U.S. businesses' money can be frozen because of references to Cuba

U.S. businesses' money can be frozen because of references to Cuba
By Paul Guzzo | Tribune Staff Published: May 1, 2016 Updated: May 1,
2016 at 07:51 PM

Nothing from his inventory originates from the island nation nor does
any of the business's money come from or go to Cuba.

Still, over the past year, financial transactions involving online
payment giant PayPal have been frozen again and again, sometimes for
weeks, until PayPal verifies they don't violate U.S. policy on Cuba.

The same thing happens at Island Travel and Tours, a company that does
conduct business with Cuba. Financial transactions were delayed so long
by banker J.P. Morgan Chase that the charter air company had to cancel
eight flights to Cuba over the course of a week.

The U.S. is moving to normalize relations with Cuba, but that isn't
always making it easier for Americans to do business there. One reason
is fear linked to policies of isolation from the past, hard for
financial intuitions to overcome, combined with complicated new policies
plus an unprecedented surge of customers interested in Cuba.

"This is a problem we're having in a changing environment," said Dan
Zabludowski, an international business attorney in Miami with Hinshaw &
Culbertson. "Some banks are still operating like it's two years ago.
They need to update how they operate."

The U.S. government is adding ways for its citizens and businesses to
engage in commerce with the island nation after more than five decades
of largely prohibiting it.

U.S. credit cards can now be used in Cuba, for instance. And where only
agriculture and medical supplies could be sold to Cuba two years ago,
today, the list has expanded to telecommunications devices, restaurant
equipment and construction supplies.

Before the new engagement, the U.S. Office of Foreign Assets Control,
OFAC, aggressively administered and enforced economic and trade
sanctions on the island nation. With its enemy status, most transactions
were illegal.

Now, to promote U.S. commerce with Cuba, OFAC has been directed by the
White House to let up.

But for financial institutions, it turns out, that's easier said than done.

"It has been difficult to absorb," said John Kavulich, president of the
U.S.-Cuba Trade and Economic Council. "There has been a cautiousness
that has provided an increasing amount of pain to small and medium sized
businesses."

PayPal appears to be a case in point.

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In March 2015, OFAC fined PayPal $7.7 million for failing to screen
properly for potential subjects of U.S. sanctions in transactions that
it processed.

The violations included 136 transactions involving Kursad Zafer Cire, a
Turkish man on a U.S. list of weapons of mass destruction proliferators,
and 98 transactions for more than $19,000 in goods from Cuba or in which
Cuba had an interest.

In response to the fine, PayPal instituted a new screening solution,
according to OFAC documents, although the company did not elaborate.

PayPal acknowledged it received a request for comment from the Tribune
but never replied otherwise.

The PayPal screening now includes an algorithm that freezes any
transaction containing certain words associated with Cuba, said David
Brown of New Jersey-based online store FolkCuba.com, which sells items
needed to practice the religion known as Santeria.

Santeria originated in Cuba, but the religious items sold by Brown did
not. Still, like MyCubanStore.com, some of Brown's transactions have
been frozen — something that never happened before.

Whenever it does, PayPal emails him a notice saying it will take up to
72 hours to vet a transaction. It can actually take weeks. He shared one
of the emails with the Tribune.

Martin of MyCubanStore.com said he receives the same notice. His funds
have been held up for as long as a month. It did happen before, a few
years ago, but the issue was resolved. It started again a year ago.

On "any given day," he said, he can have as many as three to five
transactions held up, as much as $1,000 all told.

Martin provided the Tribune with a copy of a statement from early April
showing it took PayPal 15 days to clear transactions totaling around $150.

He said he fears customers will grow weary of doing business with him
because money is immediately deducted from their account but the product
arrives days or weeks late. Confounding him more is that the suspensions
are random. Some go through without trouble.

As a small businessman, said Brown of FolkCuba.com, he needs the
suspended funds to pay bills. During the last holiday season, he had
trouble replenishing his stock because PayPal took weeks to release
transactions worth around $1,500.

Antonio C. Martinez II, a New York attorney, has a client who provides
consultation on licensed travel to Cuba.

That client has been waiting for PayPal to unfreeze a transaction of
about $5,000 for six months.

"The business took place between a U.S. citizen and a U.S. entity yet
they still haven't released the money," said Martinez, who did not share
more information on the matter.

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PayPal is just one of the institutions suspending transactions with Cuba
in the name.

The founder of mobile app company Fueled.com, Ryan Matzner of New York,
uses online payment system Venmo.

In February, Venmo flagged his payment for a meal at New York restaurant
Cafe Habana because of the word "Habana."

Matzner provided the Tribune copies of two notices emailed to him by
Venmo that read, "We were hoping you could provide us details for your
reference to 'Habana' as well as give us some insight on what this
payment was specifically for."

A second read, "We are required to follow-up on potential items that may
be related to policies pertaining to OFAC sanctions."

When the Tribune asked Venmo how it screens transactions with a mention
of Cuba, even in product or company name only, a spokesperson replied
via email with a link to OFAC's online resource page for Cuba sanctions.

Attorney Zabludowski has a client who also sells goods marked Cuban that
have no direct relationship with the nation. Yet the client's former
bank was regularly freezing the funds. He said he could not share
further details on the matter.

Attorney Peter Quinter of Miami, head of the international trade-law
group for Orlando-based GrayRobinson, said he still frequently
represents clients with money wires to Cuba that have been frozen by a
U.S. bank even though the transaction meets all legal requirements.

In order to land in Cuban airports, Island Travel must first pay fees to
the island nation's government by wiring money through a bank in a third
nation.

Still, in November, J.P. Morgan Chase & Co. suspended more than $250,000
in payments sent to Cuba, resulting in the cancellation of flights, said
Island Travel President Bill Hauf.

Asked how J.P. Morgan Chase flags transactions containing the word Cuba,
a bank spokesperson responded via email, "As a matter of policy, we
screen all payments for violations of U.S. sanctions, applying to all
sanctions programs."

Ultimately, said Hauf, it was OFAC that resolved the issue, nearly three
weeks after the transactions were suspended.

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Island Travel has experienced random suspensions since then but the
money has been released faster, so no flights were affected. Still, it
makes conducting business difficult.

Hauf said other charter companies have had the same problem.

"This all started six to nine months ago," he said. "I've been doing
this without a problem for five years. Why is this an issue now when
business in Cuba is supposed to be getting easier?"

For starters, attorney Zabludowski said, financial institutions might be
overwhelmed. Two years ago, a limited number of Americans were doing
business with Cuba. Today, U.S. citizens are lining up for commerce
opportunities there.

Then add confusion over new regulations.

Doing business in Cuba still is influenced by the travel and trade
embargo. Some forms of commerce are legal. Some are not.

For instance, Cuba can only buy U.S. agriculture products with cash but
can buy items like construction supplies on credit.

Also, before the U.S. engaged with Cuba again, OFAC licenses to a
specific company or individual were required for any financial
transaction in Cuba and for the sale of any goods and services to the
island nation. Today, some of these deals are covered by
easier-to-obtain general licenses.

Charter flights are one such enterprise, Hauf said, yet his bank keeps
asking him for a specific license before it will transfer his funds.

Regulations are also vaguely written and open to interpretation.

A U.S. company may think a venture is covered under a general license
but is not. The enterprise, unknown to the company, might not be legal
at all.

"Now a banker has to make an interpretation on a general license as to
whether it is legal or not," said David Seleski, CEO of Pompano
Beach-based Stonegate Bank, the first U.S. bank to allow customers to
use its credit cards in Cuba. "So it is trickier for banks that do not
specialize in Cuban banking."

Seleski said Stonegate has created a specific Cuba department staffed
with people who stay updated on U.S. policy and personally vet
transactions on a case-by-case basis.

In the past, a financial institution was required to fully police all
customer transactions involving Cuba. Even if there was nothing
suspicious about a transaction, failure to demonstrate proper vetting
means a fine for a financial institution.

If it was illegal, but expertly hidden, the financial institution could
still be penalized.

"In large measures that is what led to fines," said Kavulich of the
U.S.-Cuba Trade and Economic Council. "Banks couldn't control every
facet of the transaction."

Now, generally, financial institutions will no longer be found at fault
if a transaction with Cuba is not obviously a violation of U.S. policy.

"What the regulation says is reasonableness now applies," Kavulich said.
"If someone is trying to engage in a transaction that isn't lawful and
is smart enough to do everything possible to cover their tracks, the
bank may not be held liable."

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Attorney Quinter advises that individuals and companies doing business
in Cuba through an American financial institution become proactive until
banks and online payment systems can better grasp changes in U.S. law.

Quinter suggests sending the financial institution copies of the general
or specific license, an explanation of the business, plus any
correspondence with OFAC or the State Department verifying that a type
of commerce with Cuba is allowed.

"Contact the bank and make sure they know what is going on," he said.
"That is the smart thing to do."

Brown of FolkCuba.com sent PayPal an itemized list of everything he
sells plus invoices to prove their origin.

On April 5, PayPal replied to him with an email he shared with the
Tribune crediting his diligence with the approval of an exemption "which
should prevent your payments from being put on hold."

On April 21, according to a notice he shared with the Tribune, more
transactions were held up by PayPal. The money was released within 24
hours rather than in days or weeks, but it caused financial strain
nonetheless.

Brown has removed the words "Cuba" and "Cuban" from his products but
does not want to change his company name.

"You can't separate Cuba from Santeria," he said. "Besides, why should I
have to? They should have to change."

For PayPal, that may be coming.

By the end of the year, the company hopes to launch its international
transferring service Xoom in Cuba for U.S. citizens to send remittances
there.

And as Western Union can attest after working in the Cuban remittance
business since 1999, such a venture requires a loosening of restrictions.

Western Union uses algorithms to screen money transfers, said Tyler
Hand, the company's head of global sanctions and interdiction, but the
word Cuba alone will not stop one.

Instead, the company keeps an up-to-date list of Cuban nationals and
businesses, Cuban government officials, and members of the Communist
party whom the U.S. government restricts from partaking in certain
transactions. If one of those names appears on the transaction
affidavit, the transaction could be suspended.

Before joining Western Union in 2014, Hand was OFAC's assistant chief
counsel of designations and enforcement.

Still, he said, even with that experience, it isn't easy for him to
navigate the new Cuba regulations.

"We don't always know what they mean when they make rule changes," he
said, "and often times we do our best to balance the risk. It's tough."



pguzzo@tampatrib.com

Source: U.S. businesses' money can be frozen because of references to
Cuba | TBO.com and The Tampa Tribune -
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