CubaBrief: Unintended consequences of U.S.-Cuba detente. Some questions and context on report that Biden Administration approved the first equity investment since 1960 in a “private Cuban company.”

Nora Gamez reported in the Miami Herald today that “the U.S. has authorized an American company to finance and invest in a private business in Cuba, an unprecedented move that could open the gate to American investment to help Cubans on the island gain economic independence from the state.” This statement raises a number of questions, including the massive role of the Castro regime’s military in Cuba’s economy.

The Saratoga Hotel explosion in Cuba on May 6, 2022 caused by a gas leak has cost 46 lives, plus 99 injured and 13 of them remain hospitalized after ten days. Time has passed, and questions are being asked and answered about what led to this tragedy.

Independent journalists Juan Diego Rodriguez and Olea Gallardo, Havana, in their May 11th 14ymedio article report that the destruction of an iconic Havana landmark began in 2016 when “the Armed Forces Ministry seized the property from Habaguanex — a company had been operating under the auspices of the then all-powerful Office of the Historian of Havana, directed by Eusebio Leal — and handed over to the Gaviota group.” Gaviota is part of the Revolutionary Armed Forces Business Administration Group (Gaesa), led by Raul Castro’s former son-in-law, General Luis Alberto Rodriguez Lopez-Calleja.

In 2016, the Associated Press reported on this takeover in the article “Cuban military expands its economic empire under detente“, and described how “[t]he takeover of Old Havana shows how the Cuban government is, so far, successfully steering much of the peace dividend [from the Obama-Castro detente] into military coffers. “

Did the engagement policy inadvertently contribute to this disaster by empowering the Cuban military?

Five star luxury hotel in Havana, Cuba run by the Cuban military explodes due to a gas leak.

On May 10, 2022 the Economic Eye on Cuba reported that the Biden-Harris Administration had approved the first equity investment since 1960 in a private Cuban company. This raises a number of questions. Who wants to finance a business in Cuba? Is the “officially registered privately-owned company (in the service sector)” another case of someone using their leverage in the nomenklatura to set up a state sanctioned venture?

Will the entity “subject to United States jurisdiction” be able to be reimbursed with U.S. government funds if the venture goes south?

Is it legal? Is this a return to the Cuba policy of the Obama Administration?

The courts have not decided favorably with one of the arrangements agreed to during the most recent detente with Havana.

On March 22, 2022, the U.S. District Court for the Southern District of Florida ruled that Carnival Cruise Line, MSC Cruises, Royal Caribbean Cruises, and Norwegian Cruise were in violation of the Cuban Liberty and Democratic Solidarity Act of 1996. They had unlawfully used a cruise terminal confiscated by the Cuban government from an American company, Havana Docks.

In addition to not trafficking or profiting off of stolen properties, economic sanctions on Cuba permit cash and carry trade between the two countries, but no financing or credit.

During the Obama Administration the cruise lines were able to operate in Cuba, and some legal questions were put off that today are proving expensive to those in the cruise line business based in the United States.

Is this pattern repeating now on another front?

There have been efforts over the years to open up credit and financing to Cuba out of the belief that it would be profitable. This ignores what other countries with “normal” relations with Havana have experienced.

Paris Club members owed billions by Havana that has consistently failed to pay.

$6.6 billion ended up in the coffers of American businesses. James Prevor, President and Editor in Chief of the publication Produce Business in the October 2002 article, “Cuba Caution”, described how Havana “had exhausted all its credit lines and, at best, was simply rotating the accounts. When the opportunity came to buy from the United States, Cuba simply abandoned all those suppliers who supported the country for 40 years and began buying from us.”

The suppliers were not the ones impacted by Cuba’s failure to pay its debts, the taxpayers of the suppliers’ home countries were the one’s left holding the bag.

The U.S. Embargo on Cuba has saved U.S. taxpayers billions, but over the decades there have been repeated attempts by the Chamber of Commerce and the Agriculture lobby to end it, and during the Obama detente with Cuba efforts were made to circumvent Congress.

Source: CubaTrade.org

The Cuban dictatorship’s objective is to get the United States to open up credits and financing of transactions with Havana. Once that happens then payments for American goods will join the Paris Club in being defaulted on.

Back in 2016, Peter Jeydel published an article in Steptoe titled “How Much of the Cuba Embargo Could the President Unilaterally Lift?” and highlighted how “on October 17, 2016, the Treasury Department’s Office of Foreign Assets Control (OFAC) published a new general license at Section 515.534 of the Cuban Assets Control Regulations (CACR)” that “authorizes US persons to negotiate and enter into contingent contracts that contemplate transactions that are prohibited by the CACR, provided that the performance of the contracts (e.g. actually providing goods or services or receiving payments) is made contingent on OFAC (and any other federal agency whose authorization is required) authorizing the underlying transactions or on such an authorization no longer being required.”

Will this regulatory change survive the scrutiny of Congress and the Courts now that it is being applied with a specific and high profile case? How far can the Executive bracn unilaterally act against sanctions codified in existing law?

Have there been other investments in which the attorneys and clients have remained silent to pass under the radar?

Will political considerations trump legal ones and what are the unintended consequences?

In 2016, Carnival Cruise Line caught a lot of bad press that turned into a political flap, and a court challenge, when they tried to exclude Cuban born Americans from its newly permitted journeys to Cuba, because the Castro dictatorship told Carnival to place the restriction, and the Miami-based American company went along with this act of systematic discrimination.

Over the past decade U.S. agribusiness has been silent on Havana purchasing chicken and other agricultural products from them at competitive prices then turning around and price gouging Cuban nationals.

Is silence not complicity?

The Center for a Free Cuba made two requests in a public Tweet on April 6, 2022 to Paul Johnson, of the United States Agriculture Coalition to Cuba, while he was in Cuba meeting with higher ups in the Cuban dictatorship. We asked him to call on the Cuban government to allow Cuban farmers to sell their produce directly to Cubans in local markets, and to have the dictatorship end its price gouging of Cubans. Informed him of the example that the Cuban government buys chicken for $1/kg from the USA and sells it to Cubans for $7/kg.

There are plenty of questions around this announcement of the Biden Administration approving this equity investment in Cuba, and hopefully answers will be forthcoming on this matter.

Miami Herald, May 16, 2022

In a first, U.S. government green-lights American investment in private business in Cuba

By Nora Gámez Torres

Updated May 16, 2022 3:16 PM

Women walk next to a coffee shop in Havana, Cuba on Oct. 6, 2021. (Yamil Lage/AFP via Getty Images/TNS)

In what appears to be a first in more than six decades, the U.S. has authorized an American company to finance and invest in a private business in Cuba, an unprecedented move that could open the gate to American investment to help Cubans on the island gain economic independence from the state.

The U.S. embargo on Cuba, in place since 1960, prohibits most financial transactions involving Cuban nationals or entities, unless they fall under an exception or are authorized by a license. The people behind the recent initiative believe this is the first time the U.S. government authorizes direct financing and investment in a Cuban private enterprise.

The decision came last week, when the U.S. Treasury Department allowed a company headed by John Kavulich, president of the U.S.-Cuba Trade and Economic Council, to invest and lend money to a small private business in the service sector in Cuba.

[ Full article here ]

https://www.miamiherald.com/article261490512.html

Translating Cuba, May 13, 2022

The Saratoga Hotel’s Decline Began as Soon as the Military Took It Over

The Hotel Saratoga in all its splendor, in March 2014, after it had been restored. (CC/LukaszKatlewa)

14ymedio, Juan Diego Rodriguez / Olea Gallardo, Havana, 11 May 2022 — Though an explosion at the luxurious Saratoga Hotel last Friday led to the deaths of at least forty-three people and the destruction of an iconic Havana landmark, the seeds of its demise were planted within its walls much earlier.

Specifically, this was in 2016, when the Armed Forces Ministry seized the property from Habaguanex — a company had been operating under the auspices of the then all-powerful Office of the Historian of Havana, directed by Eusebio Leal — and handed over to the Gaviota group.

Leal’s agency had been successfully operating a number of tourist-related commercial properties when they were taken over by the Revolutionary Armed Forces Business Administration Group (Gaesa), led by Raul Castro’s former son-in-law, General Luis Alberto Rodriguez Lopez-Calleja.

“The Gaviota people were driving the Saratoga into the ground,” claims one former employee, a man in his forties who prefers to remain anonymous. He quit working there two years ago and swears he will never go back. “Everything became run down and they weren’t taking care of anything,” he reports.

This was a far cry from 2005, when the Saratoga — built in 1880 and operated as a hotel at the corner of Prado and Dragones since 1933 — reopened as modern five-star establishment after a long period of decline that began with the triumph of the Cuban revolution. The restoration was carried out the Office of the Historian and financed by foreign investors.

One of those investors, who prefers to remain anonymous, tells 14ymedio that the tab for refurbishing the Saratoga — part of an ambitious plan by Leal to restore Havana’s historic city center — was on the order of fifteen million dollars.

“An English developer sought out investors in several European countries, including Spain,” he explains. That developer was Coral Capital, a company founded by Amado Fakhre, an Anglo-Argentinian with roots in Lebanon. “We liked this project because we always believed, and still believe, in the future of Cuba,” says the investor. “And we never thought the current governent would last this long.”

According to this investor, however, everything changed once the property was transferred to Gaviota. “It all went downhill from there,” he says, though he acknowledges that investors also realized that the developers, led by Fakhre, did not have much experience in the hotel business. “They tried to make agreements with international [hotel] chains but were not successful. And, on the whole, the way they handled the negotiation with Gaviota was disastrous.”

The relationship of Fakhre and Stephen Purvis, his partner at Coral Capital, with the Cuban military brings to mind the popular fable about the frog who agrees to transport a snake across a river only to be stung by the scorpion in mid-stream, dooming them both. The two men were arrested — first in 2011 and again in 2012 — and accused of bribery. They remained in detention until their trial in 2013, when they were found guilty of “misdemeanor corruption” and released.

However, some media outlets report that Fakhre was forced to sign a confession stating that he had been detained for “having revealed state secrets” and spent twenty months being interrogated by the political police in a government safe house.

According to a 2016 article published in Vice, his business had invested a total of tweny-eight million dollars in the Saratoga.

Eusebio Leal’s star shone brightly even when Fidel was still in power and it did not dim until a long time thereafter. A flattering 2009 article in the official press noted that Habaguanex, which was created in 1994, operated no fewer than 300 tourist facilities. These included restaurants, shops, markets, cafes and lodgings with a total capacity of 546 rooms. These operations were touted as examples of “sustainable” development, whose profits went to “both the rescue of buildings that make up the Historic Center and to various social programs.”

“One morning, the elderly were invited to an extravagant breakfast at Casas Museos as part of a cultural event. And this was no run-of-the mill event,” reports a dancer who who worked with the Office of Humanitarian Affairs, which was also affiliated with the Office of the Historian.

“Everything was carefully worked out,” she explains. “Partnership agreements and donations from from overseas as well as the income that Habaguanex generated as a company from all its hard-currency stores and hotels.”

“Not just anyone worked for them,” says the artist, who defends the management skills of Eusebio Leal, who died of cancer on July 31, 2021. “The Office of the Historian was a country within a country. They were powerful but they did things well. I worked there for many years and I know the efforts that were made.”

“In the end, they were audited and everything was taken away from them,” she says, alluding to the moment the Armed Forces took control of Habaguanex’s most attractive assets.

Once its foreign investors pulled out, the Hotel Saratogo languished under Gaviota’s management. Other former employees report deteriorating working conditions and the loss of financial incentives that the hotel’s foreign managers often provided on an informal basis to their workers in addition to their salaries.

“The first thing to go at the Saratoga was the art. But before that was the class,” says another former employee. “When it was part foreign-owned and part Habanguanex-owned, the Anacaona restaurant on the ground floor was packed on Christmas Eve. But under Gaviota, it wasn’t even a shadow of its former self.”

Gaviota — proprietor of the luxurious Grand Hotel Manzana and manager of the Kempinski — has close to sixty hotels and villas throughout the island with close to 30,000 bedrooms, most of which are administered by foreign companies.

It is the operations under foreign management that enjoy the best reputations while the hotels over which the military conglomerate has exclusive control have not managed to achieve the same level of customer satisfaction.

https://translatingcuba.com/the-saratoga-hotels-decline-began-as-soon-as-the-military-took-it-over/

Economic Eye on Cuba, May 10, 2022

Biden-Harris Administration Approves First Equity Investment Since 1960 In A Private Cuban Company

May 10, 2022

The Biden-Harris Administration (2021- ) has directed the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury in Washington DC to issue the first license authorizing an entity subject to United States jurisdiction (which is not affiliated directly or indirectly with an individual of Cuban descent) to deliver a direct equity investment to and authorizing direct financing for an officially registered privately-owned company (in the service sector) located in the Republic of Cuba and owned by a Republic of Cuba national. Neither entity in the transaction is connected with the other in terms of commercial relationships or family relationships. The parties did not have connectivity prior to this transaction. 

The license application was submitted to the OFAC on 10 June 2021 by Mr. Robert L. Muse, Esq., a Washington DC-based attorney (Telephone: 202-460-3168; Email: robertmuse@robertmuse.com), and the license was issued by the OFAC in the late afternoon of 10 May 2022.

The eleven-month OFAC licensing process resembles the “anticipation” when pouring from a Heinz ketchup container. Eleven months to the day from when the license application was submitted to the OFAC, the ketchup poured from the container….

https://www.cubatrade.org/blog/2022/5/10/w2l1723fjbyvxbgu6ceno8de627zhm

Library of Congress, March 22, 2022

Article United States: Court Rules That Cruise Lines Operating in Cuba Were Not Engaged in Lawful Travel

On March 22, 2022, the U.S. District Court for the Southern District of Florida ruled that several cruise lines were in violation of the Cuban Liberty and Democratic Solidarity Act of 1996, 22 U.S.C. §§ 6021,  et seq. (LIBERTAD Act). Specifically, Carnival Cruise Line, MSC Cruises, Royal Caribbean Cruises, and Norwegian Cruise unlawfully used a cruise terminal confiscated by the Cuban government from an American company, Havana Docks. (Havana Docks v. Carnival Corporation, MSC Cruises, SA, Royal Caribbean Cruises, Ltd., and Norwegian Cruise Line Holdings, Ltd., 19-cv-21724 (Case).) Havana Docks initially filed suit against the four cruise lines because of their use of the confiscated cruise terminal in Havana from 1996–2019, though the more significant arguments focus on use from 2016–2019. (Case at 18.) The defendants in the action claimed an exemption under 22 U.S.C. § 6023(B)(iii) for “lawful travel.” The court, however, disagreed with their argument.

Relevant Laws and Regulations

Although the court cited multiple other laws, including the International Claims Settlement Act (22 U.S.C. §§ 1621, et seq.), which provides statutory damages for claims against the Cuban government; the Cuban Democracy Act (22 U.S.C. §§ 6001, et seq.), which provided sanctions against the Cuban government; and the Trade Sanctions and Export Enhancement Act (22 U.S.C. §§ 7201, et seq.), which loosened certain sanctions, the LIBERTAD Act had the most significant bearing on the case.

The LIBERTAD Act was passed in 1996. The congressional findings section of the act discusses the repression of the Cuban people under the Castro regime, and further describes the United States’ commitment to the advancement of human rights in Cuba. (22 U.S.C. § 6021.) Of particular importance to the case is the act’s provision of remedies for United States nationals who had property confiscated by the Castro government. (Case at 8; 22 U.S.C. § 6022(6).) Other important parts of the law regarding this case are the cause of action it created, whereby a party can recover economic damages from the confiscation of their property if that property was then used by another party while under the control of the Cuban government. (22 U.S.C. § 6082(a)(1)(A).) Built into the law is an exception allowing the president of the United States to suspend the ability to bring the cause of action. (Case at 9–10.)

Along with these laws, the Cuban Asset Control Regulations (31 C.F.R. § 515.101) issued by the U.S. Department of Treasury’s Office of Foreign Asset Control (OFAC) were important to the court’s analysis. These regulations and their amendments provide guidance on exceptions for travel to Cuba. OFAC has made clear that tourist activities are not an exception to the regulations; however, it provided exceptions for certain activities deemed educational or cultural.

In 2019, the Trump Administration directed OFAC to rescind many of the exceptions, including exceptions related to educational travel. (Case at 16.)

Facts of the Case

The case stems from a dispute over the use of a cruise ship terminal that is owned and operated by Havana Docks and was confiscated by the Cuban government in 1960, shortly after Fidel Castro came to power. (Case at 17.) Havana Docks submitted a claim under the International Claims Settlement Act describing the property that was confiscated by the Cuban government. (Case at 31–32.) The four cruise ship companies operated in and out of the terminals to facilitate shore excursions for their clients. Carnival allegedly made over $112 million in revenue from its use of the terminals. (Case at 69–70.) Carnival disputes that that amount represents revenues earned directly from their use of the cruise terminal. (Case at 70.) MSC admitted to earning over 247 million euros (about $268 million) during 2015–2019 but denies that it actually profited from these ventures. (Case at 70.) Royal Caribbean earned over $430 million in revenue, but disputes the accounting as it relates to cruises that used the terminals, arguing that Royal Caribbean does not track revenues for individual cruises. (Case at 71.) Finally, Norwegian earned around $300 million in revenue. (Case at 71.)

The aspects of the case that relate to the violation of the LIBERTAD Act are based on the “trafficking” element of the law and the lawful travel exception. (Case at 19–20.) OFAC regulations require that there be a full-time schedule of specified types of people-to-people onshore activities in order to satisfy the license requirements for disembarkations in Cuba. (Case at 14–16.) For example, Carnival submitted license paperwork to OFAC in May 2015 outlining its projected onshore activities. (Case at 36–37.) Norwegian also submitted license paperwork to OFAC in July 2015, receiving approval from OFAC in August of the same year. (Case at 42.)

Royal Caribbean and MSC never formally submitted license paperwork to OFAC; however, Royal Caribbean was audited by OFAC in 2018. (Case at 39–41.) OFAC issued a “cautionary letter” to Royal Caribbean advising the cruise line of potential issues with the CACRs. (Case at 41.) Regardless, the court relied on testimony from both companies concerning onshore activities in relation to the trafficking aspect of the LIBERTAD Act. (Case at 55–62.)

Decision

The court’s decision hinged on whether the “lawful travel exception” to “trafficking” (under the LIBERTAD Act) was satisfied by each of the defendants, and whether the defendants knowingly engaged in these acts. (Case at 90–91 and 97–98.) Specifically, the court  relied on the “knowingly and intentionally” aspect of Title III of the LIBERTAD Act at 22 U.S.C. § 6023(A) and the “incident to lawful travel” exception at 22 U.S.C. § 6023(B)(iii). (Case at 80–81.) The trafficking element of the LIBERTAD Act requires that the person (or entity) engage in commercial activity with the property confiscated from a U.S. national. The relevant portion of the lawful travel exception provides that the conduct or transaction be incident to travel, or necessary for travel.

The court determined that the use of the cruise terminal piers to facilitate the shore excursions constituted trafficking under the LIBERTAD Act. The court pointed to the contracts made with Cuban businesses and, more importantly, the revenues brought in through the transactions as proof of commercial activity. (Case at 87–88.) Further, the court explained that not only did the cruise companies bring in revenue, they made a profit, which solidified the satisfaction of the trafficking requirement. (Case at 90.) The court also determined that the cruise companies met the “knowingly” aspect of the statute, explaining that the cruise companies were on notice of a certified claim with respect to the terminal held by the plaintiff under the International Claims Settlement Act, which provided the basis for the cause of action under the LIBERTAD Act. (Case at 92–93.) The certified claim provides proof of property interest for the plaintiff and a measure of damages under the LIBERTAD Act. (Case at 7–8.)

Along with the court’s application of the LIBERTAD Act, the defendants made numerous affirmative defenses, which the court dealt with in turn. Of note were affirmative defenses made under the “lawful travel” exception to the act. The defendants took a position that their transactions in Cuba were incident to lawful travel. The court, however, pointed out that there is no precedent on or definition of “lawful travel.” The defendants argued that their communications with U.S. government agencies affirm that their activities were lawful travel. However, the court disagreed, explaining that the scope of the LIBERTAD Act depends on the statutory analysis of the court, not that of agencies. (Case at 114.) The court further explained that OFAC’s Cuban Asset Control Regulations had to be interpreted in light of the strict ban on tourism-related activities. (Case at 116.) The court found generally that none of the shore excursions offered by the cruise companies satisfied the OFAC regulations.

Related to the “lawful travel” definition, the court also dealt with the defendants’ arguments that the use of the terminal in travel was “necessary.” (Case at 145.) The court explained that, within the context of the LIBERTAD Act, “necessary” was synonymous with “essential,” or having no other option. (Case at 148.) The defendants then argued that they had no choice but to dock at the terminal because that was where Cuban authorities directed them to dock, but the court determined that they had other options to perform lawful travel to Cuba that did not include using the cruise terminal. (Case at 150.)

Conclusion

The court also dealt with other affirmative defenses not discussed in this article. However, its overall conclusion and decision were to deny the motions by the defendants and to allow the case to move to jury trial on the damages. The trial is currently scheduled for May 2022.

About this Item

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https://www.loc.gov/item/global-legal-monitor/2022-04-21/united-states-court-rules-that-cruise-lines-operating-in-cuba-were-not-engaged-in-lawful-travel/

From the archives

Associated Press, September 9, 2016

Cuban military expands its economic empire under detente

By ANDREA RODRIGUEZ September 9, 2016

HAVANA (AP) — At the height of Cuba’s post-Soviet economic crisis, a man with the obscure title of city historian began transforming Havana’s crumbling historic center block by block, polishing stone facades, replacing broken stained glass and repairing potholed streets.

Over a quarter century, Eusebio Leal turned Old Havana into a painstakingly restored colonial jewel, a tourist draw that brings in more than $170 million a year, according to the most recent available figures. His office became a center of power with unprecedented budgetary freedom from the island’s communist central government.

That independence is gone. Last month, the Cuban military took over the business operations of Leal’s City Historian’s Office, absorbing them into a business empire that has grown dramatically since the declaration of detente between the U.S. and Cuba on Dec. 17, 2014.

The military’s long-standing business wing, GAESA, assumed a higher profile after Gen. Raul Castro became president in 2008, positioning the armed forces as perhaps the prime beneficiary of a post-detente boom in tourism. Gaviota, the military’s tourism arm, is in the midst of a hotel building spree that outpaces projects under control of nominally civilian agencies like the Ministry of Tourism. The military-run Mariel port west of Havana has seen double-digit growth fueled largely by demand in the tourism sector. The armed forces this year took over the bank that does business with foreign companies, assuming control of most of Cuba’s day-to-day international financial transactions, according to a bank official.

“GAESA is wisely investing in the more international — and more lucrative — segments of the Cuban economy. This gives the military technocrats a strong stake in a more outwardly oriented and internationally competitive Cuba deeply integrated into global markets,” said Richard Feinberg, author of “Open for Business: The New Cuban Economy.”

Castro has never publicly explained his reasoning for giving so much economic power to the military, but the armed forces are widely seen in Cuba as efficient, fast-moving and relatively unscathed by the low-level payoffs and pilferage that plague so much of the government. Economic disruption also is viewed as a crucial national security issue while the government slowly loosens its once-total hold on economic activity and renews ties with its former Cold War enemy 90 miles to the north.

While U.S. President Barack Obama has said detente was meant partly to help ordinary Cubans develop economic independence from a centrally planned government that employs most of the island’s workers, the Cuban government says the U.S. should expect no change in Cuba because of normalization with the U.S.

The takeover of Old Havana shows how the Cuban government is, so far, successfully steering much of the peace dividend into military coffers.

The announcement nearly two years ago that the U.S. and Cuba were restoring diplomatic relations set off a tourism boom with Old Havana at its epicenter. The cobblestone streets are packed with tourists browsing souvenir stands, visiting museums and dining in trendy private restaurants. World figures and celebrities from Madonna to Mick Jagger to Pope Francis and Obama have all visited. Hotels are booked well through next year.

The largest business arm of the historian’s office, Habaguanex, named for a pre-Columbian indigenous chief, directly runs some 20 hotels and 30 stores and more than 25 restaurants in Old Havana.

Under a special exemption by the ruling Council of State, the office has been allowed to use its revenues as it sees fit rather than returning them to the national treasury and receiving a yearly budget allocation from the central government. That 1993 measure is widely credited for giving Leal the power and flexibility to restore Old Havana to international standards while much of the rest of Havana suffers from neglect that has left buildings collapsing and streets rutted with big potholes.

A towering figure in Cuba’s intellectual and political life, Leal, who turns 74 on Sept. 11, is often chosen to deliver meditations on Cuban history and culture at major public events. He has never groomed an obvious successor. He has appeared frail and thin in some recent public appearances and close associates say he has been receiving treatment for a serious illness.

“I’m giving up everything that I think should be, under current conditions, better directed,” Leal told The Associated Press when asked about the military takeover of his financial operations. “There’s a reality. I was trained and educated to work in cultural heritage, and that’s my calling.”

Through its economic wing, the blandly named Business Administration Group, the Cuban armed forces have become the nation’s biggest retailer, importer and hotelier. The military corporation Cimex, created two decades ago, counts retail stories, auto-rental businesses and even a recording studio among its holdings. The military retail chain TRD has hundreds of shops across Cuba that sell everything from soap to home electronics at prices often several times those in nearby countries. Gaviota has 62 hotels with 26,752 rooms across Cuba, pulling in some $700 million a year from more than 40 percent of the tourists who visit Cuba.

Cuba welcomed more than 3 million tourists last year, a nearly 20 percent rise over 2014.

“It’s obvious that the military has an economic power far beyond what’s needed for its national-security responsibilities,” said Arturo Lopez-Levy, a political science lecturer at the University of Texas-Rio Grande Valley.

The Cuban government did not respond to a request for comment on the military’s business operations.

The Business Administration Group, known by its Spanish acronym GAESA, formally took over the city historian’s office on Aug. 1, according to three employees with the office who spoke on condition of anonymity because they were not authorized to talk with the press.

“They’re going to carve everything up and it’ll be absorbed by military businesses that are already operating. The hotels go to Gaviota, the restaurants to Cimex and the stores to TRD,” said one of the officials.

Going forward, the historian’s office will be responsible only for cultural projects and will retain only the proceeds of museum entry fees and souvenir stores, officials told the AP.

“They’re going to impose discipline and probably it’ll function better that way,” said another official in the business wing of the historian’s office. “It will affect those of us on the business side, but I don’t think it will affect cultural projects. The Cuban military isn’t stupid.”

___

Associated Press writer Michael Weissenstein contributed to this report.

___

Andrea Rodriguez on Twitter: https://twitter.com/ARodriguezAP

Michael Weissenstein on Twitter: https://twitter.com/mweissenstein

https://apnews.com/article/1a473ab397bb4868a4c1c4fae7f4a816

Steptoe, October 21, 2016

How Much of the Cuba Embargo Could the President Unilaterally Lift?

By Peter Jeydel on October 21, 2016

Posted in Cuba Sanctions, Economic Sanctions

The conventional wisdom in Washington’s legal and policy circles is that the core aspects of the US economic sanctions embargo on Cuba are mandated by statute, and therefore all the President can do is tinker around the edges, that is, in areas where Congress has been silent, or at least has not specifically addressed a particular question.  Despite the great fanfare that has accompanied President Obama’s efforts to relax the embargo, since the reestablishment of diplomatic relations with Cuba, the reality has been quite modest: primarily, the moves have made basic business operations simpler in a narrow group of sectors such as transportation, telecommunications, education and non-profits, and in areas like travel and family remittances, along with a few others.  For many industries, the remaining legal restrictions continue to deter market entry.  Obama Administration officials have stated that they would like for the embargo to be lifted entirely, to allow a normal level of commerce with Cuba, while acknowledging continuing obstacles on the Cuban side.  The Administration has indicated that the reason they have moved so cautiously in lifting some of the restrictions over the past few years is because of the statutes that remain on the books that they do not have the power to overturn by executive action.

However, on October 17, 2016, the Treasury Department’s Office of Foreign Assets Control (OFAC) published a new general license at Section 515.534 of the Cuban Assets Control Regulations (CACR) that appears to show a crack in the Administration’s public position about why it cannot do more to lift the embargo.  The new general license authorizes US persons to negotiate and enter into contingent contracts that contemplate transactions that are prohibited by the CACR, provided that the performance of the contracts (e.g. actually providing goods or services or receiving payments) is made contingent on OFAC (and any other federal agency whose authorization is required) authorizing the underlying transactions or on such an authorization no longer being required.  In other words, while large areas of business remain off limits due to sanctions restrictions, now, for the first time in decades, companies can at least enter into contractual discussions and even sign binding contracts, as long as those deals cannot enter into force until they are authorized in full by the US government.  In addition to contracts, this covers executory pro forma invoices, agreements in principle, executory offers capable of acceptance such as bids or proposals in response to public tenders, binding memoranda of understanding, and similar agreements.  A much narrower general license to negotiate and enter into executory contracts for authorized exports or reexports to Cuba was previously included at Section 515.533(b) of the CACR, so this represents a significant expansion of the scope of this type of authorized activity.  By allowing US companies to go into Cuba virtually free of constraints for business development purposes, the Obama Administration has taken a big step towards implementing its strategy of making its discretionary loosening of the Cuba embargo by executive action “irreversible” by the next administration, by building a strong set of vested interests behind the current path of normalization.

But the bigger question raised by this move is what authority the President, and OFAC, relied on to issue this new regulation, and what that says about the ultimate extent of executive authority to lift core aspects of the Cuba embargo without getting Congress involved.  Again, the prevailing, if ill-defined, view among much of the sanctions bar is that most of the remaining legal restrictions on doing business with Cuba are codified by statute and therefore outside the reach of executive action.  However, the new general license OFAC has published at Section 515.534 of the CACR cuts directly to the core of the embargo.  For many years, Section 515.201 of the CACR has prohibited US persons from conducting any transactions “by, or on behalf of, or pursuant to the direction of a foreign country designated under this part [i.e. Cuba], or any national thereof, or [involving] property in which a foreign country designated under this part, or any national thereof, has at any time on or since the effective date of this section had any interest of any nature whatsoever, direct or indirect.”  Essentially, that foundational aspect of the embargo prohibits all commerce between the United States or US persons and Cuba or Cuban nationals, unless an exemption or authorization applies to a particular transaction.  The “property” of Cuban individuals and entities is generally treated as “blocked,” meaning that US persons generally cannot conduct any transactions or dealings with Cuban individuals or entities.  OFAC has interpreted this type of prohibition to include entering into executory contracts involving “blocked” property, so OFAC’s recent decision to allow such contracting activity, contingent on future authorization, is an interesting change of course that may call into question the effect of the “statutory embargo,” as it is sometimes called.  Put another way, OFAC has authorized contracting activity that falls directly within the core prohibition of the CACR.  If they can chip away at the core prohibition in this way, what limits do they face?  There may be a surprising answer.

There are some aspects of the statutory embargo that are clear and specific, and therefore very unlikely to be challenged by the executive branch, such as the restrictions on payment and financing terms for certain agricultural sales to Cuba set out in § 7207(b) of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) or the prohibition on tourist travel in § 7209(b) of TSRA.  But much of the statutory embargo is vague, and arguably subject to a broad exception for OFAC to authorize activity at its discretion.  Section 102(h) of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 codifies into statute “the economic embargo of Cuba, as in effect on March 1, 1996,” and states that “all restrictions” under the CACR “shall be in effect upon the enactment of this Act, and shall remain in effect,”  unless a democratically elected government were to take power in Cuba.  So Section 102(h) of the Libertad Act codifies into statute the prohibition on dealing with “property” of Cuban nationals, which includes entering into executory contracts.  Yet, somehow, OFAC just authorized exactly that.  While OFAC did require that such contracts be contingent on future authorization, that still appears to be a departure from the statutory mandate.  Certainly some would argue that it is.  And OFAC definitely did not do this pursuant to a finding that Raul Castro has been democratically elected, as the statute allows.  The answer here may lie in a potentially broad provision of the CACR, which was also codified into statute, allowing OFAC to authorize activity, apparently at its discretion.  See Section 515.201 (“All of the following transactions are prohibited, except as specifically authorized by the Secretary of the Treasury (or any person, agency, or instrumentality designated by him) . . .”).  If OFAC has relied on this provision to find that it has the authority to undo a core aspect of the statutory embargo like the prohibition on executory contracts, there would be few limits to what President Obama or a future president could do to lift the embargo, again short of undermining clear and specific statutory mandates like agricultural financing and tourist travel.

Moreover, the President has inherent constitutional authority to take executive action in the interest of US national security, under the “commander in chief” power set out in Article II of the US Constitution, and to control important aspects of US foreign affairs under “the executive power” in Article II.  Those authorities can be in tension with Congress’ Article I power to regulate foreign commerce, among other things.  But Congress is at the disadvantage of having to pass legislation in order to weigh in on the debate, something it has had quite some difficulty accomplishing in the last several years.  Furthermore, there are individual constitutional rights, such as the right to travel, that call into question the continuing validity of important aspects of the statutory embargo, given that the national interests that justified regulating over these rights during the Cold War no longer apply.  In light of the strong statements from the leadership of the Republican Party that they will fight to keep the Cuba embargo in place, and indications by Hilary Clinton that she would continue President Obama’s policy of loosening the restrictions on Cuba, the question of executive authority in this area could be the key to predicting the likely course of US economic sanctions policy on Cuba in the coming years.  It appears that the president does have the authority to lift all but a few narrow aspects of the Cuba embargo by unilateral executive action.  Developments in this area over the next year or two may therefore turn more on political considerations than legal obstacles.

https://www.steptoeinternationalcomplianceblog.com/2016/10/how-much-of-the-cuba-embargo-could-the-president-unilaterally-lift/

American Enterprise Institute, April 12, 2016

Blog Post, April 12, 2016

Carnival Cruise discrimination controversy exposes hypocrisy of Obama’s Cuba strategy

AEIdeas

By Roger Noriega

April 12, 2016

All hell would break loose if a US cruise line refused to sell tickets to Americans of Irish, Italian, or African ancestry who wished to visit their native land — and for good reason. The decision of Carnival Cruise Line to exclude Cuban-born Americans from its newly permitted journeys to the island confirms predictions that Obama’s normalization won’t improve the regime’s values, but it will lower ours.

One of the central pillars of US Cuba policy for decades has been “people-to-people” engagement: “purposeful travel,” with meaningful cultural, educational, or scientific benefits, but not tourism. Obama has gutted most of those requirements, creating a windfall for Cuba’s state-run tourism industry—most of which is owned by the military, controlled by the Castro clan, and a source of revenue for the police state.

Cuba’s problems are the product of a repressive Cuban regime that refuses to change.

During President Obama’s normalization announcement back in 2014, he praised the potential of travel and exchange saying, “This is fundamentally about freedom and openness, and also expresses my belief in the power of people-to-people engagement. With the changes I’m announcing today, it will be easier for Americans to travel to Cuba, and Americans will be able to use American credit and debit cards on the island. Nobody represents America’s values better than the American people, and I believe this contact will ultimately do more to empower the Cuban people.”

During his visit to Havana, President Obama praised this opening to Cuba: “Last week, we gave approval for individual Americans to come here for educational travel. US airlines will begin direct commercial flights this year. With last week’s port security announcement, we’ve removed the last major hurdle to resuming cruises and ferry service. All of which will mean even more Americans visiting Cuba in the years ahead and appreciating the incredible history and culture of the Cuban people.”

Learn more: In sixty seconds: What can we expect from Obama’s trip to Cuba?

Beneath all of this talk lies the harsh reality that Cuba’s problems are the product of a repressive Cuban regime that refuses to change. This reality shone through recently with a story in the Miami Herald that revealed that Carnival Cruise Line (specifically its sister company Fathom), the first to receive legal authorization for cruises to Cuba, is refusing to sell tickets to Cuban Americans for the voyage, citing Cuba’s arbitrary prohibition on Cuban-born persons traveling home by ship. The piece recounts the experience of María de Los Angeles Torres of the University of Chicago, a Cuban-American who supports President Obama’s Cuba policy, whose reservation was canceled when the reservation agent discovered her Cuban birth.

This news should not come as a surprise to anyone who recognizes that the Cuban government remains one of the most repressive — and vindictive — regimes in the world. The Castros have a long history of using travel restrictions as a tool for manipulation, and they continue to do so today, even as the US lifts its own restrictions. What is shocking is that the administration’s uninformed policy has allowed the dictatorship to impose its immoral laws onto American companies and citizens.
This news should not come as a surprise to anyone who recognizes that the Cuban government remains one of the most repressive — and vindictive — regimes in the world.

During a recent congressional hearing about Cuba, policy expert Mauricio Claver-Carone explained that the Castro regime refuses to allow critics of the regime to enter the country. This list includes academics, journalists, government officials, and private citizens. Moreover, Cubans seeking to leave the country must first receive permission from the government.

While the Obama administration continues to remove restrictions on US travel to Cuba, it has failed to secure reciprocal action from the Castro regime. So, the Cuban dictatorship will continue to turn away those who have been too vocal in their support for liberty, and it will continue to harass those who happen to be Cuban-American.

All of this begs the question: if President Obama really believes in “the power of people-to-people engagement,” why didn’t he do more to ensure that that engagement was not restricted by either side?

While in Cuba, the president called for “the reconciliation of the Cuban people—the children and grandchildren of revolution, and the children and grandchildren of exile—that is fundamental to Cuba’s future.” Tragically, Obama’s hollow rhetoric and careless concessions have made his administration complicit in repression. Rather than change Cuban reality for the better, he’s changed US policy for the worse.

https://www.aei.org/foreign-and-defense-policy/latin-america/carnival-cruise-discrimination-controversy-exposes-hypocrisy-of-obamas-cuba-strategy/