OFAC Broadens Cuba Sanctions and Restricts Payments and Travel

Overview: New OFAC Cuba Sanctions Effective Sept. 30 

Effective Sept. 30, OFAC put in place a significant tightening of U.S. sanctions on Cuba. OFAC issued a new CSR, 31 C.F.R. Part 516, and amended the long-standing Cuban Assets Control Regulations (CACR), 31 C.F.R. Part 515. It also published an alert on heightened Cuba-related sanctions risk, five new FAQs, and amendments to 29 existing FAQs. 

The CSR implement Executive Order 14404 of May 1, which created a new Cuba sanctions program that sits alongside the CACR. The order allows OFAC to sanction Cuban and non-Cuban foreign persons that meet specified Cuba-related criteria, and it exposes foreign banks to sanctions if they conduct or facilitate significant transactions for persons blocked under the order. 

Separately, the CACR amendments roll back several activities that were previously allowed. They extend the CRL prohibition to indirect transactions, end the “U-turn” payment authorization, remove an authorization for bank accounts held by Cuban private entrepreneurs, and narrow certain travel authorizations.Key Changes to OFAC Cuba Sanctions 

E.O. 14404 and the New Cuba Sanctions Regulations. E.O. 14404, issued on May 1, targets foreign persons operating in specified sectors of the Cuban economy, currently including energy, defense and related materiel, metals and mining, financial services, and security, as well as persons supporting the Cuban government and persons involved in serious human rights abuse or corruption related to Cuba. The powers authorized by E.O. 14404 had already been exercised by OFAC, which on Sept. 17 added individuals and entities to the Specially Designated Nationals (SDN) List pursuant to the order. Of particular interest, foreign banks that handle significant transactions for persons blocked pursuant to E.O. 14404 risk losing U.S. correspondent or payable-through account access or being blocked themselves. General License 1, issued in May, continues to allow transactions that are otherwise authorized or exempt under the CACR. 

Cuba Restricted List. Persons subject to U.S. jurisdiction were already barred under the CACR from direct financial transactions with entities on the U.S. State Department’s Cuba Restricted List (CRL) – i.e., entities determined to be under the control of, or that act for, or on behalf of or for the benefit of the Cuban military, intelligence, or security services or personnel. That ban now also covers indirect transactions, meaning any funds transfer in which a person takes part, without being the originator or ultimate beneficiary, where either end is a CRL entity. This matters most for financial intermediaries, since a U.S. bank processing a payment between two non-U.S. parties may now be caught if one of them is on the CRL. OFAC also added an anti-evasion rule and extended the CRL exclusion in many general licenses to indirect transactions. Travel arranged and commercial deals in place before an entity was added to the CRL remain permitted. 

U-turn payments and bank accounts. Under the CACR, U.S. banks could previously process Cuba-related funds transfers that began and ended outside the United States (u-turn payment), provided no party to the transfer was a U.S. person. That authorization is gone, and banks are now authorized to reject such transfers instead. OFAC also removed the authorization for U.S. banks to hold accounts for Cuban independent private sector entrepreneurs. Unless separately authorized, those accounts must now be blocked and reported, and a specific license is needed to unblock them. Banks may still hold accounts for other Cuban nationals in Cuba to receive payments for authorized or exempt transactions.

Travel. Persons subject to U.S. jurisdiction may no longer rely on a general license to attend or organize professional meetings or conferences in Cuba. A wind-down runs through Oct. 30 for those already in Cuba on Sept. 30 and for canceling and obtaining refunds on affected trips. OFAC also narrowed the educational travel authorizations, which now generally require a U.S. sponsoring organization and an accompanying representative, and eliminated group people-to-people travel. Trips under either category remain authorized if the traveler completed at least one travel-related transaction, such as buying a flight, before Sept. 30.

What the New Cuba Sanctions Mean for Businesses and Financial Institutions

These measures mark a material tightening of U.S. policy toward Cuba, and they reach beyond U.S. persons to non-U.S. businesses and financial institutions that deal with persons blocked under E.O. 14404. 

Financial institutions are most directly affected by the end of the U-turn authorization that limits Cuba-related payments between non-U.S. parties, and the CRL indirect-transaction ban may reach payments where a U.S. bank is only an intermediary. OFAC’s updated guidance indicates that banks may generally rely on customer statements and information gathered in the ordinary course about whether a transaction with a CRL person is authorized, unless they know or have reason to know otherwise, while carrying out risk-based due diligence. Companies, universities, and professional organizations with Cuba travel plans should confirm whether those trips are still authorized and whether the wind-down or grandfathering provisions apply.

More broadly, any business or other organization with Cuba-related transactions should review whether its screening and payment controls account for both the expanded CRL restrictions and the new E.O. 14404 framework. 

Barnes & Thornburg’s International Trade team is closely monitoring these developments and is available to assist clients in understanding and complying with the new requirements.