U.S. Loosens Policies on Telecommunications Links with Cuba

On April 13, 2009, President Barack Obama issued a directive to the secretaries of State, Treasury and Commerce instructing them to ease certain long-standing restrictions concerning communications and other transactions with Cuba. In particular, the directive authorized greater telecommunications links with Cuba and paves the way for enhanced telecommunications infrastructure between the United States and the Caribbean nation. The President also eased restrictions on money transfers by Cuban-Americans to family members who reside in Cuba and on travel by such persons to the island.

The directive could prove to be a boon to American telecommunications and media companies that have wanted to do business in Cuba, although it remains to be seen how, and how quickly, U.S. agencies will implement the president’s order and how the Cuban leadership will react.

Existing transactional regulations and governing bodies

Pursuant to the Trading with the Enemy Act (12 U.S.C.§ 95a), financial transactions with foreign countries are governed by the Treasury Department’s Office of Foreign Assets Control (OFAC). OFAC’s regulations overlap with the Commerce Department’s Export Administration Regulations (EAR), which regulate the export and re-export of most commercial items, including civilian products and services that have possible military applications (so-called “dual use” items).

The export of items classified as defense articles and defense services are further regulated by the State Department’s International Traffic in Arms Regulations (ITAR). The Department of Defense provides advice to the State Department regarding whether articles and services should be regulated as munitions. Under these regulations, transactions in certain countries (e.g., Cuba and Iran) are largely prohibited, and transactions in other countries are extensively regulated.

The longstanding U.S. embargo

Within this general framework, transactions with Cuba are subject to even more stringent controls pursuant to a 47-year-old embargo enacted after Fidel Castro led the revolution that overthrew Cuba’s U.S.-backed Batista government. (See Cuban Assets Control Regulations, 31 C.F.R. Part 515.) Under the embargo, no product, technology or service may be exported from the United States to Cuba, either directly or via third countries. Providing consulting services and brokering sales of goods to or from Cuba, even if conducted entirely offshore, are also prohibited.

Although the embargo contains a limited exemption for the exportation of “information and informational materials” (31 C.F.R. § 515.206), to date the exemption has rarely been applied because such materials (which may include books, films, photographs and news feeds), must be “fully created and in existence” at the time of the transaction.

Therefore, media and communications activities, such as contracting with a news agency to provide reports before they are written, editing books or articles, and marketing them, continue to be prohibited activities under the embargo. The exemption also has been of little utility to telecommunications providers because payments owed to Cuban entities for authorized telecommunications services are outlawed under 31 C.F.R. § 515.542.

New possibilities under the directive

While not rescinding the Cuban embargo or directly revising existing Commerce, State or Treasury Department regulations, the directive does direct the agency heads to take such actions as are necessary to:

• Authorize U.S. telecommunications-network providers to enter into agreements to establish fiber-optic cable and satellite-telecommunications facilities linking the United States and Cuba
• Authorize U.S. telecommunications-network providers to enter into and operate under roaming service agreements with Cuba’s telecommunications service providers1
• Authorize U.S. satellite-radio and satellite-television service providers to engage in transactions necessary to provide services to customers in Cuba
• License persons subject to U.S. jurisdiction to activate and pay U.S. and third-country service providers for telecommunications, satellite-radio, and satellite-television services provided to individuals in Cuba, except for certain senior Communist Party and Cuban government officials
• Authorize, consistent with national security concerns, the export or re-export to Cuba of donated personal communications devices such as mobile-phone systems, computers and software, and satellite receivers though a license exception

The loosening of restrictions on U.S.-Cuban relations offers potential benefits to U.S. communications companies seeking to reach Cuba’s estimated 11 million inhabitants. Cuba is the only country in the Western Hemisphere without a fiber-optic connection to the rest of the world. Moreover, only an estimated 500,000 of Cuba’s 11 million inhabitants currently use a cell phone.

Many restrictions to remain intact

President Obama’s directive was issued in the wake of his campaign pledge to revisit U.S. policy towards Cuba, and on the eve of the fifth Summit of the Americas, a forum at which the Western Hemisphere’s 34 democratically elected leaders gather to discuss common concerns and seek solutions. Latin American leaders overwhelmingly oppose the U.S. trade embargo imposed on Cuba in 1962.

Although President Obama’s directive appears to signal some thawing in U.S. relations with the island nation, the vast majority of restrictions imposed by the 47-year-old embargo likely will remain intact. Special prohibitions on the export of encryption technology and software, or products into which they are incorporated, which are controlled under ITAR and the EAR, also are unlikely to be softened.

Neither the Treasury Department, Commerce Department nor the State Department has indicated whether, in implementation of President Obama’s directive, they will promulgate new regulations or merely issue interpretive guidelines addressing current rules, or by when they will do so.

Until such time, companies should be aware that existing U.S. sanctions against Cuba broadly apply to all U.S. citizens and permanent residents wherever they are located, as well as all people and organizations physically in the United States, and all branches and subsidiaries of U.S. organizations throughout the world. Failure to abide by U.S. export laws concerning Cuba may result in both criminal and civil penalties, including fines of up to $1 million and imprisonment for up to 10 years.

Cuban response unclear, practicalities not yet established

It also remains to be seen how Cuba will respond to the recent shift in U.S. policy. While Cuban President Raúl Castro has stated that he does not believe that this first effort by the Obama administration represents a significant enough departure from prior U.S. policy, the Cuban government has not signaled whether it will be receptive to investment by U.S. companies seeking to expand their service offerings to include Cuba, or whether network connections from the United States will be permitted.

If the Cuban government does permit U.S. foreign investment, the economic viability of such operations will depend largely on whether Cuba decides to impose significant taxes or other charges that would substantially impact the cost of doing business in Cuba.

FOOTNOTE

1 Cuba’s telecommunications monopoly, ETESCA, already has roaming agreements in place with carriers in other countries.