Posted on: 11 June 2024
On May 28, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended the Cuban Asset Control Regulations (CACR) slightly easing US sanctions on Cuba. One significant change is the reinstatement of an authorization for so-called “U-turn” payments, which will allow US banks to process certain US dollar payments in relation to Cuba. See here and here for our previous discussion of Cuba sanctions. The U-turn license was previously issued in March 2016 by the Obama administration but was revoked by the Trump administration in September 2019.
While the license will slightly ease non-US persons’ ability to trade with Cuba, several pitfalls remain, so parties wishing to do business with Cuba should continue to exercise caution.
The United States has maintained a comprehensive economic sanctions regime against Cuba for over sixty years. The sanctions regime generally prohibits US persons (i.e., citizens, residents, entities organized in the US and their foreign branches), as well as non-US entities owned or controlled by the foregoing, from engaging in transactions with Cuba, absent a license or exception. Cuba is not subject to a “secondary sanctions” regime, so non-US persons generally can deal with Cuba without violating US sanctions. However, broad US prohibitions on “facilitation” generally mean that a non-US person who deals with Cuba may be liable if there is a US nexus to the transaction. One common US nexus is US dollar payments. Because all or almost all US dollar transactions flow through the US financial system, a non-US person generally cannot engage in a US dollar transaction with Cuba, absent a license or exception.
The U-turn license permits US banks to process US dollar transactions relating to Cuba so long as the funds involved both originate and terminate outside the US and neither the payor nor recipient (nor their banks) is a US person. The license is referred to as a “U-turn” because the US dollar wire transfer is originated outside the US, is cleared by the US correspondent bank, and then makes a “U-turn” to once again exit the US, ending with the non-US recipient.
Prior to the U-turn license, there were limited licenses that permitted US dollar payments involving Cuba. For example, a licensed export of US goods to Cuba, or payments for authorized travel by US persons to Cuba, could be made in US dollars. But a Cuba-related transaction with no US nexus other than US dollar payments generally would have been prohibited prior to the license.
Cautionary note
The revival of the U-turn license creates new opportunities for the shipping and aviation communities to engage with Cuba. Under the amended CACR, non-US persons may engage in US dollar transactions involving Cuba, so long as there is no other US nexus.
However, there are still ample grounds for caution. OFAC has in the past cited relatively small or attenuated US ties to a non-US transaction to find violations of sanctions. Further, the Cuba sanctions program (unlike several other programs) applies to non-US subsidiaries of US persons, increasing the potential scope of a violation. Also, the CACR have changed many times depending on the US presidential administration. If former President Trump is again elected in November, he may once again eliminate the license. Therefore, non-US persons wishing to engage in US dollar transactions involving Cuba should understand that sanctions risks remain and should continue to exercise caution and diligence to ensure that there is no other US nexus that may result in a violation.
