Yesterday the Office of Federal Assets Control (“OFAC”) published a notice in the Federal Register that reversed, at least temporarily, the absurd interpretation that it had adopted of the statutory requirement in the Trade Sanctions Reform and Export Enhancement Act (“TSRA”) that exports of agricultural and medical goods to Cuba required “payment of cash in advance.” In February 2005, OFAC changed its interpretation of that language to require that payment be made prior to the departure from the U.S. of the ship loaded with the goods destined for Cuba.

By yesterday’s Federal Register notice OFAC restored its previous interpretation of TSRA’s statutory language. That previous interpretation was consistent with prevailing commercial law which holds that delivery of goods is made, and payment is due, when a negotiable bill of lading for the goods is delivered to the buyer or its agent. The notice re-adopted the “cash against documents” rule that states that payment must be made “before the transfer of title to, and control of, the exported items to the Cuban purchaser” which would occur at the delivery of a negotiable bill of lading or other document of title.

This change is effective through September 30, 2010, at which point the old interpretation will become effective again. This is apparently because section 619 of the 2010 Omnibus Appropriation Act (P.L. 110-117), which required the change, was restricted to fiscal year 2010 which, obviously, ends on September 30, 2010. However, there is no reason that OFAC needed Congressional authorization to return to its previous “cash against documents” rule and to make that rule effective beyond 2010.

Recent rule changes adopted in April and designed to remove certain sanctions imposed on telecommunications to Cuba had been met with complete silence by the Cuban government. Until last weekend, that is.

According to a story in GlobalPost.com, the director of international operations for the Cuban telephone monopoly, rebuffed the White House’s overtures with a “thanks, but no thanks.” Well, more accurately, leave out the “thanks.” The response was pretty much limited to “no.”

[D]uring an official government newscast Saturday, ETECSA international operations director Vivian Iglesias said there were two major obstacles to such a partnership: some $160 million in frozen funds that the U.S. government seized from ETECSA in 2000, and trade restrictions imposed by the 1992 Cuban Democracy Act, which forces Cuba to pay U.S. companies through third countries, incurring additional transaction fees.

“It may seem like the Obama administration has expanded communication possibilities,” said Iglesias. “But we know that unless restrictions like the (Cuban Democracy Act) and others that have been tightened since 1992 don’t change, there can’t be any normal communication.”

This appears to represent significant backtracking by Cuba on how to deal with the blocked funds. The blocked funds, which date back to 1966, represent funds owed by U.S. telecom carriers to Cuba for local carriage of calls originating in the United States. After the U.S. permitted payment of these local carriage charges to Cuba on a going-forward, but not retroactive, basis, Cuba attempted to recover the blocked funds with a 10 percent tax on calls to Cuba from the United States, even when routed through a foreign telecom company. Until the April regulations, U.S. authorities had refused to permit payment of this 10 percent tax, which ultimately led to Cuba’s suspension of direct telephone service between the United States and Cuba.

Now instead of seeking to recoup the funds incrementally through the tax, Cuba appears to want the U.S. to unblock the funds immediately. The problem here is that some of the blocked funds were released to pay judgments against the Cuban government obtained by the U.S. survivors of a Cessna flown by an American anti-Castro group into Cuban airspace and shot down by Cuba in 1996. Now that payment of the recoupment tax is permitted, the only reason that Cuba has moved the goal posts would appear to be that it’s not particularly interested in permitting direct calls from the U.S. to Cuba in any event.

In my last post on the new Cuba regulations, I hadn’t yet seen the regulations published by the Bureau of Industry and Security (“BIS”) in the Federal Register on September 8 but had only seen press reports about their supposed contents. Both BIS and the Office of Foreign Assets Control (“OFAC”) issued regulations to implement the White House’s relaxation of parts of the embargo as announced in April of this year. Both agencies needed to issue regulations because OFAC regulates payments and provision of services to Cuba while BIS regulates exports of goods to Cuba.

The new BIS regulations amend existing License Exception GFT which covers gift parcels and create a new license exception CCD which covers exports of certain consumer communications devices to Cuba. Although both license exceptions expand unlicensed exports to Cuba, they differ in significant ways.

Prior to the amendments, license exception GFT permitted individuals to send gift packages to members of their immediate family (excluding designated officials of the Cuban government and the Communist Party) of food, medicine, medical devices, and certain mobile phones. Packages were limited in value to $400 for all items other than food As amended, license exception GFT now covers gift parcels with a value up to $800 for all items other than food. The recipients of these packages no longer need to be immediate family members of the sender but can be anyone in Cuba (other than Cuban government and party officials). And the items in the package can now include clothing, personal hygiene items, veterinary items, fishing equipment and soap-making equipment. Significantly the packages can now also include items normally sent as gifts between individuals.

The new license exception CCD covers consumer communication devices and specifically lists, among other things, computers and peripherals, mobile phones, storage media, audio and video players and recorders, digital cameras and batteries and chargers for these devices. Although there are some overlaps between license exceptions GFT and CCD, there are some significant differences. For example, in terms of overlap, many of the items listed as eligible for exception CCD might also qualify under GFT as items normally sent as gifts between individuals.

Even if a computer might be exchanged as a gift, three computers would not normally be such a gift, meaning that multiple computers would not be eligble under exception GFT but would be eligible under exception CCD. Additionally, license exception CCD can cover exports from groups and companies, whereas exception GFT only covers exports by individuals. Finally, there is no limitation on the value of items sent under exception CCD. Nor is there a frequency limitation under exception CCD as opposed to the one parcel per month limitation under exception GFT. In essence, the only significant restriction under exception CCD, at least for the specific consumer communications devices enumerated, is that they can’t be sent to Cuban government or Communist Party officials.

An article published Wednesday in the Miami Herald breathlessly announced that the reporter had been told that the new OFAC and BIS rules implementing the changes to the Cuba embargo announced by the administration in April would appear in Thursday’s Federal Register. But that didn’t happen. Late on Thursday afternoon, OFAC’s new regulations appeared at the Federal Register Public Inspection Desk with an indication that they would be published next Tuesday, September 8, but were effective as of September 3 when they were made available to the Public Inspection Desk.

The BIS’s implementing regulations, however, are still missing in action, notwithstanding the newspaper article’s indication that they too would be published on Thursday. And there is no indication at the Public Inspection desk of any future publication date for the BIS’s piece of this action.

The OFAC regulations pretty much track what was promised in the April announcement with some interesting additions. First, the definition of family for purposes of travel to Cuba now includes “persons who share a common dwelling as a family with a licensed family traveler,” which apparently means that common-law spouses and, perhaps, domestic partners are authorized to travel to Cuba with persons who have close relatives in Cuba.

Second, although the new regulations, as promised, increase the amount that can be spent during family visits to Cuba from $50 per day to the maximum per diem rate payed for government travel to Cuba, the comments to the new regulations state that no imports into the United States of Cuban merchandise by returning travelers is allowed. So, for those of you hoping that the war on Cuban cigars might be coming to an end in the foreseeable future, dream on. (By the way, I think that the maximum per diem for Cuba is $180 per day, but I’ll be darned if I can verify that from the link given by OFAC for computing that rate.)

The BIS regulations, when they appear, will deal with authorized exports to Cuba, including increasing the baggage weight limitation for travelers to Cuba. The article in the Herald suggests that the BIS regulations might also be somewhat broader than the description of changes in the April announcement:

Among the changes that take effect Thursday afternoon:

• The items people can send to Cuba now include things like digital cameras, personal computers, seeds, fishing equipment, TVs and radios. (Before, packages were limited to food and medicine.)

• The limit on the value of those packages was doubled to $800.

The April announcement indicated that gift parcels could contain “clothing, personal hygiene items, seeds, veterinary medicines and supplies, fishing equipment and supplies, and soap-making equipment” as well as reasonable quantities of items “normally exchanged as gifts by individuals.” No explicit mention was made of several of the items listed in the news report, namely digital cameras, personal computers, televisions and radios. Perhaps these items are going to added because they aren’t clearly things normally exchanged as gifts and because these items are generally consistent with the goal of the rules to increase and enhance communications by Cubans among themselves and with the outside world.

NOTE:Export Law Blog is taking brief vacation for the Labor Day weekend, so the next new post won’t appear until the end of next week. Comments will be checked periodically to release them from the moderation queue. Have a pleasant and safe holiday, everyone, and we’ll see you all again next week.

The Office of Foreign Assets Control (“OFAC”) released last Friday its monthly report of civil penalties it imposed for violations of the economic sanctions programs administered by the agency. I was particularly interested in the announcement of a $10,341.00 fine imposed against, and paid by, MGE UPS based on allegations that the California-based company “sold electrical regulators ultimately destined for Cuba.” According to the penalty report, MGE didn’t voluntarily disclose the violation.

The allegation that the goods were “ultimately destined for Cuba” is interesting because it indicates that MGE didn’t ship the goods to Cuba but shipped the goods outside the country — likely to Schneider Electric, its parent company in France — and that the goods were then sent from outside the U.S. to Cuba. The penalty notice provides further information as to what occurred when it cites the following “aggravating factor” relied on by OFAC in assessing the penalty:

OFAC also determines that the following aggravating factor is present: the regional sales manager should have recognized that the shipment in question might be destined for Cuba and taken steps to stop the transaction.

Notice that MGE isn’t being fined for exporting directly to Cuba. Nor is it being fined for an export knowing that it was going to be re-exported to Cuba. It was fined because one its regional sales managers “should have recognized that the shipment … might be destined for Cuba.” It seems to me that if OFAC is going to fine exporters because an employee should have known that something might go to Cuba — a standard that could arguably be applied to any export to an E.U. country — the agency has an obligation to the export community to indicate what red flags were ignored here and what sorts of other “red flags” can serve as a basis for liability under such a theory.

Another interesting factor here is that OFAC was probably tipped off to the export of the MGE equipment to Cuba by the Cubans themselves who complained that Schneider Electric’s acquisition of API somehow or other derailed planned exports of MGE products to Cuba. Look at this from the website of Cuba’s Permanent Mission to the United Nations:

The merger resulting in the formation of ARC-MGE between the manufacturer MGE UPS Systems, part of the French Schneider Electric, and the American manufacturer APC, has created serious problems for supply of three-phase UPSs to Cuba’s Ecosol. After lengthy delays in arranging purchases of this product, accompanied by false promises that the merger would not affect supply, the French APC-MGE told the Cuban company that it was to cease operations on the instructions of APC and would not be honouring its contractual commitments. Its executives in the Dominican Republic as well as those in France requested that they should not be contacted again, as this would place them in a difficult position. The supplies in question were destined for the University of Computing Sciences (UCI), the Neurological Hospital, the Institute of Cardiovascular Surgery and an amusement park.

Schneider bought APC in 2006. The exports resulting in the OFAC fine occurred in September 2005, prior to APC’s objection to Cuba sales.