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New U.S.-Cuba Sanctions Regulations - A Reminder To Conduct Due Diligence

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Tuesday, 28 November 2017 16:12

By: Arthur M. Freyre

The Treasury Department’s Office of Foreign Assets Control (OFAC), along with the Department of Commerce’s Bureau of Industry and Security and the State Department, issued new regulations to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) on November 8, 2017.[i]

The new regulations implement the changes to the Cuba sanctions program that were announced in June 2017 as part of President Trump’s National Security Presidential Memorandum on Cuba.[ii]

The OFAC regulations that went into effect on November 9, 2017, among other things, prohibits persons subject to U.S. law from doing business with certain entities and sectors of the Cuban government. This prohibition includes companies listed in the new U.S. State Department Cuba Restricted and Sub-entities list.[iii] If you, or your company, engage in any transactions in Cuba, these new prohibitions likely apply to you.

In accordance with President Trump’s new Cuba policy, one of the changes includes the State Department's List of Restricted Entities and Sub-entities Associated with Cuba (“Cuba Restricted List”). The Cuba Restricted List is intended to assist the CACR by listing certain government agencies that persons subject to U.S. law are prohibited from conducting business transactions, without prior U.S. government authorization or not at all.

This prohibition extends to and includes hotels, marinas, and other entities that are connected with those Cuban government agencies included on the list. The Cuba Restricted List puts persons subject to U.S. law on notice to avoid the aforementioned Cuban government agencies and their holdings. According to U.S. government officials the list will be revised periodically, with updates published in the Federal Register.

DoS Cuba Restricted List Breakdown

One of the less obvious questions for U.S. businesses involves the issue of dealing with subsidiaries of prohibited entities. This question tends to be very tricky to answer, since there is no general rule of thumb. In fact, the State Department included the following question in the updated Frequently Asked Questions release pertaining to the Cuba Restriction List:

Q. The entity with which I want to transact is not on the Cuba Restricted List, but its parent company is. Can I engage in a direct financial transaction with the sub-entity?

A. Yes. Entities or sub-entities that are owned or controlled by another entity or sub-entity on the Cuba Restricted List are not treated as restricted unless also specified by name on the list.[iv]

Based on this question, and other possible questions, it is important for persons subject to U.S. law, including subsidiaries of foreign companies with offices located in the United States, to seek counsel when planning to do business in Cuba, even if those “sub-entity” companies are not currently on the restricted list. Failure to conduct due diligence can be very costly, both legally and monetarily as well as from a public relations standpoint.

Although the regulations prohibit persons subject to U.S. law from doing business with certain entities, the CACR regulations allow for certain transactions in Cuba, such as those with small Cuban shops and homes including Casa Particulares (“private” residence), Paladares (“private” restaurants) and Cuentapropistas (“privately” owned stores run by self-employed Cubans). In this area, the Trump administration has essentially continued the Obama administration’s policy of closer contact with the people of Cuba while placing more stringent restrictions on support directed towards the government of Cuba.

Regardless of the amendments, or those to come, keep in mind that Cuba remains a nation with a central, command economy. The Cuban government owns an overwhelming percentage of the nation’s businesses or has significant connections to even those deemed “private”. Cuba’s legal definition of a private sector is not the same as in the United States or other free market nations.

Also consider that a majority of the property in Cuba is held “in commons” by the state and for public purposes. Very few individuals have “private property” or small businesses. The few individuals that do own private property have been granted ownership rights based on having good standing with the Communist Party or have met other sets of circumstances outlined under Cuban law.

If you are going to engage in U.S.-authorized transactions in Cuba, chances are you will directly or indirectly be doing business with the Cuban government. One of the challenges for foreign companies doing business in Cuba is making sure that the entities or individuals are not on one of several U.S. government watch lists.

With these new changes to the CACR, it is important to consider the following, if you are planning to engage in Cuba-related transactions:

  • The embargo against Cuba is still in effect;
  • U.S. embargo restrictions apply to U.S. persons, no matter where they are located, anywhere in the world;
  • Non-U.S. companies engaging in transactions in Cuba should take steps to ensure that properties that are the subject of the foreign investments or other business activities are not subject of a certified or other claim held by American citizens. There are exceptions to the unlawful “trafficking” sanctions. Consult an attorney.
  • Implement a system to ensure that you are in compliance with U.S. economic sanctions and export controls toward Cuba.

For more information on the types of services we provide, visit our page on Trade Security matters.

[i] See The Federal Register Notice on November 2017 Amendments to the Cuban Assets Control Regulations: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cacr_11082017.pdf  

[ii] The “National Security Presidential Memorandum on Strengthening the Policy of the United States Towards Cuba” was released by The White House Office of the Press Secretary on June 16, 2017. See: https://www.whitehouse.gov/the-press-office/2017/06/16/national-security-presidential-memorandum-strengthening-policy-united

[iii]The State Department's List of Restricted Entities and Sub-entities Associated with Cuba will be maintained by the State Department and may be periodically updated as necessary in the Federal Register. See: https://www.state.gov/e/eb/tfs/spi/cuba/cubarestrictedlist/275331.htm

[iv] “Frequently Asked Questions on the Cuba Restricted List” published by the State Department Bureau of Economic and Business Affairs on November 8, 2017. See: https://www.state.gov/e/eb/tfs/spi/cuba/cubarestrictedlist/275382.htm

Last Updated on Tuesday, 28 November 2017 16:27

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