|Friday, 13 February 2015 11:51|
CLIENT ALERT — United States Government Publishes A List of Goods and Services that May Be Imported to the United States from Cuban “Cuentapropistas”
Special Compliance Challenges in Store for Persons Subject to U.S. Law
(Washington, DC) On Friday, February 13 the State Department released additional new regulations designed to create “new opportunities for Cuba’s nascent private sector” by allowing the import to the United States of products and services from Cubans not working directly for the government or a government agency. The import list addition to the Cuban Assets Control Regulations (“CACR”), 31 C.F.R. § 515 come less than a month after the Treasury and Commerce Departments issued new regulations on January 16 that made it easier for Americans to travel and spend money in Cuba.
In addition to creating flexibility for certain travel and financial transactions, the CACR amendments announced by the Obama administration on January 16 also allow Americans to send unlimited amounts of money to individual Cubans, not tied to the government, in support of private businesses and independent non-governmental organizations. And in a rather somewhat historic move, the U.S. is also allowing persons subject to U.S. jurisdiction to engage in certain micro-finance activities, entrepreneurial training, and development projects in Cuba.
This carve-out or exception to U.S.-Cuba sanctions allow persons and companies subject to U.S. law to export items to Cuba including building materials, equipment, tools, and supplies for use by Cuban “private sector,” and not any entity owned or operated by the Cuban government. Cuba’s “private sector” remains a very small percent of the overall Cuban economy, subject to significant regulation and monitoring by the state. It will present special compliance challenges for Americans, and other persons subject to U.S. law.
Under Cuban Law and Decrees, “Self-Employment” is Akin to License, A Slight Exception to the Cuban Communist’s Party’s Official Role in the Economy
Earlier efforts by the Communist Party, the only legal political party in Cuba, to create “self-employment” (Decree Law 14, July 1978), failed for political, ideological, and economic reasons. However, there has been pressure to change this for many years because the centrally planned system has been failing for decades and is in desperate need of funds to support government-run social and other programs.
“Self-employment” in Cuba, if it can be called that, has been legal since the early 1990s when on Decree Law 141 went into effect on September 9, 1993. Decree Law 141 lists, among other things, more than 100 occupations that would qualify for the new license for a person in Cuba do business on their own. These are the people that the United States wishes to assist with the recent regulatory changes to the CACR.
Self-employment in Cuba, known as “trabajadores por cuenta propia” ("TCP") or “cuentapropistas” should not, for compliance purposes, be viewed in the same was as self-employment is categorized in the United States. The Communist Party decides what “jobs” will qualify for the TCP special exception to the Cuban Socialist Constitution and they add occupations to the list as needs warrant.
Ultimately, and as a matter of law, Cuban workers, even TCPs, work for the benefit of the state and it remains to be seen if this opening in the Cuban economy will continue or if, as it has happened in the past, will be shut down by the government on a haphazard basis or when it suits them for political reasons to do so.
Compared to the overall as well as potential labor pool, the number of TCPs is minuscule. Cuba’s workforce of approximately 4 million people, works overwhelmingly for the state. According to recent data from Cuba as well as U.S. sources, about 93% of the Cuban work force is employed by the government. As of 2014, there are roughly just 450,000 TCPs. These TCPs are mainly home-run family restaurants and persons operating taxi or car services for tourists. The data is hard to come by. Because of the fees and regulations imposed by the state on TCPs, many potential and official TCPs prefer to operate in Cuba's thriving black market or underground economy.
Finally, Cuban TCPs, unlike workers in the United States and other nations, do not enjoy or possess legal rights to things such as private property or, ironically, strong labor rights. Americans considering engaging in these new transactions in Cuba should also understand that dispute resolution mechanisms, due process of law, and other well established concepts in business and law are not widely available or simply not well-known in Cuba's nascent "official" business culture.
The Cuban government’s claims that there are changes coming in these and other related areas, but even if that were true, I have talked with lawyers on the island who say these proposed reformas are, at this juncture, more aspirational than reality. In fact the State Department says on its website that “[w]e cannot predict what the Cuban government will or will not allow, but we sincerely hope that it makes this and other new opportunities available to Cuba’s nascent private sector.”
Special Considerations for Americans and Other Persons Subject to U.S. Law
The new U.S. import rules are are authorized pursuant to what is known as a “general license,” (no special forms or application is needed); however, these transactions are still subject to many provisos, exceptions, and record-keeping requirements. Express prohibitions remain in place that ban persons subject to U.S. law from engaging in transactions in a wide array of situations that include, but are not limited to, transactions with Cuban government agencies, high-ranking Cuban officials and family members, human rights abusers, and individuals trafficking in properties that are subject to a U.S. certified claim.
The “Section 515.582 List” published today include goods and services produced or provided by independent Cuban entrepreneurs -- TCPs -- that are imported into the United States directly from Cuba, except for goods specified in several sections/chapters of the Harmonized Tariff Schedule of the United States (HTS).
According to the U.S. government, persons subject to U.S. jurisdiction engaging in import transactions involving goods produced by an independent Cuban TCPs pursuant to 31 C.F.R. § 515.582 must obtain documentary evidence that demonstrates the entrepreneur’s independent status, such as a copy of a license to be self-employed issued by the Cuban government or, in the case of an entity, evidence that demonstrates that the entrepreneur is a private entity that is not owned or controlled by the Cuban government. On this point of documentary evidence, the State Department says:
The Cuban government issues licenses to private individuals for self-employment or to operate small private businesses. Evidence that the entrepreneur holds this license, such as a copy of the license, is one way that a person subject to U.S. jurisdiction can show that the entrepreneur that provided the goods/services intended for importation holds independent status. However, third party verification by an independent organization may also suffice in the future.
In other words, what constitutes “documentary evidence” is a work in progress.
Finally, U.S. persons subject to the CACR should also be aware that there are express prohibitions in U.S. law that ban what is known as “trafficking” in Cuban properties that are subject to claims under U.S. law.
During the early years of the Cuban Revolution, the Cuban government confiscated properties, businesses, or refused to honor debts and its other financial obligations of held by hundreds of thousands of American citizens and Cuban nationals. Although legally-required to do under Cuban as well as well-established international law norms, the Cuban government never paid compensation for any of these unlawful confiscations. The current value, for example, of U.S. Certified claims alone is close to $8 billion. Without U.S. government approval, rare in these cases, persons subject to U.S. law are prohibited from engaging in transactions in Cuba if a property that is subject of a claim is part of a transaction.
While some of these policy changes are historic, I’m sticking with what I told the Wall Street Journal February 2 and caution that there still remains a great deal of ‘irrational exuberance’ about what these changes will mean for Americans, and to a certain extent, Cuban TCPs. If you plan to engage in transactions with TCPs, you should strongly consider retaining counsel familiar with U.S. laws, regulations, and policy , as well as some knowledge Cuban laws and realities on the ground in Cuba.
It will be interesting to see in the weeks and months ahead how the United States government deals with questions of potential trafficking in properties in Cuba, as well as the other potential legal minefields that certainly lay ahead. We will be publishing updates and additional analysis on this matter in the near future. The “Section 515.582 List” can be accessed at the State Department website.
In the meantime, if you would like more information about this or other trade security issues related to Cuba or other countries or programs, please give us a call.
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