Impact of the Cuban embargo on inheritances by Cuban nationals.

• Author: Zamora, Enrique

1. BACKGROUND OF THE CUBAN EMBARGO AND UPDATE

   BACKGROUND OF OFAC AND ITS PURPOSE

   "The Office of Foreign Assets Control ("OFAC") administers and enforces economic sanctions, primarily against countries and groups of individuals, such as terrorists and narcotics traffickers." (1) The sanctions block assets and restrict trade to accomplish foreign policy and national security goals. (2)

   HISTORICAL FRAMEWORK

   Treasury Department has a long history of dealing with sanctions. (3) For example, prior to the War of 1812, Secretary of the Treasury, Albert Gallatin, imposed sanctions against Great Britain for harassing American sailors. (4) During the Civil War, the Union Congress enacted a law prohibiting transactions titled the Morrill Tariff of 1861 which provided a licensing regime under rules and regulations administered by the Treasury Department and called for the forfeiture of goods involved in transactions with the Confederacy. (5)

   OFAC is the successor to the Office of Foreign Funds Control ("FFC"'). The FFC was established during World War II following the German invasion of Norway in 1940. (6) The Secretary of the Treasury administered the FFC program throughout World War II. (7) The initial purpose of the FFC was to prevent the Nazi use of the occupied countries' holdings of foreign exchange and securities. It also attempted to prevent the forced return of funds belonging to nationals of those countries. (8) Such controls were further extended to protect the assets of other invaded countries. (9) After the United States formally entered World War II, the FFC played a leading role in economic warfare against the Axis powers by prohibiting foreign trade and financial transactions, and also by blocking enemy assets. (10)

   OFAC itself was formally established in December of 1950. It was created after China entered into the Korean War, when President Harry Truman declared a national emergency under the Trading with the Enemy Act of 1917 ("TWEA"). The President had then effectively blocked all Chinese and North Korean assets that were subject to the jurisdiction of the United States. (11)

   In 1963, pursuant to TWEA, President John F. Kennedy wrote a memorandum to the Secretary of State. Ultimately, a trade embargo was imposed which ordered the blocking of Cuba's assets and of assets belonging to Cuban nationals. (12) The relevant regulations that implemented these sanctions are found in 31 CFR part 515 [et seq.].

   Section 16 of the TWEA provided for corporate criminal penalties of up to $1,000,000 and individual criminal penalties up to $100,000 or ten years in prison, or both, per count. (13) Fines for criminal violations could be increased pursuant to 18 U.S.C. [section] 3571. (14) TWEA also provided for the forfeiture of property that is the subject of a violation. (15) TWEA authorized civil penalties up to $50,000 per violation. (16) It also allowed the respondent to request an agency hearing. The respondent also had the right to preheating discovery, and if the respondent elected this option, the civil penalty could be imposed only after such a hearing. (17)

   In 1977, Congress passed the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. [section] [section] 1701-06. IEEPA replaced TWEA as the statutory authority for a Presidential declaration of a national emergency in peacetime for the purpose of imposing economic sanctions. (18) Other pre-existing programs continue to be administered under TWEA, but new programs under TWEA may be established only during wartime. (19) Most recently, sanctions remained in place under TWEA only with respect to (1) comprehensive sanctions against Cuba, (2) a residual blocking of North Korean assets previously blocked, and an ongoing prohibition against the importation of certain goods from North Korea without an OFAC license, and (3) certain offshore trade in strategic goods with the former Soviet Bloc. (20)

   THE FEDERAL REGULATIONS

   The Executive Branch of the U.S. Government issued the Cuban Assets Control Regulations ("The Regulations"), 15 CFR Part 515, on July 8, 1963. The Regulations were issued under the Trading with the Enemy Act. (21) The Office of Foreign Assets Control of the U.S. Department of Treasury administers the Regulations. (22) The sanctions under the Regulations seek to deprive the Cuban government of U.S. dollars. (23) The sanctions include criminal penalties which range from ten to thirty years in prison, and corporate fines from $50,000 to $10 million, and also up to $250,000.00 in individual fines. (24) Further, civil penalties can range from $250,000 to $1.075 million. (25)

   The Regulations prohibit any person subject to U.S. jurisdiction from dealing in any property in which Cuba or a Cuban national has an interest. (26) There is a total freeze on Cuban assets. (27) All property of Cuba and Cuban nationals in the possession or control of persons subject to U.S. jurisdiction is "blocked." (28) Blocking imposes a complete prohibition against transfers or transactions of any kind. (29) No payments, transfers, withdrawals, or other dealings may take place with regard to blocked property unless authorized by the Treasury Department. (30) Because of the severe penalties, extreme caution must be exercised in order to not become involved in unlicensed transactions in which there is a Cuban interest. (31) In the case of a U.S. decedent, the estate becomes "blocked" whenever a Cuban national is an heir of a decedent or is the deceased. (32)

   CUBAN BLOCKED ACCOUNTS AND OTHER BLOCKED ASSETS

   Pursuant to the freeze on Cuban assets, both governmental and private assets are affected. (33) This includes financial dealings with Cuba, all property of Cuba and of Cuban nationals, and of Specially Designated Nationals of Cuba in the possession or control of persons subject to U.S. jurisdiction. (34) Any and all property, in which Cuba or a Cuban national has an interest that finds its way into the U.S., or into the possession or control of persons subject to U.S. jurisdiction, is automatically blocked by operation of law. (35) Banks receiving unlicensed wire transfer instructions in which there is any Cuban interest, or any instrument in which there is a Cuban interest, must freeze the funds on their own books or block the instrument, regardless of origin or designation. (36) "Suspense accounts" or accounts used temporarily to carry doubtful receipts and disbursements pending a permanent classification are not permitted. (37) Blocking imposes a complete prohibition against transfers or transactions of any kind. (38) Unless authorized by the Department of the Treasury, no payments, transfers, withdrawals, or other dealings may take place with regard to blocked property. (39) Banks, however, are permitted to take normal service charges. (40) Also, blocked deposits of funds must be interest-bearing and "setoffs," or agreements to extinguish a default are not allowed. (41)

   All persons in possession of blocked property are required to register with OFAC. (42) Further, persons subject to U.S. jurisdiction who engage in any commercial dealings that involve unauthorized trade with Cuba, either directly or indirectly, risk substantial monetary penalties and criminal prosecution. (43) Pursuant to the Regulations, financial institutions are required to file an annual report on all of their blocked accounts. (44)

   RECENT CHANGES TO THE CUBAN ASSETS CONTROL REGULATIONS

   Two years ago, President Obama lifted all restrictions on family travel and remittances to family in Cuba. (45) Further, the President wished to focus on expanding eligible humanitarian donations and increasing telecommunications with Cuba. (46) Currently, and most recently, "President [Obama announced] changes ... [in] (1) purposeful travel, (2) non-family remittances; and (3) charter flights to and from Cuba.'' (47) The purpose of these recent changes is to increase people to people contact; enhance the free flow of information to, from, and among the Cuban people; support a civil society; and help promote their independence from Cuban authorities. (48) From the early moments of his presidency, President Obama has reduced the scope of the embargo on Cuba and this will allow many US citizens to visit Cuba for the very first time. (49) All international airports in the United States will eventually be allowed to have flights to and from Cuba. (50)

   Under the new rules, students, faculty, staff, religious groups, and leaders will be allowed to visit. (51) OFAC will only license groups that certify that all participants will have a full-time schedule of educational activities that will result in meaningful interaction between the travelers and the Cuban people. (52) President Obama has also agreed to let telecommunications companies pursue business in Cuba.53 This was barred under the embargo and is perceived to be a large step towards improving communications among family members living in Cuba and the United States.54

   REMITTANCES TO NATIONALS OF GUBA

   The remittances for nationals of Cuba were initially highly restricted pursuant to Section 515.570 of the Cuban Assets Control Regulations ("the Regulations"). (55) In September 2009, President Obama eased the restrictions on remittances to Cuban nationals including those that had Cuban Blocked Accounts ("CBA") pursuant to an inheritance.56 At the present time, if the owner of a CBA is a Cuban national residing in Cuba and can demonstrate he or she was a "close relative" of the decedent from whom he or she inherited the funds, as defined under Section 515.339, (57) then he or she will qualify for an unlimited amount of remittance up to the entire balance of the blocked account to be sent via an authorized remitter provided that he or she meets the requirements under the Regulations. (58)

   In addition, the owner of the CBA ("Petitioner") must swear to the following: 1) Petitioner is aware that there are penalties associated with misrepresentation of facts...