The Obama Administration appears to finally be making a far-too-unnecessarily-long-awaited change to financial regulations relating to the moving of funds from the United States to the Republic of Cuba and from the Republic of Cuba to the United States.
This specific change was discussed in 2015 and earlier in 2016; there is no rationale provided for the delays.
The Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury is expected to authorize by general license Republic of Cuba government-operated financial institutions to have correspondent accounts with financial institutions located in the United States.
Currently, the OFAC does not authorize Republic of Cuba-based financial institutions to have accounts at United States-based financial institutions.
A Republic of Cuba government-operated financial institution would need to apply for a specific license from the OFAC; they likely won't, however, due to the perceptual issue of the OFAC authorizing United States-based financial institutions to have accounts in the Republic of Cuba, but no authorization for Republic of Cuba-based financial institutions to have accounts in the United States.
The purpose of the regulatory change by the OFAC is to further the efficiency of the commercial payment process for exports to the Republic of Cuba and imports from the the Republic of Cuba; and for the transfer of funds related to travel by companies and individuals subject to United States jurisdiction- credit/debit card issuers, air carriers, travel agents, tour operators, hotel management companies, cruise ship operators, and air cargo services among others.
There remains concern that funds contained in an account established in the United States by a Republic of Cuba government-operated financial institution (or other entity) could be subject to civil action by an individual or company with a claim against the government of the Republic of Cuba.
An OFAC policy of commercial prior restraint, dispensed as a proactive mechanism to prevent risk should be alien to the capitalist marketplace. Evaluating any legal potentiality is best determined by the parties involved rather than by the United States government.
United States-based companies have advocated to the OFAC that they, the companies, should be the determinant of any Republic of Cuba-related risk, rather than the United States government.
Removing the regulatory impediment to Republic of Cuba government-operated financial institutions having correspondent accounts with United States-based financial institutions will remove an item from the list of issues maintained by the government of the Republic of Cuba as reasons for not seeking to fully-engage United States-based companies. The impediment is by choice, not by statute.
Removing the regulation does not solve the problem, but removing the regulation makes the problem less relevant and assists the Republic of Cuba with re-establishing and establishing financial relationships with other countries, which assists United States-based entities.
In 2015, Pompano Beach, Florida-based Stonegate Bank (2015 assets exceeded US$2.3 billion) signed a Direct Correspondent Banking Agreement (DCBA) with Republic of Cuba government-operated Banco Internacional de Comercio SA (BICSA), a member of Republic of Cuba government-operated Grupo Nuevo Banca SA, created by Corporate Charter No. 49 on 29 October 1993 and commenced operation on 3 January 1994.
Stonegate Bank also provides commercial operating accounts for the Embassy of the Republic of Cuba in Washington, DC.
However, even though Stonegate Bank has a DCBA with BICSA, regulations issued by the OFAC continue to require financial institution transactions relating to the Republic of Cuba to be subject to an inefficient triangular payment process using Panama City, Panama-based Multibank, which has extensive dealings (and an office in Havana) with Republic of Cuba-based entities.
For example, a Republic of Cuba-based entity places an order with a United States-based company. The Republic of Cuba-based entity then either transfers funds from the Republic of Cuba to a third country financial institution or uses existing funds in a third country financial institution. The third country financial institution transfers the funds to a financial institution (either within the United States or another country) selected by the United States-based company. This process can take up to five days (if a weekend, for example) and there are higher-then-normal transfer costs to the Republic of Cuba-based entity and United States-based company.
With a fully-implemented DCBA, Stonegate Bank and BICSA would transfer funds (using SWIFT codes) from their respective accounts.
After the arrival of funds from the Republic of Cuba, there would be a transfer from Stonegate to the financial institution selected by the United States-based company. The process generally can be confirmed during a business day; and the transfer costs are lower for both seller and buyer.
Currently, Stonegate Bank uses Multibank to route payments to and from BICSA. The average transaction time is one to two days. The current retail cost to transfer US$100,000.00 is approximately US$250.00 (.3%), which would decrease if the process was two-way instead of three-way.
There are two prohibitions in the Cuba Assets Control Regulations (CACR) that prevent the establishment of correspondent accounts at United States financial institutions for Republic of Cuba government-operated financial institutions unless specifically licensed by the OFAC: 31 C.F.R. §515.201(a)(1) and §515.201(b)(1).
Title 31 → Subtitle B → Chapter V → Part 515 → Subpart B
Title 31: Money and Finance: Treasury
PART 515—CUBAN ASSETS CONTROL REGULATIONS
§515.201 Transactions involving designated foreign countries or their nationals; effective date.
(a) All of the following transactions are prohibited, except as specifically authorized by the Secretary of the Treasury (or any person, agency, or instrumentality designated by him) by means of regulations, rulings, instructions, licenses, or otherwise, if either such transactions are by, or on behalf of, or pursuant to the direction of a foreign country designated under this part, or any national thereof, or such transactions involve property in which a foreign country designated under this part, or any national thereof, has at any time on or since the effective date of this section had any interest of any nature whatsoever, direct or indirect:
(1) All transfers of credit and all payments between, by, through, or to any banking institution or banking institutions wheresoever located, with respect to any property subject to the jurisdiction of the United States or by any person (including a banking institution) subject to the jurisdiction of the United States;
(2) All transactions in foreign exchange by any person within the United States; and
(3) The exportation or withdrawal from the United States of gold or silver coin or bullion, currency or securities, or the earmarking of any such property, by any person within the United States.
(b) All of the following transactions are prohibited, except as specifically authorized by the Secretary of the Treasury (or any person, agency, or instrumentality designated by him) by means of regulations, rulings, instructions, licenses, or otherwise, if such transactions involve property in which any foreign country designated under this part, or any national thereof, has at any time on or since the effective date of this section had any interest of any nature whatsoever, direct or indirect:
(1) All dealings in, including, without limitation, transfers, withdrawals, or exportations of, any property or evidences of indebtedness or evidences of ownership of property by any person subject to the jurisdiction of the United States; and
(2) All transfers outside the United States with regard to any property or property interest subject to the jurisdiction of the United States.
[28 FR 6974, July 9, 1963, as amended at 62 FR 45106, Aug. 25, 1997]