OFAC Amends Cuba Sanctions, Expanding Access to the US Financial System and Incentivizing Private Sector Entrepreneurship

On May 28, 2024, the US Treasury Department’s Office of Foreign Assets Control (OFAC) eased restrictions on Cuba under the Cuban Assets Control Regulations (CACR) (the Amendments). The Amendments implement the Biden Administration’s May 2022 stated policy to increase support for the Cuban people and contain several key changes to the US sanctions on Cuba, including:

(i) reinstating authorization for “U-turn” transactions related to Cuba; 

(ii) expanding authorizations for internet-based services and software to Cuba; 

(iii) expanding the scope authorizations for private Cuban persons; and 

(iv) authorizing US banks to open and maintain accounts for independent Cuban private sector entrepreneurs, regardless of their location, to conduct transactions authorized or exempt under the CACR.

The Amendments reflect a loosening of certain restrictions and have important implications for technology companies, financial institutions, and other companies considering the impact of Cuba sanctions on their business.  It is expected that US financial institutions will again consider Cuba-related U-turn transactions and that web hosting and internet service providers may update the scope of their Cuba-related business activities.  We discuss the changes to the CACR and these considerations below.

OFAC Eases Certain Restrictions under the CACR

OFAC maintains comprehensive territorial sanctions on Cuba and generally prohibits US persons from providing goods or services to Cuban nationals and from dealing in any property in which Cuba or certain Cuban nationals have an interest.  US sanctions, however, also authorize or exclude certain activities from these restrictions.  The Amendments are focused on expanding these authorizations in order to ease some of the broad US sanctions on Cuba.

i. Authorizing Certain U-Turn Transactions

The Amendments reauthorize US banks to serve as intermediaries in certain “U-turn” transactions related to Cuba.  Authorized U-turn transactions are funds transfers in which the Government of Cuba or a Cuban national has an interest that both originate and terminate outside of the United States and where neither the originator nor beneficiary of the transaction is subject to US jurisdiction. Transactions that originate or terminate in the United States and/or involve an originator or beneficiary that is subject to US jurisdiction, however, remain prohibited under the CACR.  Additionally, OFAC states that it expects US banks, including their foreign branches and subsidiaries, to conduct due diligence on their own direct customers (including, for example, ownership structure (for entities), proof of citizenship (for individuals), and address information) to confirm that the transactions being processed are consistent with the U-turn general license.

OFAC states that the authorization of U-turn transactions is intended to help Cuban people, including independent private sector entrepreneurs, by facilitating remittances and payments for transactions in the Cuban private sector that are authorized.  Additionally, U-turn funds transfers blocked prior to this reinstatement will be unblocked and returned.

OFAC had previously authorized U-turn transactions related to Cuba, which was revoked in September 2019.

ii. Authorizing the Provision of Certain Internet-Based Services 

The Amendments expand the types of internet-based services and services supporting the exchange of internet communications that are authorized for export, reexport, and import to Cuba.  Prior to the Amendments, US persons were permitted to provide certain internet communications services to Cuba such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, blogging, web hosting, and domain name registration services.  OFAC guidance and the Amendments clarify that these authorized services now also include those related to social media platforms, collaborations platforms, video conferences, e-gaming and e-learning platforms, automated translation, web maps, and user authentication. 

US persons (and non-US persons where there is a US nexus) are also now authorized to provide services deemed incident to the exchange of internet communications, such as software design, business consulting, information technology management services, and cloud-based services (including remote data storage, data transport services, content distribution networks, virtual machines, software-as-a-service (SaaS), and infrastructure-as-a-service (IaaS)).  Additionally, the Amendments authorize the provision of services (including training) related to the installation, repair, and/or replacement of certain items related to communications or that are used to develop software to improve the free flow of information in Cuba, and authorize the export and reexport to third countries from the United States (as well as the importation into the United States) of Cuban-origin software and mobile applications .  OFAC, however, notes that services related to items controlled under the Export Administration Regulation must be licensed or otherwise authorized by the US Commerce Department for their export or re-export to Cuba.

OFAC also clarified that internet-based service providers subject to US jurisdiction may reasonably rely on information provided to them by their customers in the ordinary course of business to determine whether an intended recipient of these services is a prohibited Cuban counterparty. 

iii. Expanding Access to the US Financial System for Cuban Independent Private Sector Entrepreneurs

The Amendments replace the terms “self-employed individual” and “independent Cuban entrepreneur” in the CACR with the broader term “independent private sector entrepreneur.” The CACR  defines “independent private sector entrepreneur” to include (i) 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; (ii) an independent contractor or consultant; (iii) a small farmer who owns their own land; (iv) a small usufruct farmer who cultivates state-owned land to sell product son the open market; and (v) a private cooperative or private business entity located in Cuba of up to 100 employees owned by any of the foregoing. OFAC provides examples of qualifying small private business entities and private cooperatives.

The updated definition broadens the scope of those who can benefit from CACR authorizations—such as those concerning remittances, imports of certain goods and services into the United States, and certain banking-related transactions—and reflects US policy goals to develop the Cuban private sector.

iv. Authorizing US Banks to Open and Maintain Accounts for Independent Private Sector Entrepreneurs

The Amendments also authorize the newly defined Cuban “independent private sector entrepreneurs,” to open, maintain and use US bank accounts, including online payment platforms, for authorized or exempt transactions, regardless of their location. 

Conclusion

OFAC’s amendments to the CACR contain several key changes for US companies and financial institutions assessing their compliance obligations in connection with Cuba.  Given the impact of politics on the Cuba sanctions program, however, November’s 2024 presidential election could affect the longevity of these recent amendments.  Accordingly, companies may need to consider the possibility that these Cuba-related authorizations could be short-lived.

Summer Associates Alexandra Walsh, Ebele Eseka, and Julia Lee contributed to this post.