A U.S. subsidiary of a Chinese-owned company located in Columbia, Maryland recently paid a little over $1 million to settle allegations of violations of the U.S. embargo on Cuba. According to the Department of the Treasury’s Office of Foreign Assets Control, between May 2003 and October 2006, Minxia Non-Ferrous Metals allegedly acted without an OFAC license, or outside the scope of an existing license, by purchasing or otherwise dealing in Cuban metals.
In all likelihood, it is likely that the company officials were engaged in unauthorized activities in order to tap Cuba’s large nickel reserves. This is not the first, and likely not to be the last time, that a foreign company gets fined for working around U.S. laws to tap the Cuba market. If a foreign company seeks to avail itself of the U.S. marketplace and our tax laws, it must follow the rules and the Bush Administration has made a point of strategically targeting companies during the past few years.
In 2004, Spain’s Iberia paid a Uncle Sam for activities by its U.S. subsidiary, Iberia Airways, with relation to Cuba. Other foreign companies with U.S. subsidiaries have also been warned by the Treasury Department about questionable transactions. And it is not just Americans that should take note. In 2002, a Canadian national, James Sabzali, and his American bosses were convicted under the Trading With the Enemy Act of 1919 (TWEA) for using foreign subsidiaries to circumvent the U.S. sanctions laws.
That we know of, the Sabzali has the dubious honor of being the first foreign national prosecuted for violating the TWEA for things that he did while living in Canada. He was found guilty by a Pennsylvania jury, was asked to surrender his passport, and was fitted with an ankle bracelet during the pre-sentencing period. Sabzali had been charged with more than 70 counts of violating the TWEA and faced $10 million fines. The Americans faced closed to $10 million in fines and jail time. In 2005 Sabzali, received a year’s probation and fined $10,000.
The U.S. is one of the best business environments in the world for investors. The U.S. asks for little in return except that you pay your taxes and follow other U.S. laws and regulations. With the very few notable exceptions of state sponsors of terrorism Iran, Cuba, North Korea, Sudan, and Syria, as well as other bad apples listed on our various watch lists, you are free to transact your business. These are reasonable restrictions in a post-09.11.01 world.
In other Cuba-related regulatory news, the Treasury Department has issued a warning to potential buyers of claims held by U.S. persons and others for properties that were confiscated by the Cuban Communist Party. Since last year there have been reports that the Cuban regime, in an effort to avoid any potential Title III or Title IV actions under the Cuban Liberty and Solidarity Act in the future, was trying to buy claims held by U.S. persons in properties that it stole without just compensation. Why would the Cuban regime want to do that? The more likely reason, to remove a legal and political cloud over some of its more lucrative properties thus opening the door to foreign investors seeking to make a quick buck in Cuba.
Why a foreign company would want to do business in Cuba is mind-boggling. Cuba is a poor credit risk. The Cuban government will expropriate a company right out of the country when it tires of it or fails to address the regime’s other needs. And, most importantly, political changes are coming to the island that will replace the Communist rulers with freedom-focused and free-market planners. For the long term, it is a poor investment risk as well. Who knows how a future free and democratic government of Cuba will treat companies and countries that perpetuated and supported the communist system for so many years. From a strategic standpoint, it makes sense to just stay away.