U.S. Anti-Cuba Act: Implications for Canadian Investors


Blake, Cassels & Graydon

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A Canadian mining company was recently punished by the United States for investing in Cuba. The U.S. government announced that nine major shareholders and senior executives of the firm would be denied visas to enter the United States because they "trafficked" in property confiscated after Cuba's 1959 communist revolution.

There are only a few companies sanctioned like this under a controversial new U.S. law aimed at discouraging investment in Cuba. Nevertheless, you should be aware of the law...especially if your company has links to Cuban investments.

This article is from the Volume 12, Number 3 August 1996 edition of the Blakes Report. The Blakes Report is a publication of the Toronto law firm Blake, Cassels & Graydon. Authors are Jack Quinn and Greg Kanargelidis.

Photograph of John QuinnJack Quinn (jjq@blakes.ca) practices competition and international law. He can be reached at 416-863-2648.

Photograph of Greg KanargelidisGreg Kanargelidis (gk@blakes.ca) practices commodity tax and international law and is at 416-863-4306. Both are located in the Toronto offices of
Blake, Cassels & Graydon.



Liberated Act Challenged Under NAFTA and WTO

On March 12, 1996 President Bill Clinton signed into law the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996. The Act will adversely affect Canadian investors in Cuba in two primary ways:

  1. by allowing U.S. nationals owning a claim to "confiscated property" to sue persons trafficking" in that property and
  2. by barring "traffickers" in confiscated property from entering the U.S.

Both Canada and Mexico have publicly opposed the obvious extraterritorial effects of the Act, and are challenging the new law under NAFTA's dispute-settlement process. In addition, the European Union, India, Chile and Nicaragua have raised objections to the Cuba legislation at a recent meeting of the World Trade Organization.

The Act's stated purposes include:

  1. assisting Cubans in regaining their political and economic freedom
  2. protecting national security; and
  3. protecting U.S. nationals against confiscatory takings by penalizing "trafficking" in property confiscated by Fidel Castro's government.

Mainly, the Act appears aimed at assisting in the overthrow of the Castro government by causing Canadian and other foreign investors to avoid or sell off investments in Cuba. This is to be achieved by creating the risk of substantial civil liabilities for investors in Cuba and by refusing entry into the U.S of individuals employed by business who invest in Cuba. Another effect of the Act will be to permit U.S. nationals to benefit from their confiscated property located in Cuba indirectly by permitting them to commence damage suits against persons "trafficking" in confiscated property.

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Confirming Existing Sanctions Against Cuba and Planning for the Reinstatement of Democracy in Cuba

In addition to threatening investors in Cuba with the considerable risks of civil litigation and being barred from entry into the U.S., discussed further below, the Act also legislatively confirms existing executive sanctions against Cuba. Before the Act, the President could make, modify or repeal U.S. sanctions against Cuba by executive order. Since the existing sactions have been codified in the Act, they cannot now be changed without an amending act of Congress.

With respect to the continuing enforcement of the U.S. economic embargo of Cuba, the Act reaffirms the Cuban Democracy Act of 1992 and the Cuban Assets Control Regulations whose salient provisions include: the prohibition of indirect financing of investments in Cuba by a United States national, a permanent resident alien or a United States agency; the U.S. opposition to Cuban membership in international economic and political institutions; and the prohibition on importation into the U.S. of, and any dealings in, Cuban property.

Title II deals with assistance to a "free and independent" Cuba. The Title sets out the U.S. policy toward a transition government and, ultimately, a democratically elected government in Cuba, such as the provision of appropriate forms of assistance and better trade relations with a "free," "democratic" and "independent" Cuba (as defined in the Act).

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Raising the Price of Investment in Cuba

Title III of the Act allows U.S. nationals owning a claim to "confiscated property" to sue persons who "traffic" in that property. For purposes of Title III, "confiscated property" is defined to mean all property (except some residential property) seized without compensation by the Cuban government on or after January 1, 1959. Pursuant to the Act, a person "traffics" in confiscated property if that person knowingly, without authorization of the U.S. owner, and intentionally (based on an objective test):

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

Certain transactions are excluded from the definition of "trafficking." These include: the delivery of international telecommunication signals to Cuba; the trading or holding of securities of a Cuban public company; and transactions and uses of property by a person who is both a citizen of Cuba and resident of Cuba.

The Act grants a private right of action to all U.S. nationals with claims to confiscated property. Priority to commence an action is given to a U.S. national with a claim certified by the Foreign Claims Settlement Commission (FCSC), set up pursuant to the International Claims Settelment Act of 1949. Under Title III, claimants with a certified claim may commence an action on February 1, 1997 (as a result of President Clinton's suspension of the effective date ot this Title for six months). All other claimants cannot begin an action under the Act until March 12, 1998, presumably to ensure the value of certified claims is only partly diluted by non-certified ones.

If found liable for trafficking, a defendant must pay for courts costs and reasonable lawyers' fees plus the greatest of

  1. the amount of the claim, if FCSC-certified, plus interest;
  2. an amount determined by a special master, plus interest;
  3. the present fair market value; or
  4. the fair market value when confiscated, plus interest.

Treble damages will be awarded in certain cases. An action may only be brought if the amount in controversy exceeds $50,000, exclusive of interest, costs, lawyers' fees and trebling. If a trafficker against whom judgment has been awarded does not have assets in the U.S., there will be significant conflict of laws issues in the courts where the trafficker does have assets (i.e., Canada).

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Exclusion of Certain Aliens

Title IV bars non-U.S. persons from entering the U.S. on or after March 12, 1996 if such person:

  1. traffic in confiscated property on or after March 12, 1996
  2. are officers, principals or controlling shareholders of such traffickers; or
  3. are spouses, minor children or agents of persons in categories 1 and 2.

The terms "confiscated property" and "trafficking" are defined differently for the purpose of Title IV than for Title III. Chapter 16 of the NAFTA would appear to preclude the application of these provisions to Canadian nationals.

Canada requested consultations with the U.S. concerning the Act pursuant ot Article 2006 of the NAFTA. Should the consultations fail to resolve the dispute, Canada may initiate further dispute resolution procedures pursuant to Chapter 20 including the establishment of a Binational Panel to consider the matter under Article 2008. The preferred resolution for Canada under this process is the non-implementation or removal of the offending measure (i.e., the U.S. will not apply the Act against Canada); alternatively, the U.S. could offer compensation to Canada by granting trade concessions of equivalent value.

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© 1996 Blake, Cassels & Graydon

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