OFAC pulls ‘U-Turn’ financial transaction exemption and restricts remittances to cuba
In a further turnabout from a more lax foreign policy related to Cuba from the prior administration, the country’s chief sanctions architect has made it more challenging for large international banks that want to do business with the United States to also engage in transactions tied to the isolated island nation – a region that had experienced a veritable renaissance in recent years of tourism and even talk of investment.
On September 6, 2019, the US Treasury Department Office of Foreign Assets Control (OFAC) announced that it is amending the Cuban Assets Control Regulations (CACR) to further financially isolate the Cuban government and implement President Trump’s June 2017 National Security Presidential Memorandum (NSPM) Strengthening the Policy of the United States Towards Cuba (the CACR Amendment).
The CACR Amendment (1) removes the authorization for banks subject to US jurisdiction to process pass-through or “U-turn” transactions, and (2) eliminates or restricts certain types of remittances to Cuba. The CACR Amendment was published in the Federal Register on September 9, 2019, and will take effect on October 9, 2019.
OFAC also published Frequently Asked Questions and a Fact Sheet on the CACR Amendment.
OFAC revised the “U-turn” general license provided in 31 CFR § 515.584(d). Since March 2016, the general license has authorized banking institutions subject to US jurisdiction to process “U-turn” transactions, i.e., Cuba-related funds transfers (typically in US dollars) from one non-US bank to another non-US bank where neither the originator nor beneficiary is a person subject to US jurisdiction.
Under the CACR Amendment, banks subject to US jurisdiction may no longer process “U-turn” transactions. However, they are authorized to reject such transactions and are not required to block them, (via Baker McKenzie).
Here are some snapshots from the OFAC FAQs:
OFAC currently authorizes a number of categories of remittances from persons subject to U.S. jurisdiction to persons in Cuba.
As previously noted, the September 9, 2019 rule amended certain general licenses related to specific remittance categories, including family remittances. The September 9, 2019 rule also eliminated the general license for donative remittances that was previously located at 31 CFR § 515.570(b).
Effective October 9, 2019 OFAC placed a cap on family remittances of $1,000 in any consecutive three-month period.
Accordingly, persons subject to U.S. jurisdiction are authorized to make remittances to nationals of Cuba who are close relatives of the remitter, provided that the remitter’s total family remittances to any one Cuban national do not exceed $1,000 in any consecutive three-month period.
In addition, the recipient may not be a prohibited official of the Government of Cuba, as defined in § 515.337 or a prohibited member of the Cuban Communist Party, as defined in § 515.338, or a close relative of such persons, as defined in § 515.339. See 31 CFR § 515.570(a) for additional applicable conditions.
Monroe’s Musings: Many banks and money remitters had shied away from Cuba in the last decade as sanctions on the recalcitrant regime tightened. But that changed as the Obama administration took a more conciliatory approach to nudge Cuba back to the negotiating table in a bid to normalize overall relations.
As a result, more individuals were allowed to travel to Cuba without fear of regulatory reprisal. The island became more popular with tourists, cruise lines and airlines, with many businesses wondering aloud if it was the right time to invest in Cuba as it ponders a shift from Communist philosophies to certain capitalist compunctions.
That, of course, has changed.
The September OFAC Cuba update, with a quickly encroaching effective date of October 9 – yes, that is less than a month away – has added some compliance complexity for banks and remitters still choosing to do limited business with Cuba.
In short, the amendments removed a general license for donations and put a cap on the total amount a family member can remit back to Cuba to $1,000 every three months.
Clearly this move dissolves many of the incentives financial institutions had for dealing with Cuba. This will be felt very painfully in South Florida, which has had a thriving Cuban community for decades with close familial ties to the Island.
This means banks that choose to keep those relationships going will need to more rigorously review individuals engaging in remittances to ensure they don’t go above the $1,000 roughly quarterly cap.
They also must update current sanctions policies and procedures to reflect that the general license for certain donations has evaporated, with banks potentially being forced to lobby for specific licenses if they have deep longstanding ties with charities in Cuba or operations in the United States engaging in charitable efforts to benefit the island.