With key US sanctions against Cuba slated to end Friday, financial institutions across the board will be presented with new growth opportunities, but also rising direct and indirect risks, say sanctions analysts.

President Obama last month announced plans to greatly ease commercial and economic sanctions on Cuba, breaking down central elements of an embargo in place for more than 50 years against the Caribbean nation.

The US released additional rules on the sweeping changes by the US Treasury and Commerce Departments on Thursday, with them taking effect on Friday. The two nations have been negotiating behind closed doors for more than 18 months, Treasury officials said in a background call with reporters at the time.

As part of the major changes, the US government will allow domestic banks to open correspondent accounts at Cuban banks, or the branches of foreign banks operating in Cuba, allowing travelers to use US credit and debit cards, according to a White House fact sheet. Some believe the first banks to reach out could eventually get preferred status for future branches.

But in order for financial crime professionals to accurately calibrate the country’s risk – not just for potential sanctions violations, but from a broader financial crime perspective – they may need to look beyond political rhetoric. Professionals will be forced to parse available data points from US government analysts and watchdog groups to analyze how receptive the island is to criminals and their illicit networks.

That answer is more nuanced than just looking at Cuba’s current designation as a “State Sponsor of Terrorism,” a designation made by the US Department of state in 1982.

Some political and economic pundits believe the terror designation is partly or largely symbolic, a political holdover from Cold War-era foreign policy plays. Also at play are the communist philosophies of the nation’s leaders, historical ties to Russia, and current trade relationships with Venezuela, a friend to US arch foe Iran.

Lifting of some Cuba sanctions offers potential profits to early entrants

Currently, to settle licensed transactions, a US bank has to go through a foreign bank that has a relationship with Cuba and related individuals and entities. Under the new system, US banks can cut out the middleman, making transactions faster and more profitable, said Andy Fernandez, the Cuba Action Team Leader in the Miami office of Holland & Knight.

Most likely, there will only be a handful of US banks and money remitters at the beginning that will take the plunge to work with Cuba when the sanctions roll back, he said, noting that these institutions realize that “there are still significant and relevant existing sanctions that they can get in trouble for if they violate. But others will see this as an opportunity for more fee income.”

US banks, though, may encounter obstacles in trying to gauge the competency of Cuban bank anti-money laundering (AML) programs, particularly if they are asking the foreign bank to “open its books” to determine the depth and accuracy of customer due diligence and know-your-customer details or the sophistication of related risk assessments, transaction monitoring systems and suspicious activity report findings, he said.

Asking customers about customers

As well as the correspondent changes, family members in the US will be able to remit up to $2,000 per quarter, compared with the current limit of $500. The guidance and any related general licenses for travel and specific business sectors, which would replace the specific licenses needed currently, could happen as early as this month.

Formalizing the changes will entail significant work by the US Treasury’s Office of Foreign Assets Control, which oversees the country’s many sanctions regimes.

The office, along with the US commerce department, released amended rules Thursday for certain designated sectors, with a particular focus on telecommunications, construction and building materials and “goods for use by Cuban private entrepreneurs.”

They also created general licenses for travel tied to religious, educational and sports reasons and relief organizations and other groups involved in humanitarian efforts.

In those areas, US banks should be wary of more indirect ways to run afoul of OFAC Cuba sanctions, such as a bank in a foreign country doing a transaction on behalf of a Cuban entity and processing the transaction through their US correspondent account, but not having a specific or general license, Fernandez said.

He added that banks should consider asking more OFAC-related questions of construction and telecommunications firms.

“For a long time now I have been suggesting to banks that have as customers certain types of exporters and travel agencies to incorporate questions geared toward OFAC compliance as part of their due diligence or enhanced due diligence process,” he said, adding that banks can more adequately uncover indirect connections if they know, say, a Chilean fruit company exports to Cuba.

“If I am a bank with customers in the building materials, agriculture or telecommunications infrastructure sectors, I might consider building a [customer due diligence] module for them to ask these customers if they are doing any permitted business with Cuba so the institution can build extra controls to make sure any related transactions fall within the new general licenses.”

But there will be a major need for financial services due the island living in a vacuum for so long.

The embargo, though it hasn’t necessarily changed the country’s communist leanings, has resulted in extensive economic damage in the past five decades to the tune of more than $1 trillion, according to public statements by Cuban government officials made in 2011.

That has prodded current ruler Raul Castro, who took over in 2008 from longtime leader and brother Fidel, to strengthen efforts to get the embargo lifted. Cuba has also struggled to overcome the collapse of the Soviet Union in 1991, though Russia is still one of its largest trading partners.

More companies into the breach

Perhaps unsurprisingly, there are relatively few US companies with any substantial business ties to Cuba.

Currently a little more than a dozen US companies provide more than 90 percent of the bulk food shipments sourced from the US destined for Cuba, said John Kavulich, senior policy adviser at the U.S.-Cuba Trade and Economic Council, a nonprofit, nonpartisan group that includes major American businesses.

But those companies in the sectors slated to expand will likely blossom, putting pressure on large banks to be the first to create a correspondent bridge, he said.

“It might be a large bank or a small one, depending on which one wants to make a splash,” he said, adding that the first such bank could also be in a better position to open up on the ground branches when and if that is allowed.

In order to get to that point, however, US banks must engage in serious due diligence on banks and the country overall.

Many of the available metrics about Cuba’s criminal underbelly are less harsh than some detractors portray, considering statements by US government agencies and the most influential financial crime watchdog in the world.

In October, the Paris-based Financial Action Task Force (FATF), which sets global AML policies, lauded Cuba for its “significant progress in improving its AML/CFT regime,” taking the country off of its list of countries needing ongoing compliance monitoring. CFT is short for counter-financing of terrorism.

The FATF has a multi-tiered list of countries monitored by the group and related entities.

It ranks regions from those that are a clear risk to the international financial system, such as Iran and North Korea, to countries with gaps in their AML and terrorist financing frameworks that have a plan to correct the issues and are still in various stages of countrywide compliance.

As for Cuba, the FATF also noted that the country has established the requisite legal and regulatory frameworks to bolster “strategic deficiencies” uncovered in a February 2013 evaluation of its financial crime countermeasures.

Cuba is also a member of FATF’s Latin American group, GAFILAT, along with more than a dozen other countries, including Mexico, Argentina, Brazil and Panama.

But even if banks do everything correctly, there is still a risk that the sanctions against Cuba could be re-imposed by another President with a different foreign policy philosophy, said Kaveh Miremadi, a Washington, D.C.-based sanctions attorney with Price Benowitz LLP, who also blogs about sanctions issues at

“There are two camps on opposite sides of the spectrum,” he said, adding that some in Congress have made it their stated mission to reissue any rolled back sanctions.

“There is a very practical risk that banks can take the chance at establishing these relationships only to have the whole thing become undone,” Miremadi said. “It is just executive power that determines what the sanctions entail and the next administration could revoke all of these general licenses.”

That scenario has occurred in the past, when President Jimmy Carter pulled back certain restrictions on Cuba tied to travel and then, just a few years later, Ronald Reagan put them back in place, Miremadi said.

Tenuous terror, criminal links

But for nailing down true financial crime risk, US reports reveal a mixed bag.

In a 2014 Congressional Research Service (CRS) report focusing on potential terror risks in Latin America, it noted that even though Cuba has been included among a list of countries deemed state sponsors of terror since 1982, it has shown little active support for such groups.

The CRS report harkens back to prior State Department terrorism reports focusing on potential illicit activities occurring between 2011 and 2013, concluding that “there was no indication that the Cuban government provided weapons or paramilitary training to terror groups.”

Cuba could still be on the terror list due to “domestic political considerations,” the CRS report said, noting that North Korea and Libya have had such designations since removed.

Having the country on the list could actually divert US attention “from struggles against serious terror threats.” The country’s assistance on terror cases has also been spotty at best.

Conversely, the CRS report did note that historically, Cuba has in the past supported revolutionary movements and governments in Latin America and Africa, but that changed in the early 1990s after a proclamation by then-leader Fidel Castro.

Cuba, though, has given safe haven to groups such as the Basque Fatherland and Liberty and the Revolutionary Armed Forces of Colombia, but most of the members tied to those groups have since relocated.

The country has also given support to US fugitives, including housing, food and medical care for convicted murderers, hijackers and fraudsters in the 1970s and 1980s.

Even more relevant than harboring unsavory characters, though, is banks gauging if the US Treasury is on the same wavelength as the administration.

Large foreign banks and domestic banks are still bruised after being hit so hard with penalties in recent years tied to sanctions violations related to rogue regimes and for broader failures in their AML programs, Kavulich said.

Such wariness could result in some banks giving added scrutiny to even their customers that could be working with Cuba legally through the new general licenses, and request them to exit that business or lose their account, he said.

“Basically, the main issue is going to be if the banks feel comfortable that the Treasury department wants them to do this, then they are likely to do this,” Kavulich said, adding that, for context, the size of penalties against banks related to the billions of dollars in licensed transactions with Cuba have been fractional.

The major sanctions penalties soaring into the hundreds of millions and even billions of dollars have been against transactions tied to Iran, North Korea, Sudan and Syria.

But there are concrete examples of banks properly juggling sanctions and trading with rogue regimes on a long term basis and remaining relatively free of unwanted regulatory attention.

For instance, US and foreign banks have already found ways to do licensed transactions tied to food and agriculture since the early 1990s, Kavulich said. “These banks have forged ahead and learned how to do what’s right. So now, other banks, who have already spent massively on compliance, have a framework to follow.”