Sanctions Experts Warn Against Cuba ‘Irrational Exuberance’

Sanctions Experts Warn Against Cuba 'Irrational Exuberance'
By JOEL SCHECTMAN

Companies shouldn't get too excited yet about Cuba, sanctions experts say.

President Barack Obama moved to normalize relations with Cuba after
half a century last December, and began relaxing the embargo on business
with the Communist state.

U.S. companies are excited about taking advantage of new openings so
close to home.

But it will be years before the thaw in relations materializes into
large-scale opportunities for U.S. firms, say attorneys that specialize
in sanctions law. "There is a lot of what I'd call 'irrational
exuberance about Cuba right now," said Jason Poblete, a trade attorney
at Poblete Tamargo LLP.

On one hand, the relaxing of prohibitions against Cuba is a historic
policy change. For the first time in decades, companies will be allowed
to export some telecommunications equipment to Cuba without first
seeking licenses. This includes Internet technology like cloud storage
and email service as well as physical infrastructure hardware like
fiber-optic cable.

The policy reboot will also expand the kinds of travel allowed without
getting a pre-authorization from U.S. authorities, such as cultural
trips. For example, Beyonce and Jay-Z's 2013 Cuba trip, which drew the
ire of some U.S. lawmakers, would no longer require a license. Regular
tourism is still prohibited, however.

But these changes won't immediately translate into concrete
opportunities for most U.S. companies, experts say. "I'm fielding a lot
of calls on Cuba right now," said Douglas Jacobson, an export control
specialist at Jacobson Burton PLLC. "But 95% of the time I have to tell
[clients] that nothing has really changed."

For one thing, Cuba may look like virgin territory for U.S. companies
but is an old stomping ground for the rest of the West. Unlike other
blacklisted countries like Myanmar, which was until recently subject to
broad sanctions from much of the West, the U.S. is the only
industrialized country that cut trade ties with Cuba. When American
firms seek business in the Caribbean nation, they will be competing with
French and Canadian executives with decades of history in Cuba, Mr.
Jacobson said.

And with a country that only has a population of 11 million, the prizes
may not be that large. "In Cuba it's not a matter of getting in early
to get your foot in the door," he said.

The new law changes also leave most Cuba business "a compliance
nightmare," Mr. Jacobson said. To export telecom equipment or building
materials, for example, companies need to establish that the deals will
benefit the "Cuban people" — fuzzy language that can be hard to prove in
the event of a later investigation from authorities.

How do you prove who will benefit from a transaction in a country where
most trade touches the state? "You're going to have to either go down
there yourself or hire a local representative to make sure the drywall
you're selling isn't being used to build Raul Castro's army barracks,"
Mr. Jacobson said.

Travel agents have been eagerly looking at the possibilities. The new
policy means they will not need to obtain special licensing to arrange
trips that foster cultural exchanges. But those trips still require
full-time itineraries that include little leisure time. Travelers are
told they should keep records of their activities in the country, to
prove the trips are not just fun holidays on the beach, should U.S.
authorities ever conduct an investigation. Those kind of requirements
hardly make for the kind of fun beach trips that will draw droves of
new travellers .

The biggest opportunities will come once the U.S. allows general
tourism, but experts say this may require an act of congress, which
seems unlikely in the current partisan gridlock.

And sanctions aside, doing business with a Communist state provides
obstacles of its own, Mr. Poblete said. For example, the Cuban
government's actual appetite for the kinds of telecom equipment now
allowed is unclear and untested. And much of business in the country
still needs to be done in cash, Mr. Poblete said. "People see Cuba as
this forbidden fruit, this closed economy with all this potential," Mr.
Poblete said. "But it may be years before you really see these
opportunities."

Write to Joel Schectman at joel.schectman@wsj.com

Source: Sanctions Experts Warn Against Cuba 'Irrational Exuberance' -
Risk & Compliance - WSJ -
http://blogs.wsj.com/riskandcompliance/2015/02/02/sanctions-experts-warn-against-irrational-exuberance-on-cuba/