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Uncertainty clouds business prospects with Cuba

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Uncertainty clouds business prospects with Cuba

By John Glynn

President  Barack Obama’s landmark visit to Cuba last March created excitement in the business community that the 50-plus-year embargo with the island nation would soon end, and companies like AirBNB started exploring opportunities in Havana.

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The ABA Commission on Hispanic Legal Rights & Responsibilities surveyed the trade landscape in its program, “Doing Business in Cuba ­—New Developments,” on Feb 3 at the ABA Midyear Meeting in Miami.

Since Obama’s visit, moderator Carolina Blanco, associate at Hill Ward Henderson in Tampa, said, “Cuba has failed to advance on economic liberalization, it lost its revolutionary leader and it’s watched the U.S. elect a potentially adversarial president.”

The embargo is still firmly in place, but the Obama administration did take some steps forward, and the panelists discussed those as well as the remaining pitfalls.

Peter A. Quinter, chair of the Customs and International Trade Law Group at Gray Robinson in Miami, said he’s frustrated by what the U.S. is still not doing. U.S. citizens still cannot trade with Cuba, cannot travel to Cuba and cannot invest in Cuba, with some exceptions.

The exceptions have gotten more numerous, he said: on travel to Cuba alone there are now 12, including:

  • family visits
  • athletic competitions
  • official government business
  • educational activities
  • humanitarian projects
  • certain authorized export transactions

And the two countries now have full diplomatic relations, including embassies in each other’s capitals.

For U.S. businesses, Quinter said, the bureaucracy regarding applications to do business in Cuba resides in six export enforcement agencies:

  • Office of Foreign Asset Control (OFAC), under the Department of the Treasury
  • Bureau of Industry and Security under the Department of Commerce
  • TSA
  • Customs and Border Protection
  • U.S. Census Bureau
  • Homeland Security

As long as a U.S. citizen is involved in a Cuban transaction, he/she is still subject to the embargo, even if the transaction is done through a foreign company, he said.

Applications for licenses to conduct business with Cuba can take years to obtain, and regulations require that companies who make apparent violations of the various bans must respond to government requests for information, and they face stiff fines for violations and/or failure to respond, Quinter said.

He cited a $304,706 penalty against Halliburton for exporting goods and services in support of oil and gas exploration to a company in Angola in which Cuba Petroleo had a 5 percent ownership. The violation was that Halliburton did not do the due diligence to see that the Cuban involvement was a violation of the embargo.

U.S. companies are now operating in Cuba, Quinter said, but it’s unclear if any of them are making money.

Timothy A. Hunt, shareholder and co-chair, Construction and Design Group, Hill Ward & Henderson in Tampa, told the story of his client, Florida Produce, which has been selling food to the Cuban government since 2001.

Florida Produce became the first Florida company to receive a specific license from OFAC to export food to Cuba after several devastating hurricanes in the 1990s made food imports more critical, Hunt said.

In 2001, the money from the Cuban government was required to be in the U.S. before a cargo ship could leave the port, he said The client always knew the money was in their bank account before the ship left.

Florida Produce started exporting apples, pears, grapes, raisins, dried fruits and dehydrated coconut.

In 2014, there was a change in the regulations that allowed the Cuban government to wait until the goods arrived in Cuba before they would have to pay cash for the food.

In response, Hunt said, Florida Produce requested permission from the U.S. government to establish a food distribution warehouse in Cuba, so then Cuba could pay for food on an as-needed basis. The company also asked to employ Cuban nationals, set up a bank account in Cuba and allow its employees to have a residence there.

Seven months later, Treasury granted the license to Florida Produce and said any other U.S. company could also arrange a similar deal.

Despite this liberalization, Hunt said he believes the U.S. government doesn’t want companies to get too deeply involved in Cuba, “for fear that the Cuban government might nationalize their business down there.”

In March 2016, Florida Produce made a presentation to the Cuban Foreign Ministry for the warehouse. The Cuban government said they would look for a Cuban partner for a joint venture agreement on the warehouse, which would control 51 percent of the deal. Florida Produce is still awaiting further word.

Hunt said that although the U.S. requires that food only be sold for cash, Cuba is buying rice from Vietnam on a line of credit that can extend about two years. It makes paying cash to Florida Produce not very attractive, he said.

Once the Obama administration began loosening up the regulations, Hunt thinks the Castro brothers “smelled blood in the water.” He believes they calculated that if they could just hold off as long as they could from “doing any serious trade with U.S. companies,” the U.S. companies would march on Washington and demand an end to the embargo.

Hunt also suspects the Cuban government calculated that the embargo would end before Obama left office and if it didn’t, it would surely end under President Hillary Clinton. Now it’s unclear what will happen.

He pointed to the example of Marriott Hotels, which was granted a specific license to renovate four hotels in Havana. They were to provide design, operating services, reservation systems, money or loans for improvements and marketing, and training in hospitality, environmental sustainability, energy efficiency, entrepreneurship and information technology.

Marriott cut their deal with the Cuban government, then applied to OFAC for the license, Hunt said. “They now will allow you to go down as a U.S. company and negotiate something that violates the embargo and then bring it back to them for approval,” he said.

The deal was announced as Obama was heading to Cuba. However, since then, nothing has happened.

Doing business with Cuba, Hunt concluded, is “a complicated dance.”