OFAC Changes Coming For Travelers To Cuba & For Banks (Shifting Burden For Compliance)

The Obama Administration will be announcing changes to the process for individuals subject to United States law who are eligible to visit the Republic of Cuba, including changes to regulations that will encourage United States financial institutions to provide support to the soon-to-be operational regularly-scheduled commercial flights between the United States and the Republic of Cuba.

The Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury will be lowering the threshold for which an individual traveling to the Republic of Cuba would need to be under the auspice of an organized visit; resulting in more travelers visiting independently.  This will be the honor system... on steroids. 

There will be an impact upon non-profit entities and for-profit companies that organize group tours as individuals and couples, etc., may find less expensive travel options and can better configure authorized itineraries to profile specific interests.

The OFAC will further shift the burden of compliance with travel-related and financial-related transactions from the provider of the services (airlines, credit card companies, banks, etc.) to the user of the services.  United States financial institutions have been advocating for these changes since the beginning of 2015 as a condition to further engage in tandem with regulations issued by the OFAC and by the Bureau of Industry and Security (BIS) of the United States Department of Commerce.

The changes are designed to have credit card and debit card terminals (especially at airports and, to a lesser extent, hotels) throughout the Republic of Cuba accepting credit cards and debit cards issued by United States Banks by the time that regularly-scheduled commercial airline service commences, expected by June 2016.

The first beneficiary will be Pompano Beach, Florida, based Stonegate Bank (2015 assets approximately US$2.3 billion) which in 2015 established a Direct Correspondent Banking Agreement 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. 

Thus far, Stonegate Bank is not using the Direct Correspondent Banking Agreement because BICSA has restrictions upon its establishing an account at Stonegate Bank, which is now using a Panama-based financial institution to triangularly move funds from the United States to the Republic of Cuba; a process that generally takes twenty-four hours.

Stonegate Bank also provides commercial operating accounts for the Embassy of the Republic of Cuba in Washington, DC.

Stonegate Bank is expected to be the financial institution that will service some of the United States-based air carriers and provide support for United States-based financial institutions with the implementation of the use of VISA-branded credit/debit cards and MasterCard credit/debit cards.

The goal of the Obama Administration is to continue, through expansive commercial engagement, pressure upon the government of the Republic of Cuba to increase resources directed to the tourism sector, with an expectation (hope) that the government of the Republic of Cuba will direct opportunities to United States-based companies.  The OFAC is considering whether to authorize United States-based hospitality companies to contract to provide services within the Republic of Cuba. 

With an increase in visitors from the United States, there is an increase in funds earned by Republic of Cuba nationals employed, directly and indirectly, in the tourism industry- including hotels, restaurants (private and government-operated), transportation, retail, farming, tour guides, etc.  As these individuals increase their earnings, they resurrect a middle class that the Revolution of 1959 sought to dismantle. 

The expectation is the government of the Republic of Cuba will be required to develop policies, regulations and laws that provide opportunities for all Republic of Cuba nationals to increase their earnings, rather than seek means to lessen the earnings of the resurrected middle class.