U.S., Cuba begin claims talks

CUBA STANDARD — Taking another historical step in the normalization process, the United States and Cuba began negotiations about conflicting claims on Tuesday in Havana.

During the meeting, which took “the better part of the day, including breaks and lunch,” according to a State Department official, the two sides put the claims on the table. The United States presented claims by U.S. nationals certified by the Foreign Claims Settlement Commission (FCSC), claims related to unsatisfied U.S. court judgments against Cuba, and claims of the U.S. government. The Cuban side explained claims against the United States for “human and economic damage” caused by the embargo.

A State Department official who spoke on background after the meeting called it “very preliminary” and “an opportunity to exchange information in a very general matter about the claims.”

“The meeting is the first step in what we expect to be a long and complex process, but the United States views the resolution of outstanding claims as a top priority for normalization,”  a State Department statement said.

“Both sides agreed to continue the exchange about this topic,” a note by Cuba’s foreign ministry said after the meeting. “The encounter evolved in a respectful and professional environment,” it added.

There is no schedule yet, but the two sides agreed to meet again within the “next three to four months,” according to the State Department official. 

The terse official statements contrast with the importance of the issue as an obstacle to normalization — and the opportunity it presents, according to one close observer.


“For the first time since the Cuban revolution nationalized thousands of U.S. properties — large corporate holdings and modest family vacation homes — the U.S. and Cuba will sit down to discuss adequate compensation for losses,” said Richard Feinberg, a professor of international political economy at UC San Diego and senior fellow at the Brookings Institution. “If successful, as many as nearly 6,000 U.S. claimants will be transformed from hostile to enthusiastic supporters of normalization of economic relations between the two nations, undercutting the remaining core opponents.”

U.S. lawmakers opposed to President Barack Obama’s normalization policy with Cuba, such as Florida Sen. and U.S. presidential candidate Marco Rubio, have called for claims to be settled before easing any travel and trade restrictions. In May, Rubio, along with fellow Sen. David Vitter (R-Louisiana), introduced legislation calling for outstanding claims by U.S. citizens and companies against the Cuban government to be settled. Rubio and Vitter’s Cuban Claims Settlement Act in America would require the president to put in place a plan to settle outstanding U.S. claims registered with the Department of Justice before proceeding any further toward normalization.

While there doesn’t seem to be a hurry right now, the negotiations may be propelled forward by upcoming elections in the United States.

“2016 is a pivotal year in U.S.-Cuban relations, because there is great uncertainty about what happens in November elections here in the United States,” said Brookings Institution Latin America expert Ted Piccone. “Some of the leading presidential candidates on the Republican side have made it very clear that they intend to pull back, reverse, do various things that would change Obama’s policy of opening up to Cuba. So that creates a certain sense of urgency to see how much progress can be made in this next, say, six to 10 months, to take advantage of that window of opportunity.”

Meanwhile, the Cuban government has meticulously kept track of damages caused by the embargo in annual reports, estimating the total cost at $1.1 trillion, compared to an estimated total of $8 billion in U.S. claims.

Abelardo Moreno
Abelardo Moreno

In the talks, some observers believe Cuban negotiators may take an initial position of calling it even — “negating U.S. claims with Cuba’s counter-claims and call it a wash”, as analyst Feinberg puts it in a 56-page road map for claims talks, which was presented by the Brookings Institution on Tuesday.

Obama administration officials have not publicly explained how they plan to approach the big-stake talks, nor has the Cuban side.

“Very importantly, both nations, the U.S. and Cuba, agree on the principle of compensation,” Feinberg said during the press conference in Washington presenting his paper. “That is to say both nations agree that sovereign nations have the right to nationalized properties in the public interest, but are required to pay just compensation to the owners. Cuba does not dispute this basic principle in international law.”

In the first meeting, the U.S. delegation was led by Mary McLeod, acting legal adviser for the U.S. Department of State; the Cuban side was presided by Deputy Foreign Minister Abelardo Moreno Fernández. McLeod has been the senior career attorney in the Office of the Legal Adviser since 2013, advising the Secretary of State on all aspects of the Department of State’s international legal work. She manages a bureau of 300 attorneys, support staff, and contractors.

Armando top claimsThe U.S. claims were filed by 5,043 individuals and 898 corporations. According to the Foreign Claims Settlement Commission (FCSC), a division of the U.S. Department of Justice, in 1972 the total value of U.S. claims certified by FCSC was $1.9 billion (consisting of 5,911 compensable claims); including the 6% simple interest typically applied by FCSC, the total today is close to $8 billion.

“However, that figure is a rather arbitrary figure,” Feinberg said during the press conference. “It is not required or stated in any U.S. legislation. Moreover, in fact, in terms of settlements that have been negotiated by the State Department over the years, most bilateral lump sum accords have fell well short of that 6% interest target.”

Only 15% of the total value is held by individual claimants, while 85% are held by corporate claimants. Given that the Top 20 claims — all of them corporate — make up two-thirds of the value of all certified U.S. claims, these large claims are the lynchpin for any successful approach to an eventual settlement. Of the top 20 claims ($1.25 billion in 1972), 42.5% ($530.6 million) were sugar-related. Due to sugar’s prominent role in the Cuban economy, both before and during much of the revolutionary period, the biggest U.S.-owned properties seized during the Revolution included entities such as North American Sugar, United Fruit Sugar, West Indies Sugar, American Sugar, Francisco Sugar Company, Manati Sugar Company, and New Tuinucu Sugar Company.

In addition to claims over seized properties, the are “about 10” judgments by U.S. courts against Cuba — rulings that usually came about without any Cuban defense in the proceedings — totaling “somewhere over $2 billion”, the State Department official said in the briefing.

“And those are something obviously that we believe need to be addressed,” she added.

Armando Big Lump

The FCSC does not include claims by thousands of Cubans who became U.S. citizens after the confiscation of their properties. Their claims will not be on the table in the U.S.-Cuba talks.

Massive compensation cases such as this one are typically resolved through bilateral negotiations between the two governments. Rather than individual companies negotiating one by one with Cuba, the nearly 6,000 cases are handled by the U.S. government as a whole.

In his paper analyzing the claims situation (Cuba Standard published an excerpt here), Richard Feinberg suggests a “grand bargain.” It would consist of a two-tier settlement strategy that includes lump-sum settlements for the bulk of smaller, individual claims, and a menu of options for corporate claimants that will allow for U.S. investments, ranging from debt-equity swap vouchers, to “rights to operate”, final project authorizations at the Mariel Special Development Zone, “preferred acquisition rights”, and payment through sovereign bonds, rather than actual restitution of seized property. He also suggests a variety of sources for compensation funds that could be used in the settlement process.

“Cuba could offer a menu of options that claimants could choose from on a voluntary basis, if they found something that menu of options more attractive than monetary compensation,” Feinberg said. “In each case, many of these creative solutions in that menu of options, Cuba could tie the solution to requirements that that company carry out additional investments on the island so that there would be a net gain, not only for the company, but also for the Cuban economy.”

Meanwhile, a lump-sum payment for small claimants — Feinberg estimates it at $230 million — would be quite feasible, potentially settling the largest number of cases.

“That $230 million is well within the capacity of even the Cuba government, particularly if it were stretched out over a couple of years,” he said.

Feinberg's road map: A "grand bargain"?
Feinberg’s road map: A “grand bargain”?

Cuba’s side of the story

Officials in Havana have repeatedly said that Cuba would have settled the U.S. claims long ago had it been up to them.

The early nationalization laws of the 1960s provided for compensation, including Law 851 of July 6, 1960, which nationalized many U.S. corporate properties. Law 851 provided for compensation by a 30-year bond paying 2% interest. Also, both Fidel Castro, Che Guevara, and top Cuban diplomats in various conversations over the years with U.S. diplomats have agreed to include compensation on the bilateral agenda.

Cuba settled with other nations, including Canada, Spain, France, Italy, and the UK. Spanish claimants were paid the equivalent of $45 million amid Cuba’s devastating economic crisis of the 1990s.

The way Cuban officials see it, the United States owes Cuba multiples of what Cuba owes U.S. claimants; any discussion over settling U.S. claims must go hand in hand with a discussion of compensation for the more than a trillion dollars of damage done to Cuba by the U.S. embargo, they say.

“I can’t speak in the name of Cuba. I am neither a politician, nor a leader, nor a government official,” a law professor at the University of Havana, who agreed to speak on background, told Cuba Standard earlier this year. “But when facing a situation like this, when both sides owe and are owed at the same time, there could be compensation, or a legal action to compensate the reciprocal debt.”

Cuba's latest annual report
Cuba’s latest annual report

To back up its claims against the United States, Cuba every year presents a report to the United Nations that quantifies billions of dollars of losses sustained from the U.S. embargo. There are also two rulings by Cuban courts regarding human loss and economic damage due to actions emanating from the United States, the professor points out.

Funding sources

In his paper, Feinberg identifies six potential sources of funding on both sides of the Florida Straits, including Cuban government revenues from exports or taxing of future U.S. investors; fees paid by U.S. travelers to Cuba or income from other normalization-related activities; the U.S. Congress authorizing a replenishment of $200 million in frozen Cuban assets (after having been drained to satisfy U.S. court orders against Cuba); fresh appropriations from U.S. Congress; international financial institutions such as the IMF — and one across the Atlantic that has recently come into play.

“The U.S. government is looking at the feasibility of using the penalty money received from BNP Paribas for violating the embargo to pay the certified claims,” said Pedro Freyre, a Cuban-American attorney with Miami law firm Akerman LLP.

The funds Freyre refers to are the $8.8 billion the U.S. Justice Department collected from that French bank for violations of U.S. trade sanctions imposed not only against Cuba, but against Iran and Sudan as well. Earlier this year, Department of Justice officials said that the U.S. government intends to use part of the BNP Paribas penalty funds to compensate “persons and entities” harmed by the Cuba, Iranian and Sudanese governments.

Feinberg estimates that a total of $734 million from the BNP penalties could be used for Cuba-related compensation.

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