U.S. Claims Against Cuba, Buyer Beware

Our law is clear on the timing of changes on our part and it is clearly not ripe for any change, much less dealing with these claims matters. Cuba remains an active supporter of terrorist groups throughout the Americas; harbors fugitives, including cop killers from U.S. law; is seeking U.S. military and commercial secrets to sell to the highest bidders; and has even initiated discussions with the Russians to engage in more intense commercial and military cooperation. In others, business as usual just a new public face on the regime.

If you are one of thousands of Americans holding $6 billion worth of claims against the Cuban Government, and you are thinking you want to engage in some free market transactions and unload those claims, hold on. It appears as if some lawyers, using somewhat creative yet wrong legal analysis, are seeking to create a niche market: selling claim interests to the Cuban Government or other third parties, usually foreigners, seeking to invest in Cuba. The bottom line is that U.S. law has forbidden the selling of these claims without permission from the Government for many years. Anyone who says otherwise, is plain wrong.

I have been hearing rumors for a few years now that speculators, foreign investors, and the Cuban government have been seeking to “purchase” claims that foreigners may have on properties throughout the island. The Cuban government has paid nationals of other countries and settled some outstanding claims; however, as made clear by the Treasury announcement last week, such transactions are clearly prohibited under U.S. law unless authorized by the Office of Foreign Assets Control.

Why would Cuba want to do this? If there is anything an investor does not want is uncertainty or legal issues cropping up when making an investment in a new venture. The U.S. is one of the few countries in the world that still takes private property rights seriously. Americans do not like it when a government, any government no matter where it is located, takes something without a proper legal basis to do so. We like it even less when these same governments fail to pay a just compensation for what they are, in essence, stealing. Contrast our position with that of the Europeans colleagues.

Just last week, Venezuelan strongman Hugo Chavez announced that he was going to “nationalize” several banks owned by Spain. The Spanish socialist government took it in stride. A Spanish official said that the government “understood” why Venezuela made the announcement and would work with it to ensure an orderly process. It is no wonder that socialist Spain is heading for economic hard times. Not too ironically, Spain is one of the largest traffickers in confiscated properties in Cuba.

For Spain, and many other powers, confiscation without compensation is to be expected in third world countries. Venezuela just rolls them because it knows that the complacent and accommodating Europeans will not make as big a fuss as will the Americans. When it comes to nationalizing an American business or confiscating American-held property or interests, foreign powers understand that our legal system will back U.S. citizens – no matter how long it takes. Cuba gets and has been seeking a work-around solution to this problem for many years.

With regards to these more than 6,000 claims against the Communist Government of Cuba, Cuba desperately wants and needs them to go away. Straddled with billions in foreign debt, the Communist Party planners need foreign investors to jump start a moribund economy. These claims cast legal clouds over many key deals. According to one source, these alleged sales of U.S.-held claims were designed as an end-run around potential law suits in U.S. federal courts or exclusion from the U.S. of foreign corporate officials trafficking in stolen properties. The idea was, or is, to secure the claim by purchasing it from the owner or successor-in-interest, thus, removing the “taint” and allowing foreigners to freely invest in Cuba without fear of legal struggles in the U.S. because the claim holder had been compensated.

Last week, after several months of review, the Treasury Department issued a notice regarding the unauthorized transfer of certified U.S. claims against the Cuban Government to third parties. The announcement itself is not extraordinary, it is more of a clarification of existing U.S. laws and regulations. It builds upon a related announcement issued in March 2008 by the Foreign Claims Settlement Commission of the U.S. Department of Justice. While opponents of U.S. sanctions on Cuba may not like it, it is another victory for proponents of more robust enforcement of targeted sanctions on the Communist Party of Cuba.

What the Treasury announcement did not state in detail was the policy rationale behind its decision, they rarely do when it comes to Cuba. Unless it is in the U.S. national foreign policy interest to authorize such a proposed transaction, a remote and rare matter when dealing with Cuba, the U.S. should never authorize these transactions and claim holders should not bother. Some reasons:

1. Inconsistent with U.S. policy toward Cuba

The underlying goal of U.S. policy toward Cuba is a peaceful transition, more like a return, to freedom and democracy on the island. U.S. law provides that this shall be accomplished through economic isolation of the Cuban regime, while supporting the Cuban people. To accomplish these twin goals requires a steady hand and creative thinking on the part of the Executive.

Cuba and foreigners want these claims because they want to make money at the expense of the Cuban people. That would be contrary to U.S. policy. If, and only if, a proposed transaction involving the Cuban government will directly help the Cuban people, i.e., phone service, food, or medicine, then and only then should these transactions be authorized by the U.S. Government. There will not be many, if any, need to make exceptions to the general rule.

2. Why Give Up a Key Bargaining Chit Against the Cuban Regime?

The resolution of more than $6 billion in claims against the Cuban government is a key issue in future relations between our two countries. Again, absent some compelling foreign policy interest in authorizing select transactions, why would the U.S. ever want to give up this political bargaining chit? If Cuban officials want to be taken seriously, they will someday need to address these matter head on. We should not make it easier for them to get out of these obligations (also see #3).

3. Claims (or properties) May Be Worth Much More in an Free Cuba

It should go without saying that anyone considering such a risky transaction needs to secure legal advice and the approval of the U.S. Government. Yet, from an economic standpoint, why do this now and why negotiate with people that, in essence, have little understanding of what these properties are worth in a free and open society? Why not wait until there is a free system in place and negotiate directly, if U.S. law allows it at the juncture? There is no rush, at least not for the claim holders.

4. U.S. Government Has Not Decided How it Will Manage the Claims, Nor Can It Yet

Finally, despite two White House Commissions and a U.S.-taxpayer funded study on the property and claims matter, we are no closer today than we were at the onset of the Bush Administration on resolving how the U.S. Government will manage the resolution of these issues. The Bush Administration has also refused to enforce laws that would allow claim holders the right to seek relief in U.S. federal court. This is because, in large part, the Cuban regime – a state sponsor of terror – has failed to let go of the past and keeps oppressing its people, spying on the U.S., and causing trouble for U.S. interests throughout the Western Hemisphere.

Our law is clear on the timing of changes on our part and it is clearly not ripe for any change, much less dealing with these claims matters. Cuba remains an active supporter of terrorist groups throughout the Americas; harbors fugitives, including cop killers from U.S. law; is seeking U.S. military and commercial secrets to sell to the highest bidders; and has even initiated discussions with the Russians to engage in more intense commercial and military cooperation. In others, business as usual just a new public face on the regime.

In conclusion, potential claim holders should wait until the regulatory and political environment is more clear, stable. In the meantime, if you know that some foreigner is trafficking in your property, report it to the Office of Foreign Assets Control at the Department of the Treasury. If you have been approached by a foreigner about purchasing a claim, do not engage in any discussions with that person or entity, contact a lawyer, and/or contact the Cuba Sanctions Violations Hotline at the U.S. Department of the Treasury.

Nota Bene … According to the U.S./Cuba regulations, Attorneys are advised that “entry into a settlement agreement affecting property or interests in property … to transfer or otherwise alter or affect or affect property in which Cuba or a Cuban national has had an interest … is prohibited.”

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