By El Toque
HAVANA TIMES – The reauthorization of “U-Turn” transactions involving Cuban funds and independent entrepreneurs is one of the measures announced by the US Office of Foreign Assets Control (OFAC) on May 28, 2024. This measure, which had been implemented at some point during the Obama era, was revoked in 2019 after Donald Trump assumed the presidency of the United States.
But, what are “U-Turn” transactions?
“U-Turn” transactions are fund transfers related to Cuba or any other sanctioned country conducted between two non-US banks (banks not subject to US jurisdiction) where neither the originator nor the beneficiary of the transaction are persons subject to US jurisdiction. These transactions often aim to obscure the origin and final destination of the funds —almost always coinciding with a sanctioned country— by using several banks.
For example, a Cuban or a Cuban company with an account in a French bank wants to send money to an account in a Mexican bank, with the ultimate goal of transferring the money to Cuba.
How can the US government prevent a “U-Turn” transaction if the involved banks are not under its jurisdiction?
The participation of US banks in the international financial system is significant. This participation is reflected, among other things, in the fact that US banks act as intermediaries in most international transactions conducted in dollars.
International bank transfers are simpler when there is a prior relationship between the two involved banks, the sender and the receiver. Both have established accounts that can facilitate the transfer through existing protocols (like Swift).
However, when the sending bank and the receiving bank do not have a banking relationship, they resort to an intermediary bank. The intermediary bank can transfer funds between the two banks, and the operation is completed thanks to the joint work of the three institutions. The intermediary banks receive instructions from the sending bank and then transfer the funds to the receiving bank. Both the sending and the receiving banks must have a prior relationship with the intermediary bank.
It is precisely through intermediary banks under US jurisdiction that the US government can prevent “U-Turn” transactions involving funds or citizens of sanctioned countries. OFAC regulations instruct the US intermediary bank —and not the sender or receiver outside its jurisdiction— to block “U-Turn” transactions involving Cuban-related funds.
“U-Turn” transactions are frequently used to evade economic sanctions imposed by governments or international organizations, as they facilitate receiving payments or sending funds to a sanctioned country using banks in non-sanctioned countries. For this reason, OFAC has established very strict rules regarding such transactions.
What will happen starting May 28, 2024, is that US intermediary banks will not be required to block “U-Turn” transactions related to independent Cuban entrepreneurs or those exempt from supervision according to the Cuban Assets Control Regulations.
However, what will be seen from May 28, 2024, is the reinstatement of a previously implemented measure that, like the rest of the announced measures, could be reversed if Joe Biden does not remain in the Oval Office next January.
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