WorldECR

Call for armed drone exports standards

Burma/Myanmar: new beginnings?

Russia expands restrictions on government

10
procurement of foreign software and hardware
India: putting export controls on the map

17

Want your man in Havana? Real-life

considerations on the U.S.- Cuba thaw

15

Sanctions in takeover situations:

navigating regulatory hurdles

23

Understanding U.S. re-export rules:

a technical introduction

25

The EUs AEO vs export controls

30

ISSUE 54. OCTOBER 2016

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U.S. Cuba sanctions

U.S. Cuba sanctions

Want your man in Havana? Real-life

considerations on the U.S.- Cuba thaw
It may appear that President Obama has opened the door to a brilliant and
cooperative future for Cuba and the U.S., but companies looking to get a
toehold in the market will find not just regulatory but a raft of real-life hurdles
and the weight of history will have to be overcome, writes Jason Poblete.

he process undergirding the

normalisation of U.S. relations
with Cuba reminds me at times of
Graham Greenes novel, Our Man in
Havana, a 1958-published novel which
sees its protagonist Wormold, a
washed-out vacuum cleaner salesman
in Havana, asked to spy for the United
Kingdom.
Knowing absolutely nothing about
espionage, Wormold sends fake
reports, laced with just enough real
persons and actual events to make
them just believable enough that they
set in motion a series of events that
would be strictly comical were it not for
the seriousness of the results.
17 December 2016 marks two years
since the United States and Cuba made
another serious go at re-establishing
normal relations. The first time was in
1977, when the Carter administration
and the Havana leadership inked a
fisheries agreement. The political
outcome of the 1977 engagement
culminated three years later with the
Mariel Boatlift of 1980, when more
than 120,000 Cubans fled for the
United States. It seems like history is
repeating itself since nearly 100,000
Cubans have arrived in the United
States, and still the [Obama]
Administration refuses to take
responsibility or offer solutions for the
mass exodus it has helped cause.1
The Obama Administration, having
had a series of Wormold moments,
along with the special interests which
support re-engagement with Cuba,
may have stepped ahead of the political
realities on the island. After a series of
secret meetings that included Vatican
officials serving as interlocutors,
embassies were reopened; many
parties were held in Washington, DC,
and Havana; and the book on the
Cuban leaderships persistent actions
threatening peace and security and
violating international standards
across issue areas appears to have been

18 WorldECR

shelved for now. This has resulted in

certain restrictions being eased via
three executive orders.
The fact is, however, that Cuba
remains subject to a comprehensive
economic embargo that has real bite
for companies and persons engaging in
the Cuba marketplace and demands
that investors and others consider
some significant questions, viz:
l What does the continuing embargo
mean for non-U.S. companies with
a presence in the United States and
which also engage in Cuba or with
Cuban
government
officials,
agencies
or
instrumentalities
thereof, or which may be exploring
entering the Cuban market?
l Will Washington and Havana reach
an agreement on property claims
and, pending such resolution, what
are the obligations under the
longstanding U.S.-EU agreement on
investment principles covering
activity in Cuba to prevent
trafficking in stolen property?

l Will there be a popular uprising

such as a Cuban Arab Spring which
might present risks for investment?
l Will Cuban exiles and other victims
of Cuban Communism pursue
action against companies that
enable or are complicit in violations
by the Havana government against
persons and property?
Putting it in context
In the course of an interview with the
Wall Street Journals risk &
compliance team in February 2015, I
used the term irrational exuberance
(borrowing former Federal Reserve
Chairman Alan Greenspans 1996
characterisation of the dot-com
economy) to describe the marketplaces
response to the U.S. policy shift and
this continues to hold true: In my view,
stakeholders are overvaluing the
importance of the Cuban market and
creating a regulatory compliance
minefield.
If Mississippi, the poorest state in
the United States, were a nation, it

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U.S. Cuba sanctions

would generate more GDP than Cuba.
Nonetheless, Cuba is still viewed as an
important Caribbean market by many.
Business opportunities are significantly
hampered by Communist policies and
structures, and the corruption, fear and
uncertainty they breed. Even when
Cuba manages to enter the ranks of an
emerging economy and achieve some
modicum of democratic rule that
includes political tolerance, private
property rights and the rule of law, it
will still face periods of political and
economic uncertainty that will impact
foreign activities for years to come.
Despite these challenges, recent
changes to U.S. policy and the easing of
certain sanctions will, if the
Communist leadership apparatus
allows it to, re-introduce U.S.
companies, brands, and services to the
island. For example, persons subject to
U.S. law are now allowed to create what
the regulations call a physical
presence on the island. This would be
the first time since the 1960s that
companies such as Marriott, American
Airlines, AT&T, Sprint, and many
others could open offices in Cuba,
putting them in direct competition with
Canadian, European and other
competitors. While direct competition
from American companies is at its
infancy, it is expected to grow as
sanctions are eased and relations
improve.
In the meantime, European and
other non-U.S. companies that engage
in Cuba transactions that have U.S.
persons on staff or business interests in
the United States may be able to take
advantage of the new U.S. regulatory
environment for transactions in Cuba
as well as certain transactions in third
countries involving Cuban nationals.
The following provides highlights of
some old rules and some of the new
regulations.
The U.S.-Cuba Embargo reach
remains broad, but some changes
On 27 September, President Obama
nominated the first U.S. ambassador to
Cuba since the U.S. severed diplomatic
relations with the island on 3 January
1961. However, a few weeks before, as
expected, he also extended for another
year the national emergency with
respect toward Cuba, ensuring that a
majority of the economic sanctions
remain in place for at least another
year.2
The U.S. embargo applies to
persons subject to U.S. law, including

19 WorldECR

U.S. Cuba sanctions

U.S. citizens, and legal permanent
residents, no matter where in the world
they are located, including cyberspace.
A U.S. person includes, but is not
limited
to,
any
corporation,
partnership, association, or other
organization organized under the laws
of the United States or of any State,
territory, possession, or district of the
United States.3
Just because there is a U.S. person
in your business does not mean that
the proposed transaction(s) are
completely out of the question. For
example, there may be an exception to
the embargo, such as a general licence
or authorisation, or you may be able to

Persons subject to U.S.

law are now allowed to
create what the
regulations call a
physical presence on
the island.
apply for a specific licence to proceed
with the transaction with the
involvement of that U.S. person.4
The embargo also applies to
companies or other entities that are
owned or controlled5 by U.S. persons.
The U.S. person can be any individual,
regardless of where they are located,
who is a citizen or legal permanent
resident of the United States. Dualnationals, for the purposes of
interpreting the regulations that put
into force the embargo, are deemed to
be a national of each of such foreign
countries.6
The regulations prohibit U.S.
persons, irrespective of where they are
located, from facilitating transactions
with Cuba unless there is an exception
or a specific licence to allow it. For nonU.S. companies employing U.S.
persons who, for example, serve in a
managerial capacity or on the board of
directors, it is essential that before
engaging in any Cuba transactions,
including at the business development
phase of a project, that you seek legal
counsel to ascertain if U.S. government
authorisation would be required in the
form of a general authorisation or a
specific licence.
For example, under the new
regulations issued by the Treasury
Department Office of Foreign Assets
Control (OFAC), foreign subsidiaries
or branches of U.S. banks can once

again process payments originating

outside of the U.S. as long as neither
the originator nor the beneficiary is
subject to U.S. jurisdiction.
The travel sector has also seen a
significant boost as it is now easier for
Americans to travel to Cuba on
structured people-to-people travel
and for other purposes. However,
tourism travel remains illegal. An
interesting feature of the new
regulations is a physical presence rule
that allows persons subject to U.S. law
to open warehouses or offices in Cuba.
Also under the revised Cuban Assets
Control
Regulations
(the
Regulations), the underlying activities
undertaken by the company are
allowed under the embargo, persons
subject to U.S. law can create physical
presence and business presence.7
Examples of physical presence and
business presence include [l]easing
physical premises, including office,
warehouse, classroom, or retail outlet
space, and securing related goods and
services, including for use in and to pay
fees related to the operation of the
physical premises.8 Marketing is also
allowed, as is the employment of
Cuban nationals and the employment
of individuals who are persons subject
to U.S. jurisdiction.9 The opening of
bank accounts in Cuba, under this
section of the regulations, is also
allowed.
Persons subject to U.S. law who are
engaged in the following activities are
also allowed to create a physical
presence in Cuba: news bureaus,
whose primary purpose is the
gathering and dissemination of news to
the general public; entities organising
or conducting educational activities;
religious organisations engaging in
religious activities in Cuba; entities
engaged in humanitarian activities or
support of the people of Cuba; as well
as private foundations or research or
educational institutes.
With the exception of financing,
under the new presence rules, persons
subject to U.S. law can now establish
and maintain subsidiaries, branches,
offices, joint ventures, franchises, and
agency or other business relationships
with any Cuban national, and entering
into all necessary agreements or
arrangements with such entity or
individual.10
Keep in mind that these new
exceptions are only available for
transactions involving: telecommunications, internet-based service

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U.S. Cuba sanctions

providers, certain mail or parcel
transmission services, select exporters
of certain goods and services allowed
under exceptions of the comprehensive
embargo, as well as certain providers of
travel and carrier services.
In addition to economic sanctions,
special export control rules remain in
place for dual-use and defence articles
that, because of the embargo, are also
banned from export to Cuba. And the
export or re-export to Cuba of items
subject to the Export Administration
Regulations (15 CFR 730 through
774)
may
require
separate
authorisation from the Department of
Commerce.11
Cuban nationals are still considered
blocked, however. If a Cuban national
takes up permanent residence outside
of Cuba and meets certain other
requirements, that person is deemed
an unblocked national. All persons
subject to U.S. jurisdiction are allowed
to provide goods and services to a
Cuban national located outside of
Cuba, provided that there is no
commercial export of goods or services
to and from Cuba.12
Persons subject to U.S. jurisdiction
who are located in a third country may
also obtain services from a Cuban
national if the services are ordinarily
incident to travel and maintenance

20 WorldECR

U.S. Cuba sanctions

within that country.13 U.S.-owned or controlled entities in third countries
are allowed to provide goods and
services to a Cuban national who is
located outside of Cuba, provided that
the transaction does not involve a
commercial exportation, directly or
indirectly of goods or services to or
from Cuba.14
With
respect
to
financial
transactions, persons subject to U.S.
law are authorised to provide financial
services to Cuban individuals located
outside the island nation. Again, as in
the prior examples, the transaction
cannot involve, implicitly or explicitly,
the commercial exportation, directly or
indirectly, of goods or services to or
from Cuba. Further, financial services
institutions are allowed to open and
maintain accounts, including the
deposit of funds in these accounts by
wire transfer, provided that the
accounts are only used while the Cuban
national is located out of Cuba and the
account, again, is not used for
transactions involving the commercial
exportation, directly or indirectly, of
goods and services from Cuba.
At the heart of the U.S.-Cuba
diplomatic dance: property
Among the many issues which require
resolution between the United States
and Cuba, an area of significant dispute
keeping the relationship at a significant
loggerhead has nothing to do with
human rights or national security, but
rather property real and personal
property.
Communist Cubas taking of homes,
farms, businesses, as well as looted
artwork, was one of the largest,
uncompensated thefts of American
property on foreign soil, ever. While
one of the more under-reported
matters affecting the relationship
between the two countries and U.S.
policy toward Havanas Communist
government, resolution of billions of
dollars in property claims is central to
any further progress in bilateral
relations and should be a foremost
consideration for any foreign investor,
given the potential legal and economic
liabilities. The Cuban leadership must
get serious about putting in place a
comprehensive
mechanism
to
expeditiously and satisfactorily resolve
these claims and set forth a roadmap to
demonstrate respect for property rights
generally. Otherwise, its efforts to
attract more economic activity are for
naught.

There are two potential classes of

property claims, and due to recent
events on the island, a third group
those who were U.S. citizens at the time
of the taking and all others. Under U.S.
law, those whose property was stolen
are owed approximately $8 billion by

In addition to economic
sanctions, special export
control rules remain in
place for dual-use and
defence articles that,
because of the embargo,
are also banned from
export to Cuba.
the Cuban government. The other class
of potential claimants, a majority who
reside in the United States, followed by
Spain and other European nations, in
dollar value, will pale in comparison to
the U.S. certified claims.
The other class of claimant, not the
subject of this note, are Cubans in Cuba
today who are losing properties as well.
To date, the United States and Cuba
have acknowledged publicly meeting at
least three times to discuss the $8
billion American claims. With respect
to the other potential claims, the
United States is not required to
espouse or otherwise handle these;
however, there are provisions under
U.S. law that, in both situations
certified or uncertified15 companies
that do business in Cuba should be
aware of, because it could expose them
to legal liabilities, as well as sanctions
and other repercussions, including
negative publicity.
The property issue is the elephant in
the room that parties on all sides of this
issue pretend is not there. It is an issue
matter that a colleague calls the canary
in the coalmine16 and one, which when
resolved, would make it a whole lot
easier for most of the major embargo
restrictions to be lifted by the U.S.
Congress.
Keep in mind that avoiding
confiscated properties in Cuba that
used to belong to Americans is no easy
task; however, if you factor in the
potential non-certified claims that may
be raised by the Cuban-American
community in the United States and
members of the Cuban diaspora
worldwide, it would be wise for
investors to exercise due diligence and

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U.S. Cuba sanctions

ensure they have a robust compliance
review process to avoid stepping on
potential landmines.
With respect to certified claims,
companies that have done business in
Cuba since the 1960s have learned to
avoid them or, more likely, have been
assured by Cuban officials not to worry
about them. That posture will become
increasingly untenable as U.S. persons
are allowed to engage in Cuba by both
governments. Keep in mind that for
persons subject to U.S. law, it remains
unlawful to traffic in properties that
are subject to a certified claim and, in
some cases, uncertified claims too.
Also under U.S. law, the Secretary
of State shall deny a visa to, and the
Attorney General shall exclude from
the United States, any foreign national
who traffics in confiscated property, a
claim to which is owned by a United
States national.17 The prohibition
extends to any corporate officer,
principal, or shareholder with a
controlling interest of an entity which
has been involved in the confiscation of
property or trafficking in confiscated
property, a claim to which is owned by
a United States national,18 and
includes the spouse, minor child, or

U.S. Cuba sanctions

agent of a person excludable19 foreign
national.
In these visa exclusion cases,
trafficking is broadly defined as being
where a person subject to U.S. law
knowingly and intentionally transfers,
distributes, dispenses, brokers, or

A Clinton win likely

signals a continuation
and expansion of the
Obama rapprochement.
If Trump were to win...
he would seek changes
to advance a
satisfactory resolution
of the property claims
issue while leveraging
sanctions.
otherwise disposes of confiscated
property purchases, receives, obtains
control of, or otherwise acquires
confiscated property, or improves
(other than for routine maintenance),
invests in (by contribution of funds or

Links and notes

1

3
4

5
6
7

8
9
10
11

12

Curbelo Reacts to Unidentified Bodies Found in the

Florida Keys, Rep. Carlos Curbelo, Member of the U.S.
House of Representatives, press release, available at
https://curbelo.house.gov/news/documentsingle.asp
x?DocumentID=1158 (27 September 2017).
Section 101(b) of Public Law 95-223 (91 Stat. 1625;
50 U.S.C. 4305 note; 80 FR 55503), 16 September
2015.
31 CFR 515.329 (c)
For companies in Europe, please note that the
European Commission (EC) has enacted EC
Regulation No. 2271/96 and certain European Union
Member States adopted similar blocking regulations
prohibiting covered companies from complying with
the U.S. embargo on Cuba. For example, in the United
Kingdom, the UK Protection of Trading Interests Act
makes it illegal for UK-based companies to comply
with extraterritorial legislation such as certain parts of
the U.S. embargo on Cuba.
31 CFR 515.329 (d).
31 CFR 515.303.
Based on the authors interaction with U.S.
government officials, there is an ongoing debate
about whether this amendment to the CACR is legal
since it may conflict with indirect financing
prohibitions of the Cuban government as well as with
regulatory and policy principles that were codified in
U.S. law. The physical presence and business
presence rules will likely be the subject of
Congressional oversight in 2017 by Congressional
oversight Committee members who support a tougher
approach toward Cuba.
31 CFR 515.573 (a)(1).
31 CFR 515.573 (a)(2) - (a)(4).
31 CFR 515.573 (b).
Note to 21 CFR 515.573; [80 FR 56924, 21
September 2015, as amended at 81 FR 13993, 16
March 2016].
31 CFR 515.585.

21 WorldECR

13
14
15

16

17
18
19
20
21

22
23

Id.
Id.
With respect to non-certified claims, or claims from
persons who were not Americans at the time of the
taking, the author believes that, short of a Cubanfocused solution in a post-Communist Cuba, the
United States, Spain, and other nations whose
nationals have yet to be compensated should consider
a Cuba claims tribunal under the auspices of an
international organisation such as the Organization of
American States (OAS), the United Nations, or
another independent entity that will focus exclusively
on resolving transitional justice matters.
Arthur M. Freyre, Canary In The Coal Mine: An
Overview of the U.S. Certified Claims Against Cuba,
XXXII International Law Quarterly, at 2476 (Fall
2016), available at
http://www.pobletetamargo.com/newsmedia/uncategorized/ilq-fall-2016-special-cuba-editio
n (last access Oct. 2, 2016). .
2 USC 6091(a)(2).
22 USC 6091(a)(3).
22 USC 6091(a)(4).
22 USC 6091(b)(2).
See U.S. Ends Probe as ITT, STET Reach Pact on Cuba
Property, The Wall Street Journal,
http://www.wsj.com/articles/SB8697046556769815
00 (last accessed 1 October 2016).
22 USC 6091(b)(2)(B)(i) thru (b)(2)(B)(iv).
Poblete provides a preliminary roadmap for discussing
a voluntary Code of Conduct for Cuba starting at page
880, at The Cuba Conundrum: Corporate Governance
and Compliance Challenges for U.S. Publicly-Trade
Companies, Professor Marcia Narine, Esq., U. of
Pennsylvania Journal of Business Law, Vol. 18:3
(2016) available at
http://scholarship.law.upenn.edu/cgi/viewcontent.cgi
?article=1517&context=jbl (last accessed October 1,
2016).

anything of value, other than for

routine maintenance) to manage,
lease, possess, use, or hold an interest
in confiscated property.
In addition, trafficking also includes
entering
into
a
commercial
arrangement using or otherwise
benefiting from confiscated property,
or causing, directing, or participating
some of the aforementioned definitions
with third persons in order to get
around the trafficking prohibition.20
One possible workaround to this
problem is locating the U.S. holder of
the certified claim and securing
authorisation from that person, as well
as the U.S. government. That is what
happened in the ITT-STET case,21 and,
I suspect, a similar arrangement may
have been reached with Starwood
Hotels & Resorts.
There are also a few activities that
could be deemed exceptions to the
trafficking
restriction/visa
ban
including the delivery of international
telecommunication signals to Cuba
the trading or holding of securities
publicly traded or held, unless the
trading is with or by a person
determined by the Secretary of the
Treasury to be a specially designated
national transactions and uses of
property incident to lawful travel to
Cuba, to the extent that such
transactions and uses of property are
necessary to the conduct of such travel;
or transactions and uses of property
by a person who is both a citizen of
Cuba and a resident of Cuba, and who
is not an official of the Cuban
Government or the ruling political
party in Cuba.22
Concluding thoughts and issues
to be mindful of next year
While there are few legislative days
remaining in 2016 during the lame
duck session of the U.S. Congress,
proponents of eliminating sanctions on
Cubas Communist government may
move to ease restrictions on the
financing of agricultural sales to Cuba
a long-sought concession. Parlaying
end-of-year political jockeying on other
issues, a compromise with sanctions
supporters will be needed where, in
return for their agreement on
financing, they may seek more robust
enforcement
of
trafficking
in
confiscated properties via U.S. courts,
regulations or other means. Beyond
that, look to 2017 for bigger changes in
U.S. law and policy.
As of this writing, former Secretary

www.worldecr.com

U.S. Cuba sanctions

of State Hillary Clinton seems to have
a polling edge over Donald Trump;
however, according to pollsters, Mr.
Trump has been closing the gap and
the race remains too close to predict.
The Republicans are expected to keep
the majority in both houses of U.S.
Congress, although some predictions
place control of the Senate in doubt.
Factoring in what President Obama
has done during the last two years, the
political control of the federal
government in 2017 will impact U.S.Cuba policy in ways that, because of
recent trends in the political world, will
be difficult to anticipate. A Clinton win
likely signals a continuation and
expansion
of
the
Obama
rapprochement and, if she could
muster the necessary number of votes
in Congress, further easing of the
embargo. If Trump were to win,
however, while a full reversal of the
Obama regulatory changes is unlikely,
he would seek changes to advance a
satisfactory resolution of the property
claims issue while leveraging sanctions,
strengthening some restrictions, and
updating the U.S. approach to better
address property claims and other U.S.

U.S. Cuba sanctions

economic, political, and security
priorities.
In the Cuban diaspora, a divestiture
campaign is in its early phases, yet it
has generated a response from its first
target, Starwood Resorts. Companies
that engage in Cuba that also have
exposure in the United States should be
mindful of these matters and plan
accordingly. As two European
companies learned in 2012, Swedish
furniture giant IKEA (over allegations
that it was using Cuban slave labour) or
Mercedes Benz (for using a likeness of
Che Guevara in an advertising
campaign), the Cuban diaspora is a
powerful political and economic force
that can sway public opinion in the
United States and influence the future
of the bilateral relationship between
Washington and Havana which, in
turn, affects the strategic calculus for
those doing business in Cuba or
looking for economic opportunities on
the island. Companies that are
currently engaged in that marketplace
should consider adopting a voluntary
code of conduct for Cuba.
Some view the rapprochement
between the U.S. and Cuban

governments as irreversible and focus

on the market of opportunity it could
create. However, uncertainty about
U.S. policy and actions by American
citizens, variables affecting political
and economic conditions on the
ground in Cuba, as well as questions
about the credibility of information
from and about Cuba akin to
Wormolds reports in Our Man in
Havana also create a new set of
compliance and risk mitigation
challenges. In sum, buyer beware, and
see footnote 23 of this note for
additional risk mitigation and
compliance ideas.23

Jason I. Poblete is a partner at

Poblete Tamargo llp in
Alexandria, Virginia, where he
represents domestic and nonU.S. individuals and
corporations in regulatory and
transactional matters.
jpoblete@pobletetamargo.com

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22 WorldECR

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