On Friday, October 14, 2016, the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury issued a General License to authorize U.S. persons to enter into certain contingent contracts for trade with Cuba. All U.S. trade with Cuba is subject to OFAC enforcement and must be authorized by either a specific license focused on an individual transaction or a general license that covers all transactions associated with a trade area.
This change in OFAC policy and regulations is a significant step forward in expanding opportunities for U.S. persons to explore and develop business relationships in Cuba. Previous authorizations regarding contract negotiations and execution had been limited to specific business sectors or tied directly to licensed transactions. These new regulations will allow a broad cross-section of U.S. business to move forward with exploring trade with Cuba in a manner previously prohibited.
The General License issued Friday, while allowing U.S. business to negotiate and enter into contracts, requires that the performance of such a contract be “expressly made contingent” upon the prior authorization of the covered transaction by OFAC (e.g., by specific or general license) or upon authorization no longer being required (e.g., the lifting of sanctions). The General License specifically defines contingent contracts to include executory contracts, executory pro forma invoices, agreements in principle, executory offers capable of acceptance such as bids or proposals in response to public tenders, binding memoranda of understanding, or any other similar agreement. If the contemplated transaction is subject to licensing by another federal agency, the contract must also be made contingent on obtaining such a license or the removal of those license requirements. Additionally, OFAC updated existing regulations to authorize travel and transactions that are “ordinarily incident” to the negotiation of and entry into contingent contracts.
It is important to note that the current OFAC licensing regime can be arduous and time consuming for businesses. We anticipate that as U.S. businesses enter into contingent contracts, there will be increased calls for changes to OFAC licensing requirements and the broader U.S. embargo towards Cuba.
Additional areas impacted by today’s announcement include: FDA approval of Cuban-origin pharmaceuticals; vessel transactions; civil aviation safety; travel; and humanitarian-related transactions. For more information, please see OFAC’s Fact Sheet here and see Cozen O’Connor’s alert here.