Can Individuals In The United States Invest In Cuba Today?

Business Insights: Cuba

As Cuba opens the country for foreign investment and as U.S. interest in playing a role in Cuba grows, some Cuban experts assert that despite the U.S. embargo, an investment in Cuba is not necessarily off-limits to U.S. businesses or individuals. But there are cautions and legalities of which potential investors should be mindful.

The 49/49 Rule

Under current U.S. law, a U.S. person is prohibited from directly engaging in a commercial activity in or with Cuba or from taking any ownership interest in any property in which Cuba or a Cuban national has an interest. However, under the so called 49/49 Rule, a U.S. person may make an investment in a non-Cuban foreign entity that engages in commercial dealings in or with Cuba if:

the foreign entity is not controlled by U.S. persons; and a majority of the revenues of the foreign company are not derived from Cuba. The legal basis for the 49/49 Rule originates with a letter from the Department of the Treasury in response to an inquiry by John S. Kavulich, II on March 4, 1994 ("the 1994 opinion"), in which Kavulich sought guidance regarding permissible investments in Cuba by U.S. persons.

The 1994 opinion letter is signed by Richard Newcomb, ex-Director of the Department of the Treasury's Office of Foreign Assets Control (OFAC). In the letter, Newcomb writes:

"A U.S. company or individual may make a secondary market investment in a third country company doing business in Cuba provided that the investment does not result in control in fact of the company by the U.S. investor. A secondary market investment that falls short of a controlling interest is not prohibited."

The 1994 opinion letter also states that acquiring control of a company that has ongoing business dealings with Cuba would require a license from OFAC, and "injecting capital into a company in a manner supporting its Cuban transactions is prohibited to persons subject to the jurisdiction of the United States unless those transactions are authorized by OFAC or are exempt from regulation." Therefore, a U.S. person may not make even a minority non-controlling investment in a company if the investment will be used to support the company's Cuban business.

To determine whether the 1994 opinion represents current thinking at OFAC, we have spoken with OFAC's officers. Noting all of the caveats that attach to advisory opinions, they said the 1994 opinion continues to reflect OFAC's current thinking.

Although the 1994 opinion...

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