U.S.-Cuba policy opponents in this town enjoy finding every possible reason why the United States should ease economic sanctions on Cuba. They’ve been at it for almost twenty years and, frankly, have never come close to succeeding in changing the policy because it works better than they’ll ever publicly admit. And a recent lawsuit filed in Spain will surely frustrate efforts to ease economic sanctions, yet again.
This week in a Madrid courtroom, several Spanish companies will continue to find a way to resolve a commercial dispute involving a series of illegal actions that included efforts to get around U.S.-Cuba sanctions. It could also further expose the role of how the Swiss cement company, Holcim, agreed to a series of investments in Cuba that could land the cement giant in legal hot water with the Securities Exchange Commission.
An important legal fact to understanding this case, as far as the Cuba matter, is that Switzerland is not a member of the European Union (EU). You see starting in the late 1990s, the EU made it illegal for European companies to comply with U.S.-Cuba sanctions. In 1996, the EU approved an economic sanctions countermeasure to “protect” European companies, and executives, from prosecution under U.S. law for doing business in Cuba on properties stolen by the Cuban regime from American citizens. Here is a link to European Council Regulation 2271/96.
Holcim, a Swiss company, would have been legally exposed in the United States if it had tried to do the investment on its own. Since Switzerland is not a member of the EU, the EU blocking statute was likely not an issue; however, Holcim has a strong U.S. presence that could have exposed the company to legal liability in the United States. So what did Holcim executives seem to have done? According to the Spanish businessmen who helped set up the deal, Holcim executives reached out to contacts in contents in Spain to figure out a way to hide the Cuba business using Spanish or other European companies. Spain is a member of the EU.
As initially reported in the Miami Herald and several Spanish newspapers, a “put option” and series of companies were created to avoid liability under U.S. law. It now appears that Holcim should’ve listened to their American lawyers and not done it the deal to begin with. According to parties close to the litigation in Spain that I have talked to, there is a lot more that has yet to be released on this matter that could spell trouble for Holcim in Spain as well as the United States.
Holcim is a public-traded company. One of the Spanish investors a party to the litigation in Spain, upset by how he or she was treated, has also expanded the legal strategy to the United States. The SEC whistleblower acknowledgement letter is embedded at the end of this post and, according to my sources, these folks also met with the SEC this summer. I doubt this is what Holcim had in mind when it agreed to help the government of Cuba modernize the cement factor in Cienfuegos, Cuba.
To date, the Cuban government does not appear to have said a word in public; however, according to the folks I met with who were involved in the transactions, but who claim to not have knowledge about the Holcim aspect of the case, the deal was discussed with very high-ranking Cuban officials who would prefer that none of this had gone public.
As if all this were not enough to give any general counsel a really big Helms-Burton headache, here is one more wrinkle. This issue has become a sticking point in ongoing merger talks between Holcim and Lafarge that reportedly need to be resolved before these talks are brought to a close.
So who says that U.S.-Cuba sanctions do not work? They do. And this is one of many cases that will continue to come to light as the regime continues to lose hold on power. European investors have grown weary of dealing with the regime and, more importantly, they are more and more concerned about losing access to the U.S. market as more of these deals surface.
If any of the allegations in the Spanish case turn out to be correct, Holcim should’ve seriously considered a voluntary disclosure to the Treasury Department, Office of Foreign Assets Control (OFAC) before someone ran to the SEC and, in essence, informed the U.S. about the alleged unlawful transactions.
We’ll have more to say about this case as it winds its way through the Spanish legal system as well as Washington, DC. Opponents of U.S. policy toward Cuba should take note of this case. There will be a lot more like them as companies that have invested in Cuba during the Castro regime begin to realize that the fire sale is coming to an end. Just ask the Canadians. They’ve lost at least $400 million in Canadian government-backed deals in Cuba and, when they refused to invest more, the Cubans locked up a Canadian national on likely trumped up corruption charges.