Cuba and Compliance: 4 Critical Factors to Consider

Bailey Bliss

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Since the early 1960s, Cuba has been a no-go for the vast majority of US companies when it has come to doing business. This has slowly begun to change, however, with President Obama’s announcement of policy changes last December. The economic borders are now opening as the regulatory changes reflecting these policy shifts are put in place by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS). 

Of particular interest to companies, the regulations now allow certain US businesses to do the following:

There are, however, many US commercial restrictions still in place, and US authorities have not discontinued enforcement of economic sanctions in effect in previous years or still in place today. The French bank Crédit Agricole learned this the hard way in October 2015 when it paid a total of $787 million in criminal and civil penalties to settle sanctions violations with multiple authorities. That case involved the bank’s actions between 2003 and 2008 to move approximately $312 million through the US financial system on behalf of entities located in several countries subject to economic sanctions, including Cuba.

In short, just because the sanctions regime against Cuba may be loosening, now is not the time for companies to relax their focus on compliance. But with additional opportunities for increased trade on the horizon, it is an opportune time to consider how your business operations may touch upon Cuba and to help ensure that you have the proper measures in place to avoid potential problems. Here are four important factors to consider:

  1. Do your operations personnel fully understand their obligations under US law with respect to Cuba and overseas third parties? Third party entities outside the US cannot be used to circumvent US trade restrictions. In May of this year, BNP was sentenced to total fines of nearly $9 billion after it processed over $8.8 billion through the United States on behalf of entities in sanctioned countries. Among other things, the bank used “sophisticated schemes” to route the illegal payments through third party financial institutions in order to conceal the nature of the transactions, as well as BNP’s role. Consider whether the risk level in your situation merits consideration of training, other messaging and/or certifications from relatively high risk operations personnel to prevent or mitigate possible future issues.
  2. If your operations may be covered by the new regulations, do you have suitable controls in place? As you work with professional advisors to determine your obligations under the new rules, you should consider using both clear policies and comprehensive internal controls to help govern and monitor newly legalized transactions involving Cuba.
  3. Are you keeping adequate records? Implementation of the new Cuba regulations will almost certainly meet some bumps in the road, as 30,000 foot intent meets on-the-ground reality. Questions may arise at some point about how you applied the new rules, and accurate and complete records will therefore be an important resource for memorializing and explaining why you did what you did. And since many companies entering the Cuban market may need the assistance of local agents, keeping appropriate due diligence records will be particularly important for Foreign Corrupt Practices Act (FCPA) purposes.
  4. Do you have an appropriate review process in place with regard to individuals and entities on OFAC’s Specially Designated Nationals and Blocked Persons (SDN List)? OFAC has removed the names of over 50 Cuban individuals and over 100 Cuban entities from this list since fall 2014. There will likely be other changes in the future, but many individuals and entities – from a variety of countries – remain on this list. It is therefore critical to revisit the most recent version of the SDN List regularly and as new business opportunities emerge, since dealing with any of the individuals or entities on the list may subject your company to criminal penalties.

Cuba’s re-entry into the US commercial sphere is reason for excitement. It is also reason to step back and consider the compliance implications, based on your company’s particular facts and circumstances.

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