The New U.S. – Cuba Relationship: How It Will Benefit Your Business
Kegler Brown Global Business News December 23, 2014
Through the leadership of the head of its Latin America practice, Luis Manuel Alcalde, a dual citizen of the United States and Cuba, Kegler Brown has deep experience with Cuba and has long prepared for the day when the U.S. and Cuba would increase its trade ties. Luis was born in Havana and with deep connections in Cuba, he has an intimate knowledge of the changing legal, political and business environment in Cuba. December 17, 2014, was a very exciting day for everyone who has been focused on Cuba for decades. President Obama announced the most sweeping changes in the relationship between the United States and Cuba in more than 50 years.
President Obama's policy changes begin the process of creating new opportunities for several sectors of the U.S. business community. The U.S. Chamber of Commerce and many other industry groups have called for complete normalization of trade and travel with Cuba. As widely reported in the media, a number of important U.S. business sectors are expected to have increased opportunities in Cuba as a direct result of the President's initiative. Those sectors include agriculture, agricultural equipment, travel, education, sports and entertainment, exporters of building materials and other commercial goods, banking, finance and telecommunications.
Within the next few months, Kegler Brown expects the Office of Foreign Assets Control (OFAC) and the Department of Commerce to issue new regulations specifically detailing how the President's initiative will be implemented. Kegler Brown will provide updates and analysis as the new regulations are published. You can subscribe to these updates here.
At the moment, here are eight key facts you should know:
1. Establishment of Diplomatic Relations and Evaluating Cuba's Removal from the List of State Sponsors of Terrorism
The President instructed the Secretary of State to immediately initiate discussions with Cuba on the re-establishment of diplomatic relations with Cuba, which were severed in January 1961. Similarly, the President has requested that the Secretary of State study Cuba's removal from the list of State Sponsors of Terrorism. Cuba's removal from the list would allow Cuba to seek international financing from international organizations such as the World Bank and the International Monetary Fund, and allow further exports of other restricted goods and services from the United States. While some congressional opponents of this Cuba initiative have vowed to block these efforts by working to withhold funding for a new embassy or to confirm an ambassador, it is unlikely that Congress will be able to prevent the re-establishment of diplomatic relations or Cuba's removal from the list of State Sponsors of Terrorism, should the President so decide.
2. Expansion of General License Categories for Travel to Cuba
The President has expanded the categories of general licenses available to travel to Cuba from eight to 12. General licenses will be made available for all authorized travelers in the following existing categories: (1) family visits; (2) official business of the U.S. government, foreign governments and certain intergovernmental organizations; (3) journalistic activity; (4) professional research and professional meetings; (5) educational activities; (6) religious activities; (7) public performances, clinics, workshops, athletic and other competitions and exhibitions; (8) support for the Cuban people; (9) humanitarian projects; (10) activities of private foundations or research or educational institutes; (11) exportation, importation, or transmission of information or information materials; and (12) certain export transactions considered for authorization under existing regulations and guidelines.
It is expected that the new regulations will make travel to Cuba via authorized travel providers licensed by OFAC much easier. This should allow Americans to provide business training for private Cuban businesses and small farmers, and provide other support for the growth of Cuba's nascent private sector. Moreover, new general licenses for public performances, clinics, workshops, athletic and other competitions and exhibitions should make it much easier for the sports and entertainment industries to hold events in Cuba. The new regulations may provide general licenses to travel to Cuba in order to promote new export activities related to agricultural equipment, building materials, commercial goods for entrepreneurs, financing, and telecommunications.
3. Increasing and Facilitating Remittances to Cuba by U.S. Persons
Remittance levels will be raised from $500 to $2,000 per quarter for general donative remittances to Cuban nationals (except to certain officials of the government or the Communist party) and donative remittances for humanitarian projects, support for the Cuban people and support for the development of private businesses in Cuba will no longer require a specific license. Remittance forwarders will no longer require a specific license. Greater remittances will increase the purchasing power of Cuba's small entrepreneurs to purchase additional goods from the United States as contemplated in the new regulations. The implementation of general licenses for remittances will speed up and increase remittances to a larger number of Cubans by eliminating bureaucratic paperwork and delays.
4. Authorizing Expanded Commercial Sales/Exports from the United States of Certain Goods and Services
For the first time, the U.S. will permit the export to Cuba of certain building materials for private residential construction, goods for use by private sector Cuban entrepreneurs and agricultural equipment for small farmers. We will need to wait for the exact wording of the regulations, but we can expect that the regulations may have "end user" validation requirements to ensure that these permitted exports are indeed being used for their intended purposes and intended recipients.
5. Authorizing American Citizens to Import Additional Goods from Cuba
Licensed U.S. travelers to Cuba will be authorized to import $400 worth of goods from Cuba, of which no more than $100 can consist of tobacco products and alcohol combined. The ability of American travelers to import goods of a commercial nature from Cuba will lead to increased cash flow on the island. Additionally, because there are daily flights between Miami and Havana, we can reasonably anticipate some small U.S. businesses will seek to commercialize Cuban goods carried back from Cuba by travelers. The upcoming regulations will tell us more about any other restrictions that may apply to these imports of Cuban goods.
6. Facilitating Authorized Financial Transactions between the United States and Cuba
i) U.S. institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, and U.S. credit and debit cards will be permitted for use by travelers to Cuba. For the first time in decades, U.S. financial institutions will be allowed to start doing some direct business in Cuba and with transactions related to Cuba. Given OFAC's aggressive enforcement of embargo violations, U.S. financial institutions will undoubtedly tread carefully once the new regulations are issued. Even so, the new initiative certainly will create new opportunities worth studying for U.S. financial institutions and also ease business and travel related transactions for Americans in Cuba.
ii) The regulatory definition of the statutory term "cash in advance" will be revised to specify that it means "cash before transfer of title." While Cuba would prefer that the U.S. allow credit sales to Cuba, this clarification of the definition may allow for easier commercial transactions involving letters of credit or other payment mechanisms following delivery and inspection of goods after their arrival in Cuba and before transfer of title.
7. Allowing Telecommunications Providers to Establish in Cuba
Telecommunications providers will be allowed to establish the necessary mechanisms, including infrastructure, in Cuba to provide commercial telecommunications and internet services, which will improve telecommunications between the United States and Cuba and inside Cuba. The Telecommunications Industry Association (TIA) issued a statement welcoming the President's actions to allow commercial exports of communications equipment to Cuba.
8. Updating the Application of Cuba Sanctions in Third Countries
i) U.S. owned or controlled entities in third countries will generally be licensed to provide services to and engage in financial transactions with Cuban individuals in third countries. In addition, general licenses will unblock the accounts at U.S. banks of Cuban nationals who have relocated outside of Cuba. Although we will need to wait on the OFAC regulations to be published, these two measures could open up many more avenues to engage in indirect trade with Cuba and Cubans through third countries while using foreign controlled subsidiaries.
ii) Allow foreign vessels to enter the United States after engaging in certain humanitarian trade with Cuba, among other measures. While we will need to see the regulations, easing the current restrictions on foreign vessels traveling to Cuba and then coming to the U.S. afterwards may lead to lower shipping costs to Cuba for other U.S. exports to Cuba.
More Cuba changes and regulations are sure to follow in the coming months.
Look to Kegler Brown's focus on Cuba for the latest updates in this evolving area. Kegler Brown is uniquely positioned to help U.S. business in any industry sector to take advantage of the business activities that are permitted now and build a strategy and the necessary relationships to be able to do business with Cuba in the ways that should be permitted as new regulations are issued for this new developing market. Please do not hesitate to contact us to explore how we can help you with your opportunities in doing business in Cuba or with Cubans.