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.



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