OFAC Amends Cuban Asset Control Regulations and Issues New FAQs on Scope of “U-turn” General Licenses

Introduction

On May 28, 2024, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) amended the Cuban Asset Control Regulations (“CACR”). The amendments follow policy changes stated by the Biden Administration in May 2022 to ease certain US sanctions programs against Cuba and increase “support for the Cuban people.” The most significant change of these amendments was the reinstatement of licenses authorizing “U turn” transactions, which permit US financial institutions to process US dollar payments in certain circumstances in Cuba. OFAC previously revoked the authorization for licenses of such transactions in September 2019. Other notable changes include expanding the scope of authorizations for private Cuban persons, authorizing US financial institutions to both open and maintain accounts for independent Cuban private sector entrepreneurs, and expanding the authorizations for internet-based services and software providers in the region.

On August 28, 2024, OFAC further clarified the scope of U-turn transaction licensing in FAQs 736 and 757. FAQ 736 states that the US dollar may be used by persons subject to U.S. jurisdiction to conduct transactions in Cuba, or with Cuban nationals, with respect to activities permitted under the CACR (such as payments related to the import or export of informational materials and payments to telecommunications services in Cuba). That FAQ further clarifies that such payments can be made and processed through US financial institutions given that neither the originator nor the beneficiary is a US person and the transaction itself originates and terminates outside of the US. FAQ 757 clearly states that US financial institutions, as of May 29, 2024, are authorized to process such U-turn transactions, given they obtain a general license under the CACR, in which Cuba or a Cuban national has an interest.

Overview of the Cuba U-turn General License

Focusing on the impact of reinstating licensing for U-turn transactions, prior to this action the US has maintained comprehensive and strict economic sanctions against Cuba since the announcement of a full US-Cuba embargo on February 7, 1962 under the Kennedy Administration. On a primary sanctions level, US persons (i.e., US incorporated and based entities, US citizens, residents, "green card" holders and persons present in the United States) had been prohibited from engaging in transactions with Cuba or a Cuban national, except in circumstances where OFAC has either granted a license or exception. In 2019 the authorization for licenses of U-turn transactions was revoked. We note that the Cuba embargo is not a secondary sanctions regime, and that non-US persons can engage in transactions with Cuba (subject to certain risks, including “Helms-Burton” liability if transactions involve property confiscated by the Cuban government) without violating US sanctions given there is no US nexus (i.e., U.S. persons, payments in USD, or U.S. financial institutions) to the transaction.

In light of the amendments to the CACR, US financial institutions can now be authorized to conduct certain U-turn transactions related to Cuba or a Cuban national given they receive an appropriate general license. Specifically, funds transfers in which the Government of Cuba or a Cuban national has an interest that both originate and terminate outside of the United States, and where neither the originator nor beneficiary of the transaction is subject to US jurisdiction, can now be conducted subject to a general license under the CACR. We note however that transactions that originate or terminate within the United States and/or involve an originator or beneficiary that is subject to US jurisdiction, remain prohibited.

Revocations of U-turn General Licenses in Other Jurisdictions

Although U-turn transactions are now permissible in Cuba, OFAC has previously revoked such authorizations in relation to certain transactions. In November of 2008, OFAC revoked the authorization for such transactions in relation to Iran by amending the Iranian Transactions Regulations. As a result, US financial institutions were no longer permitted to engage in U-turn transactions involving Iranian parties.

Key Takeaways

The new U-turn authorization for Cuba reflects a limited policy shift towards easing sanctions restrictions in the region. As long as there is no other US nexus, non-US persons are permitted to enter into transactions in USD through US financial institutions with Cuba or Cuban nationals under the revised CACR. While OFAC’s amendments to the CACR contain several key changes for US companies and financial institutions assessing their compliance obligations in connection with Cuba, it is important to note that such changes may continue to develop. As a result, we advise that companies and financial institutions pay close attention to developments in this space.

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