Do Your Due Diligence Before Engaging in Authorized Transactions in Cuba, Especially When it Comes to the Confiscated Lands Issue
The idea that travel by U.S. persons to Cuba will result in meaningful political and economic reform on the island is a fantasy. Travel to Cuba is like oil to Iran: an economic resource that will be used to consolidate the police state and the power base of the syndicate of law breakers and human rights abusers that run it. The Communist Party has survived on travel, and subsidies, for decades and nothing has changed except that Castro’s henchmen are more entrenched than ever, with a new generation of hardliners in the waiting to fully take the reins of power.
If U.S. companies find opportunities to engage in transactions in Cuba, notice that I’m not using the term ‘invest,’ they should do so with an eye toward a future Cuba without the Communists in control. Cuba is not China or Vietnam. The Cuban people will free themselves of these people much sooner than folks in this town give them credit for. Until that happens, Cuba remains a very high risk business environment and, if you have a presence in South Florida, it comes with U.S. political considerations as well.
If you’re pressing onward with Cuba-related business, this means applying the same corporate social responsibility standards that are expected of any entity subject to U.S. law when doing business in foreign lands. If it was done in South Africa to help bring down apartheid, why not Cuba?
When engaging in transactions in Cuba, there are a series of red flags that require fulsome due diligence including the screening of parties against numerous watch lists, FCPA, among others. And unlike any other country in the world, there is the issue of trafficking in one of several thousand properties in Cuba that are subject to claims by U.S. persons.
How does trafficking happen? Basically any U.S. person that engages in just about any deal in Cuba, or anywhere in the world, that involves a piece of stolen land constitutes trafficking. Credit card transactions, hotel or B&B rentals, potential business deals, paying to enter center museums that house confiscated artwork, negotiating a contract with a Cuban government agency, and even micro-enterprise projects can result in trafficking if there is a piece of property used as part of the transaction.
If the U.S. government gives you permission to do so, there are cases where trafficking is tolerated and it has been taking place for decades; however, and lawyers disagree on this point, under current law, trafficking should not be allowed under any circumstances. Why should you care? Think of this way, the Cubans did it once before and they are doing it again to their own people.
Property confiscation has been perfected in Cuba to the point that by the time it happens it is too late to do anything about it. I represent an independent church group in Cuba whose property – a large home outside Havana – has been targeted by the regime for confiscation for use by ETECSA, Cuba’s state-owned telephone company. Why would any American company want to get in the middle of any of this? Avoid business transactions in Cuba not subject to a claim and your decrease your potential legal and political liability.
Cuba owes American taxpayers, at least, $8,000,000,000 for unlawful taking of lands, homes, businesses, and unpaid debt. Then it owes billions more to U.S. persons who were not U.S. citizens at the time of the taking but who were forced to flee for freedom after the Communists took control. Cuba also owes American taxpayers billions more for unpaid sovereign debt. And then there are the judgment holders, such as victims of Cuban terrorism, that are owed hundreds of millions of dollars. Last but not least, there is a growing class of foreigners that are stepping up, including a large class of victims in Spain, who are reminding the world that Cuba owes them a lot of money for unlawful takings as well.
Where is Cuba going to get that sort of money? That is not the question that policymakers should be asking. What should be taking place is a serious policy undertaking that will, in all likelihood, result in a multifaceted process that includes an international claims tribunal like the one that was put in place for Iraq in the 1990s to deal with claims resulting from Iraq’s invasion of Kuwait: the United Nations Compensation Commission. An international claims tribunal could be run out of the Organization of American States, rather than parking it out in Geneva as was done with the UNCC. This would be in addition to the national processes already in place to deal with claims issues, such as certified claims handled by the Foreign Claims Settlement Commission at the Department of Justice.
Judging from the news coverage of recent U.S.-Cuba policy moves, this issue has taken the back burner position. However, that will not be the case much longer as certified claim holders, judgment holders, and a new class of potential claim litigants are stepping forward to remind Uncle Sam that this issue is pending and must be addressed. Should Obama Administration officials be raising this issue during talks with Cuba this week? You bet. Will they, I doubt it. Marching orders from officials at the White House seem focused on squeezing as much as they can via executive action and avoiding complying with Helms-Burton (to the point that, again lawyers in this town will disagree, laws are being ignored and, potentially, violated).
If your company is doing business in Cuba, or is planning to do so, you should factor in sanctions, FCPA, and related compliance issues early on in your due diligence process. This is especially true for the unique property claims issues that, at least for U.S. taxpayers holding certified claims, must be resolved before the sanctions are removed. Just because the government is going about implementing a policy that is inconsistent with the law, does not mean U.S. corporations should ignore well-established corporate responsibility when engaging in Cuba. Use South Africa’s transition as a model. Set the right tone and example. Show the future leaders of Cuba, at minimum, how true capitalists operate by not granting business concessions to the regime that violate American values.
No one really knows what the future of the Cuba will represent in the near term to U.S. companies, however, one thing is certain, it will remain a risky market for many year, even after interregnum. Cuba’s journey back to the civilized world, unless steps are taken now to address it, will see a spike litigation, claims, and regulatory policing in the U.S. and Cuba. The future Cuban government will have a full plate of issues to deal with, not the least of which, ensuring that former regime officials return the billions they have robbed from the Cuban people (for a preview on this aspect of things, read this story about Libya’s efforts to secure funds stolen by Qadaffi). And they are going to need that money, and a whole lot more, to put Cuba back on the path of prosperity and freedom.