Today, new regulations implementing the U.S. sanction laws relating to Cuba become effective, notably impacting the travel and tourism industry. These new regulations come from the Department of Treasury’s Office of Foreign Assets Control (OFAC), the Department of Commerce’s Bureau of Industry and Security (BIS), and the Department of State. This post provides a brief overview about what is different for the “people-to-people” general license, and the risks to tour operators and their clients.
What is different for the “people-to-people” general license and individual travel?
A new prohibition has been added that restricts “direct financial transactions” with entities and sub-entities that are under the control of or act for or on behalf of the Cuban military, intelligence, or security services or personnel.
- The Department of State will publish and maintain this list of specific entities and sub-entities with which “persons subject to U.S. jurisdiction” may not engage in “direct financial transactions.” (Both terms are defined below.) The list will be known as the Cuba Restricted List. Similar to the SDN lists, this list will expand and constrict which will require operators and others to remain diligent about whom they are doing business with and who is on the list.
- This new prohibition also applies to and prohibits those “transactions ordinarily incident to licensed transactions” under 31 C.F.R. § 515.421 if the incidental transactions are with persons on the Cuba Restricted List. These incidental transactions are otherwise permissible and operators and travelers have relied on (whether or not knowingly) that permission as part of their recent operations and travel to Cuba.
- The definition of “direct financial transactions” has been expanded. (See below.)
- Now only under the auspices of an organization that is a person subject to U.S. jurisdiction: A U.S. citizen or permanent resident who travels under the people-to-people travel general license may do so only under the auspices of an organization that is a person subject to U.S. jurisdiction.
- A person subject to U.S. jurisdiction who is an employee, paid consultant, agent, or representative of the organization must accompany each group traveling under the people-to-people travel general license.
- Individuals may no longer travel under this general license, but individuals may travel under the “Support for the Cuban People” general license if they qualify and meet all of the requirements of that license. The Support for the Cuban People general license has been altered and is similar to the people-to-people general license that individuals previously traveled under but mandates both intent to travel as a manifestation of humanitarian or civil disruption ideals and the ability to prove actions that support that intention.
- All pre-existing requirements of the people-to-people general license remain. Trump’s National Security Presidential Memorandum, announced on June 16, 2017, directed the implementation of audits and enforcement of the general license requirements. Compliance with the general license requirements is more important than ever given the enforcement directive from the presidential administration.
- Specific licenses may be applied for and issued on a case-by-case basis to authorize travel-related transactions and educational activities that do not qualify under the “Educational Activities” or “people-to-people” general licenses. For an operator who almost qualifies under these general licenses, or has a certain transactions that don’t qualify, they may apply for a specific license and, if granted, operate under that license. (Consider AirBnB.)
Educational Activities General License Travel
Changes to academic education travel are extensive with one highlight being that undergraduate and graduate level academic related travel must be with a program that is at least ten (10) weeks in length in Cuba.
- Person subject to U.S. jurisdiction includes all U.S. citizens or residents, wherever located; any person within the U.S.; any entity organized under the laws of the U.S. or any state, territory, etc.; and any entity wherever located that is owned or controlled by anyone from the previous three categories. (31 C.F.R. § 515.329.)
- A direct financial transaction happens when someone (entity or person) acts as the originator of funds whose ultimate beneficiary is on the State Department’s Cuba Restricted List. Certain pre-existing travel and commercial engagement transactions are exempted from the prohibition.
What Are the Risks?
The risks to non-compliance remain. Civil and criminal penalties may be imposed. Civil penalties include seizure and forfeiture of all funds and property involved in transactions that violate the sanction laws and imposition of fines for individuals of about $85,000.00 per violation and up to $1,000,000.00 for organizations.
Are these risks real?
Yes, the risks have been and remain real. On behalf of our clients and network, in the past eighteen months we handled two situations where payments were frozen as suspicious transactions related to travel to Cuba. One transaction was held by and forfeited to the Department of Treasury during the Obama administration. The other was held and released during the Trump administration. (Given the circumstances of each transaction, I believe that politics did not play a role and I highlight the relevant administration to demonstrate that the risks are about the law and circumstances.)
The risk to your customers if you are not compliant with the sanctions laws is having their payment seized and frozen while it is enroute to the operator or organization. (U.S. banks are required to report payments relating to Cuba travel to the U.S. Department of Treasury as a matter of course.)
Cuba is one of the trickiest and potentially riskiest destinations, financially, for U.S. companies, citizens, and residents to travel to and engage in commercially if the transactions and engagement are not being conducted exactly as prescribed within sanction laws.
From the regulatory side, we expect to see more enforcement of the existing laws and regulations coming from OFAC and the Department of Treasury, as well as the BIS and the Department of Commerce.
From us, we will be providing more content focusing on the context of the scope of the regulatory changes from OFAC and BIS and where these changes sit historically. This context can help businesses engaged with the Cuba market address broader strategy issues immediately and for the long-term.
We began working with U.S. tour operators in the Cuba market prior to December 2014 (when the Obama Administration announced its loosening of the Cuba sanction regulations). This means that throughout the rapid changes, we were partnering with our clients to find solutions to their changing needs.
Now, we are positioned to advise operators and the travel industry on what the impact of increased enforcement of sanction regulations means to how your Cuba products and services are created, marketed, sold, and operated. Because we engaged with the regulating U.S. agencies before the Obama administration loosened the sanction regulations, we know what those agencies will be looking for as enforcement again becomes the focus of the US-Cuba relationship.