by Jeremy Paner
Yesterday, the U.S. Department of the Treasury and U.S. Department of Commerce announced further amendments to the Cuban embargo that take effect today. Changes involving travel and related transactions, banking and financial services, trade and commerce, and the authorization of certain grants and awards will be effective today. Whereas the majority of the previous amendments sought to benefit the Cuban people by opening certain aspects of Cuban markets to U.S. businesses, many of the most recent revisions to the General Licenses more narrowly and directly benefit Cuban interests.
The most significant change is likely the authorization of so-called U-turn payments, which notionally grants Cuba access to the U.S. dollar. 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.
Prior to the easing of restrictions in early 2015, U.S. banks generally restricted Cuba from the U.S. financial system by blocking transfers in which Cuba or a Cuban national had any interest. The previous version of the General License contained in section 584(d) was a significant development, in that it permitted U.S. banks to reject in lieu of blocking certain similar wire transfers. When a bank rejects a payment pursuant to sanctions regulations, it refuses payment instructions and submits a report to OFAC. Banks return rejected payments to their respective remitters. A blocking results in a U.S. bank holding the payment indefinitely in a separate account until OFAC authorizes release of the funds.
U.S. Banks as Gatekeepers
It is important to note that the Cuban embargo has not been lifted, and the restrictions in the Cuban sanctions regulations still generally prohibit U.S. individuals and companies from dealing with Cuba and Cuban nationals. However, the breadth of the General Licenses under the sanctions program permits U.S. companies to enter into a broad range of dealings with Cuba. In many cases, it is the willingness of U.S. banks to provide financial services, and not legal restrictions that impede transactions between the two nations.
Similarly, U.S. financial institutions will ultimately decide when Cuba is granted access to the U.S. dollar. While OFAC may authorize certain transactions, U.S. banks are not obligated to provide the corresponding or incidental financial services. Notwithstanding today’s substantial changes to the sanctions regulations, the majority of U.S. banks will likely conclude that the cost of compliance far outweighs the revenue generated from processing high-risk Cuban payments.
We will continue to follow regulatory changes in the Cuban Assets Control Regulations (CACR) and publish updates as new developments arise.