Trump Administration Implements Tightening Of Cuba Sanctions

On November 8, 2017, the Trump administration followed through on its promise to reverse course on the loosening of US sanctions involving Cuba in recent years, in pursuit of its stated policy to "channel economic activity away from the Cuban military and to encourage the [Cuban] government to move toward greater political and economic freedom for the Cuban people."1

To implement this policy, the US Department of Treasury's Office of Foreign Assets Control (OFAC), the US Department of Commerce's Bureau of Industry and Security (BIS), and the US Department of State took coordinated steps to: (1) identify entities that are associated with the Cuban military, intelligence, or security services or personnel (including many hotels, tourist agencies, and stores), and "with which direct financial transactions would disproportionately benefit such services or personnel at the expense of the Cuban people or private enterprise in Cuba" (Cuba Restricted List);2 (2) heighten trade-related restrictions involving Cuba, including by establishing policies of denial for export licenses to, and prohibiting direct financial transactions with, entities on the Cuba Restricted List; and (3) heighten travel-related restrictions involving Cuba, including by abolishing the exemption for individual "people-to-people" travel to Cuba, and by prohibiting transactions with entities on the Cuba Restricted List even during the course of certain authorized travel to Cuba. These changes, effective November 9, 2017, were implemented through amendments to the Cuban Assets Control Regulations (CACR), administered by OFAC, as well as the Export Administration Regulations (EAR), administered by BIS.

These amendments are likely to have a substantial practical effect. Given the degree to which the Cuban military and intelligence services control the Cuban economy and tourist industry, the amendments will make it significantly more difficult for individuals and entities subject to US jurisdiction to trade with and travel to Cuba. This advisory summarizes the implications of the trade-related and travel-related amendments to the CACR and EAR, after first providing a brief summary of the State Department's new Cuba Restricted List.

1. THE CUBA RESTRICTED LIST AND EXPANDED DEFINITIONS OF "PROHIBITED GOVERNMENT OFFICIALS" UNDER US SANCTIONS PROGRAMS

   As directed by President Trump's June 16, 2017, National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba (NSPM), on November 8, 2017, the US Department of State identified and published a list of entities and subentities that are tied to the Cuban government, or its military, intelligence, or security agencies or personnel, and "disproportionally benefit [from]" economic practices "at the expense of the Cuban people."3 The Cuba Restricted List is wholly distinct from the list of Specially Designated Nationals that is maintained by OFAC, and therefore, persons subject to US jurisdiction must continue to consult the Specially Designated Nationals (SDN) List, in addition to the Cuba Restricted List, in determining the legality of any particular dealing involving Cuba.

   The Cuba Restricted List consists of approximately 180 Cuban ministries, holding companies and certain specified subentities thereof, hotels, tourist agencies, marinas, stores, and other entities identified as directly serving the Cuban defense and security sectors. Demonstrating the focus on curtailing tourist travel to Cuba, nearly half of these restricted entities are Cuban hotels and tourist agencies.

   Importantly, the State Department has made clear that "[e]ntities or subentities that are owned or controlled by another entity or subentity on the Cuba Restricted List are not treated as restricted unless also specified by name on the list."4 In other words, as long as no other restrictions apply, US persons can continue to engage in direct transactions with a Cuban entity that is not on the Cuba Restricted List, even if that entity's parent company is on the Cuba Restricted List. This express limitation of the State Department's Cuba Restricted List is a departure from the traditional "50% Rule" that applies in the context of most OFAC sanctions regimes, and under which the restrictive measures applicable to an OFAC-SDN apply automatically to any entity owned, directly or indirectly, 50 percent or more by one or more SDNs (either individually or in the aggregate), even if that entity is not specifically named on the SDN List.5

   As detailed further below, OFAC and BIS have incorporated the Cuba Restricted List into their...