Source: https://www.steptoe.com/en/news-publications/a-modest-proposal-for-cuba-ofac-bis-and-state-department-implement-presidents-new-cuba-policy.html
Timestamp: 2020-01-21 06:32:35
Document Index: 475084212

Matched Legal Cases: ['§ 515', '§ 515', '§ 515', '§ 515', '§ 515', '§515', '§ 515']

A 'Modest Proposal' for Cuba: OFAC, BIS and State Department Implement President’s New Cuba Policy | Steptoe & Johnson LLP
Edward J. Krauland, Brian Egan, Meredith Rathbone, Jack R. Hayes, Peter Jeydel, Elizabeth Arkell
Effective November 9, 2017, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) amended the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR), respectively, to implement changes to US Cuba sanctions policy articulated by President Trump in a presidential memorandum issued June 16, 2017. Concurrently, as required by the presidential memorandum, the Department of State published a list of 180 entities and subentities associated with Cuban military, intelligence, and security services (Cuba Restricted List). As such, US government policy establishes that direct financial transactions conducted by persons subject to US jurisdiction with persons identified on the Cuba Restricted List would disproportionately benefit them at the expense of the Cuban people or private enterprise in Cuba.
New prohibitions on certain “direct financial transactions” with entities and subentities identified on the Cuba Restricted List
Adjustments to certain export controls for Cuba, including (1) a general policy of denial for license applications to export items for use by entities and subentities on the Cuba Restricted List, and (2) simplification and expansion of the license exception Support for the Cuban People (SCP)
OFAC added a new provision to the CACR (§ 515.209) that prohibits persons subject to US jurisdiction from engaging in certain “direct financial transactions” with entities and subentities identified on the Cuba Restricted List. We explain key features of this new restriction below.
1. Only “direct financial transactions” are prohibited.
Consistent with the presidential memorandum, this new prohibition applies only to “direct financial transactions” with entities or subentities specifically identified on the Cuba Restricted List. The definition of “direct financial transaction” is more narrow than the definition of “transaction” or “financial transaction” found elsewhere in OFAC’s regulations. Specifically, Section 209(a) of the CACR indicates that a person engages in a “direct financial transaction” by doing either of the following:
Acting as the originator on a transfer of funds whose ultimate beneficiary is an entity or subentity on the Cuba Restricted List
Acting as the ultimate beneficiary on a transfer of funds whose originator is an entity or subentity on the Cuba Restricted List.
On the other hand, “indirect” financial transactions with the entities and subentities on the Cuba Restricted List are not covered by § 515.209. For example, as set out in the note to § 515.209, the general license in § 515.584(d) that authorizes a banking institution subject to US jurisdiction to process “U-turn” transactions – funds transfers originating and terminating outside the United States, provided that neither the originator nor the beneficiary is a person subject to US jurisdiction – remains in place. Similarly, also as set out in the note, banking institutions subject to US jurisdiction can continue to accept, process, and give credit to US dollar monetary instruments presented indirectly by a Cuban financial institution as set out in the general license in § 515.584(g).
2. No 50% rule for the Cuba Restricted List.
“Entities or subentities owned or controlled by another entity or subentity on this list are not treated as restricted unless also specified by name on the list.”
In other words, the Cuba Restricted List is a positive list. This means that subsidiaries of listed entities are not treated as restricted unless they are specifically identified on the Cuba Restricted List. However, if a person subject to US jurisdiction knows that a direct financial transaction is being conducted with an unlisted entity or person acting as an agent for or alter ego of an entity or subentity identified on the Cuba Restricted List, then caution is warranted under the §515.209 prohibition. The State Department indicated that it intends to publish periodic updates to the Cuba Restricted List in the Federal Register.
3. The new restrictions only apply to some pre-existing general licenses and authorizations.
The real impact of the new restriction on “direct financial transactions” for entities or subentities on the Cuba Restricted List is with respect to the availability of general licenses or other authorizations for what would be the related, underlying transactions.
Although the government of Cuba and military were always considered “blocked” Cuban nationals under the CACR, various general licenses and exemptions within the CACR previously did not prohibit incidental financial transactions with the Cuban government that related to authorized activities. With this new regulatory change, OFAC has explicitly prohibited direct financial transactions with entities and subentities identified on the Cuba Restricted List in certain general licenses (or certain aspects thereof), including:
§ 515.578: Exportation, reexportation, and importation of certain internet-based services and importation of software
Consequently, no direct financial transaction by a person subject to US jurisdiction with a person or entity identified on the Cuba Restricted List is authorized by these enumerated general licenses or the impacted provisions thereunder (a specific license issued by OFAC would be required). However, OFAC did not add prohibitions related to the Cuba Restricted List to all of the CACR’s general licenses and exemptions. The June 2017 presidential memorandum allows exceptions to remain in place in a number of areas, including transactions related to the transmittal of remittances, the expansion of direct telecommunications and internet access for the Cuban people; the sale of agricultural commodities, medicines and medical devices; and other categories. As a result, it will be important to carefully review the relevant general licenses in determining the extent to which this new prohibition restricts otherwise authorized transactions.
4. Pre-existing “commercial engagements” may continue.
In order to be “[c]onsistent with the administration’s interest in not negatively impacting US businesses for engaging in lawful commercial opportunities,” OFAC’s regulations state that the prohibition on direct financial transactions does not apply to transactions with a an entity or subentity on the Cuba Restricted List related to “commercial engagements” that were “in place” prior to the State Department’s publication of the Cuba Restricted List. In an FAQ published on November 8, OFAC explained that businesses will be permitted to continue with authorized transactions outlined in “contingent or other types of contractual arrangements” agreed to prior to the issuance of the new regulations (November 9).
5. The Cuba Restricted List is not an exhaustive list.
As we previously explained, the presidential memorandum directed the State Department to publish a list of entities that are both “under the control of, or act for or on behalf of, the Cuban military, intelligence, or security services or personnel” and “with which direct financial transactions would disproportionately benefit such services or personnel at the expense of the Cuban people or private enterprise in Cuba.” In other words, the State Department had discretion not to list certain entities affiliated with the Cuban security sector. Accordingly, while the Cuba Restricted List includes a number of entities and subentities that play significant roles in the Cuban economy, it is not an exhaustive list, and some members of Congress have criticized the State Department for not including certain entities on the list. As noted before, however, the Cuba Restricted List can be changed at any time.
Gaviota – Grupo de Turismo Gaviota (prominent tourism brand that is reportedly part of GAESA)
Members and employees of the National Assembly of People's Power
1. Changes to authorized educational travel
Individual “people-to-people” educational travel (educational travel that does not involve academic study and does not take place under the auspices of a sponsoring organization) had been authorized since the January 27, 2011 amendments to the CACR. OFAC amended the CACR to eliminate this authorization.
2. Heightened standard for travel related to “Support for the Cuban People”
Beyond its conforming change to the definition of “prohibited officials of the Government of Cuba” explained above, BIS made two additional adjustments to the EAR: (1) a general policy of denial for license applications to export items for use by entities and subentities on the Cuba Restricted List; and (2) simplification and expansion of the license exception SCP.
1. New BIS licensing policy regarding Cuba Restricted List designees.
On November 9, 2017, in accordance with the June 2017 presidential memorandum, BIS amended its licensing policy to clarify that it also generally will deny applications for the export or reexport of items subject to the EAR for use by entities or subentities on the Cuba Restricted List, unless the transactions are determined by BIS, in coordination with the Department of State, to be consistent with the policy in the presidential memorandum. (For example, BIS might approve export or reexport license applications that relate to activities within the enumerated carve-outs described above, such as direct telecommunications and internet access for the Cuban people and the sale of agricultural commodities.)
2. Amendment of License Exception SCP