Biden aims to open US banks to the Cuban private sector

The Biden administration, in a major move to support the expansion of Cuba's private sector, announced new rules Tuesday that allow Cuban entrepreneurs on the island to open U.S. bank accounts for the first time and conduct online transactions at a distance.

The loosening of banking rules it could help entrepreneurs grow and encourage more Cubans to start small businesses, Biden administration officials said, and is intended to support Cubans facing hardship in the country's economic crisis.

Until now, under the strict economic embargo that the United States has long maintained against Cuba, private owners could not access U.S. banks and had to rely largely on cash remittances from relatives in the United States to finance their activities.

The US Treasury Department said the new rules apply only to “independent private sector entrepreneurs” who have no ties to the Cuban Communist Party, the military, members of the Cuban National Assembly or anyone on a list of officials sanctioned by the United States.

The Cuban government did not immediately respond to a request for comment.

In a major reversal decades after Cuban revolutionary leaders nationalized the economy and outlawed private companies in the 1960s, the Cuban government in 2021 authorized the creation of small and medium-sized private businesses.

Since then, these businesses have grown significantly, importing roughly the same amount of goods as the Cuban government last year, according to Cuban officials.

Cuban economists estimate that the private sector now accounts for nearly a third of all employment on the communist-run island, with more than 11,000 licenses issued for private companies. Each private company can hire a maximum of 100 employees.

Under the new banking regulations, independent entrepreneurs in the Cuban private sector will be able to “maintain and use a U.S. bank account to conduct authorized or exempt transactions,” according to an announcement from the Treasury Department's Office of Foreign Assets Control.

The announcement also removes the ban on cloud-based communication services on the Internet such as video conferencing, e-gaming and e-learning platforms, as well as remote data storage.

The new rules will also make remittances to Cuba easier by reversing a measure imposed by the Trump administration that prohibited U.S. banks from processing transactions involving Cuba by sending money to third-country banks that would then transfer the funds.

Younger Cubans prefer to earn private sector salaries instead of working for the state, said a senior administration official who briefed reporters Tuesday and spoke on condition of anonymity to discuss sensitive diplomatic relations.

A class of independent business leaders is emerging, the official added, and, ironically, the communist government relies on private businesses to provide food and other necessities.

The Biden administration said it believed the measures were necessary in part because of Cuba's dire economic conditions that have led more than 500,000 Cubans to leave the country in the past two years, the vast majority of them heading to the United States.

The official said the private sector serves as a lifeline for many Cubans.

The United States still imposes many other restrictions on Cuba, including travel to the island. While the Obama administration had largely opened Cuba to U.S. visitors, some of those restrictions were put back in place under former President Donald J. Trump, limiting American tourism.

The announcement was met with surprise and praise by some Cuban private sector owners and their supporters in the United States.

“This announcement is very positive for the Cuban private sector, since it allows it to legally manage its collections in the United States,” said Aldo Alvarez, a Havana-based lawyer who runs a private wholesale food business .

The regulations were originally enacted last year, but the administration backtracked after backlash from some Cuban-Americans, including lawmakers, in South Florida. They argued that the Cuban government's move to legalize private businesses was a ploy by communist leaders to overcome the economic crisis and stay in power.

But other Cuban leaders in South Florida praised the action.

“I applaud the Biden Administration for its commitment to civil society and this economic engine that helps transform the lives of millions of Cubans,” said Joe Garcia, a Cuban American from Miami and former U.S. Representative, at the forefront of promoting the private sector in Cuba.

Cuban political experts say the measures could represent a turning point for Cuban entrepreneurs who have had to resort to financial triangulations, such as remittances, to pay for the imports they need to run their businesses. They include a wide range of businesses, including supermarkets, restaurants, bars, warehouses and technology companies.

Much of their business relies on Cuban exiles making online purchases for relatives on the island or sending cash remittances.

It is unclear, however, how eager U.S. banks will be to do business in Cuba.

The country faces some of the toughest U.S. economic sanctions in the world, including designation as a “state sponsor of terrorism.”

Cuban experts said this could give banks reason to pause before opening accounts under the new regulations.

Pedro A. Freyre, an attorney and chair of the international practice at a major Miami law firm, said the terrorism designation “has a chilling effect and banks engage in excessive compliance.”

“But the new rules will provide greater clarity regarding the private sector,” he added. “Up until now we have stumbled in the dark.”