Recent Shift in Cuba Policy May Allow the Release of Frozen Assets
On December 17, 2014, President Barak Obama announced a major policy shift towards Cuba that marked the beginning of the normalization of U.S.-Cuba relations. After five decades of stalemate, the changes have come quickly. In the last year, the U.S. has opened an embassy in Havana (July 20, 2015), eased restrictions on exports, remittances and travel to the island; and facilitated contact between separated family members. Also among these changes have been amendments to the Cuban Assets Control Regulations (the “Cuban Regulations”) which, until recently, had imposed a total freeze on Cuban assets, financial dealings with Cuba, and transactions that facilitate or further transactions by, for, or on behalf of Cuba, including those involving third party states. According to statistics from the U.S. Department of Treasury, the U.S. froze $270.3 million in Cuban funds in 2014 alone, $257.8 million in 2013, and $253.1 million in 2012.
The 2015 amendments include the following changes affecting blocked assets and third-state parties:
1. U.S. banks can now opt to reject rather than block certain transactions.
Pursuant to the 2015 amendments, assets that were blocked by banks within and outside of the U.S. may now become accessible. Under the prior regulations, U.S. banks were required to block funds from transactions involving a Cuban originator or beneficiary and to report such transactions to the Office of Foreign Assets Control within 10 days of blocking them, according to certain reporting guidelines. When assets are frozen, the financial institution does not return the asset to its original sender or to the account of origin. Because transactions denominated in U.S. dollars are usually cleared through U.S. banks, this means that U.S. banks had to block any wire transfers involving a Cuban interest—direct or indirect— that originated from or ended outside the United States, even if neither the originator nor the beneficiary were subject to U.S. jurisdiction. 31 CFR 515.312. By contrast, the new regulations allow depository institutions—including banks, registered brokers or dealers in securities and other registered money transmitters—that are subject to U.S. jurisdiction to reject funds transfers originating or emanating outside of the U.S. if (i) the originator and beneficiary of the funds are not subject to U.S. jurisdiction, and (ii) the transaction does not concern the interest of a prohibited official of the Government of Cuba or a prohibited member of the Cuban Communist party. See 31 C.F.R. § 515.333. Depository institutions may also process transfers going through the U.S. banking system for originators or beneficiaries who are not subject to U.S. jurisdiction if the funds concern transactions—like certain family remittances—which were previously authorized to originators or beneficiaries under U.S. jurisdiction. See 31 C.F.R. § 515.584(d)(2).
Now that U.S. banks are allowed to reject rather than freeze such transactions, some of these frozen assets may become accessible by the originator. While banks are still required to report these transactions to OFAC if the bank rejects the transaction, under the new regulations the funds will be returned to the originator. Further, transactions by a U.S. originator or for a U.S. beneficiary, such as a permitted remittance to a Cuban relative, can be completed so long as neither the originator nor the beneficiary are subject to U.S. jurisdiction.
2. Certain Cuban nationals are now considered “unblocked.”
Although Cuban nationals located outside of Cuba are still blocked under the current regulations, Cuban nationals who demonstrate that they have taken permanent residence outside of Cuba may now have their accounts unblocked. 31 C.F.R. 515.505. Under the new regulations, OFAC may unblock certain Cuban nationals who reside in the U.S., including individuals with a pending application for asylum. Id. Further, OFAC may unblock the assets of individual certain Cuban nationals who have taken permanent residence in a third state. These newly “unblocked” individuals remain unblocked even if they leave the U.S. or the third country in which they took permanent residence, unless they later become domiciled in or a permanent resident of Cuba. Also, Section 515.505(b) now authorizes U.S. banks, U.S.-registered brokers or dealers in securities and U.S.-registered money transmitters to unblock any blocked account that was previously blocked solely because of one or more persons licensed as “unblocked nationals” had an interest therein.
3. Parties in third countries may now provide certain goods and services in third countries.
Previously, U.S.-owned or controlled entities in third countries weren’t permitted to provide goods and services to Cuban nationals anywhere, whether in Cuba or in third countries. That has changed with the new regulations. U.S. businesses may now provide goods and services to Cuban nationals abroad, with some limitations, so long as the transaction is not considered direct or indirect commercial exportation of goods or services to or from Cuba. 31 C.F.R. § 515.585.
4. New licenses for administrating the estates of certain non-Cuban decedents.
OFAC may now issue specific licenses authorizing the administration of the estates of non-Cuban decedents who died in Cuba on or after July 8, 1963, provided that any distribution to a blocked national of Cuba is made by deposit in a blocked account in a domestic bank in the name of the blocked national.
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Despite these significant changes, banks are still subject to stringent restrictions when processing U.S. dollar-denominated transactions that concern Cuban interests. U.S. banks will continue screening transactions to ensure they are in compliance with Cuban Regulations, and foreign banks attempting to clear dollar-denominated transactions may receive information requests from U.S. correspondent banks before being able to process such transactions.
By Jennifer Cabrera & Walsy Saez
To learn more about how recent amendments to the Cuban Regulations may impact you, please email us at firstname.lastname@example.org.