OFAC Amends Cuban Assets Control Regulations, Increases Access to U.S. Businesses and Services

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) late last month amended the Cuban Assets Control Regulations (CACR) to further implement the Biden administration’s policy to bolster Cuba’s private sector and support the social, political, and economic rights of the Cuban people by providing greater access to U.S. businesses and services.

Through these newest amendments, the Biden administration has continued to ease restrictions on U.S.-based entities doing business with the Cuban people, including by supporting Cuban “independent private sector entrepreneurs.” This reflects changes to Cuba’s non-state sector, which now authorizes the establishment of small- and medium-sized private enterprises.

Among other changes, OFAC also expanded the authorization for exporting or re-exporting internet-based services to Cuba. It also reauthorized U.S. banks to process “U-turn” transactions involving Cuba. A brief summary of these changes is provided below.

Authorized Internet-Based Services and Software

In an effort to further the Biden administration’s policy objective of strengthening the social and economic freedom of the Cuban people and Cuban private sector, OFAC expanded the authorization for exporting or re-exporting internet-based services to Cuba as follows:

1. Additional examples of services incident to communications over the internet that can be exported or re-exported to Cuba. These examples include instant messaging, sharing photos and movies, web browsing, blogging, web hosting (provided that it is not for the promotion of tourism), domain-name registration, social media platforms, collaboration platforms, video conferencing, e-gaming and e-learning platforms, automated translation, web maps, and user authentications services. OFAC also authorized the exportation and re-exportation of services to support the exchange of communications over the internet, such as software design, business consulting, information technology management services, and cloud-based services.
2. Clarification of authorization for the provision of internet-based and cloud-based services. Such services are only authorized if they support the exchange of communications over the internet (g., the sharing of photos using the cloud is authorized, but web hosting “for the promotion of tourism” is not). Internet-based service providers are expected to conduct due diligence to ensure exports or re-exports of services are authorized and are not intended for a prohibited official of the Government of Cuba or a prohibited member of the Cuban Communist Party, or to organizations administered or controlled by the Government of Cuba or the Cuban Communist Party. Web hosting providers must also conduct due diligence and are expected to ensure that a hosted website is not “for the promotion of tourism.”
3. Other authorized communication-based services. OFAC authorizes the exportation or re-exportation of services, including training, to install, repair, or replace “items related to communications, or items used to develop software that improves the free flow of information or that will support private sector activities in Cuba.” OFAC further clarifies that services related to many kinds of software (including applications) used on personal computers, cell phones, and other personal communications devices are authorized, along with other services related to the use of such devices. The CACR still require authorization by the Department of Commerce for the exportation or re-exportation of services related to items subject to the Export Administration Regulations (EAR).
4. Authorization of Cuban-origin software. OFAC will authorize the importation into the United States, and the exportation or re-exportation from the United States to third countries, of Cuban-origin software and mobile applications.

Independent Private Sector Entrepreneurs

In order to bolster the Cuban private sector and the economic freedom of the Cuban people, OFAC is expanding the scope of Cuban nationals that can engage in business with the United States by replacing the term “self-employed individual” with “independent private sector entrepreneur.” This new term encompasses a Cuban national who is not a prohibited official of the Government of Cuba or a prohibited member of the Cuban Communist Party, and is one or more of the following:

• An owner, including a self-employed individual (cuentapropista), or employee of a small private business entity, private cooperative, or a sole proprietorship located in Cuba, in each case of up to 100 employees;
• An independent contractor or consultant;
• A small farmer who owns their own land;
• A small usufruct farmer who cultivates state-owned land to sell products on the open market; or
• A private cooperative or small private business entity located in Cuba of up to 100 employees that is owned only by individuals described in the four bullet points above.

This new term will expand the scope of authorized transactions between U.S.-based entities and Cuban nationals. For example, persons subject to U.S. jurisdiction are now authorized to import certain goods and services produced by independent private sector entrepreneurs and engage in associated transactions necessary to import these authorized goods and services. The U.S. Department of State maintains a list of the goods and services that are or are not authorized for importation into the United States from Cuba.

“U-Turn” Transactions

OFAC is reauthorizing “U-turn” transactions, which are transactions that (a) originate and terminate outside the United States and (b) where neither the originator nor beneficiary is subject to U.S. jurisdiction. This general license had been removed by OFAC in September 2019. With this general license, U.S. banks may now process “U-turn” transactions in which Cuba or a Cuban national has an interest. OFAC is also authorizing the unblocking and return of any “U-turn” funds transfers that were blocked prior to this reauthorization.

The reauthorization of the general license for “U-Turn” transactions will assist non-U.S. persons in their dealings with Cuba via access to the U.S. financial system and the use of U.S. dollars; however, there can be no other U.S. nexus in these transactions.

U.S. Bank Accounts

OFAC will now allow Cuban independent private sector entrepreneurs to open, maintain, and remotely use U.S. bank accounts to perform certain authorized or exempt transactions. Unlike “U-turn” transactions, here U.S. banks will not be acting merely as intermediaries; Cuban entrepreneurs will be allowed to use their U.S. bank accounts to send or receive payments involving certain transactions. Private sector entrepreneurs can perform the transactions regardless of their physical location.

Conclusion and Impact

OFAC’s updates to the CACR are expected to strengthen private Cuban businesses, support the social and economic freedom of the Cuban people, and facilitate business transactions between the United States and Cuban entrepreneurs. U.S.-based businesses — particularly those engaged in internet or communication-based services — may engage in more transactions with Cuba and Cuban nationals. The “U-Turn” transactions general license will provide for the limited use of the U.S. financial system for transactions that involve Cuba, provided that there is no other U.S. nexus. However, most transactions with Cuba remain prohibited, and businesses must conduct due diligence prior to engaging in any transactions authorized by these amendments to the CACR.

Contact us if you have questions about these new developments or their potential impact on your business.