Once again, the international press consults with Gerstman Schwartz Malito Partner  Antonio C. Martinez II on the developing historical events surround U.S. – Cuba Relations..

From The Guardian…

Off the terror list, Cuba represents a less risky proposition but for bankers it’s been tough to get over the hefty fines that once came with violating sanctions

Barack Obama’s decision to remove Cuba from the state sponsors of terror listafter 30 years is many things: a symbol of the cold war’s end, a negotiating tactic to dispel distrust, and – most practically – an assurance to bankers wary of rushing into a legal minefield.

Nearly four months after Obama and Cuban president Raúl Castro announced a historic rapprochement and a softening of sanctions against doing business on the island, few companies have tried to take advantage of the changes. Lodging company Airbnb set up with locals and streaming site Netflix made a mostly symbolic entrance there, but the most powerful forces in finance, the banks, have watched from afar for fear of getting caught up in a web of sanctions.

The bankers have cause to be concerned. The US has actively pursued banks who violate sanctions agreements, in 2009 forcing Credit Suisse to pay a $536m settlement for its dealings with Cuba, Iran and others, and then drawing a $8.9bn fine from BNP Paribas last year for working with Sudanese clients. Cuba, Iran, Sudan and Syria are the only nations on the state sponsors of terrorism list. Also last year M&T Bank, the only institution that had been available to Cuban diplomats in Washington, suspended that service.

“You really had an enormous exposure to that risk, from US regulators who have imposed very substantial fines on financial institutions,” said Pedro Freyre, an international practice attorney for a Miami law firm.

“It made it impossible for Cuba to do anything in the international banking system with US dollars,” agreed Antonio C Martinez II, an attorney with the Gotham Government Relations Firm, a New York law firm. “Any bank that touched that sanctions web would get caught in it and fined.”

Since the December changes to US rules, the State Department has tried to persuade banks to get involved in Cuba, including by inviting executives to meet with officials in Miami a year ago. But bankers felt no safer after the discussion, said professor Christopher Sabatini, a Cuba scholar with Columbia University, who attended that meeting.

Because banks and telecoms have to clear nearly all activity on Cuba with the Treasury and Commerce departments, complying with US rules became a losing business in and of itself, Sabatini continued. “The executives would say, ‘There’s no way we can go to the board, it’s not profitable for us. We have to staff up all these lawyers, and do all this paperwork and conform to all these regulations, and simply the return isn’t there.’”

Taking Cuba off the list changed that, he said: “It’s removed the fear of having their profits sort of seized for having done business with a terrorist-supporting state, and it also makes compliance costs much less.”

Banks by nature are very risk-averse

Off the list, Cuba represents a far less risky and expensive proposition to bankers and other companies, the attorneys said, although that did not mean bankers would rush to the island. “Just because something is allowed doesn’t mean that it will happen, and these banks are by nature very risk-averse,” Freyre said.

Bankers and most companies have stayed cautious because although January changes allowed them transactions with Cuban banks, congressional sanctions remain.

On 1 March, MasterCard removed its block on US-issued cards in Cuba, the only credit card company to do so. Rob Rowe, vice-president of the American Bankers Association only offered a cautious statement: “banks are certainly watching for further developments, but the US government has a lot more steps to take until the industry can take action.”

American Express, Citi and JPMorgan Chase have said they are still waiting to for more details about how the US and Cuba actually start applying rules.

The wrangling over banks – an issue Cuban negotiators have repeatedly raised in talks – also suggests that the US and Cuba in some ways plan to improvise as they feel their way through the uncharted territory of rapprochement after 50 years apart.

Major obstacles on both sides are the nations’ respective bureaucracies, for instance. In the US, regulators of byzantine American system can sometimes be at odds with both officials and businesses. Cuba’s highly centralized system on the other hand treats almost everything on a case-by-case basis, with decisions made by a select few. Somehow, the two sides will have to work out ways for the systems to work in tandem.

“They haven’t been living completely isolated from the universe – it’s not like North Korea,” Freyre said, “but it’s not going to be easy.”

Freyre said he has seen “a real commitment on the part of the Cuban authorities to make changes” that can accommodate the US, and Sabatini noted that the US rules in turn have been written fairly broadly, “organized more around general principles of US foreign policy” than specific politics between nations.

With that broad language, the US can adjust how it implements the new rules as Cuba in turn tries to make its system more flexible. Sabatini described the State Department’s strategy of promoting democracy through capitalism by saying, “it basically throws it open to more of a market question than a regulatory one.”

Taking Cuba off the list is also a negotiating tactic, Martinez said, that could help convince Cuba to drop the 10% surcharge it imposes against the US dollar – another deterrent to doing business there, and main reason why phone calls to the island are so expensive.

“Think of it as a pipeline,” Freyre said. “The United States has one control valve and Cuba has the other, and the US slowly opens the valve and gets Cuba to slowly open its valve. It’s going to take a while, but they’re beginning to ramp up the flow.”

The embargo imposed by Congress still prohibits most investing and financial transactions on Cuba, and senators and representatives could still try to fight off the White House’s attempt to take Cuba off the list. Senator and presidential candidate Marco Rubio, for instance, openly opposes detente with Cuba, as does Florida representative Ileana Ros-Lehtinan.

Cuba was placed on the list in 1982 for supporting leftist guerrillas in Latin America, and more recently kept there for providing refuge to Basque separatists. The Obama administration now says Cuba has not supported terrorism in the past six months and is now eligible to be delisted.

Read more from The Guardian…

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