Regulations governing the United States’ new commercial opening toward Cuba were announced in January, but so far there have been few takers.
Most businesses are still kicking the tires when it comes to Cuba and trekking to the island, often with lawyers in tow, to assess the opportunities and risks. A trade delegation led by New York Gov. Andrew Cuomo last week, however, reported progress had been made on deals in the telecom and healthcare fields — two areas where U.S. businesses are allowed to engage with the Cuban government under the new U.S. Cuba policy.
But even when Cuba is removed from the list of state sponsors of terrorism, a designation that carries some financial sanctions, analysts say they don’t expect it will set off a business stampede either.
“I think people are reevaluating but they are waiting until the 45-day waiting period is up before taking the next step,” said Fernando Capablanca, managing director of White Cap Consulting Group and president of the Cuban Banking Study Group. “I think everyone wants to pay it very safe — what’s 45 days after 55 years?”
In December President Barack Obama announced a new policy of engaging Cuba after more than half a century of trying to bring about change through isolating the island, and on April 14, he informed Congress that he intended to remove Cuba from the terrorism list, starting the clock ticking on the waiting period.
With the Cuban-American delegation saying last week that it wouldn’t be mounting a challenge to the de-listing, Cuba is set to come off the list in late May. The United States put Cuba on the list in 1982 at a time when Havana was promoting armed revolution in Latin America and Africa.
Stephen F. Propst, a Washington attorney, said the de-listing will be an important step in the U.S.-Cuba normalization process, but he expects it will have limited immediate impact on economic activity between the United States and the island.
However, he said, “It’s a very important step to move forward on diplomatic relations between the two countries.” Keeping Cuba on the list, Propst said, is a “label, largely a version of diplomatic name-calling.”
Still, Andy Fernandez, leader of Holland & Knight’s Cuba Action Team, said removing Cuba from the terrorism list removes a “barricade, a roadblock” that has made U.S. companies hesitant to even engage in legal business dealings with Cuba.
Under Obama’s new Cuba policy, Americans can trade selected goods with private Cuban entrepreneurs, supply private farmers in Cuba, sell building supplies to private individuals and participate in Internet and telecom projects that will improve the connectivity of the Cuban people.
But the impact of the de-listing will be muted because there’s still a thicket of sanctions imposed under the embargo, the Helms Burton Act and other U.S. laws that remain in effect, including provisions that require U.S. banks to block transactions with Cuba or Cuban nationals that aren’t in the permitted category.
New regulations allow a bank to reject such transactions. “That makes a lot of difference if you’re the person whose money is blocked and you can’t get it back,” said lawyer Patricia Hernandez during a Cuba seminar organized by the Florida International Bankers Association and the Cuban Banking Study Group last week.
“The overall risk with Cuba will remain as long as the embargo is in place,” Andy Fernandez said.
Lifting the embargo “will be the new elephant in the room in future talks,” said Peter Schechter, director of the Adrienne Arsht Latin American Center at the Atlantic Council.
The United States and Cuba are currently negotiating to renew diplomatic ties and open embassies. So far there have been three rounds of talks.
“Cuomo’s trip illustrates not only the eagerness but also the frustration that U.S. governors feel — the 1996 Helms-Burton Act handicaps their states’ trade opportunities.” he said.
The embargo, which was phased in gradually starting in 1960, was codified through Helms-Burton and cannot be totally lifted without an act of Congress.
Companies such as Netflix, IDT, which has begun offering direct telephone service to Cuba rather than making the final connection through a third party, and lodging company Airbnb, which is working with private Cuban casas particulares or bed and breakfasts, have staked out territory in Cuba. MasterCard and American Express also say they want to allow U.S. customers to use their cards in Cuba.
But not one bank has announced its intention to support the cards — meaning authorized American travelers still can’t use plastic issued by a U.S. bank to pay for their hotel and other expenses in Cuba.
However, MasterCard Vice Chairman Walt Macnee, who took part in the Cuomo trip, told USA Today that he had two meetings with Cuba’s central bank to pave the way for use of U.S. cards in Cuba. “Now we’re going to work with each of the banks individually and make some progress there,” he said.
But just because U.S. banks are now allowed to have correspondent accounts in Cuban financial institutions to support authorized business and to handle credit and debit transactions for authorized American travelers doesn’t mean they’re required to do so, said Propst.
“Many banks are still hesitant,” he said, because of uncertainty over whether they’ll be held responsible if an American traveler doesn’t fall within 12 categories of Cuba travel the United States allows or if the traveler uses the card to pay for unauthorized transactions.
“It can’t be someone who goes to Cuba to invest in vintage 1950s Chevys, for example. That’s not permitted,” Fernandez said.
The Office of Foreign Assets Control has said the banks should rely on the word of travelers that their trips are authorized “provided that such persons do not know or have reason to know that a transaction is not authorized.”
That last phrase makes bankers nervous, said Fernandez, who has a number of financial clients, because they are unclear how bank regulators and auditors will interpret it.
Lawyers say there needs to be further clarifications from OFAC before U.S. banks will feel comfortable handling Cuban debit and credit card transactions. They anticipate further clarifications of the regulations that came out in January.
“Banking with Cuba I think is still down the road,” said Peter Quinter, a Customs and trade attorney with GrayRobinson. “The physical and legal infrastructure doesn’t exist yet.”
Financial institutions have been notoriously cautious about doing business with the island because of fears they might run afoul of U.S. sanctions against Cuba, and they have reason for pause. The United States has aggressively pursued banks around the world that have had any dealings with Cuba that use U.S. dollars and has imposed very hefty fines.
Some analysts say Cuba’s removal from the list may encourage a bank to begin handling the accounts of the Cuban Interests Section in Washington, which processes fees for visas and passports, and Cuba’s U.N. diplomatic mission in New York. For more than a year after their previous banker withdrew, the missions and their employees have been operating on a cash basis.
The State Department has tried to help Cuba in its quest to find a new banker and a senior administration official says that the banking situation is close to being resolved. But so far there has been no announcement and a spokesman for the Cuban Interests Section did not respond to phone calls from the Miami Herald.
“I don’t think it’s as easy as has been portrayed,” Hernandez said. “What banks wants to take on the expense of monitoring all the transactions that go through those accounts?”