Cuba, from blocked estates to international
corporate acquisitions.

During calendar year 2002, OFAC's Washington, DC staff handled more than
1,000 license applications for travel in these various categories with
support from OFAC's Office of Chief Counsel. With the advent of our
*Comprehensive Application Guidelines,* new streamlined processing
procedures and the assignment of additional staff, we are now able to
process most license applications not requiring interagency review
within ten days of receipt, doing better than the goal of two weeks I
set at the 2002 Hearings.

B. Enforcement

By far the majority of OFAC's enforcement actions with respect to the
Cuba embargo concern individuals who engage in unauthorized travel
transactions related to Cuba tourism.

OFAC has worked closely with the Bureau of Immigration and Customs
Enforcement over the years in an effort to enforce Cuba travel
restrictions. As returning Cuba travelers are identified by the
Department of Homeland Security and specifically the border inspectors
at ports of entry in the United States or at the Bureau of Immigration
and Customs Enforcement Preclearance Facilities in Canada or the
Bahamas, those travelers who do not claim a general or specific license
from OFAC to engage in Cuba travel-related transactions are routinely
referred to OFAC for investigation and civil penalty action.

*Enforcement Guidelines*: Regardless of the motivation underlying a
travel violation, OFAC endeavors to enforce the law evenly and
consistently in accordance with our responsibilities under the law. On
January 29 of this year, we published in the *Federal Register* our
*Economic Sanctions Enforcement Guidelines (the "Enforcement
Guidelines")*, enhancing the transparency of OFAC's administrative
process by providing in a public document a procedural framework for the
enforcement of economic sanctions programs administered by OFAC. I am
submitting for the record a copy of the *Federal Register* notice
containing the *Enforcement Guidelines*.

The *Enforcement Guidelines* include a schedule of proposed civil
monetary penalties for certain violations of the Regulations, including
those involving unauthorized tourist travel-related transactions with
Cuba. A schedule of proposed civil monetary penalties for unauthorized
transactions involving the provision of travel, carrier and remittance
services to Cuba is also set forth.

In addition to the *Enforcement Guidelines*, OFAC also published in the
*Federal Register* on February 11, 2003, disclosure guidelines involving
civil penalties. Since April, 2003, information on civil penalty
proceedings against individuals is routinely provided on our website on
an aggregate basis, encompassing individuals who have engaged in
unauthorized travel-related transactions involving Cuba.

*Enforcement Procedures*: Investigative findings are referred for civil
penalty consideration with an administrative record containing evidence
of transactions involving Cuba. OFAC has, in September of this year,
revised its administrative penalty procedures to afford travelers to
Cuba additional opportunities to present mitigating factors for
consideration before a final penalty ensues. Administrative law judges
will preside at the review of the penalty assessments if the right to an
administrative hearing has been invoked.

I am submitting for the record a chart that depicts the number of Cuba
travel cases opened for investigation and referred for civil penalty
enforcement action from January 1996 through June 2002. As shown, 6,398
travel cases were opened for investigation and 2,179 cases were referred
for civil penalty enforcement action.

Typical penalty assessments for unauthorized travel range from \$3,000
to \$7,500, but the majority of cases are settled in amounts reflecting
the mitigation range outlined in the *Enforcement Guidelines*. A number
of persons who are the subject of penalty proceedings, however, request
administrative hearings, often with the assistance of public interest
legal organizations.

IV\. Humanitarian Aid and Educational Tourism

On May 20, 2002, President Bush announced the *Initiative for a New
Cuba*, which is intended to encourage the Cuban regime to undertake
fundamental political and economic reforms, and to provide additional
support to Cuba's nascent civil society, so that Cuba can take its place
in the Western Hemisphere's community of democracies. In announcing the
Initiative, the President said that the \"Administration will ease
restrictions on humanitarian assistance by legitimate U.S. religious and
other non-governmental organizations that directly serve the needs of
the Cuban people and will help build Cuban civil society.\" This
announcement followed the President's statement in January of 2002,
affirming the continued enforcement of travel restrictions while calling
for increased outreach to the Cuban people.

A. Humanitarian Aid

As a consequence of the President\'s policy direction to ease
restrictions on humanitarian aid and to facilitate support for civil
society in Cuba, OFAC has refined and updated its licensing procedures
as reflected in the *Comprehensive Applications Guidelines*. OFAC has
also prioritized this category of license application over other travel
categories and has dedicated staff for the purpose of ensuring rapid
processing of these applications.

OFAC considers applications for humanitarian assistance both with regard
to projects conducted in Cuba on an ongoing basis and with regard to the
accompanied delivery of donated goods. Licenses are granted that involve
the participation of government-affiliated organizations where the
applicant can substantiate that the particular organization has
demonstrated a degree of independence, and when the organizations can
provide humanitarian assistance in an accountable and verifiable way
directly to the Cuban people. More intense monitoring by the licensee,
with a detailed plan for accountability and follow-up, will be necessary
when considering involvement with government-affiliated organizations.
Direct transfers of funds to the Cuban regime or its agencies to conduct
activities generally will not be licensed, but payments such as hotel
expenses, the purchase of essential project commodities in state stores,
and customs duties are examples of expenditures that would normally be
permitted.

B. Educational Tourism

Tourism, in whatever form, is both inconsistent with current policy and
prohibited by section 910 of the TSRA.  OFAC's enforcement of the ban on
tourist travel recently extended to the rescission of a regulatory
provision implemented in 1999. This provision had originally been
designed to allow structured, non-accredited educational exchanges to
take place that promoted substantive people-to-people contact between
U.S. and Cuban nationals. Our experience over the past few years,
however, demonstrated that persons traveling to Cuba under the authority
of these licenses were engaging primarily in tourist activities that
consisted at best of "educational tours" designed to afford Americans an
opportunity to see Cuba, involving minimal substantive contact with
Cuban nationals.

This provision was part of a larger category of licensable educational
activities under which OFAC continues to authorize academic study in
Cuba pursuant to a degree program at an accredited U.S. academic
institution. To date, OFAC has issued 760 two-year specific licenses to
accredited U.S. colleges and universities for this purpose, as well as
numerous licenses to individual undergraduate and graduate students
seeking to pursue academic study in Cuba where their academic
institution has not applied for an institutional license. OFAC will
continue to license educational exchanges pursuant to accredited
academic activities.

Non-accredited educational exchanges taking place outside the structured
curriculum of an accredited degree program, however, too often devolved
into tourism. This was made evident when parties sought renewals of
their licenses and reported on activities undertaken, as well as from
information received from other sources and in the press. Licensed
organizations typically advertised their trips on their websites,
emphasizing the climate, music and dance, and seeing the art and
architecture of Cuba. Very few ads focused on educational exchanges with
the Cuban people. Press articles portrayed this category of travel as
tantamount to tourism, and OFAC was increasingly in the position of
having to justify its authorizations of activities that OFAC never
intended to take place.

In addition, the original policy underlying this provision was undercut
by restrictions imposed by the Cuban government on substantive and open
interactions between U.S. and Cuban nationals. In 2002, we confirmed
reports that groups traveling to Cuba under these licenses were
particularly vulnerable to Cuban government requirements for approval of
their schedules and assignment of a tour guide or escort to the group.
Contacts between members of these groups and Cuban nationals were casual
at best, and were often limited to Cubans employed in government
positions in the tourism industry. This practice subverted access to the
Cuban people and diluted any meaningful educational exchange.

While many of the activities undertaken pursuant to these licenses could
not necessarily be viewed as violations of the terms of those licenses,
they were addressed through denials of renewal requests or tighter
restrictions in new licenses. This resulted in lengthy and
time-consuming exchanges with applicants, many of whom had developed
expectations that they had a right to continue promoting tours of Cuba
on the part of alumni associations and other interest groups.

In an effort to communicate our licensing policy and correct this
situation, we issued application guidelines that characterized
people-to-people contact as activity that would normally entail direct
interaction between U.S. and Cuban individuals not affiliated with the
Cuban government, and would normally not involve meetings with Cuban
government officials. Pursuant to these guidelines, OFAC would evaluate,
among other things, whether the U.S. program is structured to result in
direct and individual dialogue with the Cuban people and whether the
proposed activities with the Cuban people are educational in nature,
such as participation in joint activities that may include seminars,
lectures and workshops. OFAC also evaluated whether each traveler would
be fully participating in all of the proposed people-to-people activity.

Despite our efforts, the licenses continued to be used for tourism,
plain and simple, with groups using their licenses to attract other
unaffiliated parties to travel to sightsee in Cuba under the pretext of
"educational exchange," a clear violation of § 910 of the TSRA.
Moreover, the demand on OFAC staff generated by the administration of
this one provision was interfering with other licensing responsibilities
including the facilitation of humanitarian aid to Cuba. The provision
was rescinded after lengthy consultations with and policy guidance from
the State Department. I am submitting for the record a copy of the
*Federal Register* notice amending the Regulations.

V. Agricultural Trade and ALJs

OFAC is in the process of carrying out two additional statutory
mandates, one involving the facilitation of certain exports and the
other the initiation of hearings before an administrative law judge on
the imposition of civil penalties for engaging in unauthorized
travel-related transactions. Pursuant to the TSRA, OFAC issues licenses
for the export of agricultural commodities, medicines and medical
supplies to Iran, Sudan and Libya. The Department of Commerce, as I said
earlier, authorizes the export of such goods to Cuba from the United
States, but OFAC issues licenses for travel-related transactions in
conjunction with exports to Cuba of the kind authorized by the
Department of Commerce. I am pleased to inform you that we are current
with respect to the processing of license applications to export these
goods to Iran, Sudan and Libya as well as with respect to license
applications to travel to Cuba in conjunction with sale of these goods
that have been authorized by the Department of Commerce.

A. Agricultural Trade

Section 910 of the TSRA expressly provides for case-by-case review of
license applications for travel in support of agricultural exports.
Consistent with the TSRA, the Regulations provide that travel and other
transactions that are directly incident to the "marketing, sales
negotiation, accompanied delivery, or servicing of exports that appear
consistent with the export licensing policy of the Department of
Commerce" may be authorized by specific license.

Over the past twelve months, OFAC has issued over 200 licenses to travel
to Cuba in conjunction with the sale of agricultural commodities,
medicine and medical supplies on the part of producers, consultants,
trade councils, state governments, seaport authorities, and cargo
shipment services. Financing of these exports is restricted to payment
of cash in advance or to financing by third-country financial
institutions, except that such financing may be confirmed or advised by
a United States financial institution. General transportation services
relating to authorized exports are permitted by general license.

B. Administrative Hearings

Prior to 1992, OFAC lacked civil penalty authority to enforce the Cuban
embargo. With the passage of the CDA in 1992, TWEA was amended to
provide that civil fines of up to \$ 50,000 (now adjusted for inflation
to \$55,000) could be levied for violations of the Regulations. The CDA
also required that the Secretary of the Treasury impose such penalties
"only on the record after opportunity for an agency hearing . . . with
the right to pre-hearing discovery." In 1996, the LIBERTAD Act increased
the number of categories of violations for which civil penalties may be
sought to include all travel-related violations. Judicial review by
Article III courts is available once the Administrative Law Judge's
civil penalty determination is made final.

An administrative review process has now been initiated with
Administrative Law Judges ("ALJs") in place. The substantial majority of
hearings concern Cuba travel-related violations by individuals. OFAC has
contracted with two other federal agencies for the services of ALJs to
conduct OFAC's civil penalty hearings.

As of today, I have forwarded more than 50 hearing requests to the
Treasury Department's Office of General Counsel for hearings before
these ALJs. I have also notified nearly 50 hearing requestors that I
will sign Orders Initiating Proceedings in the near future. I will
shortly sign Orders Initiating Proceedings with the cases en route to
the ALJs. I have directed my staff to extend settlement offers in other
cases pending acknowledgment of hearing requests where applicable
criteria are met, including first and sole offenses and absence of
aggravating factors.

Additionally, I have issued, in September 2003, revised regulations for
the hearing process. These revised regulations increase over previous
regulations the number of opportunities for U.S. persons to settle their
penalty cases before final agency action.

VII\. Conclusion

OFAC currently has sufficient resources devoted to the Cuba program to
ensure the timeliness of responses to license applications and the
enforcement of the prohibitions with regard to unauthorized
travel-related transactions. OFAC will continue to administer and
enforce the restrictions on travel-related transactions involving Cuba
in a manner that is timely, fair, and consistent with that law.

Thank you.