Updates to the United States Embargo on Cuba

Updates to the United States Embargo on Cuba Hosted by Amber Road s Global Trade Academy on Tuesday, January 12, 2015 Responses from the Q&A Portion of the Broadcast This information has been provided by the webinar presenter: Robin Grover of Amber Road s Trade Advisory Practice. 1. Can we ship product made in China directly from China via a third party in a third country? An example would be building materials. Again, anytime you as a person subject to U.S. jurisdiction wish to export, directly or indirectly, to an embargoed country such as Cuba, you must satisfy the requirements of both BIS (for the export of products) and OFAC (authorizing transactions with the sanctioned country). It is important to note that the U.S. embargo remains in effect; as you are covered by it, you must either obtain an export license or qualify under a license exception to deal with Cuba. Thus, you could arrange for the transfer of U.S.-origin building products from China to Cuba if you satisfy the BIS product export License Exception entitled Support for the Cuban People, 15 CFR 740.21 AND the associated OFAC transactional requirements of 31 CFR 515.533. BIS has jurisdiction due to the U.S, origin of the building products; OFAC has jurisdiction over your transactions with Cuba as you are a U.S. national. This OFAC regulation authorizes transactions involving the export of building products from the United States to Cuba as well as reexports from abroad but only of 100 percent U.S. origin building products that qualify under the conditions for using the BIS SCP license exception of 15 CFR Part 740.21. Again, the transactions incident to the reexport from abroad would be authorized under 31 CFR 515.533 contingent on the building products being of 100 percent U.S. origin and meeting the financial transaction requirements 31 CFR 515.533. AND, you have to also meet the terms and conditions of the SCP License Exception at 15 CFR 740.21. If the building product exports from China are solely of Chinese-origin or of other third countries, you would not be covered by these exceptions because: 1) the BIS Export License Exception of 15 CFR Part 740.21 applies only to the export or reexports of US-origin products and not Chinese or third country origin products having de minimis US-origin content that are outside the U.S.; and, 2) the OFAC authorizations for transactions incident to reexports shipments at 31 CFR Section 515.533 require the building products sent to Cuba (reexported) from a foreign country to be of 100 percent US origin. Thus, if these products are NOT of US origin, then you would need to apply to OFAC for a transactional license authorizing your company to arrange for the reexports of such foreign-origin products from a third country (in this case, China) to Cuba. 1

2. How do the changes to the U.S. sanctions on Cuba affect foreign businesses, including U.S. owned or controlled foreign subsidiaries? Always remember that the Cuban sanctions are extraterritorial; not only do they apply to US nationals and businesses anywhere in the world but also businesses that are owned or controlled by them, per the definition of person subject to U.S. jurisdiction : The terms person subject to the jurisdiction of the United States and person subject to U.S. jurisdiction include: (a) Any individual, wherever located, who is a citizen or resident of the United States; (b) Any person within the United States as defined in 515.330; (c) Any corporation, partnership, association, or other organization organized under the laws of the United States or of any State, territory, possession, or district of the United States; and (d) Any corporation, partnership, association, or other organization, wherever organized or doing business, that is owned or controlled by persons specified in paragraphs (a) or (c) of this section. 31 CFR 515.329, Person subject to the jurisdiction of the United States; person subject to U.S. jurisdiction. The Obama liberalizations of certain aspects of the US embargo on Cuba provide limited relief to U.S.-owned or controlled foreign subsidiaries that wish to do business with Cuban nationals outside Cuba. See 31 CFR 515.585, Certain transactions with certain Cuban nationals in third countries. Summarized, OFAC cites the major changes provided for in that regulation, per the following FAQs regarding the Cuban embargo modifications on its website: 69. Can U.S.-owned or -controlled entities in third countries engage in trade/commerce with Cuban nationals located outside of Cuba? U.S.-owned or -controlled entities in third countries may provide goods and services to a Cuban national located outside of Cuba, provided that the transaction does not involve a commercial exportation, directly or indirectly, of goods or services to or from Cuba. For a complete description of what this general license authorizes and the restrictions that apply, please see 31 CFR 515.585. 70. Are U.S.-owned or -controlled entities in third countries authorized to provide financial services to Cuban nationals located outside of Cuba? Yes. U.S.-owned or -controlled entities in third countries may provide financial services to a Cuban national located outside of Cuba, provided that the transaction does not involve a commercial exportation, directly or indirectly, of goods or services to or from Cuba. For a complete description of what this general license authorizes and the restrictions that apply, please see 31 CFR 515.585. Remember, U.S.-owned or controlled foreign entities remain fully bound by the Cuban embargo. They may not take advantage of the de minimis U.S.- 2

origin content allowance to export primarily foreign made goods, or goods of any origin to Cuba unless they are covered by an export license or license exception. 3. Do you expect further liberalization of the U.S. sanctions on Cuba in the near future and what form might they take? Yes, I would expect that the travel authorizations may be broadened substantially given the extensive scheduled airline travel that I anticipate the Administration will authorize in 2016. Although the full lifting of the embargo requires congressional approval, I expect we will see that after the 2016 presidential elections. 4. If a US company is foreign owned/controlled, can the foreign company export their foreign produced products to Cuba? Yes, the foreign parent company can export their foreign origin products to Cuba. Your scenario envisions a foreign parent or otherwise controlling foreign corporation of a U.S. entity. As such, the U.S. entity is controlled by the foreign entity and thereby has no ownership or control of the foreign parent. The foreign parent is thus not subject to U.S. sanctions on Cuba, unless the products it intends to export to Cuba contain 25 percent or more U.S. origin content (remember, there is no de minimis content allowed for a few high-end U.S. origin items) or its personnel are conducting transactions with Cuba while they are physically located in the U.S. It must, of course, not involve the U.S. company or any U.S. individuals in such transactions, even tangentially. And the foreign ownership of the U.S. company has no effect on the latter s responsibility to comply in full with the Cuban sanctions; the U.S. firm is fully responsible for such compliance, notwithstanding its foreign ownership or control. 5. My business surrounds EAR99 products (gas pumps for fueling vehicles, like you do with your car). But unlike in the U.S., there is no credit cards reader. How would a gas pump fall under these new rules? Unless you fall within the product scope of the Support for the Cuban People license exception found at 19 CFR 740.21, it is almost certain that you would need a prior export license from BIS for the gas pumps. These products are not specifically listed by the License Exception, unlike building materials and tools. See 15 CFR 740.21(b)(5). Moreover, even though that provision refers to instruments sold to private entrepreneurs in Cuba, these license exceptions are interpreted narrowly and I doubt the gas pumps would qualify. So your safest and undoubtedly best approach is to apply for an export license from BIS. 6. If a U.S. company provides material to a related party in the UK, and the UK company ships to Cuba - even though the U.S. portion of material is less than 25% - is it still prohibited? If the related party in the UK is owned or controlled by a U.S. person (including a corporation or other business entity), then it cannot ship any products to Cuba unless it meets one of the export licensing exceptions in Part 740, 15 C.F.R. If the foreign entity is not owned or controlled by a person subject to U.S. jurisdiction, then it can freely export to Cuba unless the products to be exported to Cuba contain 3

more than 25 percent U.S.-origin content or if the US-origin content is of a few, very limited high-end items in which case there is no permissible de minimis U.S.-origin content in a finished product despite it being made overseas. See 15 CFR 734.4. 7. Are there specific definitions for agricultural equipment? If so, where are they located? First, you must review the product scope of the AGR export license exception which permits under circumstances further detailed in Section 740.18: (a) Eligibility requirements. License Exception AGR permits the export of agricultural commodities to Cuba, as well as the reexport of U.S. origin agricultural commodities to Cuba, provided your transaction meets all of the following criteria: (b) The commodity meets the definition of agricultural commodities in part 772 of the EAR 15 C.F.R. 740.18, Agricultural commodities (AGR)(emphasis supplied). Please note the following cited definition of agricultural commodities eligible for the US export license exception from the cited Part 772: Agricultural commodities. Agricultural commodities include food (including processed food); feed; fish; shellfish and fish products; beer, wine and spirits; livestock; fiber including cotton, wool and other fibers; tobacco and tobacco products; wood and wood products; seeds; fertilizer and organic fertilizer; reproductive materials such as fertilized eggs, embryos and semen. For the purposes of the EAR, agricultural commodities do not include furniture made from wood; clothing manufactured from plant or animal materials; agricultural equipment (whether hand tools or motorized equipment); pesticides, insecticides, or herbicides; or cosmetics (unless derived entirely from plant materials). The above referenced definition of agricultural commodities specifically excludes agricultural equipment from the scope of items potentially covered by the AGR export license exception. But see 15 CFR 746.2 on BIS policy regarding export licensing policy for license applications to export agricultural equipment to Cuba; you would need to apply for a BIS export license but it is likely to be granted by the agency. 8. Would a concert series in Cuba be considered people to people or public activities? Would the U.S. group need authorization from the Cuban government? Please note that there is a public performance exception from the travel ban covering travel from the U.S. to Cuba. The OFAC general license provides as follows: (b) General license for public performances, clinics, workshops, other athletic or non-athletic competitions, and exhibitions. The travel-related transactions set forth in 515.560(c) and such other transactions as are directly incident to participation in a public performance, clinic, 4

workshop, athletic competition not covered by paragraph (a) of this section, non-athletic competition, or exhibition in Cuba by participants in such activities are authorized, provided that: (1) The event is open for attendance, and in relevant situations participation, by the Cuban public; (2) All U.S. profits from the event after costs are donated to an independent nongovernmental organization in Cuba or a U.S.-based charity, with the objective, to the extent possible, of promoting people-to-people contacts or otherwise benefiting the Cuban people; and (3) Any clinics or workshops in Cuba must be organized and run, at least in part, by the authorized traveler. 31 C.F.R. 515.567(b). With regard to the group you referenced, please review the following note by OFAC: Note to 515.567(a) and (b): Each person relying on the general authorizations in these paragraphs must retain specific records related to the authorized travel transactions. See 501.601 and 501.602 of this chapter for applicable recordkeeping and reporting requirements. (c) An entire group does not qualify for the general license in paragraph (a) or (b) of this section merely because some members of the group qualify individually. The OFAC Frequently Asked Questions regarding the modifications to the Cuban embargo address the public performance exception: 16. What constitutes public performances, clinics, workshops, athletic and other competitions, and exhibitions for generally authorized travel? OFAC has issued an expanded general license that incorporates prior specific licensing policy and authorizes, subject to conditions, travel-related transactions and other transactions that are directly incident to participation in amateur and semi-professional international sports federation competitions as well as other athletic and other competitions and public performances, clinics, workshops, and exhibitions in Cuba. For a complete description of what this general license authorizes and the restrictions that apply, please see 31 CFR 515.567. 9. If I am a foreign national working for a U.S. company outside the U.S., do I need to comply with embargo? Yes, with regard to any aspect your employment that may be attributed to your U.S. employer. For instance, as a foreign national you could not process shipments to Cuba on behalf of the company that the company could not do itself as it is a person subject to the jurisdiction of the United States. Your employer could not transfer business opportunities with Cuba to you that they could not perform themselves. In other words, the full extent of US sanctions on Cuba apply to you in the course of 5

your employment. As a foreign national on his or her own, however, you could freely travel to Cuba or even do whatever business you wish with or in that country as long as it has no nexus with, or in any way benefits, affects or is funded by your U.S. employer or any U.S. nationals. 10. Please define "controlled" in the context or owned or controlled? There is no definition in the CACRs of owned or controlled for the Cuba embargo. OFAC s Transactions and Sanctions regulations provide with regard to other sanctions programs: The term entity owned or controlled by the Government of Iran includes any corporation, partnership, association, or other entity in which the Government of Iran owns a 50 percent or greater interest or a controlling interest and any entity which is otherwise controlled by that government. 31 CFR 560.313, Entity owned or controlled by the Government of Iran. See also 31 CFR 561.322, Iranian Financial Sanctions Regulations. The above 50 percent test for ownership or control is fairly widespread in its application. I am inclined more to a conservative test which sees control as existing when the U.S. person is the largest single voting shareholder in the foreign concern, albeit as a minority shareholder having less than a 50 percent share. Some would extend this further, to the point of finding control of a foreign business entity (and bringing the latter within the full scope of the U.S. embargo on Cuba) where the American person or entity has the power to appoint or remove any of the executive (decision-making) staff of the foreign company, whatever the U.S. person s level of ownership. 11. Are electrical cables and lighting fixtures considered building/construction materials used to improve the welfare of Cuban people? Please review the authorizing language of the license exception provided at 19 CFR 740.21(b) which provides in part: The item must be within one or more of the following categories: (1) Building materials, equipment, and tools for use by the private sector to construct or renovate privately-owned buildings, including privately-owned residences, businesses, places of worship and buildings for private sector social or recreational use; (2) Tools and equipment for private sector agricultural activity; or (3) Tools, equipment, supplies, and instruments for use by private sector entrepreneurs. It would seem to me that if the electrical cables and lighting fixtures at issue are destined for use by the private sector to construct or renovate privately-owned buildings, your shipments would fall within this license exception. Under a common 6

sense interpretation, these products would appear to constitute building materials. But again, you would have to meet each of the conditions set forth above. 12. We have held import and export licenses for Cuba for the last 12 years. Our product is medical devices EAR99, and since our product is sold under warranty (1-2 years) do we need a warranty license as well? Review License Exception RPL, which is the BIS Export License Exception Servicing and replacement of parts and equipment, whose conditions of use are specified at 15 CFR 740.10. Check 15 CFR 746.2(a)(1)(v) for use of this license exception for shipments of replacement parts and equipment to Cuba. Also, review any conditions incorporated in your current export licenses for the medical devices authorizing their shipment to Cuba. You may also wish to coordinate this with the BIS licensing officer. 13. Our company will be participating at the 35th Annual Pan-American Congress of Otolaryngology and Head and Neck Surgery. The conference is the most important academic ear, nose and throat conference in Latin America, and this year will be held in Cuba. With all the new recent Cuban changes, do we need a license to be able to participate? Please note the OFAC General License provided for in the CACR at 31 CFR 515.564: (a) General license... 2) Professional meetings. The travel-related transactions set forth in 515.560(c) and such additional transactions as are directly incident to travel to Cuba to attend professional meetings or conferences in Cuba are authorized, provided that: (i) The purpose of the meeting or conference is not the promotion of tourism in Cuba; (ii) The purpose of the meeting directly relates to the traveler's profession, professional background, or area of expertise, including area of graduate-level full-time study; (iii) The traveler does not engage in recreational travel, tourist travel, or travel in pursuit of a hobby; and (iv) The traveler's schedule of activities does not include free time or recreation in excess of that consistent with a full-time schedule of attendance at professional meetings or conferences. Note to 515.564(a): Each person relying on the general authorization in this paragraph must retain specific records related to the authorized travel transactions. See 501.601 and 501.602 of this chapter for applicable recordkeeping and reporting requirements. (b) An entire group does not qualify for the general license in paragraph (a) of this section of this section merely because some members of the group qualify individually. 31 CFR 515.564, Professional research and professional meetings in Cuba. Further, please review the following FAQ issued by OFAC regarding the scope and context of the professional meeting license: 7

10. What constitutes generally authorized travel-related transactions for professional research and professional meetings in Cuba? OFAC has issued an expanded general license that incorporates prior specific licensing policy and authorizes, subject to conditions, travel-related transactions and other transactions that are directly incident to attending professional meetings in Cuba. Among other things, this general license authorizes, subject to conditions, attendance at professional meetings or conferences in Cuba relating to a traveler s profession, professional background, or area of expertise, provided that the purpose of the meeting or conference is not the promotion of tourism in Cuba. Travel in this category is generally licensed provided that the traveler s schedule of activities does not include free time or recreation in excess of that consistent with a full-time schedule. An entire group does not qualify for the general license merely because some members of the group qualify individually. For a complete description of what this general license authorizes and the restrictions that apply, please see 31 CFR 515.564. You may also wish to check on the exhibition attendance authorization in 31 CFR 515.567. If you do not believe that your attendance at the conference would fall within the professional meeting license from OFAC, you may wish to consider filing a request for a specific license authorizing your attendance at the event. To learn more about Amber Road s training capabilities, please visit our website. For more information on Amber Road s Trade Advisory Practice, please download the brochure. 8