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Cuba, you owe us $7 billion

Cuba, you owe us $7 billion
Behind the trade embargo lies a huge and nearly forgotten obstacle: the
still-active property claims by American companies. Inside the effort to
settle a 50-year-old debt
By Leon Neyfakh | GLOBE STAFF APRIL 18, 2014

IF SYMBOLS COULD GATHER RUST, the American trade embargo against Cuba
would be covered with it. Enacted in 1960, shortly after Fidel Castro
came to power, and expanded in 1962, at the height of the Cold War, the
embargo has frozen the United States and its tiny neighbor off the
Florida coast in a standoff that seems as dated as the classic American
cars on Havana streets.

Leaders from around the world have been calling on the United States to
dismantle the embargo for more than 20 years, and recent polls show that
a majority of Americans are in favor of lifting it. With the repressive
Castro regime seemingly nearing its end, a “normalization” of relations
between the countries seems increasingly within reach. That would appear
to spell an end sometime soon for the embargo, which in the popular
imagination stands as a sort of political weapon that was designed to
cripple Castro and stem the tide of communism.

What’s often forgotten, though, is that the embargo was actually
triggered by something concrete: an enormous pile of American assets
that Castro seized in the process of nationalizing the Cuban economy.
Some of these assets were the vacation homes and bank accounts of
wealthy individuals. But the lion’s share of the confiscated
property—originally valued at $1.8 billion, which at 6 percent simple
interest translates to nearly $7 billion today—was sugar factories,
mines, oil refineries, and other business operations belonging to
American corporations, among them the Coca-Cola Co., Exxon, and the
First National Bank of Boston. A 2009 article in the Inter-American Law
Review described Castro’s nationalization of US assets as the “largest
uncompensated taking of American property by a foreign government in
history.”

Today, the nearly 6,000 property claims filed in the wake of the Cuban
revolution almost never come up as a significant sticking point in
discussions of a prospective Cuban-American thaw. But they remain
active—and more to the point, the federal law that lays out the
conditions of a possible reconciliation with Cuba, the 1996 Helms-Burton
Act, says they have to be resolved. According to that statute, said
Michael Kelly, a professor of international law at Creighton University
in Nebraska, settling the certified property claims “is one of the first
dominos that has to fall in a whole series of dominos for the embargo to
be lifted.”

While the other dominos are clearly much more daunting—the overall point
of the Helms-Burton Act is that Cuba has to have a democratic,
America-friendly government in place before there can be any talk of
lifting the embargo—experts say the property claims will be an intensely
difficult problem to settle when it comes time to do so. For one thing,
Cuba is unlikely to ever have enough cash on hand to fully compensate
the claimants, especially while the embargo is still in place; to make
matters even more complicated, many of the individual claimants have
died, and some of the companies no longer exist.

With Cuba inching toward reform on a number of fronts over the past
several years, giving hope to those who believe our two countries might
reconcile in the near future, a number of Cuba experts have begun to
study the question of how to resolve the property claims in a way that
is both realistic and fair. The proposals that have come out of their
efforts provide a unique window onto the potential future of the
American relationship with Cuba—and point to the level of imagination
that can be required in the present to turn the page on what happened in
the past.

***

THE CUBA THAT CASTRO took over in 1959 was a nation overrun with
American business. Tourists could stay in American-owned Hiltons, shop
at Woolworth’s, and withdraw money at American-owned banks.
American-owned petroleum refineries sat amid American cattle ranches,
sugar factories, and nickel mines, and an American-owned
telecommunications firm controlled the country’s phone lines. According
to a 2008 report from the US Department of Agriculture, Americans
controlled three-quarters of Cuba’s arable land.

Cuba’s revolutionary leader swiftly signed several laws nationalizing
what was previously private property. Though the laws required the
government to compensate the owners, the payment was to be made in Cuban
bonds—an idea that was not taken seriously by the United States. In
1960, the administration of President Eisenhower punished Castro’s
expropriation of American assets by sharply cutting the amount of sugar
the United States was buying from Cuba. “We kind of went ballistic at
the thought that anyone would take our property,” said John Hansen, a
faculty associate at Harvard University’s Center for Latin American
Studies. Tempers ran hot in both directions: in a speech, Castro vowed
to separate Americans in Cuba from all of their possessions, “down to
the nails in their shoes.” The standoff culminated in a near-total
embargo on American exports to Cuba and a reduction of sugar imports to
zero.

Other countries that had holdings in Cuba—including Switzerland, Canada,
Spain, and France—were more amenable to Castro’s terms, apparently
convinced that there was no chance they’d ever get a better deal. But
the Americans who had lost property wanted cash, and submitted official
descriptions of what had been taken from them to the Foreign Claims
Settlement Commission at the Department of Justice. Meanwhile, US
relations with Cuba deteriorated. Diplomatic ties were cut. An attempt
by President Kennedy to overthrow Castro failed, and a standoff over
Soviet missiles in 1962 brought the world as close to nuclear war as it
has ever come. The invisible economic wall—which by then had been
expanded to ban virtually all imports from Cuba—had become part of
something much larger.

Half a century later, the cash claims that started it all still sit on
the books. And while a full list of claimants is maintained by the US
Department of Justice, they have largely receded from view—in part
because most of the claimants have become quiet about their hopes for
compensation. According to Mauricio Tamargo, a lawyer who served as
chairman of the Foreign Claims Settlement Commission for almost a decade
before going into private practice and taking on a number of claimants
as clients, complaining about monetary losses associated with the Cuban
revolution has become increasingly risky from a public relations
standpoint. The embargo has taken on more and more political meaning,
and Cuba has become more destitute. “The corporations that have these
claims are very sensitive to bad press,” Tamargo said, “so they decide
to keep a low profile and work quietly behind the scenes where
possible.” (Of several corporate claimholders contacted for this story,
the only one that provided a statement by deadline was Chevron Corp.,
which now owns the claims originally filed by Texaco, and considers “the
claim to be valid and enforceable if and when there is a change in the
Cuban government.”)

But regardless of how morally or politically sensitive it might be for
America’s corporations and the wealthy executives who run them to claim
money from Cuba, their claims will still need to be untangled in order
for the embargo to be lifted, experts say. “The US government is
obligated by law to defend the claims of US citizens and enterprises
whose properties were expropriated by the Cuban government,” wrote
Harvard professor Jorge Dominguez, a top Cuba scholar, in an e-mail. As
for how that might be done, he added, “one can imagine a range of
possibilities.”

One possibility has been put forth by Tamargo, who advocates for an
approach that would compensate claimants—his clients among them—by
imposing a 10 percent user fee on all remittances sent to Cubans by
their American relatives, as well as all other transactions that are
allowed to take place under the current embargo rules. (While this
proposal can be seen as a tax on US residents, it is designed to come
only out of money that is entering the Cuban economy.) Another proposal
was presented several years ago by Timothy Ashby, a Miami lawyer, who
started a company designed to buy claims at a discount from their
original owners and then use them to broker a private settlement with
the Cuban government. Ashby’s plan was thwarted when the Bush
administration declared it illegal, but the prospect of a negotiated
group settlement remains on the table—as long as it’s carried out by the
US government, in accordance with existing law.

Perhaps the most ambitious and pragmatic solution that’s been laid out
so far appeared in a lengthy report published by scholars at Creighton
University, who were given a grant in 2006 by the US Agency for
International Development to investigate the claims issue. “There was a
hope that, if through God’s grace things improved and we were able to
enter into a mutually beneficial relationship with Cuba, we would be
able to pull something off the shelf and say, ‘Here’s how we’re going to
start dealing with it,’” said Patrick Borchers, the law professor who
led the Creighton team.

Borchers and his colleagues found that untangling all the claims would
be extremely complicated: “A lot of the original corporate claimants,
through the process of 50 years worth of mergers and acquisitions, don’t
even exist anymore,” said Creighton’s Michael Kelly, who also worked on
the report. “But the claims don’t go away—they go with the mergers.” One
of the largest claimants today, for example, is Starwood Resorts, a
company that didn’t even exist in 1959, but received a claim on the ITT
Telegraph Tower when it acquired another company. “Starwood Resorts
doesn’t want an old radio tower,” Kelly said. “What they [might] want is
beachfront property.”

This insight led to the proposal that the Creighton team ultimately
submitted to the government. Under the team’s plan, some of those who
had lost property during Castro’s nationalization campaign could be
compensated in ways that didn’t involve the transfer of cash or bonds:
Instead, they could be given tax-free zones, development rights, and
other incentives to invest in the new Cuba. This, according to Borchers,
would be a win for both sides, compensating the claimants while
stimulating the Cuban economy.

***

NO ONE IS ARGUING that settling the property claims of Americans is
anything like the first or most important step to normalizing the US
relationship with Cuba: There are other, more formidable obstacles in
the way, as well as significant wiggle room for increasing economic
activity between the two countries without formally lifting the embargo.

“There’s a scenario that I see, which is bit by bit the fundamentals of
the embargo are chiseled away by executive order, by the economic and
family ties linking Cuba and the United States, and by non-enforcement,”
said Julia Sweig, a Cuba expert at the Council on Foreign Relations. In
that scenario, the claims might someday be resolved, but wouldn’t hold
the process of reintegrating the United States and Cuba hostage.

There’s another big complication, too: the thousands of Cuban families
who fled to America after the revolution and had everything they owned
confiscated by the Communist regime. These Cuban exiles and their
descendants form the backbone of the most intransigent anti-Castro lobby
in the United States. If and when Cuba does open up, they’re going to
want their property back as well, which will likely result in extensive
litigation in Cuba. (To address their interests, the Creighton report
proposed setting up a special tribunal in Cuba that could try to
compensate Cuban-Americans for their losses once the country had found
its feet economically.)

What will end up happening—both for the American claimants and the
Cubans who moved here after the revolution—will undoubtedly provoke
debate about what is fair when it comes to setting right the wrongs of
the past. How much debt is worth forgiving to help a country back on its
feet? And how much should private citizens expect to give up to help a
diplomatic resolution? But the provisional plans and proposals that have
been made in the meantime—whether preferential development deals or a
tax on cash flow between our two countries—reflect something else:
visions of a new Cuba, in which American economic interests and Cuban
ones are once again closely intertwined.

Leon Neyfakh is the staff writer for Ideas. E-mail leon.neyfakh@globe.com.

Source: Cuba, you owe us $7 billion – Ideas – The Boston Globe –
http://www.bostonglobe.com/ideas/2014/04/18/cuba-you-owe-billion/jHAufRfQJ9Bx24TuzQyBNO/story.html

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