Today the Office of Foreign Assets Control (“OFAC”) announced more amendments to the Cuban Assets Control Regulations which, among other things, broadens the general license for travel to Cuba to include other activities such as professional meetings, participating in sports events, and movie and television production. The new rules alter provisions relating to financing of permissible exports of goods but, oddly, does so in such a way that there are now more restrictions on financing exports of agricultural goods than there are on financing for other permitted exports such as informational materials, building materials authorized under license exception SCP, and consumer communications devices authorized under license exception CCD.

Under the amended rules, the provisions in sections 515.533(a)(2)(i) and (ii) which described the only permissible payment and financing terms for exports to Cuba have been revised to impose that restriction only on “agricultural commodities, as that term is defined in 15 CFR part 772” and “agricultural items authorized for export or reexport pursuant to 15 CFR 746.2(b)(2)(iv).” This is a bit odd given that there is no 15 C.F.R. § 746.2(b)(2)(iv). This is presumably a reference to 15 C.F.R. § 746.2(b)(3)(iii) which deals with BIS licensing policy for “agricultural items” and which covers items that are not “agricultural commodities” as defined in Part 772 of the EAR or license exception AGR. I can only speculate that this is a reference to an amended section 746.2 which has not yet been released by BIS.

The restrictions on payment and financing terms in 515.533(a)(2) are a requirement for “payment of cash and advance” or “financing by a banking institution located in a third country” other than a Cuban or U.S. bank. The reason that these restrictions remain on exports of agricultural commodities is that these restrictions are mandated by the Trade Sanctions Reform and Export Enhancement Act of 2000, which, although it was intended to expand trade to Cuba, contains in section 7207(b)(1) these two requirements for exports of agricultural products. The paradoxical result is that the statute that was intended to liberalize trade in agricultural commodities to Cuba now requires restrictions on that trade not required for other exports.

The theoretical effect of these changes is that U.S. exporters could, in theory, offer delayed payment terms to Cuban purchasers and that U.S. banks can finance the transactions. The practical effect is likely to be less. It is doubtful that many exporters or banks will be willing to run the risk of extending payment or financing terms to Cuban purchasers.  Instead, it seems likely that exports to Cuba will follow the normal practice of payment of cash against documents of title. A new section 515.584(f) now allows U.S. banks to confirm letters of credit issued by Cuban banks with respect to non-agricultural exports, something not previously permitted, but again whether U.S. banks will confirm Cuban letters of credit remains to be seen.

In late December, the Office of Foreign Assets Control (“OFAC”) updated its Cuba FAQs to add questions #57-61 on insurance issues.  Naturally, there is no explanation for why these were added but if you supposed that they were added to clarify some drafting screw-up in the Cuba regulations, you’d probably be right.  You can almost hear them saying over at OFAC:  “Don’t worry about the precise language, we can always fix it with an FAQ.  Pay no attention to that nonsense in section 552(a)(1)(D) of the Administrative Procedure Act about publishing in the Federal Register ‘interpretations of general applicability.’  That only applies to other agencies.”

The issue addressed by the new FAQs is the terrible drafting of  Note 2 to section 515.560 of the Cuba Assets Control Regulations, which says this:

This section authorizes the provision of health insurance-, life insurance-, and travel insurance-related services to authorized travelers, as well as the receipt of emergency medical services and the making of payments related thereto.

The problem here is the phrase “authorized traveler.” Who is an authorized traveler? Is it just a U.S. person traveling to Cuba under a general or specific license or does it also include a foreign person who is authorized because there is no prohibition on foreign citizens traveling to Cuba and no requirement that the foreign traveler obtain permission from OFAC for such travel? It seems to me that “authorized” can legitimately be read to include foreign travelers to Cuba.

Not so fast, according to the newly added FAQ #59

59. May U.S. insurers issue policies and pay claims related to group health, life, and travel insurance on behalf of third-country nationals traveling to or within Cuba?

Yes, provided that the insurance policy is as global policy, and not specific to the third-country national’s travel to or within Cuba.

But Note 2 says nothing about the travel insurance needing to be a global and not a specific policy. So “authorized traveler” has now effectively been redefined to exclude foreign travelers, all of whom are permitted to travel to Cuba. This was not a particularly thorny drafting issue for OFAC: the issue could have been easily and directly resolved by adding “U.S.” to “authorized travelers” when the rule was initially written and promulgated

The issue that this raises is whether OFAC, or any other agency, is entitled to regulate by Internet pronouncements notwithstanding the APA’s insistence that it use the Federal Register to publicize agency interpretations. If an insurance company reads Note 2 to cover foreign authorized travelers, is it culpable for not having scoured OFAC’s website for contrary interpretations when no such contrary interpretation appears anywhere in the Federal Register? When agencies expect those subject to their powers to respect the law, then the agencies themselves need to respect the law.

A spokesman for the Treasury Department’s Office of Foreign Assets Control (“OFAC”) told Export Law Blog this morning that discussions between OFAC and the North Pole over Santa Claus’s Christmas Eve itinerary had once again broken down and were not expected to be resumed before Santa’s scheduled departure on December 24 at 10 pm EST.

The dispute arose from a dilemma that the U.S. sanctions against Cuba posed for Santa’s planned delivery of toys to children in Cuba. If Santa delivers toys for U.S. children first, there will be toys destined for Cuba in the sleigh in violation of 31 C.F.R. § 515.207(b). That rule prohibits Santa’s sleigh from entering the United States with “goods in which Cuba or a Cuban national has an interest.” On the other hand, if Santa delivers the toys to Cuban children first, then 31 C.F.R. § 515.207(a) prohibits the sleigh from entering the United States and “unloading freight for a period of 180 days from the date the vessel departed from a port or place in Cuba.”

A press release from the North Pole announced that the OFAC rules left Santa no choice but to bypass the children of the United States this Christmas. A spokesman from OFAC warned that if Santa attempted to overfly the United States, his sleigh would be forced to land and his cargo seized. He continued:

We know that the outcome is harsh, but we cannot allow the Cuban regime to continue to be propped up by Santa’s annual delivery of valuable Christmas toys to Cuban children. We told Santa that, as long as he only delivered food, books, and mobile phones to children in Cuba he would be eligible to enter the United States under the exception in § 515.550, but he insisted on delivering teddy bears as well. We draw the line at teddy bears, so in our view it’s his fault, not ours.

Congressional leaders did not return our calls.

This post is an annual tradition and has appeared every year since 2007. Alert readers will notice a slight change in this year’s post.

Export Law Blog would like to take the opportunity of this post to extend its best holiday wishes to all of its readers. Posting will be light between now and the end of the holidays.

The Office of Foreign Assets Control (“OFAC”) has made sort of a name for itself by issuing cryptic penalty announcements where it is a considerable challenge to figure out what went on and why the unfortunate company that has been whacked with an “agreed” fine got itself tangled up with OFAC in the first place. But the recent penalty slapped on Gil Tours Travel for some vague violation of the Cuba sanctions takes the cake or, I suppose, el pastel.

According to the penalty announcement, Gil was being fined because “dealt in property in which Cuba or Cuban nationals had an interest, by providing Cuba travel-related services involving 191 individuals, without authorization from OFAC,” which is pretty much like saying Gil broke the rules when it broke the rules. But here’s the kicker. In discussing aggravating factors, OFAC says this:

Gil Travel had some awareness that it was providing Cuba-related travel services, and that its conduct could be in violation of the CACR [Cuban Assets Control Regulations]

Say what? It had “some awareness” that it was providing Cuba-related travel service and that this “could” be in violation of the rules? What on earth does that mean? How can you not know whether you are providing Cuba-related services? Close only counts in horseshoes and hand grenades, not rule violations. It’s a binary thing: you either are or are not providing those services and, if you are, you know it. Don’t count on any clarification from OFAC to help anyone figure out what happened here.

Apparently the owner of Gil Tours told (subscription required) Law360 sort of what was going on, although his explanation is not a model of clarity either.

Gil’s president and CEO Igal Hami told Law360 on Wednesday by email that … its only involvement with the trips under investigation was in referring nonprofit agencies that had OFAC licenses to arrange Cuban travel to another tour operator that also had a license.

So, apparently (if this is true), OFAC thinks you violate the CACR if you refer someone to a licensed tour operator unless you have a license to make that referral. In other words, if I included a link here to a licensed provider of people-to-people tours to Cuba, I would be breaking OFAC rules because I don’t have a license to make that referral. No wonder OFAC didn’t want to let on what happened here.

(I’m really, really, really hoping someone at OFAC clicked the link above to see if I had committed this violation. Explanation here.)