By Tom Reynolds, Export Solutions

Do you remember when President Obama “lifted” the Cuba sanctions?  It seems like only yesterday.  There was a press release.  Big headlines.  Secret meetings at the Vatican.  Even a photo-op with Raúl Castro (Fidel’s brother).  It was all so … exciting!

Predictably, within 24 hours, our email and phones started blowing up with dozens of people eager to capitalize on this historic moment.  I remember one U.S. company who was ready to open a site on the island and begin expanding their “footprint” into Latin America.  Then there was the following conversation with a friend:

Friend: “I’m taking a cruise to Cuba now that it’s all legal.  Anything I should know?”

Me: “Yeah, don’t go.”

Friend: “Like, don’t go at all? Or just don’t spend any money while I’m there?”

Me: “Both.”

Friend: “I can’t even buy a cigar?”

Me: “Still no.”

It went on like this for several minutes.  I will admit to being caught-up in the excitement too, with dreams of Cuban cigars and learning to dance the Rumba.  (OK, maybe not dancing.)  The problem with all of this?  If you bothered to read below the headlines or listen to anything more than a cable news sound bite, then you quickly realized that … nothing much actually changed.  Recently, Airbnb learned this lesson the hard way.  But before we get to that, let’s take a quick stroll down memory lane.

United States vs. Cuba in 150 words or less

The year was 1959.  Bobby Darin was on the radio and Ben-Hur on the big screen.  Fidel Castro overthrew the U.S.-backed Batista government and began to cozy-up to the U.S.S.R.  After a failed invasion attempt and more than eight failed assassination plots, the United States gradually increased its policy of trade restrictions against Cuba.  Then, in 1962, the world’s two superpowers played the deadliest game of chicken in the 20th century, when Nikita Khrushchev tried to park some nukes in Cuba – 90 miles off the coast of Florida.  President Kennedy kept his cool and averted World War III.  After the Cuban Missile Crisis, the United States effectively shut-off all trade with the island nation.  Over the years, various administrations made minor adjustments to what has been dubbed “the oldest and most comprehensive U.S. economic sanctions regime against any country in the world.”  Then, President Obama introduced “the Cuban thaw.”

Hope and (very minor) change

It started in 2009 by allowing Cuban-Americans to travel freely to the island.  In 2014, President Obama announced plans to re-establish relations with Cuba.  (Cue the press release, photo-op, and Export Solutions’ phones ringing off the hook!)  The Commerce and Treasury Departments took action, revising rules to support the President’s policy.  However, these rules remain very narrow and they are, by no means, a “lifting of the sanctions.”

Under the existing rules, there are only 12 categories of approved travel to Cuba.  I don’t care how many times you read the headlines; it will not change these rules.  You can only travel to Cuba for:

  1. Family visits
  2. Official U.S. government business, foreign governments or certain intragovernmental organizations
  3. Journalistic activities
  4. Professional research
  5. Educational activities
  6. Religious activities
  7. Athletic activities (for actual athletic teams)
  8. Support for the Cuban people
  9. Humanitarian projects
  10. Private research or educational institution activities
  11. Export/import or transmission of information
  12. Certain OFAC authorized exports

Now, I already know what you’re thinking as you read this list.  So, let’s be clear.  Your “family” does not mean the “global human family,” i.e., “we are all one world / one people / one family.”  “Journalistic activity” is not the travel blog you started last week so you could visit Cuba.  And “religious activity” does not mean praying that your hangover ends after a night in Havana.

You get the idea.  But people will be people, and some of us love to bend the rules.

Airbnb in OFAC’s crosshairs

Which brings us to Airbnb and the settlement agreement announced a few weeks ago.  In April 2015 (the same month of President Obama’s historic meeting with Raúl Castro), the San Francisco-based company “launched its Cuba business.”  Guess what happened?  It took off faster than an Olympic sprinter who drank one too many Café Cubanos.  According to OFAC, that growth “appears to have outpaced the company’s ability to manage the associated sanctions risk via its technology platforms.”

In short, Airbnb began selling “Stays” (traveler lodging) and “Experiences” (traveler activities) in Cuba.   At the time of launch, the company used a manual process to screen Hosts and Guests for potential sanctions issues.  Only later did they implement an IP-blocking feature in their online platforms – one that allowed Cubans to act as Hosts but prevented them from transacting payments as Guests.  Furthermore, Airbnb failed to maintain adequate records because an older version of its mobile app failed to allow Guests to positively attest their reasons for visiting Cuba.

Here’s the good news:

  1. Airbnb discovered these alleged violations by proactively initiating a review of its sanctions compliance policies; and
  2. Airbnb voluntarily disclosed the violations to OFAC, fully cooperated with the agency, and implemented a variety of remedial measures to strengthen its sanctions compliance program.

Those factors seem to have gone a long way in helping resolve the situation.  Specifically, OFAC reports that the maximum potential penalty in this case was a whopping $600 million.  Airbnb settled for just over $91,000 – a tremendous discount from the maximum.  This settlement figure was calculated by extrapolating results of sample transactions over time and assigning an average dollar amount to each transaction.  (The “average” Cuban experience?  Just $78.40.  Not a cheap cigar!)

Politics vs. policy, explained

 So, what’s the key takeaway in all of this?  Of course, a comprehensive sanctions compliance program is a must for any U.S. company today.  Your program should be sufficient to address all risks, tailored to your business, and backed by management support, training and resources for your teams to implement the necessary compliance measures.  That’s a given.  If you don’t have this, then we all look forward to reading about your company in a future OFAC press release.

But equally as important as this, the lesson here is also to distinguish between politics and policy.  With export regulations and U.S. sanctions, the devil is always in the details.  There are nuance and caveats to the rules.  Don’t make the mistake of reading a headline and “running with it.”  In the case of Cuba, despite all the media hype from President Obama’s announcement, very little actually changed with respect to U.S-Cuba sanctions.  In fact, President Trump maintained the same Cuban regulations and, in some cases, even tightened them.

Or look at China.  Most experts agree that President Biden’s policy looks very similar to the previous administration.  We still have tariffs.  A trade war is still on the horizon (if it hasn’t already begun).  And the U.S. is still very much aware of China’s attempts to steal our technology and use it for their own good.  We even have a diplomatic boycott of the Winter Olympics.

So, pay attention to politics.  But before you launch a new business, accept payments or expand into a new market, pay more attention to the rules and regulations that sit behind our political figureheads.

The rules are always there, and although they do change, it’s usually a slow burn.  Ignore them at your own risk.

 

Photo by Alexander Kunze on Unsplash

Tom Reynolds is the Vice President of Operations for Export Solutions, a consultancy firm which specializes in helping companies with import/export compliance.