Greenberg Traurig Alert

New U.S. Cuba-Related Law Creates Statutory Cause of Cuban-Made Confiscated Property, New Risks for Companies Trading with Cuba or in Cuban-Made Products

March 18, 1996

Under newly-enacted United States legislation popularly known as "Helms-Burton" (after its principal Congressional sponsors), the U.S. trade embargo against Cuba has been strengthened. Particularly noteworthy is that the legislation allows U.S. nationals whose property was confiscated by the Cuban government after January 1, 1959, to bring suit in U.S. courts to recover damages from persons who benefit or profit from such property. As a result of the new legislation:

• U.S. nationals whose property has been confiscated by the Cuban government may be able to recover as much as three times the value of the property, plus court costs and legal fees, against persons who "traffic" in (including benefitting or profiting from) such property after November 1, 1996.
• Persons who "traffic" in confiscated property, and officers, principals, or controlling shareholders of companies which "traffic" in such property, after March 12, 1996, as well as their immediate families or "agents," may be indefinitely excluded from visiting the United States.
• The ability of the President to suspend trade sanctions against Cuba without the participation of Congress has been limited.
• Other existing sanctions have been tightened, and the Executive Branch has been directed to enforce more vigorously existing laws involving Cuba.

New Statutory Cause of Action

The new legislation (officially known as the "Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996", but referred to in this Alert as the "Act") establishes several clear, but broad, criteria for qualifying to pursue such a cause of action:

1. the claimant must be a U.S. national, although the claimant need not have been a U.S. national at the time the property at issue was confiscated by the Cuban government;
2. the property at issue must have been confiscated subsequent to JanuaryÊ1, 1959;
3. the property must have a value at the time the claim is brought, or must have had a value when confiscated, of U.S. $50,000 or more;
4. the property must have been owned by the U.S. national prior to enactment of the Act; and
5. the "trafficking" must occur at any time after the expiration of three months from the effective date of these provisions (currently scheduled for August 1, 1996).

The Act defines a "U.S. national" as any U.S. citizen, or any legal entity organized under U.S. law with its principal place of business in the U.S.

"Property" includes any type of personal or real property, tangible or intangible, excluding, with only certain exceptions, property used for residential purposes.

In various important respects, the Act distinguishes between those U.S. nationals who were eligible to file a claim with the U.S. Foreign Claims Settlement Commission ("FCSC") under Title V of the International Claims Settlement Act of 1949 in respect of property confiscated by the Cuban government, and those not eligible. In broad terms, those natural persons who were U.S. citizens in the late 1950s and 1960s, and U.S. corporations majority-owned by such citizens, were entitled during the 1960s to file claims with the FCSC relating to property confiscated by the Cuban government. (The FCSC filing process has been closed for more than 20 years, and the Act does not reopen it.) Thousands of such claims, today amounting to over six billions dollars (including accrued interest), were filed and await eventual negotiations between the U.S. government (acting on behalf of the claimants) and the Cuban government. By contrast, tens of thousands of individuals (primarily Cubans) who were not U.S. citizens at the time their property was confiscated by the Cuban government, but who have since become naturalized U.S. citizens, were not eligible to register their claims with the FCSC. However, these persons qualify as "U.S. nationals" entitled to bring claims under the Act.

For U.S. nationals who registered claims with the FCSC, the Act provides that any claim to property already certified by the FCSC is conclusively deemed to be valid, and that the value of the claim is presumed to be the amount set by the FCSC. However, the Act also states that any U.S. national who was eligible to file a claim with the FCSC, but did not do so, or who filed a claim which was denied by the FCSC, may not bring an action on that claim under the Act.

In another important regard the Act also favors U.S. nationals who were eligible to, and did in fact, file a claim with the FCSC, over those who were not. Only those U.S. nationals who are bringing actions on claims certified by the FCSC are entitled to do so before the expiration of two years after the Act's enactment. Consequently, Cuban-Americans and others who became naturalized U.S. citizens after fleeing Cuba must wait until March of 1998 before bringing an action under the Act. The same restriction does not apply to U.S. citizens and corporations which own claims certified by the FCSC.

On its face, the category of persons against whom an action can be brought under the Act is quite broad. A U.S. national claimant may sue anyone who "traffics" in the property in which the claimant has an interest, if such "trafficking" occurs after a three-month period beginning with the date these provisions of the Act become effective, scheduled to occur on AugustÊ1, 1996. (As discussed further below, the President is authorized to delay the effective date of these litigation provisions if he deems it necessary in the national interest. Subject to any such extension, the current date after which "trafficking" may lead to liability is November 1, 1996. Therefore, potential defendants have at least until that date to cease "trafficking" in confiscated property.) Because the statutory cause of action was intended to broadly discourage international trade with Cuba, the definition of "traffic" in the Act is extremely broad. It includes both buying and selling of the confiscated property itself, as well as engaging in any commercial activity which involves the use of, or otherwise benefits from, the confiscated property. Consequently, anyone who profits -- even indirectly -- from the use of confiscated property could be held liable under the Act. For example, a company dealing with crops such as fruit, vegetables, tobacco or sugar grown on confiscated land could potentially be liable, as could a company which finances such crops, or a person who profits from the sale of goods shipped on a confiscated vessel. However, the Act does define "traffic" with the limitation that it be done "knowingly and intentionally", and "knowingly "is further defined as "with knowledge or having reason to know".

The Act may, in fact, be broad enough to ensnare a family of related multinational companies where one of the corporate family members is "trafficking." This may have far-reaching effects, for example, where a parent company has property in the U.S., while a subsidiary "traffics" in confiscated property but operates totally outside the U.S. and has no U.S.-located property. Depending upon how broadly concepts such as "benefitting" or "profiting" are interpreted, the Act may be broad enough to allow recovery against the parent.

The damages which can be recovered under the Act can be significant, and are not limited to the amount of any profits actually earned from "trafficking." Rather, the claimant's recoverable damages are measured by the value of the confiscated property itself. That value may be arrived at in various ways, including any amount previously certified to the claimant by the FCSC (plus interest), or the current value of the property or its value when confiscated, plus interest, whichever is greatest. In addition, the Act expressly allows treble damages if the claim has been certified by the FCSC, or if the claimant provides at least 30 days notice of his claim to a potential defendant subsequent to the 3-months' grace period beginning with the effective date of these provisions of the Act, and the potential defendant "traffics" in the confiscated property at any time 30 days or more after receiving this notice. Damages also include court costs and attorney fees.

The Act thus provides a weapon for U.S. nationals who own a claim to property confiscated by the Cuban government, and wish to deter non-Cuban third parties from purchasing or availing themselves of that property. In this respect, the Act also creates significant risks for any company operating in the U.S. which may also purchase or deal with products from Cuba or Cuba-located property.

Settlement Provisions

The Act also includes provisions explicitly designed to allow holders of expropriation claims against the Cuban government to receive compensation for their claims by using the newly-created cause of action as settlement leverage. Under these provisions, a claimant may receive payment in settlement of a suit brought under the Act without obtaining a license from the U.S. government under the Cuban trade embargo rules. The license requirement, however, is waived only for settlements of suits; licensing requirements are not otherwise affected by the provisions of the Act.

Finally, the Act requires that any action under its auspices be brought no later than two years after the "trafficking" giving rise to the action has ceased to occur.

Presidential Authority to Suspend Private Cause of Action

The Act gives the President the authority to suspend the right to bring a private cause of action for a period of not more than six months, and thereafter for successive six-month periods, if he determines that suspension is necessary in the national interest of the United States and will expedite a transition to democracy in Cuba. Any such suspension does not affect litigation then already pending under the Act. However, even if the President suspends the Act's private cause of action, the very existence of these provisions may well dampen enthusiasm for trade with or investment in Cuba, since the President can also rescind any suspension at any time and without any advance notice, and need not renew any suspension previously ordered.

The right to bring an action under the Act also terminates (without prejudice to any then-pending litigation) at such time as the President transmits to the Congress a determination that a democratically-elected government in Cuba is in place.

Important Immigration and VISA Restrictions

Perhaps an even greater inconvenience and threat for companies with interests in both the United States and Cuba will be the broad immigration restrictions contained in the Act. Under the Act, the Executive Branch is ordered to "exclude from the United States" and "deny visas to" (i) any alien who, after the date of enactment of the Act (March 12, 1996), "traffics in" or "operates for personal gain" confiscated property a claim to which is owned by a U.S. national, (ii) is a corporate officer, principal or shareholder with a "controlling interest" in any entity which so "traffics", or (iii) is a spouse, minor child or "agent" of any alien excludable under (i) or (ii). These immigration-related rules are mandatory and may not be suspended by the President, but do not apply in cases where the visit to the U.S. is for medical reasons or to litigate an action brought under the Act.

This rule includes nationals of countries like Canada, who do not need a visa to visit the U.S. under existing procedures. Thus, the officers of a major Canadian company doing business with Cuba or which benefits in some fashion from confiscated property, could be forbidden to visit the U.S. Potentially all of the employees of that company could be excluded as well as "agents" of the company. It is important to note that the Act's exclusion may continue indefinitely even if the alleged "trafficking" ceases, since the Act contains no provisions calling for such exclusion to cease upon cessation of any "trafficking".

Additional Provisions

There are several other areas where the Act tightens aspects of existing Cuba sanctions or otherwise encourages the Administration to do so, including imposing forfeiture of property as a possible penalty for violations of the existing Cuba embargo by U.S. nationals. In addition, the Act makes it far more difficult for the President to lift the sanctions against Cuba without the cooperation of Congress. It also encourages the President to try to get U.S. trading partners to join the sanctions. It directs U.S. representatives in public international organizations to continue to vote to block Cuba from membership in these organizations as well as from taking advantage of any loan facilities available through those organizations. In addition, if a loan to Cuba is made by any such organization, the U.S. is to reduce by an equal amount future capital contributions to that organization. And, the Act requires the President to reduce aid to countries in the former Soviet Union that trade with Cuba on concessionary terms, as well as containing various other provisions intended to reduce world trade with Cuba and the flow of hard currency into Cuba. The Act also requires the U.S. Attorney General to publish "a concise summary" on the Act's provisions pertaining to the new, private cause of action within sixty days of the Act's enactment into law.

Foreign Response

The Act is expected to be unpopular in many countries whose nationals currently do business with Cuba, which includes close trading partners of the U.S. such as Canada, Mexico and members of the European Union. The governments of some of these countries may assert that the Act violates NAFTA, GATT, and various bilateral trade agreements. Indeed, the governments of Canada and Mexico have already demanded consultations with U.S. trade officials, asserting a broad array of arguments challenging the enforcement of the Act under these and other international legal regimes. While these challenges may occur, they generally are not available to individual persons and companies, and in particular, are unlikely to be given effect by U.S. courts. Moreover, U.S. trade officials have responded to these early claims with their own analysis supporting the legality of the Act under international law.

Some Early Thoughts

It can be anticipated that the issue whether a foreign company targeted under the Act "knew" or had "reason to know" that the property involved was confiscated may be a key issue in many of the cases arising under the Act. In this and other respects, it is noteworthy that the Act requires an annual report to Congress from the Executive Branch including any major foreign investments in Cuba and what "facilities" confiscated from U.S. nationals are affected by such investments. It will behoove those U.S. nationals who may have claims under the Act, or who wish to deter prospective foreign purchasers or users of property confiscated from them by the Cuban government, to monitor these reports and to also disseminate as widely as possible their claims to particular "confiscated property" in Cuba.