White House National Security Advisor, John Bolton, this afternoon will enact Title III and Title IV of Helms Burton unleashing a flood of claims by Cuban Americans in the South Florida Courts against Cuban and international companies who own or “traffic” in assets in Cuba.
Whilst most of these claims will have little chance of success, the risk of suits in the US will be very damaging to the investment climate in Cuba not least because the newly activated regulations will require US authorities to deny visas to international travellers to the US who “traffic in assets” which are subject to claims by US nationals in the US courts.
The announcement is the latest in a series of progressively harsher steps taken by the US against Cuba in the past months, citing as justification Cuba’s longstanding alliance and support for Venezuela.
Until now, Title III and Title IV of Helms Burton have always been suspended since their enactment in 1996 after a WTO dispute was started by the European Union against the extraterritorial nature of the legislation and its effect on EU companies.
With President Trump threatening US$11bn of punitive tariffs on the EU as part of an all-out trade war with the EU over EU subsidies for Airbus, the US Government is clearly not concerned any more about keeping relations with the EU in good order, and Cuba policy regrettably is one additional tool in the US negotiating armoury.
What do Title III and Title IV aim to do?
Title III is part of the 1996 Helms Burton Act which is the main piece of US legislation in place governing the US embargo on Cuba.
Most of the Act has been actively enforced over the years and has been the subject of major differences between US and EU and others because of its extraterritorial effect on areas like banking which have seriously curtailed the ability of UK and EU companies to carry out their legitimate transactions with Cuba.
Title III extends the reach of Helms Burton to grant the right to Cuban Americans to make claims in US courts over assets which were confiscated by the state following the Cuban Revolution in 1959.
This means that not only US citizens and corporations who were based in Cuba at that time can claim but now all Cuban nationals who have subsequently become US Citizens can claim. There an estimated 2 million Cuban Americans in the United States.
The terminology of who is potentially liable for a claim is ambiguously phrased as “trafficking in confiscated assets”. This could be widely interpreted and has not yet been tested by the US Courts.
If the US courts accept jurisdiction for the claim and find in favour of the plaintiff, then they would have authority to put a court order for the value of the assets which could be then be seized in the US or other jurisdictions internationally where they have the necessary agreements.
The effect of these claims doesn’t just affect international companies – it also affects Cuban state entities with any international presence – eg. exports of sugar, rum and cigars or Cuba’s national airline- Cubana Airlines.
John Bolton is also expected to announce the enforcement for the first time of Title IV of the Act which would see the denial of US visas to those who “confiscate or traffic in assets claimed by US nationals”. This would be hugely detrimental to any international investors in Cuba who found themselves subject to a potentially frivolous claim in the US courts and must engender a very strong response from the EU, possibly of reciprocal nature.
Why have Title III and IV not been enforced before?
In the mid-1990s, the application of Helms Burton threatened to derail US-EU talks for a trade deal and the EU started consultations for a dispute panel at the WTO which it was very likely to win.
The EU also threatened that there would be reciprocal actions to any US court orders against EU companies which would allow those EU companies to counter -sue in an EU court against any asset held by the US claimant in the EU. EU, Mexico and Canada in any case have all passed laws that would render in any case any US judgements under the Act unenforceable.
A compromise was reached in 1998 and a Memorandum of Understanding signed which effectively committed the US president to suspend Title III by executive order on a 6 monthly rolling basis. In exchange the EU confirmed it would not continue to pursue its claim at the WTO. This is the first time that a US President has not followed through with the agreement – and worse has done so in a unilateral way without any consultation.
What effect are Title III and Title IV likely to have?
It is highly likely there will be a flood of claims in South Florida, many of them frivolous, from Cuban Americans – against foreign companies, but also against Cuban entities. There will be little cost in putting together a claim – and potentially a very high upside for claimants if the claim was upheld.
Larger US companies and holders of Cuban claims are unlikely to make claims against EU companies because of the risk of their EU subsidiaries or assets could be sued in the EU for compensation for any US claims upheld in the US courts. 50% of the largest claimants in US are reported to have substantial assets in EU.
It is likely that the volume of claims will seriously congest the South Florida Courts and the Courts will need to take a view of how many of them to accept. They are likely to conclude that they do not accept the basis or jurisdiction for many of them, but the remainder will take years to be considered.
Whilst existing EU, Mexican and Canadian businesses have substantial protection under EU law against claims in the US Courts, the effect of any travel ban to the US on individuals active in business in Cuba will be extremely damaging and must result in a very strong EU response yet to be seen.
The more insidious effect will be the fear factor which will be imposed on potential future investors of being sued in the US Courts or losing their ability to travel to the US. This will sadly rob Cuba of many avenues of international investment which are very much needed to bring prosperity and growth to its economy.
Even if Title III and IV are suspended again relatively quickly – perhaps as a negotiating giveaway in US-EU trade talks – these potential claims will still be registered against the properties in Cuba effectively freezing them in place and blocking future international investment.
Combined with the ever-worsening economic and geopolitical situation relative to its long-standing ally Venezuela, Cuba finds itself caught in the middle of two separate global geopolitical power-plays.
Chris Bennett is Managing Director of The Caribbean Council and The Cuba Initiative