U.S. Not Updating Asset Claims Against Cuba Even as Trade Beckons

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By Lenore T. Adkins

Oct. 5 — Thousands of U.S. certified claims against the Cuban government have spent decades changing hands among rights holders, gathering dust and amassing billions of dollars in interest. The Foreign Claims Settlement Commission that certified and adjudicated the claims can't update them because its authority to do so has expired.

That means the commission doesn't have a full account of which U.S. companies still exist, which ones merged or split into other entities, or which are now under foreign control. The commission, an arm of the Department of Justice (DOJ), also hasn't decided what happens to claims from companies that no longer exist, DOJ spokesman Wyn Hornbuckle said.

Nearly all of the claims originated in the 1960s and early 1970s, as Fidel Castro nationalized Cuba's economy following his rise to power in 1959. As the U.S. and Cuba now work to normalize relations, the claimant information has gained relevance. The 1996 Helms-Burton Act made settling the nearly 6,000 certified claims—totaling between $7 billion and $8 billion after interest—a condition of Congress lifting the embargo that the U.S. put in place shortly after Cuba expropriated the assets.

Cuba, however, has demands of its own. The island nation estimates the accumulated economic damages of the embargo at $121 billion and says the U.S. should compensate Cuba for those losses. Some observers, though, say Cuba is simply posturing and using the $121 billion figure to counter the U.S. claims estimate.

“That number is a marker for the Cubans to basically say, ‘We're not going to pay $7 billion and here's why,' ” said Jason Marczak, deputy director of the Adrienne Arsht Latin America Center at the Washington-based Atlantic Council.
Cuban officials have said removing the embargo is just one necessary step toward normalizing relations between the U.S. and the Communist nation. Other conditions include returning Guantanamo Bay and staying out of the island's affairs.

Although the claims' outdatedness isn't seen as a barrier to the U.S.-Cuba relations thaw, it would complicate payouts to the proper parties if the U.S. government received money to disburse. In most cases, the current rights holders aren't known, according to Mauricio Tamargo, a former Foreign Claims Settlement Commission chairman and now an attorney for clients with claims against Cuba.

“This is embarrassing that this has gotten so stale and nobody has a clue about who are the holders of all these claims,” Tamargo told Bloomberg BNA.

Office Depot Subsidiary Now Holds Biggest Claim

The 5,913 certified claims represent both the largest and the longest uncompensated seizure of U.S. property and assets by a foreign government in history. The largest claim—$267.6 million before interest—is listed by the commission with Cuban Electric Co. as the claimant. According to information first reported in The Wall Street Journal and confirmed to Bloomberg BNA by an Office Depot Inc. spokeswoman, an Office Depot subsidiary now holds the rights to that claim. The spokeswoman declined to identify the name of the subsidiary. The claim includes losses of real estate, equipment and supplies confiscated by the Cuban government.

Other U.S. corporations with stakes in the claims process, as identified on the commission's list, include Chase Manhattan Bank, Coca-Cola Co., Colgate-Palmolive Co., F.W. Woolworth Co., Goodyear Tire & Rubber Co., IBM World Trade Corp. and Starwood Hotels & Resorts Worldwide Inc. Among the many outdated listings is Chase Manhattan, which is now part of JPMorgan Chase & Co.

The commission was authorized to receive and adjudicate claims on two occasions. In 1964, Title V of the International Claims Settlement Act gave the commission the power to determine the amount and validity of U.S. nationals' claims against the Cuban government for asset seizures between Jan. 1, 1959, and May 1, 1967. The commission's authority to act on those claims expired July 6, 1972, Hornbuckle said.
In 2005, at the request of then-Secretary of State Condoleezza Rice, the commission opened a second Cuban Claims Program, which adjudicated and certified new claims for assets seized after May 1, 1967. The commission's authority to handle claims under this referral terminated Aug. 11, 2006.

Updating Involves Legal Determinations

Authorization for the commission to continue adjudication so that the certified Cuba claims reflect successive ownership must come from Congress or the secretary of state, the commission said. Updating the claims goes beyond administrative tasks and might involve “substantive legal determinations,” such as a finding that an individual or entity alleging ownership is, in fact, the current legal owner of the claim, Hornbuckle said. Commission staff continues to accept information about the succession of ownership related to the Cuba claims, just in case the commission gets the green light to revise them, Hornbuckle said.

“Such information is stored in the claim files so that it will be available to whatever entity may be tasked with determining the then-current ownership of the claims,” Hornbuckle said via e-mail. He said the agency doesn't keep track of how many people or corporations submitted new information for their claims.

When asked whether Secretary of State John Kerry is interested in empowering the commission to update the Cuba claims, a State Department official would only reiterate that resolving the claims remains a priority for the U.S. government and that State is working on the logistics for a dialogue with the Cuban government about the claims. At this time, there is no legislation to authorize the commission to update the claims.

U.S. negotiators last month brought up the claims in Havana at a bilateral commission meeting with their Cuban counterparts, a State Department spokesman said. Officials are considering a “variety of options” to resolve the claims, the spokesman added.
Corporations Dominate in Claim Value

Today, 899 of the outstanding 5,913 certified claims against the Cuban government belong to U.S. corporations, said Richard Feinberg, a nonresident senior fellow at the Brookings Institution. Without interest, the certified claims total $1.9 billion. The top 100 certified claims, the lion's share from U.S. corporations, total $1.65 billion, or about 87 percent. The estimate of $7 billion to $8 billion owed in total reflects the 6 percent interest the commission adds for every year the Cuban government didn't pay the claims.


“This is embarrassing that this has gotten so stale and nobody has a clue about who are the holders of all these claims.” Mauricio Tamargo Poblete Tamargo LLP

When a company splits or merges with others, it is up to the proper party to submit new information about claim ownership, said Tamargo, an international law attorney at Poblete Tamargo LLP.

Tamargo, who led the commission from 2002 through 2010 under President George W. Bush, is pushing for Congress or the secretary of state to authorize a limited program for the commission to update the certified claim holder successor as the current claim holder. Rather than putting the onus on the claimant, Tamargo wants the commission to keep those claims up to date and locate would-be successors.

“The whole system is not designed to go 55 years unpaid,” Tamargo said.

Long Paper Trails

In another example of a company that changed hands, the United Fruit Sugar Co., a subsidiary of what was formerly the United Fruit Co., filed the fourth-largest claim against the Cuban government for $85.1 million, before interest. The Cuban government seized improved land and buildings, unimproved land, securities and other valuables from United Fruit Sugar, according to the company's certified claim. After a merger with AMK Corp. in 1970, United Fruit Co. changed its name to United Brands Co., then switched its name a second time 20 years later to Chiquita Brands International Inc., according to the company website. Earlier this year, the Brazilian-owned Cutrale and Safra groups completed their acquisition of Chiquita. Chiquita didn't respond to repeated requests for comment. The commission now lists St. James Investments Inc. as the claim holder.

Things aren't as complicated for the Coca-Cola Co., which still holds a certified claim against the Cuban government for $27.5 million before interest. The company entered Cuba in the late 19th century and opened a sales office soon after, Coca-Cola spokesman Kent J. Landers told Bloomberg BNA. Coca-Cola maintained bottling operations on the island from 1906 until it left the country in 1960. The certified Coca-Cola claim shows that the Cuban government seized the corporation's land, buildings, vehicles, machinery, equipment, furniture and other valuables in the early 1960s. Landers wouldn't say how aggressively the company is pursuing its claim.
Abrupt Change in Policy

After Fidel Castro rose to power, the Cuban government seized foreign assets including oil refineries, livestock, raw sugar, real estate, vehicles and more. U.S. nationals filed claims through the commission over the American-owned property and assets expropriated by the Cuban government and the commission assigned a dollar value to the losses. The U.S. also imposed an economic, financial and commercial embargo against the island.

Both countries fully re-established diplomatic ties in July, marking one of the first steps toward normalizing relations. President Barack Obama has called on Congress to repeal the 53-year-old embargo and, in the absence of congressional action, the president released new regulations that ease the embargo barriers for some business activity, trade, personal remittances and personal travel.

The Cuban government settled property and asset claims with other countries including Canada, Spain and the U.K. at a fraction of their original asking prices decades ago. Those claims weren't as high as the claims from the U.S. because those countries didn't dominate the Cuban market, the Brookings Institution's Feinberg said.

“We haven't wanted to settle,” said Feinberg, also a professor of international political economy at the University of California-San Diego. “Up until Obama, there was still a policy of, ‘We want to get rid of this government; we don't negotiate with the Castro regime.' ”
Mutual Interest Seen

Cuba exported $18.5 billion in goods and services in 2013, according to the World Bank, which Feinberg said indicates the Cuban government can afford to pay the claims, especially if it pays them out in installments over 10 years. However, Cuba would likely object to the interest as being unduly burdensome, he said.

Tamargo, who was born in Havana, argues the Cuban government should pay the full value of the claims, including interest, because officials could borrow money now in anticipation of Congress lifting the embargo and use it to pay off the debt.

“They have quite a bit of commerce going on,” Tamargo said. “If you factor in that the total settlement agreement will include lifting the embargo, as it surely will, then one can anticipate that the Cubans are going to have a lot of revenue.”

If Cuba and the U.S. are able to settle the claims, once and for all, that would send a powerful message to the rest of the world, Feinberg said.

“Cuba wants to regain legitimacy in international capital markets in general; and very specifically, the U.S. wants to demonstrate that the rule of law is recognized in Cuba—that property rights are respected,” Feinberg said. “And in order to establish a better business climate to attract more foreign and domestic investment, the resolution of property claims is an excellent signal in all those directions.”

The Atlantic Council's Marczak said any resolution would probably involve “privileged market access” for U.S. companies in Cuba.

“It's not politically feasible for the Cuban government to pay corporations and individuals for the property that was seized; that won't fly domestically to do that,” he told Bloomberg BNA. “What is more probable is that there will be some type of deal worked out where Cuba grants corporations some kind of privileged access into the Cuban market, and that ends up being a win-win.”

How the claims from individuals and families—as opposed to companies—might be resolved is a much more difficult issue because these claimants or their successors simply want to get paid, Marczak said.

Representatives at the Cuban Embassy in Washington didn't respond to repeated requests for comment on this story.

To contact the reporter on this story: Lenore T. Adkins in Washington at ladkins@bna.com
To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com