May 8, 2013 –
Federal court’s response to Florida law: back off, OFAC sanctions reign supreme

11th Circuit affirms decision to temporarily block Florida’s no-business-with-Cuba law

On May 6, 2013, the Eleventh Circuit of the United States Courts of Appeals (the “Eleventh Circuit”) affirmed a lower court’s preliminary injunction blocking a Florida law that bars state and local governments from hiring companies with business ties to Cuba (the “Cuba Amendment”).  The holding reaffirms and makes clear that courts will scrutinize state laws that may conflict with accomplishment and execution of a carefully calibrated federal regime, such as the comprehensive Cuban Assets Control Regulations (“CACR”), which are administered and enforced by the Treasury Department’s Office of Foreign Assets Control (“OFAC”).

Broadly speaking, the Cuba Amendment prevents any company that does business in Cuba from bidding on state or local public contracts in the State of Florida. Notably, “company” is defined under the Cuba Amendment to include “parent companies, or affiliates of such entities or business associations,” making the law applicable to those entities that have distant foreign affiliates involved in business relations in Cuba.

In finding that the Cuba Amendment is preempted by the long-standing and extensive federal regime limiting American companies from doing business in Cuba, the Eleventh Circuit found that the Cuba Amendment “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Essentially, the Eleventh Circuit held that the Cuba Amendment conflicts with federal law in at least three (3) ways:

(1) the Cuba Amendment sweeps more broadly than the federal regime does, punishing companies that do not run afoul of the federal Cuban sanctions and penalizing economic conduct that the federal law expressly permits;

(2) the Cuba Amendment has its own substantial penalties that go beyond the federal sanctions; and

(3) the Cuba Amendment undermines the substantial discretion Congress has afforded the President both to fine-tune economic sanctions and to pursue multilateral strategies with Cuba.

As financial institutions are aware, compliance with the regulations administered and enforced by OFAC is a complex undertaking requiring continuous and comprehensive efforts to ensure that policies and procedures are adequate and up-to-date. The Cuba Amendment and similar state laws create new challenges for financial institutions seeking to maintain an adequate and comprehensive compliance program.

For more information regarding the Eleventh Circuit’s decision and the impact it has on financial institutions seeking to comply with the CACR, other OFAC regulations or the Cuban Amendment, please contact Andres Fernandez, Gabriel Caballero or Stephanie Quiñones.

Read the Eleventh Circuit Court’s opinion.