[1]The following guest post is from Timothy O’Toole [2], a Member of Miller & Chevalier who focuses on sanctions, export controls, and other international regulatory and compliance issues.
Almost a year ago, when the Administration began relaxing the Cuba embargo, one of the big questions was whether and how financial institutions would adapt to the new era. Without financing, it would be hard for any policy designed to increase travel to Cuba – as this new Cuba policy explicitly is – to succeed. Unfortunately, as many have reported, the financing has been slow to come around, which has meant that many American travelers to Cuba are still required [3] to deal exclusively, or almost exclusively, in cash, because their banks will not process credit and debit card transactions. See, e.g.,.
Just before the Thanksgiving holiday, the U.S. Treasury’s Office of Foreign Asset Control (OFAC) took a step toward fixing this problem, sending out a new frequently asked question and answer on what banks must do to provide financing for Cuba travelers. Understanding the import of OFAC’s announcement requires a quick discussion of the basics about travel to Cuba by U.S. persons.
Prior to January 2015, travel to Cuba almost always required a specific license, in which the traveler sought permission of OFAC to travel to Cuba, and OFAC determined whether to allow the travel on a case-by-case basis. One of the January 2015 changes to the Cuba policy was to create new general licenses (i.e., licenses that applied without making an application and without a case-by-case determination) for 12 categories of travel to Cuba, including:
- Family visits, governmental travel, journalistic activity;
- Professional research and professional meetings;
- Educational activities;
- Religious activities;
- Public performances, clinics, workshops, athletic and other competitions, and exhibitions;
- Support for the Cuban people;
- Humanitarian projects;
- Activities of private foundations or research or educational institutes;
- Exportation, importation, or transmission of information or information materials; and, c
- Certain authorized export transactions.
This means that if travel falls within one of these categories – which each describe a specific set of circumstances that must exist for it to be invoked — a U.S. person can go to Cuba without asking permission from OFAC. Note that one of the categories that is not eligible for travel to Cuba is tourism. This is because a statutory ban remains in place for travel by U.S. persons to Cuba for tourism purposes. Thus, each of the general licenses requires that the traveler certify that his or her schedule does not include free time or recreation in excess of that consistent with a full-time schedule in Cuba.
Apart from making it easier to travel to Cuba, the January 2015 changes also included provisions designed to allow banks to provide financing for transactions ordinarily incident to authorized travel to Cuba. That is, OFAC allowed banks to provide credit, debit and other services for travelers who were authorized to travel to Cuba by one of the new general licenses. Over the past year, and to clarify when this sort of financial service may be provided, OFAC has also distributed a number of frequently asked questions and answers, which described a number of things US financial institutions are now permitted to do in processing transactions related to “authorized” Cuba travel.
Thus, for example, if a U.S. person is lawfully in Cuba under the “professional research” general license and wants to purchase a meal, U.S. banks can process a debit card transaction for the meal. But, because each of OFAC’s answers referred directly to “authorized” Cuba travel, US banks were naturally led to wonder whether they had the burden of independently verifying that an individual’s travel was authorized. In other words, to continue our example, when a U.S. bank receives a debit request for dinner charges made by one of its customers in a Cuban restaurant, must the bank ensure that the traveler is really in Cuba doing “professional research” before it can process the charge? If so, it is hard to imagine many U.S. banks signing up to enter the Cuban market because the administrative costs of doing so seem pretty staggering.
Thankfully, on November 25, 2015, OFAC made clear that the burden is not on financial institutions to independently verify that the travel to Cuba is “authorized” in order to provide credit and debit card and other financial services for U.S. travelers to Cuba. Instead, a financial institution can rely on U.S. travelers to certify the authorized nature of their travel to the person providing the travel services – by for example, certifying to the travel agent selling the ticket that the traveler is going to Cuba to conduct professional research – unless the financial institution “knows or has reason to know that the travel is not authorized . . . ” As OFAC makes clear, the burden is on those providing travel services – as well as the traveler themselves – to verify the authorized nature of the travel. Thus, the travel or carrier service must secure and maintain a certification from each customer indicating the section of the Cuba regulations that authorizes the person to travel to Cuba, and the traveler must keep and maintain records associated with the travel to Cuba for five years. In other words, it is the responsibility of the travel or carrier service and the traveler – not the banks – to ensure that travel to Cuba is “authorized.” Which may be good news for Cuba travelers, since it may make it easier for the banks to start letting those credit and debit cards work on the Island.
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