By Eugene Harkins
In June of 2015 the United States and Cuba reopened their embassies in their respective countries, re-establishing partial diplomatic relations for the first time in five and a half decades.
Full and formal diplomatic relations will have to await settlement of the thousands of claims by U.S. citizens and corporations resulting from the expropriation of American property rights by the Castro Government in the early 1960s.
The U.S. responded to these expropriations in 1962, by imposing a total trade embargo on Cuba that has virtually crippled the Cuban economy, and is still in effect causing deprivation and suffering for the Cuban people.
The Foreign Claims Settlement Commission (FCSC) is an agency of the Justice Department. In the 1970s, while memories and evidence of the expropriations were still fresh, the Commission established a program to “adjudicate” the international claims of US citizens against the Government of Cuba.
The first FCSC Cuban Claims Program in the 1970s “adjudicated” a total of 8,816 claims submitted, finding 5,911 to be compensable. The total value of those claims was $1,851,057,358.00. The FCSC proceedings were ex parte, that is without the appearance of the defendant Cuban Government.
The lion’s share of that $1.9 billion consists of 899 claims of large corporations—Exxon, Texaco, ITT, Coca Cola, General Motors, several large sugar companies, and a long list of US S&P 500 companies.
The rest, nearly 6,000, were brought by individuals, totaling some $230 million. The Commission took it upon itself to impose a 6% rate of interest on both individual and corporate claims, increasing the total value of the claims to some $9 billion.
The FCSC’s findings were certified to the Secretary of State for use in future settlement negotiations with the Cuban Government.
The Cuban government asserts counterclaims against the United States of some $100-$180 billion.
Cuba alleges economic damages from the trade embargo and personal injury damages suffered by its citizens from the “aggressive acts of the United States,” including the Bay of Pigs invasion.
Since the embargo is still in effect, the damages continue to accrue. As part of the U.S. rapprochement, Cuba has agreed to hold claims settlement negotiations.
However, they state that lifting the trade embargo must be an integral part of the overall settlement. The embargo was imposed by the U.S. Congress, and the Congress will have to enact legislation to lift it. A political struggle is guaranteed.
One quick and easy way to settle these mutual claims would be to “off-set” the U.S. $9 billion against the Cuban $100-180 billion, which would result in a “wash.” Cuba’s Foreign Minister has already indicated their interest in an off-set.
Under that scenario U.S. claimholders would not receive any compensation. There is little chance that the U.S. will accept an off-set.
However, under long-standing policy and precedent, the State Department has the absolute discretion to “espouse” or not to espouse a US citizen’s claim.
The diplomatic interests of the United States take precedence over the interests of the citizen claimant.
What are the other possible ways of settling these long-standing Cuban claims?
(1) Cuba could agree to pay the $1.9 billion of corporate and individual claims by issuing bonds with a ten-year or longer maturity and with or without interest.
(2) A more likely scenario would be for Cuba to pay the small, individual claimants the full $230 million as a lump sum payment with or without interest. It would earn them some credibility; and it’s not an overly large amount of money, especially in light of the rush to Cuba by so many American tourists, spending lots of Yankee dollars.
(3) A variant of the aforementioned would be for Cuba to issue bonds or pay the $230 million over a period of time with interest. The return of an individual’s house or other realty is totally unrealistic because of the more than 50 years of property transfers, demolitions, etc.
Unlike the individual claims, the 899 corporate claims represent a very large sum of money and would likely be burdensome for Cuba to undertake at this early stage of rapprochement with the U.S. experts in the field have proposed creative alternative solutions, and Cuba has already expressed interest.
The Cuban Government could grant incentives and benefits to these corporations to re-enter Cuba and establish profitable businesses. These incentives would be valued as compensation for their claims. For example Cuba could offer tax free status for a period of years.
Corporate claimants could form joint ventures with Cuban entrepreneurs or with government entities, place the value of their claims on the balance sheet and through these new businesses and incentives work off the value of the claim.
These measures would stimulate the growth of a new 21st century Cuban economy. Such solutions would of course require fundamental ideological, political and legal reforms.
Cuba can emerge from the nightmare of more than a half century of bitter struggle with the United States; settling these claims is a step in the right direction. There is a precedent.
Last summer at the flag raising ceremonies in Havana, Secretary of State John Kerry cited the remarkable transformation achieved by Viet Nam.
“A long and terrible war inflicted indelible scars on body and mind, followed by two decades of mutual healing, followed by another two decades of diplomatic and commercial engagement. In this period, Vietnam evolved from a country torn apart by violence into a dynamic society with one of the world’s fastest growing economies.”
Eugene Harkins is an international lawyer who worked in the Latin American Bureau of the U.S. State Department. A published author, his new book, The Sweet Gardenia, is set in Cuba and Charleston, South Carolina during the U.S. Civil War.
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Cover Photo Credit: Theodor Hensolt, Street Fotographer/ Flickr (CC By 2.0)