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Timestamp: 2017-02-20 22:49:32
Document Index: 657340744

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Free Internet, Free Cuba: How Easing U.S. Sanctions and a Havana Google Internet Café May Transform Cuba’s Telecommunications and Internet Industries
Free Internet, Free Cuba: How Easing U.S. Sanctions and a Havana Google Internet Café May Transform Cuba’s Telecommunications and Internet Industries by Leigh T. Hansson and Julianne K. Nowicki
On March 15, 2016, President Obama embarked on a historic visit to Cuba, marking the first time that a U.S. president visited the country in 90 years.1 In his Havana speech, the president stated, “The [i]nternet should be available across the island, so that Cubans can connect to the wider world and to one of the greatest engines of growth in human history.”2 This statement mirrors his earlier views when he first initiated major diplomatic and policy changes in U.S.-Cuba relations. In December 2014, President Obama stated, “I believe in the free flow of information. Unfortunately, our sanctions on Cuba have denied Cubans access to technology that has empowered individuals around the globe. So I’ve authorized increased telecommunications connections between the United States and Cuba.”3 In effecting the president’s desire for the free flow of information to Cuba, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC), and the U.S. Department of Commerce, Bureau of Industry & Security (BIS) have recently made a number of amendments to their regulations, paving the way for U.S. telecommunications and internet service providers to enter the Cuban market.
Reports indicate that Google is setting the stage to enter the Cuban economy and be a major service provider on the island.4 In March 2016, Google announced that it would open the “Google + Kcho.Mor” technological center in Havana to enable Cubans to familiarize themselves with Chromebook laptops and provide free internet access.5 Currently, there is limited bandwidth and a significant cost associated with providing internet access.6 Where internet connection is available, the connection is often very slow.7 Previously, Cubans paid $4.50 an hour for web browsing, which was recently reduced to $2 an hour at public WiFi hotspots, a significant sum considering the population’s low wages of $26 a month.8 Internet access is only available in 35 public WiFi hotspots, which are operated by Cuba’s state-owned telecommunications company, ETESCA. Internet content remains censored by the government.9 In 2014, a total of 12.9 percent of Cubans had computers at home, while 4.1 percent of households had access to dial-up internet.10 The connection is slow compared to what most Americans and the western world have become accustomed to, and wireless internet is not yet available to the general population.11 The regulatory changes, combined with consumer demand, have sparked interest among major U.S. telecommunications and internet service providers, such as Google, which seek to provide such services to well-educated but technologically disadvantaged Cubans.12 In the past few months, Google has joined forces with artist Alexis Machado as part of a greater cooperative effort to establish the equivalent of an “internet café” in Havana and provide free internet access to the Cuban population.13 In small steps, changes in the U.S. sanctions and export regulations seek to improve the “free flow of information” to the Cuban people.14 This article provides an overview of the recent regulatory changes in the U.S.-Cuba sanctions regime and export laws specific to the telecommunications and internet industries.
OFAC Sanctions Regarding Cuba
U.S. trade and economic sanctions imposed against Cuba are primarily enforced by the Treasury Department’s Office of Foreign Assets Control (OFAC) through the Cuban Assets Control Regulations (31 C.F.R. Part 515) (CACR), and the Commerce Department’s Bureau of Industry and Security (BIS) through the Export Administration Regulations (15 C.F.R. Parts 730-774) (EAR). While there is some overlap, OFAC generally has jurisdiction to restrict the provision of services and funds to Cuba, while BIS has jurisdiction to license and/or prohibit the export or re-export of U.S.-origin items to Cuba. The agencies have worked together to implement regulatory changes reflecting the new U.S. policy and approach regarding diplomatic relations with Cuba.
OFAC Sanctions: Impact on Telecommunications in Cuba
The CACR now provides for a general license authorizing transactions, including payments, which are incident to the provision of telecommunications services related to the transmission or receipt of telecommunications involving Cuba.15 The CACR defines “telecommunications services” to include data, telephone, telegraph, internet connectivity, radio, television, news wire feeds, satellite transmissions, and similar services.16 The telecommunications services general license currently allows for the following:
• U.S. persons may enter and perform roaming service agreements with telecommunications services providers in Cuba.
• U.S. persons may enter into contracts with telecommunications service providers or individuals in Cuba, provided they are not government officials or prohibited members of the Cuban Communist Party.
• U.S. persons may make payments under contracts with telecommunications service providers or Cuban nationals, provided they are not government officials or prohibited members of the Cuban Communist Party.
• Telecommunications companies may establish facilities to provide telecommunications services linking the U.S. or third countries and Cuba and pursue transactions incident to establishing such facilities, including fiber-optic and satellite facilities.
• U.S. persons can now enter into licensing agreements related to telecommunications services for roaming agreements.
• U.S. persons may also enter into licensing agreements related to contracts with telecommunications service providers or establishing a telecommunications facility in Cuba.
The normalization of U.S. relations with Cuba has led to increased business opportunities for both U.S. and Cuban parties, and U.S. companies already seem to be taking advantage of the general license. T-Mobile will begin to offer cheaper calls and roaming options for phone services in Cuba. The deal is the result of an agreement between T-Mobile and the state-owned ETESCA.17 Verizon has also signed an agreement with ETESCA to expand roaming services.18 The general license does have notification and reporting requirements. Individuals must notify OFAC in writing within 30 days of offering the authorized telecommunications services, and they must provide semiannual reports with the total amount of payments for such services.19
The general license does not, however, authorize the export or re-export of telecommunications products to Cuba. Authorization from BIS must be obtained prior to exporting such equipment.20 Authorizations for telecommunications services can be seen woven throughout other OFAC general licenses. For example, travel for professional meetings related to telecommunications services is now authorized.21 OFAC has also provided authorization for travel related to market research, commercial marketing, sales, contract negotiation, delivery, installation, leasing or servicing in Cuba of items consistent with the Department of Commerce’s export policy.22 Also, U.S. providers of certain telecommunications and/or internet services may now establish a physical and business presence in Cuba.23 The business presence may include subsidiaries, branches, offices, joint ventures, franchises, and agency or other business relationships with Cuban individuals or entities.24 Marketing activities related to establishing a telecommunications or internet business presence are also authorized.25
OFAC has also clarified that U.S. entities may engage with Cuban state-owned telecommunications and internet service providers pursuant to a general or specific license.
Those telecommunications services not specifically identified in the CACR and otherwise prohibited by the CACR continue to require an application for a specific license, subject to a policy of denial, such as investment in domestic telecommunications networks in Cuba and/or entering into joint ventures with telecommunications state-owned entities controlled by the Cuban government, officials, or military.
OFAC Sanctions: Impact on Internet Services in Cuba
The CACR now provides a general license for the export of internet services from the U.S. to Cuba. These services include instant messaging, chat, email, social networking, photo/movie sharing, web browsing, blogging, and web hosting.26 Transactions incident to providing fee-based internet services, like email, social networking, VOIP, web-hosting, and domain-name registration are now authorized. Other types of transactions OFAC has stated are authorized include “peering,” which is an arrangement of traffic exchange between networks, and “caching,” which is the provision of data storage systems to reduce internet network traffic.27
The general license authorizes software design, business consulting, and IT management services (including cloud storage), which are necessary to install, repair, or replace items related to internet services.28 The general license even allows for the export of certain internet-based services to prohibited officials of the government of Cuba and prohibited members of the Cuban Communist Party, provided the services are widely available to the public at no cost to the user.29 OFAC also indicates that licensing agreements and marketing related to internet services is authorized, as well as importation of Cuban-origin software and mobile applications into the U.S. U.S. persons may now employ Cuban nationals to develop mobile applications.30
BIS Export Laws and Licensing Policy Regarding Cuba
Because the U.S. continues to maintain an embargo on trade with Cuba, the export and re-export to Cuba of all items subject to the EAR continues to require a BIS license unless authorized by a license exception. On January 27, 2016, BIS revised its general policy of denial for exports of some items to Cuba, including certain telecommunications, agricultural, environmental protection, and commercial safety aircraft items, and items for use by human rights organizations and U.S. news bureaus.31 On March 16, 2016, BIS again revised its licensing policy regarding exports to Cuba.32 BIS stated it will review license applications on a case-by-case basis, if such license applications would enable or facilitate exports of items for Cuba’s private sector.33 Items exported to “meet the needs of the Cuban people,” including exports to Cuban state-owned enterprises, agencies, and organizations, are now reviewed on a case-by-case basis.34 BIS stated that approving certain licenses is consistent with the administration’s policy of supporting the Cuban people as they seek to gain independence.35 A licensing policy of denial still applies to exports to the Cuban government, which primarily generate revenue for the state, or exports to Cuba’s military, police, intelligence, or security services.36 License Exceptions Applicable to Cuba’s Telecommunications Industry
The Export Administration Regulations (EAR) currently provide for two license exceptions applicable to telecommunications items: consumer communications devices (CCD) and license exception support for the Cuban people (SCP).37 License Exception CCD contains 17 communications items that are eligible for export to Cuba without a license, including products like computers, printers, monitors, modems, keyboards, digital cameras, and mobile phones.38 The computers must be generally available to the public and sold from stock at retail points.39 License exception CCD can be used for NGOs or individuals, other than certain prohibited officials of the Cuban government and Cuban Communist Party.40
License exception SCP authorizes exports of items that are intended to “improve the free flow of information to, from, and among the Cuban people.” Items that “improve communications” are limited to those classified as EAR-99 or controlled only for anti-terrorism (AT) reasons.41 The items “improving communications” under SCP must fall within one of the categories provided in the license exception, including 1) telecommunications including internet access, use of internet services, infrastructure creation, and upgrades; 2) items for use by news media personnel; 3) items to gather and disseminate news to the public; and 4) commodities or software used by individuals or private sector entities to develop software improving the free flow of information or support private sector entities.42 License exception SCP provides another carve-out for the export of items to facilitate engagement, communications, and commerce among the Cuban people.43 The license exception was further expanded on March 16, 2016, to allow for the export of items for persons authorized to establish a physical or business presence in Cuba, including telecommunications businesses.44
The Future of Telecommunications in Cuba
Challenges remain for the full integration of the telecommunications and internet industry in Cuba. One hurdle is the dual-currency system in Cuba, which is comprised of Cuban pesos and convertible Cuban pesos (CUCs).45 Major U.S. companies, such as Netflix, have shown interest in doing business with Cuba, yet are unwilling to accept payment in pesos.46 Further, the Cuba embargo remains in place and many transactions between U.S. persons and Cuban nationals continue to be prohibited. The lack of infrastructure and the low income of Cubans will also pose challenges for developing a strong telecommunications and internet industry in Cuba.47 The population’s low wages also make it difficult to envision Cubans being able to purchase a smartphone for $600 or laptop for over $1,000.48
Despite these challenges, opportunity still awaits. Cuba’s GDP was $77.15 billion in 2015.49 Cuba’s population is comprised of 11 million consumers, the majority of which have a demand for telecommunications and internet services. Further, the Port of Havana is located just 198 nautical miles from the Port of Miami, which will facilitate trade as export restrictions continue to be eased.
Telecommunications: Opening a Segue for Other Industries in Cuba?
As the telecommunications industry in Cuba expands and U.S. sanctions continue to ease, it is likely other industries in Cuba will be impacted as well. Providing Cubans with access to the internet may result in the expansion of Cubans’ access and ability to use online payment processing tools, such as PayPal. U.S. sanctions will still need to be lifted for Cubans to fully use PayPal to engage in transactions requiring the processing of U.S. dollars, such as the receipt of U.S. dollars for business transactions.50 Remittances from U.S. persons to Cubans are currently authorized in limited amounts, but other transactions in U.S. dollars generally remain prohibited.51 The easing of sanctions in the telecommunications industry, however, has provided a crucial starting point for bridging diplomatic and trade relations between the U.S. and Cuba which could lead to the easing of other restrictions. Cubans may eventually be able to use online currency exchange systems or purchase U.S.-origin goods online as U.S. sanctions and export laws are eased. Cubans may become part of the “freelance economy” as its citizens gain greater access to the internet.52 Cubans will be empowered to offer freelance services online or start their own businesses. Because Cuba already has a well-educated population, its population is poised to take advantage of online job opportunities, such as content production, translation services, tutoring, teaching, and digital freelance work if it is afforded access to the internet.53
The easing of U.S. sanctions and export laws will also likely improve Cubans’ access to smartphones if affordable options are available on the market or sent by friends or family members in the U.S. Cubans will be able to more easily communicate with loved ones in Cuba or abroad with access to smartphones. With increased access to smartphones, Cubans may also be able to take advantage of independent contractor opportunities in the future, such as Uber or Lyft, which require the use of a smartphone.54 These increased job opportunities may further empower Cubans to earn additional income and become independent. These dramatic economic changes could soon be a reality as the U.S. continues to “promote a democratic, prosperous, and stable Cuba,” through revisions to its sanctions and export laws.55 Revisions to these laws will likely have a positive impact on Cubans’ lives in the immediate term, by enabling communication in Cuban society and the independence of Cubans and may result in the widespread reach of the internet in Cuba in the long-term.
1	Julie Hirschfield Davis, Obama Visits Cuba, N.Y. Times, March 20, 2016, available at http://www.nytimes.com/interactive/projects/cp/international/obama-in-cuba/havana-comments. 2	See The White House, Office of the Press Secretary, Remarks by President Obama to the People of Cuba (March 22, 2016), available at https://www.whitehouse.gov/the-press-office/2016/03/22/remarks-president-obama-people-cuba. President Obama’s recent visit to Cuba marked a significant point in furthering U.S.-Cuba relations and economic development in Cuba. On the president’s visit, he was joined by major U.S. companies like Google parent Alphabet Inc., Airbnb, PayPal, and Priceline, all seeking to be part of the ongoing political and economic changes between the United States and Cuba. 3	See The White House, Office of the Press Secretary, Statement by the President on Cuba Policy Changes (Dec. 17, 2014), available at https://www.whitehouse.gov/the-press-office/2014/12/17/statement-president-cuba-policy-changes. The road to restoring the United States’ relations with Cuba first became public on December 17, 2014, when President Obama announced the re-establishment of diplomatic ties with Cuba. In the past two years, a series of regulatory changes impacting various industries, including the shipping, agriculture, telecommunications, travel, non-profit/humanitarian, news and media, and financial industries have taken place. 4	Brody Mullins & Carol E. Lee, Google and Obama Administration Connect Over Cuba, Wall Street J., March 23, 2016, available at http://www.wsj.com/articles/google-and-obama-administration-connect-over-cuba-1458763836.
5	See Michael Weissenstein, Google Is Opening a Cutting-Edge Online Technology Center at the Studio of One of Cuba’s Most Famous Artists, Offering Free Internet at Speeds Nearly 70 Times Faster than Those Now Available to the Cuban Public, U.S. News, March 21, 2016, available at http://www.usnews.com/news/business/articles/2016-03-21/google-helps-offer-vastly-faster-internet-in-cuba. See also L. Eduardo Dominguez, Google + Kcho.Mor = Navigation, Art and Study (+Video) (March 29, 2016), available at http://www.cubadebate.cu/noticias/2016/03/29/google-kcho-mor-navegacion-arte-y-estudio-video.
6	See Freedom House, Freedom on the Net 2015 at 2, https://freedomhouse.org/report/freedom-net/2015/cuba. The report states that most users can only access government-controlled intranet rather than global internet, where the hourly connection cost amounts to 10 percent of a Cuban’s minimum monthly wage.
8	A recent economic report released by the Cuban government indicates that the average monthly salary for 2015 was 687 Cuban pesos, which is equivalent to approximately $26 U.S. dollars. See Oficina Nacional de Estadistica e Informacion, Anuario Estadistico de Cuba 2015 — Empleo y Salarios at 13, available at http://www.one.cu/aec2015/07%20Empleo%20y%20Salarios.pdf.
10	See International Telecommunication Union, Measuring the Information Society Report 2015 at 218 (2015), available at http://www.itu.int/en/ITU-D/Statistics/Pages/publications/mis2015.aspx. The International Telecommunication Union is a specialized agency of the United Nations that is responsible for addressing issues that concern information and communication technologies. The ITU is “committed to connecting all the world’s people — wherever they live and whatever their means. Through our work, we protect and support everyone’s fundamental right to communicate.” See also ITU, About ITU, http://www.itu.int/en/about/Pages/default.aspx.
11	See Freedom House, Sanja Kelly, et al. eds., Freedom of the Net 2013 (2013).
12	See Freedom House, Freedom on the Net 2015 at 5, https://freedomhouse.org/report/freedom-net/2015/cuba. The report states that the prohibitively high costs of computers and internet access keeps them beyond the reach of the majority of the Cuban population.
13	See CBS Tampa Bay, The Latest: Google Offering High-Speed Internet at Cuba Café (March 21, 2016) available at http://tampa.cbslocal.com/2016/03/21/the-latest-google-offering-high-speed-internet-at-cuba-cafe.
14	See The White House, Office of the Press Secretary, FACT SHEET: One-Year Anniversary of the President’s Policy of Engagement with Cuba (Dec. 16, 2015), available at https://www.whitehouse.gov/the-press-office/2015/12/16/fact-sheet-one-year-anniversary-presidents-policy-engagement-cuba. 15	31 C.F.R. §515.542(b).
16	31 C.F.R. §515.542(h).
17	See Aaron Pressman, T-Mobile Customers Getting Roaming in Cuba, Fortune (May 9, 2016), available at http://fortune.com/2016/05/09/t-mobile-roam-cuba.
18	See Daniel Trotta, Verizon Signs Direct Connection Agreement with Cuba, Reuters (March 14, 2016), available at http://www.reuters.com/article/us-usa-cuba-verizon-idUSKCN0WG2KR.
19	31 C.F.R. §515.542(g).
20	31 C.F.R. §515.533.
21	31 C.F.R. §515.564(a).
22	31 C.F.R. §515.533(d).
23	31 C.F.R. §515.573(c)(1)-(2).
24	31 C.F.R. §515.573(b).
25	31 C.F.R. §515.573(a)(2).
26	31 C.F.R. §515.578(a)(1).
27	See OFAC, FAQ Guidance re Cuba Sanctions.
28	This includes items exports to Cuba under License Exceptions Consumer Communication Devices (CCD) or Support for the Cuban People (SCP). It also includes foreign-origin items not subject to the EAR, but which would be EAR-99 and described in CCD or items described in (d)(4) of SCP.
29	These are the internet services described in §515.578(a)(1)-(2).
30	31 C.F.R. §515.578(c)-(e).
31	See 15 C.F.R. §746.2.
32	See 81 FR 13972.
34	See 81 FR 4580. This includes items for domestic consumption by the Cuban people and items for a variety of other purposes, like agricultural production, artistic endeavors, education, public health, and sanitation, food processing, disaster preparedness, relief and response, and public transportation.
35	Id. 36	Id.
37	15 C.F.R. §740.19 and §740.21.
38	15 C.F.R. §740.19(b). 39	Id.
40	15 C.F.R. §740.19(c).
41	15 C.F.R. §740.21(d).
43	15 C.F.R. §740.21(e).
44	81 FR 13972.
45	Silvia Dreher, Association for the Study of the Cuban Economy, Monetary Policy in Cuba, available at http://www.ascecuba.org/c/wp-content/uploads/2014/09/v19-dreher.pdf.
46	See Samuel Burke, Netflix Takes a Leap of Faith on Cuba, CNN (February 11, 2015), available at http://money.cnn.com/2015/02/11/technology/netflix-cuba. 47	Pablo Alonso & Alec Lee, The Potential and Pitfalls of Doing Business in Cuba, Harvard Business Rev. (March 16, 2016), available at https://hbr.org/2016/03/the-potential-and-pitfalls-of-doing-business-in-cuba.
48	See note 8. See also Anne Nelson & Debi Spindelman, Business Unusual in Cuba, Foreign Affairs (April 5, 2016), available at https://www.foreignaffairs.com/articles/cuba/2016-04-05/business-unusual-cuba (discussion on the remaining challenges of doing business in Cuba despite the lifting of certain sanctions).
49	See Worldbank.org, Cuba, http://data.worldbank.org/country/cuba. 50	31 C.F.R. §515.520. All dealings including transfers, withdrawals, or exportations of property by a U.S. person in which Cuba or a Cuban national has an interest remain prohibited unless authorized by a general or specific license.
51	In September 2015, OFAC removed the cap on nonfamily remittances to Cuban nationals, which was previously $2,000 per quarter and now refers to them as “donative remittances.” 31 C.F.R. §515.570(b). There is no limit on the amount or frequency of family remittances by U.S. persons at least 18 years of age to close relatives in Cuba. 31 C.F.R. §515.570(a). See also Mark P. Sullivan, Congressional Research Service, Cuba: U.S. Restrictions on Travel and Remittances (June 20, 2016), available at https://www.fas.org/sgp/crs/row/RL31139.pdf (discussion on the policy changes for U.S. restrictions on remittances to Cuba). 52	Brian Rashid, The Rise of the Freelancer Economy, Forbes (Jan. 26, 2016), available at http://www.forbes.com/sites/brianrashid/2016/01/26/the-rise-of-the-freelancer-economy/#25470eda379a. The article discusses the rampant growth of the “freelancer economy” in the U.S. and asserts that by 2020 almost 50 percent of America’s population will be freelancers. Individuals will be able to be part of this economy due to their access to the internet and participation in freelance websites such as Uber and Airbnb.
53	Clive Kronenberg, Why Cuba Is an Education Success Story and What It Can Teach Africa, Huffington Post, April 20, 2016, http://www.huffingtonpost.com/the-conversation-africa/why-cuba-is-an-education_b_9735818.html. The article provides that the primary school admission rate has remained at 99 percent for Cubans, while the secondary school admission rates remain 78 percent for boys and 82 percent for girls.
54	See Uber, https://www.uber.com/drive/; Lyft, https://www.lyft.com/drive-with-lyft. Uber and Lyft are examples of ride-sharing applications that enable drivers to earn additional income for completing trips for passengers. Drivers complete trips by accepting requests for transportation and payments from passengers on their smartphones. 55	The White House, Office of the Press Secretary, FACT SHEET: Chartering a New Course on Cuba (Dec. 17, 2014), available at https://www.whitehouse.gov/the-press-office/2014/12/17/fact-sheet-charting-new-course-cuba.
Leigh T. Hansson is a partner and leader of the International Trade & National Security team at Reed Smith. She has significant experience representing multi-national corporations in a wide range of industries in investigations, audits, and developing compliance programs. Hansson counsels clients in the legal regimes that govern international trade including the FCPA, EAR, ITAR, OFAC, and European Union sanctions.
Julianne K. Nowicki, an associate with Reed Smith, LLP, Washington, D.C., counsels clients facing export/import issues that are governed by a wide range of government agencies, including the Department of State, CBP, and OFAC. Her experience includes guiding companies through trade compliance audits, investigations and consent agreements; developing trade compliance policies and procedures; and providing global trade compliance employee trainings. She is a member of The Florida Bar.