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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.
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.
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.
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