Tax & Accounting Blog

Will Cuba’s removal from the U.S. List of Nations That Sponsor Terrorism change relations with the U.S.?

Blog, ONESOURCE April 21, 2015

So, does anyone even remember why the U.S. imposed an embargo (commercial, economic, and financial) on Cuba in 1962? In fact, I am sure some of you weren’t even around in the 1960s. I remember it well because during that time there was a very real nuclear threat America faced from Cuba, and as a school aged child I was practicing “Duck and Cover” drills because of this threat.

What is a “Duck and Cover” drill – I take the liberty to assume you want to know? “Duck and Cover” drills were performed either under the desk or in the hallway, depending on the school building. The idea was that we were shielding ourselves against debris. I just remember it was a terrifying part of the school day and for weeks we practiced daily; as if we would forget or that this exercise would protect us from a nuclear bomb.

Following the Cuba missile crisis, President John F. Kennedy officially added Cuba to the embargo list in 1962. For more than 50 years, Cuba has been on the State Department’s list of State Sponsors of Terrorism, a designation shared only by Iran, Sudan and Syria. The embargo not only kept American companies from doing business in Cuba, but also prohibited most Americans from traveling directly there or spending money as tourists. As a normal course of business, most global companies had to weigh the U.S. mandates on their business dealings and verified their engagements and transactions were not violating the U.S. embargoes and denied parties requirements. In fact, many companies have staff and technologies devoted to verifying their company does not violate trade embargoes as well as screen the long lists of designated persons and entities.

So – What happens if Cuba sanctions are violated?

If caught doing so, American citizens face up to a $65,000 fine for spending money in Cuba while American businesses and banking institutions face severe hand slaps and fines (not to mention bad publicity and brand tarnishing) if there is evidence of violating the U.S. sanctions against Cuba.

So – What’s Changing?

In December 2014, President Obama directed the State Department to launch a review of Cuba’s designation as a State Sponsor of Terrorism. A factor in the report was the January denouncement of terrorism by Raúl Castro when he called the terrorist attack on the French satirical newspaper Charlie Hebdo “atrocious.” (NY Times, APRIL 14, 2015, RANDAL C. ARCHIBOLD and JULIE HIRSCHFELD DAVIS, Cuba to Be Removed From U.S. List of Nations That Sponsor Terrorism)

Early this month, the State Department submitted a report to the White House recommending that President Obama overturn Cuba’s designation as a State Sponsor of Terrorism after Cuba provided assurances that it will not support acts of international terrorism in the future. Shortly after this recommendation, President Obama and President Raúl Castro of Cuba met in Panama at the Summit of the Americas, a first between the leaders of the two countries in more than 50 years.

Both countries have agreed to work toward reestablishing embassies. Eventually the U.S. will ease travel restrictions, making it easier for Americans to travel to Cuba and do business there. U.S. and Cuban banks will be allowed to start building relationships and that means American travelers will be able to use their credit and debit cards when visiting. In fact, Americans returning from a trip to Cuba can now return with up to $400 in Cuban goods, a quarter of which can be spent on alcohol and tobacco. Think Cuban cigars.

So – What Has NOT Changed?

Senior administration officials said this step will likely have little practical effect on companies seeking to do business with Cuba. Removal from the list will lift specific measures, however, officials said that even once that happens, most transactions involving Cuba or Cuban nationals will continue to be prohibited under the Cuban Asset Control Regulations (CACR) enforced by the Treasury Department’s Office of Foreign Assets Control (OFAC).

  • The embargo still remains in place
  • No investments – Joint Ventures, local companies, banking, infrastructure, utilities, hotels, farms, restaurants, manufacturers
  • No establishing or operating an entity or affiliate in Cuba
  • No entering into franchise or licensing agreements with Cuban parties
  • Import ban on various Cuban goods into United States (limited exceptions) or of Cuban goods/services to other countries
  • Foreign owned/controlled subsidiaries still covered
  • No tourist travel

Yes, the Cuba embargo remains in place. Most transactions between the United States, or persons subject to U.S. jurisdiction, and Cuba continue to be prohibited, and OFAC continues to enforce the prohibitions of the CACR. Trade Compliance professionals are watching this closely and monitoring the full impact to best respond to these historic changes.

Once the changes are implemented between the U.S. and Cuba, Thomson Reuters World-Check database will be updated. Thomson Reuters ONESOURCE Restricted Party Screening (RPS) Module, which is fed by the World-Check database, will also be updated so a company can maintain their compliance in transactions between the U.S. and Cuba.

To learn more about import or export, visit our ONESOURCE Global Trade page