Canadian company says it has opened a remittance channel

Morales: Challenging Cuban authorities to shut down the channel.

CUBA STANDARD — As the Biden administration has failed to lift sanctions imposed by the Trump administration that effectively block remittances, and as it has yet to respond to recent Cuban overtures, a small Canadian company is trying to fill the void, claiming it has opened a channel for remittances without the need of any agreements with Cuban authorities.

In a press conference March 8 in Miami, a company executive even seemed to suggest RevoluGroup will be able to not only maintain these channels open and make money, but that it is able to do so against the wishes of Cuban authorities.

RevoluGroup shares on the TSX-V exchange dropped 5% the day of the press conference to 28.5 cents.

The British Columbia-based company says it can send money directly to hard-currency accounts of Cuban recipients at three state banks, for fees ranging from 5% to 7%. Recipients can also receive remittances directly to their digital wallet at zero cost, using an app and a RevoluPay Visa for payments, although it isn’t clear how Cuban recipients would get their hands on a card and whether it would be accepted by businesses in Cuba. The company also says that the U.S. Treasury Department has approved its remittance mechanisms, but it has yet to explain exactly how the bank transactions work. RevoluGroup has a subsidiary in Spain licensed by Spanish banking authorities that manages the company’s electronic wallet service.

The company did not respond to questions by Cuba Standard.

The Cuban Central Bank, in response to RevoluGroup’s announcement, said that no Cuban financial institution has an agreement with the company, and that it therefore “does not know about the formality and security of transactions”.

In the March 8 press conference, Emilio Morales, the Miami-based vice president of the company and a former executive of Cuban state enterprise Grupo Cimex, challenged the Cuban government to shut down the RevoluGroup channels.

Morales began with a moment of silence for the victims of the Russian invasion of Ukraine.

“Incredibly, the government of Cuba strongly supports Russia,” Morales said in Spanish, proceeding to explain the Trump administration’s blacklisting of the Cuban counterpart of U.S. remittance providers as “reasonable”, and that the Cuban government “robbed” remittance recipients. He also accused Cuban authorities of having been involved in illicit drug trade, among others.

“If the regime blocks the payments, they’re in big trouble,” Morales said, answering an audience question, suggesting Cuban authorities would risk access to the SWIFT bank transfer system and Visa transactions. “If this dictatorship wants to block humanitarian aid, they have to present evidence to Visa and SWIFT. And those prestigious institutions, in turn, will deny them access. Without them, they won’t last even two months.”

“They would have to think that through very well. I don’t think they’d be that stupid.”

Another Cuban overture to Biden

Amid the emergencies of the pandemic, in June 2020 the Trump administration placed Fincimex, the Cuban counterpart of Western Union, on the Cuba Restricted List, effectively blocking most remittances from the United States. In November 2020, after 20 years, Western Union stopped its Cuba service. The blacklisting forced Cuban families to move towards expensive bank transfers, cryptocurrency, and informal “mule” services, raising the cost of transfers by an estimated 30%.

In February, apparently offering the Biden administration a way to resume the billion-dollar flow of remittances by Western Union and other U.S. providers to Cuban families, the Banco Central de Cuba authorized an unknown entity called Orbit S.A. to manage “non-bank financial activities” and receive international transfers.

Asked about the Cuban move in a routine press conference last month, a State Department spokesman said that an announcement regarding remittances was imminent. No announcement has been made. The Biden administration, which has been reviewing U.S. sanctions since early 2021, has left the blacklisting intact for more than a year, adopting the Trump administration’s argument that “the regime should not take a cut”.

2021 saw the biggest year-to-year decline in remittances for Cuba. According to RevoluGroup’s Morales, the volume dropped 53.84% from 2020 to just above $1 billion, and 70.83% from 2019.

What is the real cost of remittances?

Some have accused the Cuban government of taking a cut of up to 20 percent for remittances. Indeed, the real cost of remittances to Cuba is astronomical for recipients who want to be paid out in pesos, when the discrepancy between official and street-level exchange rates is factored in. Avoiding that gap, the Cuban authorities will probably encourage the option of depositing dollar remittances at a 1:1 rate in digital MLC cards; MLC cards can be used at state retail outlets only. Cuba could also offer recipients to deposit remittances in their MLC or Euro bank accounts.

Meanwhile, actual service fees are much lower than U.S. rhetoric suggests. According to Cuban officials, Fincimex charged Western Union just $1 per $100 of remittances. According to U.S. experts, actual fees were somewhere between that and 5 percent when the U.S. government stopped the flow.

“Public comments and media reports suggesting that the Cuban government takes up to 20 percent of all in-bound remittances are exaggerated and outdated,” said Matthew Aho, a Miami-based Senior Policy Consultant for law firm Akerman LLP. “While such fees historically totaled up to 10 percent of the total remittance amount, by October 2020 those fees had dropped to less than 5 percent of the average remittance transfer of roughly $250.”

Biden administration politics

Service charges aside, both the Trump and Biden administrations have raised a political obstacle, arguing that Fincimex, which belongs to Grupo Cimex, is controlled by Cuba’s armed forces, and must therefore be boycotted. The Biden administration recently added sanctions against Cuban military and police figures in response to police repression against protesters.

“There are a number of things that we would consider doing to help the people of Cuba, but it would require a different circumstance or a guarantee that they would not be taken advantage of by the government,” Biden said at a press conference in July last year, days after anxiety over scarcity and inflation exploded in unprecedented street protests. “For example, the ability to send remittances back to Cuba. We would not do that now because the fact is, it’s highly likely the regime would confiscate those remittances or big chunks of it.”

The goal of the review is to get remittances “directly into the hands of … families without the regime taking a cut”, a statement by the White House said at the time.

John Kavulich, president of the New York-based US-Cuba Trade and Economic Council, suggested last year that if the Biden administration decides to let remittance services resume, it must accept the fact that the Cuban government “will gain in some measure” — either through a state-controlled receiving agency, or by way of an official dollar-peso exchange rate that overvalues the peso.

Blacklisting favors informal channels

Meanwhile, remittance industry experts express their concern over policies that push transfers into informal channels.

“Fincimex has done good work in managing remittances, circumventing all types of problems to pay remittances efficiently, mostly trying to compete with the informal market in Cuba,” said Hugo Cuevas-Mohr, CEO of Mohr Consulting and of Platinum Network, a Miami-based company that organizes remittance industry conferences.

What is Orbit S.A.?

Although it has been in existence since February 2020, Orbit has no website or social media activity. No track record of activities for Orbit is publicly available, and — beyond its duty to comply with Central Bank regulations — it is not clear what ministry or other entity it reports to.

The Central Bank committed to formally registering Orbit by early March. It is not clear how quickly Orbit could resume the activities formerly covered by Fincimex, which managed 420 remittance agencies throughout the island.

What took Cuba so long?

Cuba resents U.S. attempts to dictate which Cuban firms are valid counterparts for U.S. companies. That said, the government in November 2020 authorized remittance providers to transfer remittances through Cuban bank Banco Financiero Internacional (BFI) and to transfer bulk remittance payments for further forwarding through domestic inter-bank transfers to remittance recipients’ MLC accounts — only to see the U.S. State Department adding BFI to the Cuba Restricted List in January 2021.

It would not be surprising, therefore, if Cuba was wary of designating another bank or remittance processing company, over fears that any newly designated counterpart will also be blacklisted. That, in turn, may explain the creation of a low-cost test balloon, with an asset- and history-free entity such as Orbit S.A.

In August last year, in an apparent attempt to add more channels for bank transfers at lower cost, the government authorized the postal system to receive international bank transfers and money orders, and transfer them to Cuban recipients’ hard-currency accounts.

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