The Treasury Department’s Office of Foreign Assets Controls (OFAC) has racked up another few hundred thousand dollars for the U.S. taxpayer for alleged violations of the oldest U.S. economic sanctions program, Cuba. The enforcement action report is embedded at the end of this post.
With a net income in 2013 of over $9 billion, the OFAC fine will be, if this, a small footnote in global insurance giant American International Group’s 2014 annual report. While there is likely a more exciting back story to this case, one that the public will never know about, the bigger take away for folks who follow these matters is that Cuba remains an enforcement priority for the U.S. government.
According to the OFAC enforcement memorandum, “[b]etween January 2006 and March 2009, two AIG subsidiaries in Canada issued or renewed three types of property and casualty insurance policies that insured Cuban risks [emphasis added] of a Canadian corporate entity for an estimated aggregate premium of $486,137.”
Then from “March 17, 2006, through September 30, 2008, Travel Guard Canada—an AIG subsidiary in Canada—sold, renewed, or maintained in force 3,446 individual or annual multi- trip travel insurance policies in which the insured identified Cuba as the travel destination. The total premium collected for these policies was $337,973.”
Any transaction involving travel to Cuba is a clear red flag. What makes this case interesting is that this was likely for travel by non-U.S. persons, probably Canadians, heading to Havana for fun in the sun. Canadians routinely stay in hotels that are subject to certified U.S. claims against the Cuban regime, or otherwise engage in other transactions subject to sanctions. Clearly this falls within the rubric of any travel company’s compliance screening.
A U.S. company, U.S. persons, and foreign subsidiaries of U.S. companies are not allowed to engage in transactions that help the Cuban government or undermine U.S. policy. Providing travel insurance for vacations by foreign nationals to Cuba do just that.
In this particular case, the fines were small. A paltry few hundred thousand dollars. But as I said before, the more interesting aspect of this story is not the AIG angle. It is OFAC’s ongoing enforcement actions on Cuba cases right around the same time that Cuba announces its new foreign investment law.
Just a few weeks ago a Delaware headquartered travel company with offices in Argentina was fined $6 million for Cuba sanctions violations; and prior to that, Dutch travel giant, Carlson Wagonlit Travel was fined several million dollars for Cuba travel-related transactions. You can read more about both of these cases here.
I was on business travel in Europe recently and was able to squeeze in a coffee with a senior official of a European government. She expressed to me her frustration with the extraterritorial impact of U.S.-Cuba sanctions. It is an old yarn that even the WTO has taken up several times. “Why does your government insist on this approach?”, she asked. I wanted to say, because the U.S. simply can or how did Europe fall asleep over the Crimea and the Russians; however, that would’ve been rude.
Cuba may not have oil or anything of immediate economic value to the United States, I said, but it owes the U.S. taxpayer billions of dollars in old debts as well as a few more billion in certified claims for unlawful property confiscations as well as other obligations that Cuba has simply refused to pay. Tack on a state sponsor of terror designation and a terrible human rights record, then Europe should understand why the United States does what it does. There are other economic issues at play as well, but I’ll talk about these some other day.
Of all U.S. sanctions programs, Cuba should be the easiest for individuals and companies to follow. Not only has the Cuba program been on the books the longest, but it is also one of the strongest (and most legislated) sanctions programs in history. With very few exceptions, not much is allowed without OFAC permission. And the policy is clear: nothing of value to the regime, nor transactions in property in which a Cuban national has an interest.
What oil is to Iran, biotech, tourism and other travel (people-to-people travel) is to Cuba. The regime needs the revenue from this sector to stay afloat. Any transactions that fall under these categories need to be closely scrutinized by U.S. and foreign companies.