September 23, 2015

Shrinking Sanctions: New Changes Allow U.S. Companies to Establish Cuban Business Presence

Policy changes announced by the Obama administration on September 18 will allow U.S. food and agriculture companies, U.S. telecommunications companies and U.S. building material supplier companies to establish a business presence in Cuba. These further changes to the Treasury Department’s Cuban Assets Control Regulations and the Commerce Department’s Export Administration Regulations build on the initiative announced last December by President Obama to begin the normalization of relations with Cuba.

New Opportunities for Food & Agriculture, Telecommunications, and Building Materials

The most significant change is that U.S. individuals and companies dealing in authorized goods — either under a general license, or specific license or license exception, including food and agriculture products, telecommunications, and building supplies — will be allowed to establish a business presence in Cuba — to do everything incident to carrying out a normal business. Allowable actions will include:

  • Establishing the business through a subsidiary or a joint venture
  • Hiring employees
  • Opening sales offices and warehouses
  • Entering into licensing agreements
  • Opening bank accounts

This opens new opportunities. For example, a U.S. food company could establish a business of selling food products to the private restaurants in Cuba. A telecommunications company could establish a business of selling Internet services or cell phone services. A U.S. farm or irrigation equipment manufacturer could establish a business in Cuba to sell to cooperative farms, including the servicing of the equipment. A building materials supplier could also sell to the cooperative farms.  

We have yet to see how eager the Cuban government will be for U.S. businesses to return to Cuba. Will the Cuban government, with one of the most centrally planned and government controlled economies, respond favorably to this U.S. opening? Will the government of Cuba decide to work together with U.S. companies in joint ventures? We’ll be watching these developments with interest.

Additional Changes to the Regulations

The Obama administration announcement includes other changes to the regulations. To help facilitate travel and commerce, U.S. passenger and cargo ships and aircraft will be allowed to travel to and from Cuba under general license and to remain in Cuba for up to seven days or 14 days, respectively.

All current limits on remittances to Cuban nationals other than prohibited government officials or Communist Party Officials — $2,000 per calendar quarter, and $10,000 for U.S. Citizens or $3,000 for Cuban nationals carrying money to Cuba when traveling there — will be eliminated. 

U.S. law firms will now be able to receive payment for certain legal services provided to Cuban nationals other than prohibited Cuban government or Communist Party officials.

There are other more technical changes in the regulations — all consistent with a lessening of sanctions.

Continued Limitations

The broad general trade embargo against Cuba with only limited exceptions remains in effect. The trade embargo can only be modified through congressional action — something not likely in the short term. 

However, these regulatory changes build on the earlier announcement of the first direct banking between the two countries and constitute a small, but very important step toward establishing normal U.S./Cuba commercial relationships. 

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