The easing of sanctions against Cuba is creating opportunities for some businesses to explore a market that has been largely closed to U.S. businesses for more than 50 years. As a result of changes announced by President Obama starting in December 2014, it is now possible for U.S. businesses engaged in certain types of activities to set up operations in Cuba, giving those businesses the chance to stay actively engaged in the local market on a daily basis.
Businesses that fall within the authorized categories may establish a business and physical presence in Cuba, and they may employ both Cuban nationals and persons subject to U.S. jurisdiction. This provides an opportunity to hire local personnel who have a broader understanding of the local marketplace and scope of opportunities.
One of the challenges I have heard many clients cite as they are trying to decide whether and how to enter the Cuban market is how to obtain reliable information about private entrepreneurs, the local construction industry, and other segments of the market, information which is needed to understand whether the requirements of certain OFAC general licenses and EAR license exceptions can be satisfied. Being able to hire a local may give you an advantage in identifying the best opportunities for sales that will fall within the authorized scope of the US rules.
In addition, you are also permitted to employ in Cuba persons who are subject to U.S. jurisdiction, which includes U.S. citizens and permanent residents. This enables you to relocate current company personnel, who have the requisite knowledge about your business, to Cuba. Because they know your business, such individuals may be the perfect complement to the Cuban national you hire locally.
The Cuba rule changes have also authorized new means for undertaking various financial transactions. In particular, credit cards issued by U.S. financial institutions may now be used in Cuba. Moreover, U.S. businesses that set up operations in Cuba are permitted to open and maintain bank accounts in Cuba for the purpose of engaging in authorized activities in Cuba. The payment terms for items exported from the United States to Cuba and for other transactions authorized pursuant to the Cuba sanctions have been eased on all types of exports except agricultural commodities. This permits transactions with Cuba to be conducted in U.S. dollars and authorizes U.S. banks to process a broad array of transactions involving Cuba.
Take note, however, that just because they are authorized to engage in additional transactions involving Cuba, not all U.S. banks and credit card companies are eager to do so because of potential compliance risks. In addition, the local economy in Cuba remains largely cash-based; many businesses there do not yet accept credit cards.
Entry into the market is not without its limitations. In addition to the challenges that result from a lack of development of certain markets and sectors of the Cuban economy, compliance with the sanctions regulations remains a trap for the unwary. You would be wise to work closely with counsel having experience with the Cuba sanctions regulations to ensure that any activities your business undertakes involving Cuba stay in compliance with the rules. The regulations are complex—take the section that provides authorization to establish a business and physical presence in Cuba; it cites at least a dozen other sections of the Cuba sanctions regulations in the course of telling you what is and is not permitted and by whom.
And by no means have the Cuba sanctions—or the related penalties—gone away. There remain broad prohibitions on engaging in transactions involving Cuba, including restrictions on the exports of goods to Cuba in many circumstances. Even with the increased opportunities, it remains imperative to enter the Cuban marketplace with caution to ensure compliance.
Susan Kovarovics is a partner at the law firm of Bryan Cave LLP. Megan Gajewski Barnhill is an associate at the firm.