On April 17, 2019, the Trump Administration announced several decisions that mark a significant shift in US policy toward Cuba, most notably by declaring that the United States will no longer suspend Title III of the LIBERTAD Act of 1996, which is also known as the Helms-Burton Act.

Title III of the Helms-Burton Act authorizes US nationals (including Cubans who have since become US nationals) who formerly owned commercial property expropriated by the Cuban Government after the country’s 1959 communist revolution to file suit in US courts against persons (including non-US companies) that may be “trafficking” in that property. For purposes of Title III, a person “traffics” in confiscated property if that person knowingly and intentionally, without the authorization of any US national who holds a claim to the property:

  1. Sells, transfers, distributes, dispenses, brokers, manages, or otherwise disposes of confiscated property, or purchases, leases, receives, possesses, obtains control of, manages, uses, or otherwise acquires or holds an interest in confiscated property;
  2. Engages in a commercial activity using or otherwise benefiting from confiscated property; or
  3. Causes, directs, participates in, profits from or otherwise engages in, trafficking by or through another person.

While the definition of “trafficking” is very broad, it does not include the delivery of international telecommunication services to Cuba, transactions incident to lawful travel to Cuba, or transactions by a person who is a citizen and resident of Cuba and who is not an official of the Cuban Government or the ruling political party in Cuba. Title III does not generally authorize suits regarding real property used for residential purposes. The aim of Title III is effectively to prevent investment in Cuba by threatening investors with potential lawsuits for trafficking in confiscated property.

The universe of potential Title III lawsuits is expansive. It includes potential lawsuits made in connection with the almost 6,000 confiscated property claims that were “certified” by the Department of Justice’s Foreign Claims Settlement Commission (the “FCSC”) under its now-closed Cuba program, which the State Department estimates have a total value of approximately $8 billion with interest. Certification of a claim by the FCSC constitutes conclusive proof of ownership in Title III litigation. The universe of potential Title III lawsuits also includes those made in connection with “uncertified” property claims, which are those held by US nationals but not certified by the FCSC. The State Department estimated in 1996 that there may be between 75,000 and 200,000 such uncertified claims and today estimates that the value of those claims could be in the tens of billions of dollars.

Since its passage in 1996, every US Administration has permitted a Title III cause of action to accrue but has suspended the right to file a lawsuit under Title III for successive six-month periods until February 1, 2019, when the Trump Administration suspended the right to file a Title III lawsuit for only 45 days. On March 4, 2019, Secretary of State Pompeo announced an extension of the suspension to April 17, 2019 that would not, however, apply to Cuban entities and sub-entities included on the Department of State’s List of Restricted Entities and Sub-entities Associated with Cuba (the “Cuba Restricted List,” available here) after March 29, 2019. Please see our prior blog post on this development here.

Finally, on April 17, 2019, the Trump Administration announced that effective May 2, 2019, it would no longer suspend the right to file a lawsuit under Title III. In addition, the Administration also announced:

  • the continued implementation of Title IV of the Helms-Burton Act, which has never been suspended and which provides that entry into the United States will be denied to non-US persons who have trafficked in confiscated property to which US nationals own claims;
  • the addition of five entities owned by the Cuban military to the Cuba Restricted List, which was subsequently updated on April 24, 2019 to include the following:
    • Hotel Santa Isabel
    • Hotel El Caney Varadero
    • Meliá Marina Varadero Apartamentos
    • Aerogaviota
    • Diving Center – Marina Gaviota;
  • a cap on remittances to Cuba;
  • the prohibition of dollar transactions involving Cuba through third-party financial institutions; and
  • restrictions on non-family travel to Cuba.

With the exception of the additions to the Cuba Restricted List, the details of these changes have not yet been clarified or implemented.

The EU Blocking Regulation and Helms-Burton

Due to concerns around the extra-territoriality of the Helms-Burton provisions, the European Union brought into force in 1996 Regulation 2271/96 (the “Blocking Regulation”) shortly after the Helms-Burton Act was passed. At a high level, the Blocking Regulation prohibits direct and indirect compliance with certain extra-territorial laws specified in the Annex of the Regulation. This Annex includes Title III.

The penalties for violations under the Blocking Regulation vary among different EU Member States. For example, in the UK, compliance with blocked US sanctions, including the Helms-Burton Act, is a criminal offence and can result in an unlimited fine on indictment. In a number of EU Member States, only administrative penalties can be imposed. Overall, across all EU Member States, there has been very limited enforcement of any breaches of the Blocking Regulation. We are not aware of any conviction for breaches of the Blocking Regulation. It is also worth noting that contractual clauses which seek to comply with the blocked US sanctions (and hence violate the Blocking Regulation) would most likely be considered to be unenforceable.

In addition to targeting US sanctions against Cuba, the Blocking Regulation also seeks to neutralize the effect of certain sanctions against Iran. Please see our prior blog entries on the operation of the Blocking Regulation in this context here and here.

The Canadian Foreign Extraterritorial Measures Act and Helms-Burton

On October 9, 1992, Canada issued the Foreign Extraterritorial Measures (United States) Order, 1992 (the “Order”) under the Foreign Extraterritorial Measures Act (“FEMA”). The Order makes it an offence for Canadian corporations to comply with the US laws against Cuba. A “Canadian corporation” is defined as a corporation that is registered or incorporated under the laws of Canada or of a province and that carries on business in whole or in part in Canada.

After the passage of the Helms-Burton Act, Canada made further amendments to FEMA that took effect on January 1, 1997.  Those amendments, as they would apply to actions commenced under Title III, allow the Attorney-General of Canada to:

  • issue “blocking” orders declaring that judgements handed down under Title III would not be enforced or recognized in Canada;
  • issue orders restricting or prohibiting the production of records or the giving of information in Canada in relation to the enforcement of Title III actions in the United States; and
  • allow Canadians to recover in Canadian courts any amounts awarded under Title III rulings, along with their own court costs in Canada and in the United States. This measure is known as “clawback”.

The implementation of Title III could have significant implications for certain Canadian companies. For example, Canadian companies who are found by a U.S. federal district court to be “trafficking” in “confiscated property” may be subject to significant damage awards. While the enforceability of such awards against assets located in Canada is questionable, given the FEMA and the Order, assets of Canadian corporations located in the United States are at risk. As a result of the heightened scrutiny around Cuba, Canadian companies should be closely reviewing any activities related to Cuba and their potential exposure to Title III claims in the United States. Similarly, any urge simply to “comply with US law” must be tempered by the Order, which Canadian corporations must abide by.

Evaluating Risks and Options

Companies that operate in or with Cuba may be at risk under Title III if their activities utilize
confiscated property, whether directly or indirectly. Such companies should consider:

  • Analyzing which parts of their Cuba-related business may touch on confiscated property and
    assessing whether those contacts are direct or indirect;
  • Reviewing the terms under which they engage in Cuba-related business to determine options to
    terminate such business on short notice, potential financial consequences of such termination, and
    the possible application of blocking statutes in certain jurisdictions;
  • Assessing the possibility of using “claw-back” provisions if they are based in a jurisdiction that
    has instituted blocking statutes against the Helms-Burton Act; and
  • Instituting additional protective measures for ongoing or future Cuba-related activities, such as obtaining representations and warranties and remedies for breach, from partners, suppliers, vendors and other counterparties in Cuban transactions, confirming the absence of — or requiring the disclosure of — confiscated property that may be implicated.
Author

Ms. Kim focuses on outbound trade compliance issues that arise under US economic sanctions, export control laws, investment restrictions, anti-boycott regulations, anti-money laundering laws and the Foreign Corrupt Practices Act. She represents and advises US and non-US companies in criminal and regulatory proceedings, internal investigations, and compliance audits relating to these areas of law. She also advises on the extraterritorial application of these laws in cross-border transactions, including mergers and acquisitions, joint venture arrangements, and other international commercial activities. Her practice includes the development and implementation of workable, risk-based internal compliance programs and procedures for companies in a wide range of industries.

Author

Ms. Test advices clients on issues relating to licensing, regulatory interpretations, enforcement actions, internal investigations and compliance audits, as well as the design, implementation and administration of compliance programs. She also advises clients on the extra-territorial application of trade compliance-related regulations in cross-border transactions.

Author

Daniel Andreeff’s practice focuses on US economic and trade sanctions, including those targeting Iran, Russia, Cuba, Syria, and North Korea, export controls, and anti-boycott laws. He represents clients in national security reviews before the Committee on Foreign Investment in the United States (CFIUS), and has experience in federal court litigation and congressional investigations. His pro bono practice includes providing sanctions and export control advice to a global humanitarian NGO. * Admitted in New York only. Practice in the District of Columbia is under the supervision of a member of the District of Columbia Bar.