Recent Policy Changes on Cuba Remittances; An Explainer

October 27, 2020

Memorandum

Subject: Recent Policy changes on Cuba Remittances 

Date: Last updated October 27, 2020 

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RECENT ACTION: On October 23, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) amended the Cuban Assets Control Regulations to subject remittance forwarding entities and related transactions to sanctions in the Cuba Restricted List. This means that almost all U.S.-based remittance sending companies will need to cease operations in Cuba if they do not find new Cuban counterparts. The regulation will be published in the Federal Register on October 27 and will be made effective 30 days following.

KEY POINTS: 

• Measures to limit remittances are cruel; preventing families from supporting one another runs contrary to U.S. values.

• The Administration’s latest policy is purportedly intended to deny Cuba’s government access to funds related to remittances sent to Cuba, but will serve to further close channels through which the Cuban people can receive remittances. 

• The addition of AIS to the Cuba Restricted list will prevent Cubans from using remittances to purchase scarce necessities such as food and hygiene items, which are often only available in Cuba’s dollar stores.

• Secretary Pompeo said, “We urge anyone who sends remittances to family in Cuba to use means other than Cuban government-controlled remittance entities.” We are unaware of any alternative remittance flow, other than cash in suitcases, which, apart from being incredibly insecure, is impossible during pandemic-era border closures. 

• The new restrictions make Cubans, Cuban Americans, and their families into collateral damage for U.S. politics.

  SUMMARY: During the first five months of 2020, remittances to Cuba were an estimated $518 million lower than during the same period last year. The Trump administration imposed caps on remittances and other sanctions that further restrict flows. Opportunities to send U.S. dollar-denominated remittances are now closed off as well. These actions harm Cuban families and Cuba’s private sector as Cubans face the country’s worst economic crisis since the 1990s. 

  BACKGROUND: There are several ways that recent U.S. policies cut off remittances to Cuba. Acting together, these policies have effectively dismantled prominent avenues for sending remittances to Cuba.  

  Caps on Remittances: 

  • Summary: Remittance caps, along with restrictive eligibility requirements for the remittance recipient, limit the ways families can support each other and harm Cuba’s private sector by choking off much-needed start-up capital from relatives abroad.

  • Impact: Cuban Americans send an estimated $3.7 billion annually in cash remittances to family members in Cuba, and other U.S. persons send an additional amount in “donative remittances” to Cuban individuals, non-governmental organizations, religious organizations, and private businesses. An independent survey conducted in Cuba found that 56% of respondents receive remittances, funds that are a critical determinant of a family’s standard of living. Remittances have also played an important role as seed capital for small businesses. 

• Timeline of Actions: 

  • April 2009: President Obama lifted limits on family remittances to Cuba, allowing Cuban Americans to provide unrestricted financial assistance to family members. 

  • September 2015: President Obama lifted limits on donative remittances, allowing any U.S. person to send remittances to any Cuban nationals in an effort to support self-employment and strengthen civil society.  

  • September 2019: President Trump reestablished caps on family remittances to Cuba, limited them to $1,000 per quarter. Donative remittances by U.S. persons were prohibited. 

• Closing Avenues for Remittances: 

  • Summary: The Trump administration’s ongoing sanctions against U.S. and foreign entities have increased risks for remittance forwarding entities and banks, resulting in some market exit. 

  • Impact: The Trump administration’s June 2020 decision to add Cuban financial services company FINCIMEX to a State Department list that restricts U.S. companies from engaging in commercial transactions with named Cuban entities has caused panic on both sides of the Florida Straits. FINCIMEX is the entity charged with processing remittances in Cuba. Its addition to the restricted list, along with U.S. government pressure, saw foreign banks cease relationships with FINCIMEX and stop processing remittances altogether. Cuba is facing one of the worst economic crises it has seen in decades. This is an urgent humanitarian concern because remittances from families abroad are many Cubans’ only lifeline for the purchase of food and other basic necessities. 

  • Timeline of Actions: 

    • June 3, 2020: The U.S. State Department announced the addition of FINCIMEX to the Cuba Restricted List. FINCIMEX is used by Western Union and other remittance forwarding services in transmitting remittances to the island. 

    • July 30, 2020: The French bank Crédit Mutuel Bank closed FINCIMEX accounts, resulting in an immediate slowdown in remittance flows. Top U.S. remittance services providers VaCuba and CubaMax have since halted operations. Because of the embargo, Cuba and the U.S. do not have direct banking relations, so those in the U.S. looking to complete financial transactions with those in Cuba must do so through third countries. The Trump administration has continuously targeted Cuban assets and bank accounts in third countries. 

• Dollarized Remittances: 

  • Summary: Cuba’s government recently allowed the U.S. dollar to be used on the island. “Dollar stores” carry goods that are otherwise in short supply on the island, but the Trump administration responded by preventing Cuban Americans from sending dollar remittances to family in Cuba. 

  • Impact: This policy prevents Cuban Americans from helping their families in the midst of a global pandemic and severe economic crisis on the island. 

  • Timeline of Actions: 

    • July 16, 2020: Cuba’s government announced a series of economic reforms, including the elimination of the 10% tax on the U.S. dollar, allowing the U.S. dollar to be used for purchase of goods, and the use of remittances for productive purposes beyond consumption. 

    • July 20, 2020: Cuba opened “dollar stores” that only accept purchases in tradable currencies and removed the 10 percent tax on the U.S dollar. The government aims to open 72 of these stores over the coming months. Cubans obtain U.S. dollars and other tradable currencies through remittances from relatives abroad or by trading Cuban currencies informally. 

    • July 28, 2020: U.S.-based remittance forwarding services Cubamax and VaCuba’s USD remittance services were suddenly suspended mere hours after they began offering the services. 

    • September 28, 2020: The U.S. State Department announced the addition of American International Services (AIS), a subsidiary of FINCIMEX, to the Cuba Restricted List.

    • October 23, 2020: The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) amended the Cuban Assets Control Regulations to subject remittance forwarding entities and related transactions to sanctions in the Cuba Restricted List.