Just days before President Barack Obama’s historic trip to Cuba, the administration hopes a new set of U.S. regulations easing travel and banking restrictions for Cuba will nudge Havana toward making its own changes to encourage more commerce between the former adversaries.
The new rules that were announced Tuesday continue to chip away at the embargo by allowing individuals to travel to the island on their own people-to-people trips and permitting the use of U.S. dollars in more financial transactions with Cuba.
Ben Rhodes, a deputy national security adviser, said the United States would continue to urge the Cuban government to make changes in its economic model to make it easier to do business. The policy shift toward Cuba, he said, also is in “America’s national interest.”
But analysts said a business relationship with Cuba won’t fully develop until the U.S. embargo is lifted.
“At the end of the day these are tweaks and taking chips away from a giant wall,” said Andy Fernandez, leader of Holland & Knight’s Cuba Action Team. “And the barriers on the Cuban side still exist.”
Among changes Cuba could make to increase the impact of the new U.S. rules, said Rhodes, would be eliminating the 10 percent penalty charge on converting U.S. dollars to Cuban convertible pesos (CUCs) and allowing foreign firms operating in Cuba to directly hire their Cuban workers.
All of the policy changes since the United States and Cuba announced they were working toward normalizing relations on Dec. 17, 2014 are aimed at the United States being better able to support engagement with the Cuban people and to “build bridges between our two countries,” said Rhodes, one of the architects of the new Cuba policy.
“These regulations help — but not yet to the extent that you will see things really open up in Cuba,” said David Schwartz, chief executive of the Florida International Bankers Association.
South Florida Republican Rep. Ileana Ros-Lehtinen said further easing restrictions just before Obama’s Sunday through Tuesday visit to Cuba only helps strengthen the Castro regime.
“Just in the past few days in Cuba, there has been increased repression on the island and more arrests are being made in anticipation of the president’s misguided visit,” she said. “U.S. policy must focus less on easing our regulations and more on putting pressure on the Castro brothers to unclench its fists, which oppress the Cuban people.”
The new regulations, the fifth round of changes in a little more than a year, will take effect Wednesday.
▪ Individual travel — Americans on people-to-people educational tours to the island used to have to travel in organized groups. Now they can plan their own itineraries as long as they keep records for five years showing they’ve engaged in a full-time schedule of educational exchanges.
It appears the record-keeping “will be on the honor system,” said Fernandez, “but this is pushing the envelope on U.S. travel.”
Individual travelers can also make trips under the auspices of an organization that sponsors people-to-people exchanges in which case the burden of record-keeping falls to the sponsor.
“These changes, coupled with the arrangement recently announced by the Departments of State and Transportation allowing up to 110 non-stop flights daily between the United States and Cuba, will significantly increase the ability of U.S. citizens to travel to Cuba to directly engage with the Cuban people,” said White House spokesman Josh Earnest.
“We have enormous confidence in the American people to act as ambassadors for the things we care about,” Rhodes said.
But Americans still aren’t allowed to go to Cuba to lounge on the beach. “Travel for tourist activity remains prohibited by statue,” said Andrea Gacki, acting deputy director of Treasury’s Office of Foreign Assets Control.
▪ Banking regulations — Treasury outlined a series of new banking regulations that could ease bankers’ reluctance to engage with Cuba. The new rules make it clear that U.S. financial institutions will be able to process cash, travelers checks and other U.S. dollar-denominated monetary instruments indirectly presented by Cuban financial institutions.
Correspondent accounts at third-country financial institutions also may be denominated in U.S. dollars, and U.S. banks will be allowed to open and maintain bank accounts for Cuban citizens residing in Cuba who receive payments in the United States for authorized transactions and then send those payments to Cuba. This could be a boon to Cuban authors and artists, for example, who legally sell their work in the United States.
Funds may also be transferred from a bank outside the United States, pass through U.S. financial institutions and then be transferred to a bank outside the United States without worry about the stiff penalties of the past.
Decriminalizing the use of U.S. dollars in third-party transactions with Cuba has been a big issue for financial institutions that have been subject to billions of dollars in U.S. fines over the years. Rhodes said previous U.S. restrictions had “shut Cuba out from parts of the international financial community.”
As more Americans travel to Cuba, these U.S. visitors “will be dropping more and more dollars in Cuba and Cuba wants to be able to spend them,” said Augusto Maxwell, a Miami attorney who heads Akerman’s Cuba practice.
“Now they’re afraid of spending these dollars around the world because whenever they’re routed to a U.S. financial institution, the banks have seized them,” he said. With the rule change, now Cubans and the Cuban government “can use these dollars directly,” said Maxwell.
The changes also will “improve the speed, efficiency and oversight” of U.S. financial transactions with Cuba, Gacki said.
▪ Hiring — U.S. companies can hire Cuban nationals, in a non-immigrant status, to work or perform in the United States provided that no additional payments are made to the Cuban government related to their sponsorship or hiring. That means Cuban athletes, artists, performers and others who obtain the necessary visas will be allowed to come to the United States and earn salaries and stipends above their basic living expenses.
Major League Baseball is now in talks with Cuba about letting Cuban players sign directly with MLB teams, rather than continuing their practice of defecting.
▪ Business presence — Under previous rule changes, U.S. companies were allowed to open offices and establish a physical presence in Cuba. In the interest of providing better access to information, U.S. telecom companies also were permitted to enter into partnerships with Cuban government entities.
Now companies providing mail, cargo, and transportation services are among those that can have a business presence in Cuba — opening up the possibility of a joint venture, franchise or other business relationship with Cuban individuals or entities, said Fernandez.
▪ Cargo — Vessels and aircraft leaving the United States with cargo for Cuba and for other destinations will now be able to call on Cuba and continue on their routes to make further deliveries without applying for a specific license.
▪ Exports — Now, U.S. companies can export or reexport items to Cuba to establish and maintain their offices. The United States also will adopt a policy of case-by-case review of U.S. exports and reexports to Cuban entrepreneurs that would help the private sector export its own products.
▪ Grants and scholarships — Educational grants, scholarships and awards may now be granted to Cubans.
“Today’s amendments build upon President Obama’s historic actions to improve our country’s relationship with Cuba and its people,” said Commerce Secretary Penny Pritzker. “These steps not only expand opportunities for economic engagement between the Cuban people and the American business community, but will also improve the lives of millions of Cuba’s citizens.”
When Obama arrives in Havana Sunday evening, he will be the first sitting American president to visit the island in nearly 90 years.
“This is what historic change looks like,” said James Williams, president of Engage Cuba, which supports normalized trade and travel with Cuba. “The new regulations will speed up a process that is now all but inevitable. And now it is up to Congress to do its job and support the will and wishes of the majority of the American people by ending the trade and travel ban with Cuba.”