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Keep Calm and Carry On - 5 Brexit Takeaways for U.S.-based Companies

August 10, 2016 – Kegler Brown Global Business News

by Vinita Mehra

Smart Summary

It may take up to two years for the U.K. to actually exit the E.U.
U.S. companies could use another E.U. member as an entry point.
U.S. companies may want to consider a separate IP protection strategy focused only on the U.K.
New E.U. General Data Protection Regulation, which was set to enter into force in May 2018, will likely not apply in the U.K.
The U.K. will have to negotiate its own trade deals or use WTO rules.

While Brexit made international headlines, and rightly so, its effects won’t be felt immediately, and there are a few reasons it might not be as devastating to U.S. companies as you may think.

1. Keep Calm...

Although the U.K. voted to leave the E.U. on June 23, 2016, it will continue to be subject to E.U. law for at least two years. Once Article 50 of the Lisbon Treaty, the exit clause within the constitutional document of the E.U. , is invoked, the U.K. and the E.U. will have up to two years to negotiate the terms of the split. British Prime Minister Theresa May has indicated that she will not invoke Article 50 before the end of 2016, if she invokes it at all. Whether or not she does, and there still is a possibility that it will not happen, it would take a significant period of time to negotiate new treaties and agreements with the E.U., non-E.U. countries, and even U.K.-member Scotland, which voted to keep the U.K. in the E.U.

We predict that the E.U. will take a tough negotiating position with the U.K. in order to discourage other E.U. member states from following U.K.'s lead and to ensure that “Brexit means Brexit”. Until the negotiations are finalized and new arrangements are in place, the U.K. will continue to abide by E.U.treaties and laws. Therefore, while the British have voted in its favor, the “Brexit” has not yet actually occurred.

2. Preserve Access to the European Single Market.

In the meantime, the U.K. will no longer serve as a springboard into the E.U. for multinational companies. We assess that the U.K.'s economic uncertainty, especially in this transitional phase, will prompt many global companies to relocate their core European operations from the U.K. to E.U.-member states in order to ensure continued access to the European single market. Belgium, Germany, and Ireland are attractive strategic options for U.S. companies looking at, and reconsidering their strategies for, the European single market.

3. Protect IP in E.U. + U.K., respectively.

U.K. IP rights are derived to a large extent from E.U. law. We believe that the transition of all E.U.-based trade mark rights to U.K.-based protection will be simple and cost effective and predict that the priority/filing dates will be maintained. We hope and expect that the transitional provisions will be agreed to between the U.K. and E.U. without any loss of rights, whether automatically applied or made on application. However, currently, no discussions have taken place on what the transitional provisions will be with respect to transfer of IP rights from E.U. to U.K. Therefore, U.S. companies could consider to mitigate any risk by undertaking to file for additional U.K. protection now, as a precaution.

4. Have a better understanding of the Data Protection laws.

Data transfers from the E.U. to the U.K. will not be seen as internal transfers, meaning that they will be prohibited, unless the E.U. determines that the U.K. affords adequate protection. Alternatively, transfers may need to be covered through other means currently used for Trans-Atlantic transfers (such as Binding Corporate Rules, Standard Contractual Clauses, or Privacy Shield-like systems), which are under discussion now. U.S. companies with their main E.U. base in the U.K. may have to consider putting adequate data protection policies in place to be in compliance with respect to data transfer between their U.K. and E.U. entities.

5. …And Carry On.

Quitting the E.U. means that the U.K. will not be a party to the Transatlantic Trade and Investment Partnership (“TTIP”) currently being negotiated between the U.S. and the E.U. Rather, the U.K. will have to negotiate a separate bi-lateral trade deal with the U.S. that will encompass intellectual property, consumer product standards, and tariffs, among other topics. If the U.K. fails to negotiate a trade deal with either the E.U. or the U.S. , it will trade under more restrictive World Trade Organization rules, which will likely not only impact tariffs to and from the U.K., but also complicate the reciprocity of intellectual property and foreign investment protection, along with environmental and labor regulations.

Although the U.K. will continue to abide by E.U. treaties and laws for at least the next two years, U.S.-based companies may minimize the uncertainty of Brexit by shifting operations to E.U.-member states and preserving access to the European single market. The inevitable changes to British regulatory and statutory compliance programs remain to be written. Therefore, it will be essential for U.S. companies to closely monitor the changes on the other side of the Atlantic, and be prepared to reevaluate and adapt their E.U./U.K. strategies upon new developments.

For further information about the impact of Brexit on U.S. companies’ E.U. operations, and businesses, contact Vinita Mehra (vmehra@keglerbrown.com).

New OFAC Changes Continue March Toward End of Cuban Embargo

March 21, 2016 – Kegler Brown Global Business News

by Luis M. Alcalde

Legalizing U.S. Dollar Banking Transactions + Allowing “Self-Directed Individual People-to-People” Trips to Cuba Highlight Updated Regs

Shortly before President Obama’s trip to Havana, the Office of Foreign Assets Control of the U.S. Treasury (“OFAC”) announced more regulatory changes that continue to improve many commercial and sociopolitical aspects of U.S.-Cuba relations. These new changes are primarily related to:

Authorizing Self-Directed Individual People-to-People Travel (Pure Tourism Still Prohibited)
Employing and Compensating Cubans
Consuming Cuban-Origin Merchandise
Transferring Funds Through U.S. Banks
Creating Bank Accounts for Cuban Nationals
Establishing a Business Presence in Cuba
Establishing a Brick-and-Mortar Physical Presence in Cuba
Importing Cuban-Origin Software
Shipping and Porting
Exporting of Items Produced by the Cuban Private Sector
Providing Grants, Awards and Scholarships to Cuban Nationals

A full summary and analysis of the changes is outlined in the following article.

On Sunday, March 20, 2016, President Obama landed in Havana accompanied by several influential Cuban-American businessmen who were all former hardliners on Cuba, but who now want to end the Cuban embargo. Obama's historic landing occurs in the midst of a growing American chorus to end the embargo, as evidenced by U.S. opinion polls that show clear majorities of Democratic and Republican voters favor its end.

Ironically, at a time when the U.S. is politically polarized, ending the embargo is one of the few issues on which a majority of Democrats, Republicans and independents agree; many American companies and the U.S. Chamber of Commerce are also calling for an end to the embargo. Lobbying groups such as Engage Cuba, funded in part by American business interests, are mounting effective grassroots efforts in key states to push lawmakers "out of the closet" and to finally “vote their true beliefs” and end the embargo.

Moreover, contrary to what the hardliners in the U.S. say, the old policy of isolation was a complete failure. Anyone who has been to Havana lately can clearly see major changes, including (1) a growing private economic sector, (2) increased and improved access to the internet and mobile communications, and (3) signs that the Cuban government is working hard to attract more foreign investment and to settle any outstanding international debt issues.

Denial is ever-present when the end of anything held dear is near, but the fact remains that the U.S. embargo of Cuba is on “life support” while Congress musters the courage to pull the plug. In the meantime, OFAC's latest regulatory changes to legalize the use of the dollar in Cuba-related transactions and to permit individual, self-directed people-to-people trips will provide more opportunities for Americans to move forward on Cuba while the leadership in Congress catches up to what all the polls show the voters want.

The highlights of the OFAC changes announced on March 15, 2016, are as follows.

1. People-to-People Travel

Individuals taking people-to-people trips to Cuba will no longer need to do so with a group specializing in such trips. However, pure tourism is still prohibited and individuals will need to maintain records for five years demonstrating that they engaged in "a full-time schedule of educational exchange activities intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities and that will result in a meaningful interaction between the traveler and individuals in Cuba."

This is perhaps best explained by pointing to two of several examples provided by OFAC:

Example 2 to § 515.565(b): An individual plans to travel to Cuba to participate in discussions with Cuban artists on community projects, exchanges with the founders of a youth arts program, and to have extended dialogue with local city planners and architects to learn about historical restoration projects in Old Havana. The traveler will have a full-time schedule of such educational exchange activities that will result in meaningful interaction between the traveler and individuals in Cuba. The individual’s activities qualify for the general license, provided that the individual satisfies the recordkeeping requirement.

Example 4 to § 515.565(b): An individual plans to travel to Cuba to rent a bicycle to explore the streets of Havana, engage in brief exchanges with shopkeepers while making purchases, and have casual conversations with waiters at restaurants and hotel staff. None of these activities are educational exchange activities that will result in meaningful interaction between the traveler and individuals in Cuba, and the traveler’s trip does not qualify for the general license.

2. Payment of Salaries

New section (a)(5)(i) explicitly authorizes the receipt of any salary or other compensation consistent with the individual’s non-immigrant status or other non-immigrant travel authorization, provided that the recipient is not subject to any special tax assessment by the Cuban government in connection with the receipt of the salary or other compensation.

New section 515.571(e) authorizes all transactions related to the sponsorship or hiring of a Cuban national to work in the United States and provides that an employer may not make additional payments to the Cuban government in connection with the sponsorship or hiring of a Cuban national. Section 515.571(e) also authorizes transactions in connection with the filing of an application for non-immigrant travel authorization.

3. Cuban-Origin Merchandise

Certain dealings in Cuban-origin merchandise are authorized by individuals for personal consumption while in a third country. Individuals are also authorized to receive or obtain services from Cuba or a Cuban national that are ordinarily incident to travel and maintenance within a third country. This authorization will allow, for example, Americans traveling in Europe to purchase and consume Cuban-origin alcohol and tobacco products while abroad similar to the travel exemptions in other sanctions programs.

4. U-Turn Payments Through the U.S. Financial System + Processing of U.S. Dollar Monetary Instruments

From the perspective of the Cuban government, these are likely the most significant new regulations. An amended General License found in 31 C.F.R. 515.584(d) permits funds transfers from foreign banks to pass through one or more U.S. financial institutions before being transferred to another foreign bank, if neither the originator nor the beneficiary of that transfer is a person subject to the jurisdiction of the United States.

New section 515.584(g) authorizes U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions. Correspondent accounts used for transactions authorized pursuant to this section may be denominated in U.S. dollars.

Nevertheless, it is important to note that, while U.S. banks can now engage in these limited financial transactions involving Cuba, the embargo remains in place. Moreover, these regulations do not require U.S. banks to actually perform these transactions. It remains to be seen whether any U.S. banks actually engage in these transactions while still having exposure for violations of other Cuban embargo rules.

5. U.S. Bank Accounts for Cuban Nationals

U.S. banking institutions are also authorized to open and maintain bank accounts in the United States for Cuban nationals in Cuba to receive payments in the United States for authorized or exempt transactions and to remit such payments back to Cuba.

6. Business Presence

OFAC is expanding the authorization to establish a business presence in Cuba to include the following additional categories of persons subject to U.S. jurisdiction (all of whom were previously authorized to establish a physical presence):

exporters of goods authorized for export or reexport to Cuba by section 515.533 or section 515.559 or that are otherwise exempt;
entities providing mail or parcel transmission services authorized by section 515.542(a) or providing cargo transportation services in connection with trade involving Cuba authorized by or exempt from the prohibitions of this part; and
providers of travel and carrier services authorized by section 515.572.

OFAC is clarifying that the business and physical presence authorization for providers of internet-based services extends to persons engaged in transactions authorized by section 515.578(e)

7. Physical Presence

OFAC is expanding the previous authorization for physical presence to include the following additional categories of persons subject to U.S. jurisdiction:

entities engaging in non-commercial activities authorized by section 515.574 (Support for the Cuban People);
entities engaging in humanitarian projects set forth in section 515.575(b) (Humanitarian projects); and
private foundations or research or educational institutes engaging in transactions authorized by section 515.576.

OFAC is also adding a note to clarify that the activities that may be carried out by exporters of items exported or re-exported pursuant to authorization by the Department of Commerce or OFAC, or that are otherwise exempt, at a physical presence authorized by this section include the assembly of such items in Cuba.

8. Importation of Software

The Cuban Asset Control Regulations currently authorize the importation of Cuban-origin mobile applications. OFAC is expanding this authorization to allow the importation of Cuban-origin software.

9. Shipping

The Department of Commerce is generally authorizing vessels to transport authorized cargo from the United States to Cuba and then sail to other countries with any remaining cargo that was on-loaded in the United States.

10. Cuban Private Sector

The Department of Commerce is adopting a licensing policy of case-by-case review for exports and re-exports of items that would enable or facilitate exports from Cuba of items produced by the Cuban private sector.

11. Grants and Awards

OFAC is adding a new provision in section 515.565 to authorize the provision of educational grants, scholarships, or awards to a Cuban national or in which Cuba or a Cuban national otherwise has an interest. This could include, for example, the provision of educational scholarships for Cuban students to pursue academic studies for a degree. OFAC is also adding a note to section 515.575(b) to clarify that the existing authorization includes provision of grants or awards for humanitarian projects in or related to Cuba that are designed to directly benefit the Cuban people as set forth in that section.

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