December 14, 2016
By: Anna Sayre, Legal Content Writer, SanctionsAlert.com

On November 28, 2016, the first normally scheduled commercial flight landed in Havana from Miami on an American Airlines jet. The flight took place exactly 13 years 5 months and 1 day after the airline settled a US$47,250 enforcement action with US Treasury’s Office of Foreign Assets Control (OFAC) in 2003 for sanctions violations involving travel-related services to Cuba.

Since the US broke off diplomatic ties with Cuba over 50 years ago, relations between the two countries have finally eased.  Last month’s American Airlines flight to Cuba is the culmination of many years of talks and compromises, which has come to be known as the “Cuban Thaw”, and marks the slow end of an economic standoff that has outlasted 10 US presidents, a nuclear crisis, and countless boatloads of Cuban asylum seekers.

Since December 2014, US President Obama has vowed to improve relations with Cuba and he has done just that. However, compliance professionals may wonder what these new relations with the long embargoed Caribbean country mean for compliance, and how this newfound warming of relations will play out in the current enforcement climate.

A brief history of US-Cuban relations

The histories of Cuba and the US have long been intertwined. Since 1960, the US has maintained an economic embargo against Cuba, keeping the country in a perpetual static time machine.

Key moments in US-Cuban relations
1959: Castro overthrows Batista and becomes PM of Cuba.
1960: Following economic reforms by Castro, US breaks off diplomatic relations and imposes a trade embargo on Cuba.
1961: US backed invasion, Bay of Pigs; Castro proclaims Cuba a communist state and develops ties with the USSR.
1962: Cuban missile crisis; all economic and diplomatic ties between the US and Cuba are severed.
1993: The US tightens its embargo on Cuba and, resulting in Cuba introducing certain market reforms.
2001: US exports food to Cuba in order to help Cuba cope with the aftermath of Hurricane Michelle.
2002: Former US President Jimmy Carter makes the first goodwill visit by a former or serving President since 1959.
2006: 10-member US bipartisan delegation travels to Havana hoping to launch a “new era in US-Cuba relations”.
Nov 2008: Barack Obama is voted in as US President-elect.
Dec 2014: President Obama announces economic and diplomatic changes, charting a ‘new course’ for US-Cuban relations.
Jan 2015: first amendments to CACR following President Obama’s announcement, easing sanctions on Cuba.
July 2015: President Obama announces that the US has agreed to formally re-establish diplomatic relations with Cuba.
Sept 2015, Jan, Mar 2016: further amendments made to CACR.
March 2016: President Obama becomes the first US president to visit Cuba since 1928.
Aug 2016: Commercial flights from the US to Cuba resume for the first time in more than 50 years.
Oct 2016: Most recent amendments made to the CACR.

In 1959, following an overthrow of the military dictatorship led by Fulgencio Batista, Fidel Castro assumed military and political power as Cuba’s Prime Minister. This change in Cuban politics ushered in a leader that would rule Cuba for nearly five decades. Shortly after Castro’s move into power, all US businesses were nationalized and, in response to these new reforms, then- US President Dwight D. Eisenhower placed a trade embargo on Cuba effective October 1960. The following year, all diplomatic relations between the US and Cuba were severed. From 1961 to 1962, US-Cuban relations would be extremely strained, largely due to the US failed invasion of Cuba at the Bay of Pigs as well as Castro’s agreement to allow the USSR to deploy nuclear missiles on the island during what would be known as the Cuban Missile Crisis.

For the following three decades, the US and Cuba would have minimal contact, despite the influx of Cuban refugees fleeing their country for brighter, less oppressive American shores.

Relations would only resume in 1993 when the US tightened its embargo on Cuba, resulting in the introducing of some market reforms by Cuba in order to stem the deterioration of its economy. These included the legalization of the US dollar, the transformation of many state farms into semi-autonomous co-operatives, and the legalization of limited individual private enterprise. Shortly thereafter, Cuba signed an agreement with the US according to which the US agreed to admit 20,000 Cubans a year in return for Cuba halting the exodus of its refugees.

In November 2001, following the devastation of Hurricane Michelle, the US exported food to Cuba for the first time in more than 40 years after a request from the Cuban government to help it cope with the natural disaster. In 2002, former US President Jimmy Carter became the first US President to visit Cuba since the1959 revolution. This landmark goodwill visit included a tour of scientific centers, in response to the then conservative US government’s allegations about biological weapons. In December 2006, the largest delegation from the US Congress to visit Cuba since the 1959 revolution goes to Havana in order to launch a “new era in US-Cuba relations”.

It was not until President Obama was elected US President in 2008, however, that relations between the US and Cuba finally took a turn for the better.

Historic announcement

On December 17, 2014, US President Barack Obama made a historic announcement that set offa course of diplomatic and economic changes and sought to chart a new course in US relations with Cuba. Since that time, a number of restrictions on travel, banking, trade, and communications with Cuba have periodically been lifted. These regulatory changes, effective in January, June, and September 2015, as well as in January, March, and October 2016, respectively, serve to further engage and empower the Cuban people by facilitating travel to Cuba, authorizing certain commerce and financial transactions, and improving the flow of information to and from Cuba.

Despite this move towards warmer relations with Cuba, however, the general US embargo on Cuba still remains in effect.

Changes to Cuban sanctions program

The gradual easing of the Cuban embargo since 2014 has been done, for the most part, by amending the Cuban Assets Control Regulations (CACR). The CACR, issued by the US Department of Treasury on July 8, 1963, is the main regulatory mechanism of domestic enforcement of the US embargo against Cuba. OFAC works in congruence with the Department of Commerce’s Bureau of Industry and Security (BIS) to reflect any changes to the CACR equally to BIS’s Export Administration Regulations (EAR), which serve to regulate US exports. For more information, see BIS’s Cuba page.

Since 2014, there have been a number of important amendments to the CACR affecting relations with Cuba. According to OFAC’s website:

Travel – Travel-related transactions are permitted by general license for certain travel related to the following activities, subject to the criteria and conditions in each general license: family visits; official business of the US government, foreign governments, and certain intergovernmental organizations; journalistic activity; professional research and professional meetings; educational activities; religious activities; public performances, clinics, workshops, athletic and other competitions, and exhibitions; support for the Cuban people; humanitarian projects; activities of private foundations or research or educational institutes; exportation, importation, or transmission of information or information materials; and certain authorized export transactions. General tourism is still prohibited.

Business/Investment – US persons remain prohibited from doing business or investing in Cuba unless authorized by OFAC. OFAC currently generally licenses the establishment of a business presence and/or physical presence in Cuba for certain types of entities or persons. In addition, BIS currently authorizes certain categories of items to be exported or re-exported to Cuba.

Banking/Financial Transactions – US persons may engage in transactions in US dollars in Cuba or with Cuban nationals with respect to activity that is authorized pursuant to the CACR. For example, payments for telecommunications services in Cuba may be made in US dollars. Further, the use of US dollars for transactions that are exempt or not otherwise prohibited by the CACR is also authorized. For example, payments related to the importation or exportation of informational materials such as books or musical recordings, may be made in US dollars.

In addition, what is commonly known as the “U-turn” general license, authorizes US banking institutions to process transactions originating and terminating outside the US provided that neither the originator nor the beneficiary is a person subject to US jurisdiction (i.e. most correspondent and intermediary banks). This means that transactions related to third-country commerce involving Cuba or Cuban nationals may be processed in US dollars through the US financial system via financial institutions located in the US.

For more specific information on what prohibitions have been lifted/remain: see OFAC’s most recent FACT SHEET or FAQs.

Illustrative examples of the “U-turn general license”:

Source: OFAC

Source: OFAC

 

OFAC enforcement actions involving Cuba

In 2003, the first year OFAC started publishing its enforcement actions on its website, there were 113 OFAC enforcement actions involving Cuba program violations, many of them targeting individuals. Over the years, the total number of OFAC enforcement actions has declined, including those involving alleged violations of the Cuba program.

Prepared by SanctionsAlert.com

Prepared by: SanctionsAlert.com

However, a closer inspection by SanctionsAlert.com of published OFAC enforcement actions reveals that:

  • In 2003, there were 113 enforcement actions, or 50% of the total, that OFAC took against individuals and entities for violations of the Cuban sanctions program.
  • Between 2008 – when President Obama was elected-and 2010, we see a decline in the proportion of OFAC enforcement actions involving Cuba program violations, the lowest point being in 2010, with only 15% of the total.
  • Since 2010, the proportion of OFAC enforcement actions involving Cuban program violations has increased, accounting for 44% of the total in 2016.
Prepared by SanctionsAlert.com

Prepared by: SanctionsAlert.com

 

Latest OFAC enforcement actions

After Obama’s speech in December 2014, OFAC continues to enforce the provisions of the CACR.

Since that time, there have been a total of 9 OFAC enforcement actions involving violations of the Cuban sanctions program, five in 2015 and four in 2016. Four of the nine enforcement actions involved Cuban program violations only. The other five included alleged violations of other sanctions programs, such as Iran, Sudan and Weapons of Mass Destruction (WMD).The amounts paid through settlements agreed with OFAC ranged from $43,875 to $258 million.

2015-2016 OFAC enforcement actions involving violations of the Cuban sanctions program

 

Enforcement Action Sanctions Program Violations Penalty paid to OFAC

March 25, 2015

PayPal, Inc. Settlement

WMD, Cuba, Iran, Terrorism, Sudan

 

 

$7,658,300

 

March 12, 2015

Commerzbank AG Settlement

Burma, Cuba, Iran, Sudan, WMD

 

$258,660,796

 

August 6, 2015

Navigators Insurance Company Settlement

North Korea, Iran, Sudan, Cuba

 

$271,815

 

October 20, 2015

Crédit Agricole Corporate and Investment Bank Settlement

Sudan, Cuba, Burma, Iran

 

$329,593,585

 

October 27, 2015

Gil Tours Travel, Inc. Settlement

Cuba $43,875

 

January 26, 2016

WATG Holdings, Inc and subsidary Wimberly Allisson Tong and Goo (UK), Limited Settlement

Cuba $140,400

 

February 22, 2016

CGG Services S.A. Settlement

Cuba $614,250

 

February 25, 2016

Halliburton Atlantic Limited and Halliburton Overseas Limited Settlement

Cuba $304,706

 

November 14, 2016

National Oilwell Varco, Inc. Settlement

Cuba, Iran, Sudan $5,976,028

Source: OFAC website, compiled and analyzed by SanctionsAlert.com

Lag time

Many compliance officers may wonder what triggered the apparent increased enforcement focus on Cuban program violations by OFAC, especially since the relations between the two countries have finally eased.

“OFAC enforcement is generally tough across the board and these trends are probably more a function of what they’re finding on the ground than the direction the policy is pointing,” explains Peter Jeydel, an attorney at Steptoe& Johnson LLP.

“I think it is an illustration of the lag time in the sanctions process. We are well behind the curve and unfortunately, sometimes these trends don’t match the expected outcomes because we are always looking for something that is in the past,” agrees Debra Geister, from Navigator Consulting Group.

“You’d have to start looking around now and going forward to begin to see the effect of the normalization of relations,” adds Mr. Jeydel.

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