Loosening of Cuban Sanctions Presents New Opportunities for U.S. Industries

Effective October 17, 2016, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Commerce Department’s Bureau of Industry and Security (BIS) have expanded the scope and nature of transactions permitted by U.S. persons with Cuba. These regulatory changes follow President Obama’s efforts to normalize trade relations with Cuba, which date back to December 2014. Though today’s changes offer new opportunities for U.S. businesses, the general embargo on Cuba remains in place. U.S. companies should proceed cautiously with any business ventures in Cuba and ensure their activities comply with the narrow authorizations provided. President Obama is nearing the limits of executive power, and only an act of Congress can fully repeal the Cuban embargo. The next administration may also take a different tack on Cuban relations.

Many U.S. industries benefit from today’s regulatory amendments, including companies in the pharmaceutical, medical, construction and aviation spaces. Generally speaking, the amendments will also benefit U.S. business and travelers to Cuba. Some of the most critical regulatory changes are as follows:

Pharmaceuticals:  All transactions ordinarily incident to obtaining U.S. Food and Drug Administration (FDA) approval for Cuban-origin pharmaceuticals are now authorized, including discovery and development, pre-clinical and clinical research, regulatory review, approval and licensing, regulatory post-market activities, and the importation into the U.S. of Cuban-origin pharmaceuticals. Once the FDA approves them, U.S. persons are permitted to market, sell and distribute Cuban-origin pharmaceuticals in the U.S. U.S. persons who engage in these activities are also permitted to open, maintain and close bank accounts at Cuban financial institutions for transfers of funds directly related to the authorized activities. This is the first significant authorization for the sale of Cuban-origin goods in the U.S., and it may be of great interest to U.S. pharmaceutical companies given Cuba’s relatively advanced pharmaceutical sector and its ability to produce high-quality generics.

Joint Medical Research:  U.S. persons are now permitted to engage in joint medical research projects with Cuban citizens and companies, both for commercial and non-commercial purposes. However, this amendment does not provide any new authorization for U.S. persons to travel to Cuba, Cuban persons to travel to the U.S., U.S. persons to establish a business or physical presence in Cuba, U.S. persons to hire Cuban nationals, or the exportation of goods or technology from the U.S. to Cuba. A new, separate general license has been issued permitting U.S. persons to travel to Cuba relating to professional research and professional meetings.

Infrastructure Projects:  U.S. persons may now provide services to Cuba related to developing, repairing, maintaining and enhancing Cuban infrastructure that directly benefits the Cuban people. This includes systems and assets related to public transportation, water management, waste management, non-nuclear electricity generation, electricity distribution, hospitals, public housing, schools and environmental protection projects.

Civil Aviation Safety Services:  U.S. persons are authorized to provide civil aviation safety-related services to Cuba and Cuban nationals to ensure the safe operation of commercial aircraft. 

General Trade and Commerce:  Although U.S. persons continue to be prohibited from generally doing business in Cuba, today’s changes permit certain preparatory or ancillary activities:

• Contingent Contracts: U.S. persons are now permitted to enter into contracts with Cuban parties for currently prohibited transactions. However, performance of the contract is expressly contingent on OFAC or any other applicable U.S. agency authorizing the transactions or the transactions no longer requiring agency authorization. This facilitates relationship-building between U.S. and Cuban business and the creation of binding contractual commitments, so long as the underlying transaction—the performance of the contract—is ultimately authorized.

• Importation of Items for Servicing or Repair: U.S. persons can now import into the U.S. any goods which were previously exported to Cuba in accordance with an OFAC or BIS authorization. The purpose for such importation must be either the servicing or repair of such items or the return of such items. The exportation to Cuba of the serviced or repaired item must be separately authorized.

Travel-related Transactions: There are no longer value limitations on Cuban tobacco or alcohol products imported into the U.S. in accompanied baggage when returning from Cuba or a third country, so long as the goods are for personal use. Normal U.S. customs limits and duties will apply as they do for goods imported from other countries.

Today’s loosening of the Cuban sanctions further opens the door to U.S. business with Cuba. However, the embargo remains in place, and U.S. companies should continue to review opportunities in Cuba carefully. Specific industries may benefit from newly approved transactions, provided they operate within the confines of the authorizations.