April 29, 2019

Cuba Sanctions Broadened to Target Investors and Travelers

On May 2, 2019, the Trump administration will authorize federal lawsuits against persons “trafficking” in property expropriated from U.S. ownership by the Cuban government from the 1959 Cuban revolution onward and may also bar such persons and others affiliated with them from entry to the United States. Also expected is a strengthening of the primary U.S. sanctions against Cuba, including for personal remittances to Cuba, certain “U-turn” banking transactions, and U.S.-person travel.

Title III Authorizes Lawsuits Against Persons Who “Traffic” in Confiscated Property

Enacted in 1996, Title III of the Helms-Burton Act created a private cause of action for U.S. nationals with valid claims to property confiscated by the Cuban government. Every president since the law’s passage had suspended the right to pursue these claims in recognition of the liability and chaos this could unleash, particularly upon foreign companies whose investments in Cuba have been unfettered by the direct U.S. sanctions against Cuba that apply to persons subject to U.S. jurisdiction (i.e., U.S. companies and nationals and the foreign companies they own and control).

But on April 17, 2019, Secretary Mike Pompeo announced that the current suspension period, set to expire on May 1, 2019, would not be renewed. The availability of a Title III cause of action would authorize claims against persons and entities that have “trafficked” in property confiscated from U.S. interests on or after January 1, 1959.

The Helms-Burton Act defines the term “traffic” with striking breadth, capturing nearly all direct and indirect commercial activity using or benefiting from confiscated property, including present, future, and contingent personal-property or real-property interests (other than certain residential properties). This will leave plaintiffs and defendants in U.S. courts to map the contours of potential liability for Title III claims and to construe statutory exemptions from the concept of “trafficking,” including for (i) the delivery of international telecommunications signals to Cuba, (ii) the trading/holding of public securities, and (iii) transactions and uses of property incident to and “necessary” for lawful travel to Cuba.

Despite the broad language, the number of successful lawsuits brought under Title III will be limited by waiver (for failure to certify eligible claims with the U.S. Department of Justice’s Foreign Claims Settlement Commission), and by the amount-in-controversy requirement and a heightened court filing fee. But the Foreign Claims Settlement Commission has certified 5,913 claims valued at over $8 billion, with accrued interest, and U.S. nationals previously ineligible for certification could file additional suits under Title III, assuring that numerous claims for real money are likely to be filed.

Title IV Authorizes the Barring of Persons Who “Traffic” in Confiscated Property From Entering the United States

The Trump administration has also announced an intention to implement the long-dormant Title IV of the Helms-Burton Act. Title IV requires the denial of visas and exclusion of entry into the United States not only of individuals who traffic in confiscated property claimed by a U.S. national, but also of officers, principals, and shareholders with controlling interests in companies trafficking in such property — and even spouses, minor children, and agents of such persons.

Although never suspended, the United States has only rarely applied the Title IV exclusions — e.g., in 1996, to Sherritt International Corporation of Canada and Grupo Domos of Mexico, and in 1997 to the Israeli company B.M. Group.

If actually implemented, Title IV exclusions could wreak havoc, provoking hard discussions within the C-suites of foreign companies that are engaging with Cuba.

Further Strengthening of the Cuban Assets Control Regulations

The Trump administration also announced a further strengthening of the primary sanctions against Cuba, through forthcoming amendments to the Cuban Assets Control Regulations (CACR) administered by the Office of Foreign Assets Control (OFAC) of the Department of the Treasury.

Although earlier CACR amendments in November 2017 were designed to roll back the gradual opening to Cuba initiated by the Obama administration, those changes were relatively modest in effect. The newly announced CACR rollbacks could have considerably more bite, including:

(i) New limits on personal remittances from the United States to Cuba to $1,000 every three months;

(ii) A suspension of “U-turn” transactions by Cuban banks and entities that transit the U.S. financial system; and

(iii) Further restrictions on U.S.-person travel to Cuba unrelated to family visits — i.e., potentially, the gutting of 11 of the 12 general licenses under which U.S. persons have been traveling to and increasing engagement with Cuba.

Combined with the Title III and IV developments, the curtailment of the travel-related general licenses and associated diminution in demand for services would ripple across the airline and cruise industries serving the island.

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Most affected by the Title III and IV developments are likely to be companies based in Canada and the European Union, which have been active participants in the Cuban economy. The aggressive Cuba policy of the Trump administration could operate as a sort of secondary sanctions regime, deterring engagement with Cuba by non-U.S. companies much like the U.S. secondary sanctions targeting Iran have depressed global engagement with that country. Most affected by the promised CACR amendments will be the travel and financial service industries, U.S. persons wishing to visit Cuba, and ordinary Cubans reliant upon remittances and travel-related revenues from the United States.