As the Doors Open to Cuba, Should Your Business Be Entering?

As the Doors Open to Cuba, Should Your Business Be Entering?
One Challenge: How to Obtain Reliable Information About Potential Local
Partners

The easing of sanctions against Cuba is creating opportunities for some
businesses to explore a market that has been largely closed to U.S.
businesses for more than 50 years. As a result of changes announced by
President Obama starting in December 2014, it is now possible for U.S.
businesses engaged in certain types of activities to set up operations
in Cuba, giving those businesses the chance to stay actively engaged in
the local market on a daily basis.

Businesses that fall within the authorized categories may establish a
business and physical presence in Cuba, and they may employ both Cuban
nationals and persons subject to U.S. jurisdiction. This provides an
opportunity to hire local personnel who have a broader understanding of
the local marketplace and scope of opportunities.

One of the challenges I have heard many clients cite as they are trying
to decide whether and how to enter the Cuban market is how to obtain
reliable information about private entrepreneurs, the local construction
industry, and other segments of the market, information which is needed
to understand whether the requirements of certain OFAC general licenses
and EAR license exceptions can be satisfied. Being able to hire a local
may give you an advantage in identifying the best opportunities for
sales that will fall within the authorized scope of the US rules.

In addition, you are also permitted to employ in Cuba persons who are
subject to U.S. jurisdiction, which includes U.S. citizens and permanent
residents. This enables you to relocate current company personnel, who
have the requisite knowledge about your business, to Cuba. Because they
know your business, such individuals may be the perfect complement to
the Cuban national you hire locally.

The Cuba rule changes have also authorized new means for undertaking
various financial transactions. In particular, credit cards issued by
U.S. financial institutions may now be used in Cuba. Moreover, U.S.
businesses that set up operations in Cuba are permitted to open and
maintain bank accounts in Cuba for the purpose of engaging in authorized
activities in Cuba. The payment terms for items exported from the United
States to Cuba and for other transactions authorized pursuant to the
Cuba sanctions have been eased on all types of exports except
agricultural commodities. This permits transactions with Cuba to be
conducted in U.S. dollars and authorizes U.S. banks to process a broad
array of transactions involving Cuba.

Take note, however, that just because they are authorized to engage in
additional transactions involving Cuba, not all U.S. banks and credit
card companies are eager to do so because of potential compliance risks.
In addition, the local economy in Cuba remains largely cash-based; many
businesses there do not yet accept credit cards.

Entry into the market is not without its limitations. In addition to the
challenges that result from a lack of development of certain markets and
sectors of the Cuban economy, compliance with the sanctions regulations
remains a trap for the unwary. You would be wise to work closely with
counsel having experience with the Cuba sanctions regulations to ensure
that any activities your business undertakes involving Cuba stay in
compliance with the rules. The regulations are complex—take the section
that provides authorization to establish a business and physical
presence in Cuba; it cites at least a dozen other sections of the Cuba
sanctions regulations in the course of telling you what is and is not
permitted and by whom.

And by no means have the Cuba sanctions—or the related penalties—gone
away. There remain broad prohibitions on engaging in transactions
involving Cuba, including restrictions on the exports of goods to Cuba
in many circumstances. Even with the increased opportunities, it remains
imperative to enter the Cuban marketplace with caution to ensure compliance.

Susan Kovarovics is a partner at the law firm of Bryan Cave LLP. Megan
Gajewski Barnhill is an associate at the firm.

Source: As the Doors Open to Cuba, Should Your Business Be Entering? |
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