Helms-Burton litigation against non-Cuban global enterprises has become something of a spectator sport among those who drive public opinion by drawing attention to things in ways that they would like attention drawn. That news either appears as "human interest" or "wow, look at the consequences of historical conflict unresolved" types of coverage. Lawyers, of course, enjoy technical news about the suits for any insight it might being to sharpening legal skills and applying new strategies more broadly. Political people, especially those in the thick of the civil war among factions of the American elite will draw form the lawsuits "great" insights about the goodness of their faction and the evil of the other.
Much of this is helpful, I imagine, for the purposes for which it is launched onto the arena of manipulating mass opinion. It is less helpful for understanding one of its most important consequences--the way that compliance and risk itself continue to grow as has become potent tools in using financial markets to political ends. Some interesting reporting from Marc Fran for Reuters in Cuba, Tougher U.S. sanctions make Cuba ever more difficult for Western firms (9 October 2019) provides a window on how it is working in the context of efforts to restrict Cuban access to financial markets. The reporting follows below with quite useful details.
What makes the reporting so interesting is the way it shows how it is the risk of litigation--rather than the threat of specific and concrete action, that has the greatest effect on access to financial markets. That access is restricted in two ways. First, access sis restricted by increasing the cost of capital (building high risk into pricing). Second, and more crudely, access is restricted risk by avoiding the market for Cuban related financing entirely. Here one sees a curious mix of both business and legal risk in the calculus both of the cost of that risk (if one were to lend) or the value of the market for that financing in the first place because of the scope of the perceived risk in that market.
More important, perhaps, is the way that legal risk augments costs by the way in which it affects the structuring of transactions. In order to gain access to credit from institutions willing to finance a project, companies must go through the time and trouble to restructure their operations in a way that minimizes the exposes of the business to the risks of litigation. For many companies that involves the construction of multi-level legal structures that eventually tie in to Cuba through joint ventures with Cuban locals (almost always the state). But this sort of structuring produces its own legal and business risk, and it costs time and money to develop and operationalize models that still run some risk of being caught up in litigation sweeps. Lawyers, accountants, bankers no doubt welcome the opportunity for the additional work and advising. For business, however, the additional costs of planning and the additional risk (even when minimized) may push a project from likely profitable to unprofitable. And, of course, all of this is added to the sometimes lengthy and inscrutable process of obtaining review and approval of projects within Cuba.
Tougher U.S. sanctions make Cuba ever more difficult for Western firms
9 October 2019
HAVANA (Reuters) - Tougher U.S. sanctions against Cuba have led international banks to avoid transactions involving the island, while prospective overseas investors put plans on hold and foreign firms operating in the country consider restructuring to lower their risk exposure.
Just a few years ago, foreign businesses were rushing to take a firsthand look at Cuba’s opening economy, lured by the Communist government’s market reforms and a detente pursued by former U.S. President Barack Obama. Yet two dozen Western executives, consultants and diplomats interviewed by Reuters said President Donald Trump’s reversal of that detente and ratcheting up of the U.S. trade embargo have poisoned the business climate, in combination with Cuba’s homegrown economic woes.
On top of the decades-old embargo, the Trump administration has sanctioned nearly 200 Cuban military-run companies and hotels as well as any company or vessel involved with shipping Venezuelan oil to Cuba. In April, Trump also activated Title III of the 1996 Helms-Burton Act, which allows Americans to sue U.S. and international companies profiting from property that was nationalized or confiscated after Cuba’s 1959 Revolution.
American Airlines, Melia Hotels International, Amazon Inc and French lender Societe Generale are among the companies that have been slapped with lawsuits under the Helms-Burton Act, which they are contesting in court.
“The situation is catastrophic, at least for Western countries. I can’t speak for Russia or say China,” a European commercial attache said, asking not to be identified due to the sensitivity of the matter.
Many Western banks have long refused Cuba-related business for fear of running afoul of U.S. sanctions and facing hefty fines, as well as the country’s poor credit history.
Now, the combination of Trump’s aggressive stance, the complications of new sanctions and fear of being sued under Helms-Burton are deterring the few that remained.
PostFinance, the last Swiss bank to process Cuba-related transactions, informed clients last month it would no longer do so. Bank spokesman Rinaldo Tibolla said in an email PostFinance relied on a trust-based network of correspondent banks as well as access to U.S. dollar payments.
“There is a risk that we will be excluded from this access if payments to Cuba, which may be subject to U.S. sanctions, are allowed to continue,” he said.
Panama’s Multibank shut down numerous Cuba-related accounts this year and European banks are restricting clients associated with Cuba to their own nationals, if that. Asked about the closures, Multibank said in a statement it constantly revised its foreign accounts from the perspective of regulations and ris
Businessmen and diplomats said large French banks, including Societe Generale, no longer want anything to do with Cuba and some are stopping payments to pensioners living on the Caribbean island. Neither Societe General nor Paribas, both of which have been sanctioned by the U.S. Treasury Department, responded to a request for comment.
But for the first time in years, the island has had problems financing the upcoming sugar harvest. Various joint venture projects, from golf resorts to alternative energy, are finding it nearly impossible to obtain private credit, the executives, diplomats and other sources consulted by Reuters said.
Even Cuban embassies abroad are finding it more difficult to open accounts, Cuban Foreign Minister Bruno Rodriguez told a news conference in Havana this month as he blasted sanctions as “genocidal.”
“Financial sanctions are weapons of mass destruction,” said John Kavulich, president of the U.S.-Cuba Trade and Economic Council, which closely follows U.S.-Cuban relations.
“Enforcement by the Treasury Department can have a devastating impact.”
NOT WORTH THE RISK
Every time a Helms-Burton suit is filed, or Washington sanctions a bank for violating the embargo, corporate compliance officers say business with Cuba is not worth it, the sources said.
“It is like the old Chinese death sentence by a thousand cuts,” said a European financial services representative, who also asked to remain anonymous.
Clients from Canada, Europe and even China were still interested in Cuba, said Canadian lawyer Gregory Biniowsky, who lives in Havana and consults foreign businesses for the law firm Gowlings Consulting Inc.
“What has changed is their calculations for the short- to medium-term, as in, let’s kind of shelve this for now and go into a holding pattern at least until November 2020,” he said, echoing the observations of other consultants.
While recent U.S. sanctions have spooked many potential partners, Cuba’s existing 200-odd joint ventures and other agreements with foreign companies appear to be staying the course.
A number of well-known corporations such as Nestle, Unilever, Imperial Cigars, Sheraton, Pernod-Ricard, Total and AB InBev have ventures in Cuba and none have fled in response to the U.S. crackdow
The companies did not respond to Reuters’ requests for comment. However, the sources said some were considering restructuring along the lines of British beverage giant Diageo PLC, which recently arrived in Cuba and partnered with a local firm in August to market rum.
Luca Cesarano, general director of the joint venture, has said he was confident Diageo was shielded from Helms-Burton, which assumes some U.S. exposure to collect penalties, since it was operating in Cuba through a subsidiary.
“Neither the subsidiary of Diageo, which is the partner, nor the venture, will interact with any Diageo entity or person that interacts with the United States,” he said in August.