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Ideas

Cuba, you owe us $7 billion

Behind the trade embargo lies a huge and nearly forgotten obstacle: the still-active property claims by American companies. Inside the effort to settle a 50-year-old debt

Fidel Castro

Enrique Marcarian/REUTERS

Fidel Castro.

If symbols could gather rust, the American trade embargo against Cuba would be covered with it. Enacted in 1960, shortly after Fidel Castro came to power, and expanded in 1962, at the height of the Cold War, the embargo has frozen the United States and its tiny neighbor off the Florida coast in a standoff that seems as dated as the classic American cars on Havana streets.

Leaders from around the world have been calling on the United States to dismantle the embargo for more than 20 years, and recent polls show that a majority of Americans are in favor of lifting it. With the repressive Castro regime seemingly nearing its end, a “normalization” of relations between the countries seems increasingly within reach. That would appear to spell an end sometime soon for the embargo, which in the popular imagination stands as a sort of political weapon that was designed to cripple Castro and stem the tide of communism.

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What’s often forgotten, though, is that the embargo was actually triggered by something concrete: an enormous pile of American assets that Castro seized in the process of nationalizing the Cuban economy. Some of these assets were the vacation homes and bank accounts of wealthy individuals. But the lion’s share of the confiscated property—originally valued at $1.8 billion, which at 6 percent simple interest translates to nearly $7 billion today—was sugar factories, mines, oil refineries, and other business operations belonging to American corporations, among them the Coca-Cola Co., Exxon, and the First National Bank of Boston. A 2009 article in the Inter-American Law Review described Castro’s nationalization of US assets as the “largest uncompensated taking of American property by a foreign government in history.”

Today, the nearly 6,000 property claims filed in the wake of the Cuban revolution almost never come up as a significant sticking point in discussions of a prospective Cuban-American thaw. But they remain active—and more to the point, the federal law that lays out the conditions of a possible reconciliation with Cuba, the 1996 Helms-Burton Act, says they have to be resolved. According to that statute, said Michael Kelly, a professor of international law at Creighton University in Nebraska, settling the certified property claims “is one of the first dominos that has to fall in a whole series of dominos for the embargo to be lifted.”

While the other dominos are clearly much more daunting—the overall point of the Helms-Burton Act is that Cuba has to have a democratic, America-friendly government in place before there can be any talk of lifting the embargo—experts say the property claims will be an intensely difficult problem to settle when it comes time to do so. For one thing, Cuba is unlikely to ever have enough cash on hand to fully compensate the claimants, especially while the embargo is still in place; to make matters even more complicated, many of the individual claimants have died, and some of the companies no longer exist.

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With Cuba inching toward reform on a number of fronts over the past several years, giving hope to those who believe our two countries might reconcile in the near future, a number of Cuba experts have begun to study the question of how to resolve the property claims in a way that is both realistic and fair. The proposals that have come out of their efforts provide a unique window onto the potential future of the American relationship with Cuba—and point to the level of imagination that can be required in the present to turn the page on what happened in the past.

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‘Starwood Resorts doesn’t want an old radio tower. What they [might] want is beachfront property.’ — Michael Kelly, Creighton University

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The Cuba that Castro took over in 1959 was a nation overrun with American business. Tourists could stay in American-owned Hiltons, shop at Woolworth’s, and withdraw money at American-owned banks. American-owned petroleum refineries sat amid American cattle ranches, sugar factories, and nickel mines, and an American-owned telecommunications firm controlled the country’s phone lines. According to a 2008 report from the US Department of Agriculture, Americans controlled three-quarters of Cuba’s arable land.

Cuba’s revolutionary leader swiftly signed several laws nationalizing what was previously private property. Though the laws required the government to compensate the owners, the payment was to be made in Cuban bonds—an idea that was not taken seriously by the United States. In 1960, the administration of President Eisenhower punished Castro’s expropriation of American assets by sharply cutting the amount of sugar the United States was buying from Cuba. “We kind of went ballistic at the thought that anyone would take our property,” said Jonathan Hansen, a faculty associate at Harvard University’s Center for Latin American Studies. Tempers ran hot in both directions: in a speech, Castro vowed to separate Americans in Cuba from all of their possessions, “down to the nails in their shoes.” The standoff culminated in a near-total embargo on American exports to Cuba and a reduction of sugar imports to zero.

Keystone-France/Gamma-Keystone via Getty Images

Fidel Castro signed certificates redistributing land in May 1959.

Other countries that had holdings in Cuba—including Switzerland, Canada, Spain, and France—were more amenable to Castro’s terms, apparently convinced that there was no chance they’d ever get a better deal. But the Americans who had lost property wanted cash, and submitted official descriptions of what had been taken from them to the Foreign Claims Settlement Commission at the Department of Justice. Meanwhile, US relations with Cuba deteriorated. Diplomatic ties were cut. An attempt by President Kennedy to overthrow Castro failed, and a standoff over Soviet missiles in 1962 brought the world as close to nuclear war as it has ever come. The invisible economic wall—which by then had been expanded to ban virtually all imports from Cuba—had become part of something much larger.

Half a century later, the cash claims that started it all still sit on the books. And while a full list of claimants is maintained by the US Department of Justice, they have largely receded from view—in part because most of the claimants have become quiet about their hopes for compensation. According to Mauricio Tamargo, a lawyer who served as chairman of the Foreign Claims Settlement Commission for almost a decade before going into private practice and taking on a number of claimants as clients, complaining about monetary losses associated with the Cuban revolution has become increasingly risky from a public relations standpoint. The embargo has taken on more and more political meaning, and Cuba has become more destitute. “The corporations that have these claims are very sensitive to bad press,” Tamargo said, “so they decide to keep a low profile and work quietly behind the scenes where possible.” (Of several corporate claimholders contacted for this story, the only one that provided a statement by deadline was Chevron Corp., which now owns the claims originally filed by Texaco, and considers “the claim to be valid and enforceable if and when there is a change in the Cuban government.”)

But regardless of how morally or politically sensitive it might be for America’s corporations and the wealthy executives who run them to claim money from Cuba, their claims will still need to be untangled in order for the embargo to be lifted, experts say. “The US government is obligated by law to defend the claims of US citizens and enterprises whose properties were expropriated by the Cuban government,” wrote Harvard professor Jorge Dominguez, a top Cuba scholar, in an e-mail. As for how that might be done, he added, “one can imagine a range of possibilities.”

One possibility has been put forth by Tamargo, who advocates for an approach that would compensate claimants—his clients among them—by imposing a 10 percent user fee on all remittances sent to Cubans by their American relatives, as well as all other transactions that are allowed to take place under the current embargo rules. (While this proposal can be seen as a tax on US residents, it is designed to come only out of money that is entering the Cuban economy.) Another proposal was presented several years ago by Timothy Ashby, a Miami lawyer, who started a company designed to buy claims at a discount from their original owners and then use them to broker a private settlement with the Cuban government. Ashby’s plan was thwarted when the Bush administration declared it illegal, but the prospect of a negotiated group settlement remains on the table—as long as it’s carried out by the US government, in accordance with existing law.

Perhaps the most ambitious and pragmatic solution that’s been laid out so far appeared in a lengthy report published by scholars at Creighton University, who were given a grant in 2006 by the US Agency for International Development to investigate the claims issue. “There was a hope that, if through God’s grace things improved and we were able to enter into a mutually beneficial relationship with Cuba, we would be able to pull something off the shelf and say, ‘Here’s how we’re going to start dealing with it,’” said Patrick Borchers, the law professor who led the Creighton team.

Borchers and his colleagues found that untangling all the claims would be extremely complicated: “A lot of the original corporate claimants, through the process of 50 years worth of mergers and acquisitions, don’t even exist anymore,” said Creighton’s Michael Kelly, who also worked on the report. “But the claims don’t go away—they go with the mergers.” One of the largest claimants today, for example, is Starwood Resorts, a company that didn’t even exist in 1959, but received a claim on the ITT Telegraph Tower when it acquired another company. “Starwood Resorts doesn’t want an old radio tower,” Kelly said. “What they [might] want is beachfront property.”

This insight led to the proposal that the Creighton team ultimately submitted to the government. Under the team’s plan, some of those who had lost property during Castro’s nationalization campaign could be compensated in ways that didn’t involve the transfer of cash or bonds: Instead, they could be given tax-free zones, development rights, and other incentives to invest in the new Cuba. This, according to Borchers, would be a win for both sides, compensating the claimants while stimulating the Cuban economy.

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No one is arguing that settling the property claims of Americans is anything like the first or most important step to normalizing the US relationship with Cuba: There are other, more formidable obstacles in the way, as well as significant wiggle room for increasing economic activity between the two countries without formally lifting the embargo.

“There’s a scenario that I see, which is bit by bit the fundamentals of the embargo are chiseled away by executive order, by the economic and family ties linking Cuba and the United States, and by non-enforcement,” said Julia Sweig, a Cuba expert at the Council on Foreign Relations. In that scenario, the claims might someday be resolved, but wouldn’t hold the process of reintegrating the United States and Cuba hostage.

There’s another big complication, too: the thousands of Cuban families who fled to America after the revolution and had everything they owned confiscated by the Communist regime. These Cuban exiles and their descendants form the backbone of the most intransigent anti-Castro lobby in the United States. If and when Cuba does open up, they’re going to want their property back as well, which will likely result in extensive litigation in Cuba. (To address their interests, the Creighton report proposed setting up a special tribunal in Cuba that could try to compensate Cuban-Americans for their losses once the country had found its feet economically.)

What will end up happening—both for the American claimants and the Cubans who moved here after the revolution—will undoubtedly provoke debate about what is fair when it comes to setting right the wrongs of the past. How much debt is worth forgiving to help a country back on its feet? And how much should private citizens expect to give up to help a diplomatic resolution? But the provisional plans and proposals that have been made in the meantime—whether preferential development deals or a tax on cash flow between our two countries—reflect something else: visions of a new Cuba, in which American economic interests and Cuban ones are once again closely intertwined.

Leon Neyfakh is the staff writer for Ideas. E-mail leon.neyfakh@globe.com.
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