If investors thought doing business in Cuba was tough after the Trump administration reinstated sanctions against the island nation’s Communist regime, a Miami federal judge’s ruling that tags four cruise lines for “trafficking” in confiscated property is giving them even greater pause.
Early this month, U.S. District Judge Beth Bloom lowered a boom on four cruise line operators — Carnival Corp., MSC Cruises, Norwegian Cruise Holdings and Royal Caribbean Group — by ordering them to pay a combined $450 million to the heirs of the original owners of the Havana Cruise Port Terminal.
She acted after ruling in March 2022 that the cruise companies “trafficked” in seized properties under Title III of the federal Helms-Burton Act. The cruise companies have all vowed to appeal.
But while the wheels of the court system grind on, legal advisers and investors in companies who for years envisioned doing business in Cuba say it has chilled enthusiasm for future dealings on the island.
In the meantime, a moribund Cuban economy slowed by U.S. sanctions and COVID-19, and characterized by burgeoning poverty, has driven nearly 250,000 Cubans to migrate to the U.S. in the last year via the Southwest border and Florida.
“I think that dampened it substantially,” said attorney Ed Patricoff, a partner specializing in international dispute resolution at the firm of Duane Morris in Miami. “That ruling was fairly devastating from the U.S. perspective and devastating to investors who had a vision to go into Cuba.”
“I would say it hasn’t helped,” Ryan Paylor, portfolio manager for the Herzfeld Caribbean Basin Fund in Miami Beach, said of the ruling. “The Helms-Burton Act and the current [U.S.] embargo make it extremely difficult. You have to jump through a lot of hoops to do business in Cuba.”
“The main restriction is the embargo and the expenses to get an Office of Foreign Assets Control license — assuming you can get one — that would then be paid by the fund’s shareholders,” Paylor added. “Based on the size of the fund, those expenses could be a significant percentage of fund assets.”
Right now, the fund, which was established years ago to invest in companies that could benefit from the eventual restoration of U.S.-Cuba relations, maintains no investments on the Communist-controlled island.
The Helms-Burton Act, also known as the Cuban Liberty and Democratic Solidarity Act of 1996, extended the application of the long-standing U.S. trade embargo against the Fidel Castro regime to include foreign companies doing business in Cuba. It provides an avenue for penalties against firms that “traffic” in properties formerly owned by American citizens and seized by the regime after the 1959 revolution.
Cubans who left the country for the U.S. and became American citizens are also allowed to stake claims for property losses they suffered.
Congress passed the act shortly after the Cuban Air Force shot down two private planes operated by the South Florida-based search and rescue group, Brothers to the Rescue.
But as years passed, President Barack Obama sought a rapprochement with the regime, and relaxed U.S.-driven business and travel restrictions against Cuba.
Among other things, the eased rules gave rise to cruise lines establishing service to the island from Miami under special licenses from the U.S. Government. Commercial air service also expanded to Cuba from the U.S., including from South Florida airports, and the Cuban government even entertained the idea of partnerships with U.S. companies from a variety of industries.
But in 2019 Trump reversed the actions and gave the green light to lawsuits under Helms-Burton. While airlines continue to serve the island under U.S. licenses, the cruise lines do not.
Victorious airlines
Although the cruise lines lost before the Miami judge, American Airlines last June successfully deflected two lawsuits.
One was brought against American and LATAM Airlines Group carrier over their use of the Havana airport,. The other involving American focused on its participation in a marketing agreement involving a hotel, said Rick Puente, partner at the Miami office of Jones Day, which defended the Texas-based carrier.
The airport case was brought by the heir of a company that owned property seized by the Castro regime. The case was dismissed with prejudice because the José Martí International Airport was not confiscated from a U.S. national, the court ruled, and the “plaintiff was not a United States national when he allegedly acquired his claim.”
“The other case we won involved American being sued in connection with hotels they advertised with their flight packages to Cuba,” Puente said. “They would send you to a link where you could reserve a hotel. That link was administered by another company.”
Puente said the sheer weight of the expense of defending potential cases could give companies second thoughts about opening for business in Cuba. About $11 million of the cruise line verdict was to cover attorney fees and costs.
“I will say this, when you have a judgment just entered against the cruise lines of $450 million by a federal judge, there’s going to be a heightened attention on the part of in-house counsel that are advising companies doing business that may be tied to Cuba,” he said. “The hook is if that property you’re dealing with happens to be a confiscated property, you can be sued under the Helms Burton Act and have some exposure.”
Moreover, the trade embargo against Cuba, which has been in place for decades, should prompt companies to ensure they are complying with licenses they receive from the U.S. Treasury Department’s Office of Foreign Assets and Control.
Even though the cruise lines argued to the judge that they had the proper licenses to operate in Havana, “the judge did not find that license insulated them completely,” Puente said.
Another pendulum swing
Although the number of suits filed in U.S. courts under Helms-Burton has expanded, the Biden administration has sought to crack open the door again for businesses to operate in Cuba.
Last spring, the Treasury Department issued a license for a U.S.-based company to finance and invest in a private service firm in Cuba.
The company was created by John Kavulich, founder of the New York-based U.S.-Cuba Trade and Economic Council. Under the license, he would provide financing for a small business in Cuba of up to $25,000.
But while Kavulich has a U.S. license, a first of its kind for any company, he told the South Florida Sun Sentinel last week that he’s still awaiting rules and regulation from the Cuban side.
“Our focus has been trying to use every lever available to get the Cubans to issue the regulations governing investment and financing to Cuban private companies,” he said.
More recently, Western Union this past week resumed limited remittance services between the U.S. and Cuba after a two-year suspension of the service.
“The close connection between our U.S. customers and their families living in Cuba, together with the role our services play in helping create better lives, are inextricably linked,” Gabriella Fitzgerald, president of Western Union North America, said in a statement.
The company halted transfers in 2020 after Trump tightened U.S. restrictions on Cuba. The Biden administration loosened a handful of them, including remittance payments.
A test phase is being rolled out in Miami, and transfers can be sent to three government-operated banks in Cuba — Banco Popular de Ahorro, Banco Metropolitano SA, and Banco de Credito y Comercio.
A forever non-starter?
Still, Jerry Haar, professor and executive director, The Americas, at Florida International University’s College of Business, doesn’t see the Cuban government as being much of a business partner with U.S. companies in the future.
“It’s a give-and-take relationship,” Haar said, “where we give and they take.”
“So much of this is Kabuki theater,” he added, noting that the Cuban government has yet to publish the regulations Kavulich is seeking for medium and small enterprises on the island to receive direct investments and financing.
In addition, the Cubans do not allow correspondent banking relationships with international banks, where one financial institution provides intermediary services for another such as facilitating wire transfers, accepting deposits, and conducting business transactions.
The recent Biden administration measures, Haar asserted, offer a small offset to the Cuban government’s ironclad control over the economy and society.
“What you’re having is a parallel universe,” Haar said. “The Cuban government is clamping down even more on human rights and free expression in Cuba.”
“I’ve gone through this stuff in a thorough fashion,” he added. “Other than tourism and family reunification stuff, I see only minimal changes. From the point of view of Cuba and human rights, things are worse now under Diaz-Canal than under Raul.”
