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                           Is Cuba Ready to Change?
                                                                       
Michael Diaz, Jr.Andrew C. HallJames P. GueitsJoseph Zumpano
Four years ago, Michael Diaz, Jr., founding partner, Diaz Reus in Miami, traveled with litigation partner Chad Purdie to Cuba to speak on American jurisprudence at the University of Havana Law School. “It was clear to me that major reform is needed with respect to property rights, contracts and other issues,” says Diaz. “Unless Cuba puts a legal framework in place, anyone investing there is at high risk for not reaping the rewards.”
Today, U.S. companies in a wide range of industries are looking at potential business opportunities in Cuba. That interest has sparked a growing flow of consulting and exploratory missions to Cuba led by South Florida attorneys who are proficient in Spanish and understand the island nation’s culture, politics and investment policies. 
But turning those short-term consulting engagements into long-term transactional and litigation work will require major changes to U.S. laws and regulations, as well as fundamental reforms to Cuba’s state-run economy and legal system, according to several South Florida attorneys.
“Normalization of relations sounds simple enough,” says Andrew Hall, founding partner of Hall, Lamb and Hall, P.A., in Miami. “But if you are a major U.S. corporation who wants to invest on the island, you want to guard against major risks like nationalization, financial restrictions or litigation — and that’s not including the human rights issues.”
While Cuba has a population of 11.2 million, most residents have grown up in a socialist state, without significant experience in a free market economy. “Just imagine all those people who have not been able to buy a modern product in 60 years entering the marketplace on the same day,” Hall says. “The potential is huge, but it’s going to take some time to get there.”
A Changing Relationship
On December 17, President Barack Obama announced a new policy of engagement with Cuba including plans to resume diplomatic relations. Along with making it easier for Americans to travel to Cuba, the change allowed U.S. exporters to sell products to private entrepreneurs, including farm equipment, construction materials and tools.
Since that ground-breaking announcement, there’s been a surge of interest from tourism and travel companies seeking to be “first-in-line” to bring Americans to a country that in many ways has been frozen in time since Fidel Castro’s communist takeover in 1959. For instance, San Francisco-based AirBnb quickly moved to add private Cuban residences to its global hospitality network. 
However, the U.S. embargo on trade with Cuba in place since the 1960s, along with more recent measures like the Helms-Burton Act of 1998, has left the Cuban government with little money to invest in infrastructure improvements, such as telecommunications, hotels, hospitals, airports and seaports. 
“Clearly, there will be great opportunities in Cuba,” says James P. Gueits, a partner with Levine Kellogg Lehman Schneider + Grossman LLP who handles commercial litigation and corporate matters for clients doing business in the U.S. and Latin America. “When you are on the ground in Cuba, though, you quickly learn that it’s not as easy as just planting the corporate flag.”
While the U.S. is easing its travel and trade restrictions in hope of bringing Cuba into the mainstream of the hemisphere’s economy, it’s far from clear how President Raul Castro’s government will respond to these overtures.
“The Cuban government is interested in doing business with foreign entities, particularly in terms of tourism,” Purdie says. “But while Cuba is constantly updating its foreign investment laws, there is always a clause that says ‘We reserve the right to take actions that are best for the people.’” 
Diaz points out that the U.S. currently has significant economic leverage now that Cuba’s socialist ally Venezuela no longer has the financial resources to provide support. “But unless Cuba is prepared to change, all the rah-rah in the U.S. will mean nothing,” he says. “The U.S. needs to push hard for internal reform. Otherwise, I don’t see change happening anytime soon.”
Significant Legal Challenges
Meanwhile, potential U.S. investors should understand that there are still significant legal, practical and ethical issues involved in doing business with Cuba. Until May 29, Cuba was still on the U.S. State Department’s list of “state sponsors of terrorism,” and companies wanting to do business needed approval by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Commerce Department.
"Cuba is a totalitarian state, where the government, through its military, runs the business interests of the regime,” says Joe Zumpano, managing partner of Zumpano Patricios & Winker, P.A. (ZP&W) in Coral Gables. “Anyone seeking to do business with Cuba should understand the prohibitions that exist and not seek to circumvent them in any way."
Zumpano adds that if the U.S. lifts its prohibitions, companies should ask themselves three questions: With whom am I seeking to do business? What is their track record? And what are the consequences of pursuing business with them?
“Whatever the current status of diplomatic relations between Cuba and the U.S., the honest answers to these questions are not favorable to Cuba,” he says. “The Cuban regime’s track record regarding human rights is dismal, and the consequence of benefitting the business interests of that regime risks prolonging its rule over the Cuban people.” 
Another obstacle toward closer diplomatic relations between the two counties is the long list of U.S. claims on Cuban properties as well as legal judgments on behalf of U.S. residents whose loved ones were victims of Cuban government actions. “We know there are many victims of Cuban terrorism who have been killed, tortured, imprisoned or exiled,” says Zumpano. “As Americans, we should not abrogate our tradition of prosecuting war criminals and rogue regimes that commit crimes against humanity. We need to continue our tradition of holding regimes accountable for actions that disregard the sanctity of human life.”
Hall notes that the U.S. government policies are not always in alignment when imposing sanctions for financial misconduct. In June 2014, BNP Paribas, France’s largest bank, agreed to pay $8.9 billion for violating U.S. sanctions against Sudan, Iran and Cuba. “While $3.8 billion was reserved to compensate victims of terrorism, those funds have not been released,” he says. “Now, I’m suing BNP directly on behalf of my clients.”
In addition, there are now 5,900 certified claims totaling more than $7 billion from American citizens whose property was taken after the Cuban revolution — a process that now is closed. “Those claims have been adjudicated and are ready to be paid in full or in part,” says Hall. “However, similar U.S. claims commissions have not been effective in the past.” 
Hall adds that when the Iron Curtain fell in eastern Europe in the early 1990s, some counties adopted procedures to compensate the original owners, while reimbursing the people who had made improvements to those properties. “I expect to see extensive litigation along these lines over properties in Cuba,” he says. “There will be fraud and misconduct as well, and the international leaders in our community will have their hands full handling those claims.”
A Long-term Opportunity
Looking at potential business and investment opportunities in Cuba, Gueits says one of the biggest issues is the lack of a private sector. “If you invest in Cuba, you are doing business with the Cuban government,” he says. “Several of my clients have gone to Cuba to explore the opportunities, and come back saying ‘We can’t do it’ because of the restrictions put on private investors and the fact that the government wants to be your partner.” 
Cuba would also need to build a working legal system and create a financial and banking infrastructure from scratch, he adds. “You would also have to turn the entire employment sector upside down since Cuba is a basically a huge welfare state,” Gueits says. “How do you create incentives for people to work hard for the private sector? How will change affect the social services the government provides? Those are questions that can’t be answered overnight.”
Assuming that the U.S. rapprochement with Cuba continues after the 2016 presidential and congressional elections, the next steps would be to revise key laws and regulations, such as the repeal of the Helms-Burton Act, and passage of new trade regulations. “I would expect there will be a bonanza of work for lawyers to navigate the regulatory scheme of what we can and cannot do once the political agreement is hammered out,” Diaz says.
With those issues resolved, it is possible that Cuba would be invited to enter into a free trade agreement with the U.S. or the entire hemisphere. “That would be a big step forward,” says Gueits. “While there is a long way to go, if any country offers market opportunities today, it’s Cuba.” 
South Florida Legal Guide Midyear 2015 Edition
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