10 May 2024 Marked Two-Year Anniversary Since OFAC Issued First License To Authorize Investment And Financing Into A Private Company In Cuba. Funding Waits Because Havana Has Yet To Issue Regulations
/10 May 2024 Marked Two-Year Anniversary Since OFAC Issued First License To Authorize Investment And Financing Into A Private Company In Cuba.
OFAC License Has A Term Of Two Years And Expires Soon. Renewal Has Been Requested.
10 May 2024 Marked Another Anniversary Of The Failure Of The Government Of The Republic Of Cuba To Issue Regulations Authorizing Investment And Financing Into A Private Company In Cuba… And The Delay Impacts All Countries, Not Only The United States.
On 10 May 2022, the Biden-Harris Administration (2021- ), after an eleven-month inter-agency review process, directed the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury to issue the first license to a United States-based entity to deliver to the Republic of Cuba a direct investment in and provide direct financing to a Micro, small, and medium-sized enterprise (MSME) also known as a PYME (pequeñas y medianas empresas). The OFAC license was valid for two years with an expiration date of 31 May 2024.
The government of the Republic of Cuba reports more than 10,000 registered PYMEs in the Republic of Cuba, including some Republic of Cuba government-operated companies which have transformed into PYMEs.
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The Biden-Harris Administration has also authorized the Bureau of Industry and Security (BIS) of the United States Department of Commerce to issue licenses to export vehicles (electric, hybrid, gasoline, diesel), motorcycles (electric, hybrid, gasoline, diesel), and scooters (electric, hybrid, gasoline, diesel) to MSMEs and to Republic of Cuba nationals.
The Biden-Harris Administration has also authorized the OFAC and BIS to issue licenses, and to use general license procedures to encourage product and service engagement with MSMEs. Since 2022, there has been a substantial increase in the export of agricultural commodities and food products from the United States to MSMEs along with a substantial increase in machinery and other products whereby MSMEs are assembling, manufacturing, and producing products for sale within the Republic of Cuba and for export from the Republic of Cuba.
Despite statements by officials of the government of the Republic of Cuba, the Biden-Harris Administration has provided substantive opportunities for individuals subject to United States jurisdiction and United States-based companies to re-engage and to engage with the re-emerging private sector within the Republic of Cuba.
These opportunities are demonstrated resumption of some decisions taken during the Obama-Biden Administration (2009-2017), changes to some decisions taken during the Trump-Pence Administration (2017-2021), reversing one of its own licensing decisions (relating to the export of vehicles from the United States to the Republic of Cuba), issuing precedent-setting licenses from the OFAC and BIS, and expanding interpretive guidance for licensing (specific and general).
The robustness and usefulness of these opportunities remain constrained due to the inability of the Biden-Harris Administration to better appreciate the needs of a re-emerging private sector in the Republic of Cuba and the needs of the private sector in the United States required to fulsomely engage with the re-emerging private sector in the Republic of Cuba.
The opportunities are also constrained because the government of the Republic of Cuba refuses- now for more than three years, to institutionalize, meaning issue easy-to-use (meaning two-page document submitted to a bank in the Republic of Cuba) regulations authorizing a MSME to receive direct investment and direct financing from outside of the Republic of Cuba.
The Biden-Harris Administration and Diaz-Canel-Valdes Mesa Administration have jointly adopted portions of the playbook from the Obama-Biden Administration which were the catalyst for enabling the carpet roll-up decisions by the Trump-Pence Administration. There are two decisions which are the most important- thus most egregious.
First, the government of the Republic of Cuba not yet publishing the regulations for a MSME to accept direct investment and direct financing from outside of the Republic of Cuba. Two years and an MSME remains unable to cost-effectively, efficiently, officially, securely, and transparently receive a direct investment or receive legally direct financing from the United States- or from any country. A MSME can (and many do) continue to receive funds unofficially- meaning in violation of laws, policies, and regulations in the Republic of Cuba and potentially in violation of regulations in place by the BIS and OFAC. Until the government of the Republic of Cuba publishes regulations, interest by individuals subject to United States jurisdiction and United States-based companies will remain constrained, stunted, commercially constipated absent legal frameworks. Why the delay by the government of the Republic of Cuba? One theory is with the issuance of laws, policies, and regulations the process becomes institutionalized and thus more challenging to alter, criminalize, or rescind.
Second, the Biden-Harris Administration continually and inexplicably continues to grasp how requiring funds to be sent from the United States to the Republic of Cuba through a third country and requiring funds to be sent from the Republic of Cuba to the United States through a third country is detrimental to creating an efficient, normal, predictable, secure, and transparent commercial landscape. When a United States-based investor or United States-based company learns from the OFAC and BIS that to be paid- whether for an investment, loan, product, or service, particularly when the values are small, a third-country financial institution must be engaged- and must receive a fee, the thermometer of interest will quickly plunge from warm to freezing. There must be direct correspondent banking.
United States-based exporters increasingly report Republic of Cuba-based customers are seeking to finance purchases, particularly for durables, such as equipment and vehicles. For a commercial environment which includes the ability of customers to finance a purchase, the value of that commercial market increases exponentially.
However, the transaction costs are prohibitive when the amount of the payment (for example, monthly) is small- consider US$100.00. As currently structured by the Biden-Harris Administration, that US$100.00 would need to originate with a Republic of Cuba-based financial institution. Next, travel to a third-country-based financial institution. Then travel from that third-country-based financial institution to the United States-based financial institution and into the account of the United States-based exporter. The transaction fees for the three financial institutions involved in that US$100.00 transfer could be near, at, or more than the value of the US$100.00 transfer.
Denver, Colorado-based Western Union Company (2023 revenue US$4.36 billion) does manage electronic remittance transfers from the United States to the Republic of Cuba. However, the company does not permit commercial transfers. Essential for the BIS, OFAC, and United States Department of State to create, until the preferred process of direct correspondent banking is authorized, a workable compliance regime within which Western Union would then process commercial transfers from the United States to the Republic of Cuba and from the Republic of Cuba to the United States. The use of Western Union for commercial transactions is NOT a viable replacement for direct correspondent banking as Western Union transaction costs can be substantially higher.
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