OFAC expects U.S. banking institutions to exercise due diligence relating to these U-turn transactions “on their own direct customers,” including ownership structure, proof of citizenship (for individuals) and address information, to confirm that the transactions are consistent with the U-turn general license authorization.
On April 21, 2016, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) updated its Frequently Asked Questions Related to Cuba and this Alert highlights key aspects of this guidance. Section 515.584(d) of the Cuban Assets Control Regulations (CACR) permits so-called “U-turn” transactions to originate at foreign branches and subsidiaries of U.S. banking institutions. Thus, U.S. banking institutions are permitted to process funds transfers originating and terminating outside the United States as long as neither the originator nor the beneficiary is a person subject to U.S. jurisdiction. Please refer to the general license set forth in Section 515.584(d).
Nevertheless, OFAC expects U.S. banking institutions to exercise due diligence relating to these U-turn transactions “on their own direct customers,” including ownership structure, proof of citizenship (for individuals) and address information, to confirm that the transactions are consistent with the U-turn general license authorization. All banks involved in the transaction should screen against OFAC’s Specially Designated Nationals List (SDN List) and their own internal filters.
Where the banking institution is dealing with a remitter or beneficiary that is not a “direct customer” and in the absence of situations where the banking institution involved in the transaction knows or has reason to know that the remitter or beneficiary is a person subject to U.S. jurisdiction, the U.S. banking institution may rely on the remitter’s and/or beneficiary’s address as stated in the transaction to determine whether the person is subject to U.S. jurisdiction.
In situations where the banking institution is acting solely as an intermediary and fails to block a prohibited transaction, OFAC will consider all of the circumstances surrounding the bank’s processing of the transaction to determine what, if any, enforcement action to take against the bank. It is important to note that transactions meeting the requirements of 31 CFR Section 515.584(d) may be processed notwithstanding the involvement of a specially designated national of Cuba as defined in 31 CFR Section 515.306.
With respect to authorized exported products to Cuba that require service or repair, OFAC advises that while, in general, the importation into the United States or by a person subject to U.S. jurisdiction into a third country is prohibited by 31 CFR Section 515.204(a)(2), OFAC will consider requests for specific licenses on a case-by-case basis. Department of Commerce authorization may also be required for products that are subject to the Export Administration Regulations prior to return of the products to Cuba. It is important to note that “repair and servicing” are terms of limitation, and prudence may be warranted where the so-called repair is so substantial as to possibly constitute a “manufacture.” Records should be maintained to support repair and servicing.
Certain export and reexport authorizations issued by the Department of Commerce require the return of exported or reexported items to the United States or to a third country. This includes certain authorized temporary exports and certain parts replaced on a one-for-one basis pursuant to License Exception Servicing and Replacement of Parts and Equipment (RPL). There are instances where the initial export or reexport authorization requires the return of the product to the United States or to a third country. Such transactions are covered by 31 CFR Section 515.533(a).
Persons subject to U.S. jurisdiction may engage in all transactions ordinarily incident to the exportation or reexportation of 100-percent U.S. origin items from a third country to Cuba consistent with the licensing policy of the Department of Commerce. Items that are not of 100-percent U.S. origin would require OFAC authorization.
In addition, OFAC clarified that a person subject to U.S. jurisdiction may provide certain insurance-related services that are directly incident to activity authorized by general or specific license, e.g., cargo or hull insurance, or reinsurance. Other types of authorized insurance that pertain to authorized travel are life insurance, health insurance and travel insurance for those authorized to travel to Cuba. For additional examples of the type of activities that may be subject to authorized insurance coverage, please refer to Note 2 to 31 CFR Section 515.560 and Section 515.567(b). Cargo insurance would be authorized, as well. Please refer to Section 515.533 and Note 1 to paragraph (a) of 31 Section CFR 515.533.
U.S. persons are prohibited from engaging in reinsurance arrangements where the underlying activity is not authorized, such as a situation where the reinsurance arrangement involves coverage for a foreign company that provides investment opportunities in Cuban state- owned businesses. Where the provision of insurance-related services is authorized, either expressly or as a transaction ordinarily incident to a licensed transaction, the authorization also includes the payment or settlement of claims, including to a Cuban national.
Furthermore, OFAC has stated that grants authorized pursuant to its regulations can be awarded to a Cuban state-owned entity. For complete reference to authorizations and restrictions, please refer to 31 CFR Section 515.575.
Regarding the purchase or lease of property in Cuba by a person subject to U.S. jurisdiction, OFAC states that generally, no person subject to U.S. jurisdiction is authorized to purchase or lease real estate property in Cuba unless authorized by OFAC.
CFR Section 515.573 authorizes certain entities subject to U.S. jurisdiction to establish a business and physical presence in Cuba for authorized activities. The purchase of or lease of real property in Cuba by such entities incident to the authorized activities is authorized. In addition, employees of such entities may purchase or lease residential property for use while domiciled in Cuba. See 31 CFR Section 515.573 and 31 CFR Section 515.560(c) relating to authorized travelers to Cuba. The authorization terminates when the traveler departs from Cuba and the period of authorized travel comes to an end.
For Further Information
If you would like more information about this Alert, please contact Brian S. Goldstein, any member of the Cuba Business Group, any member of the International Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.