Departing from more than two decades of US policy, the US government officially announced on April 17, 2019, that it will allow US nationals to bring lawsuits against any person who traffics in property confiscated by the Cuban government pursuant to Title III of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 (“Helms Burton Act” or “Act”) as part of a series of sanctions measures against Cuba, Nicaragua and Venezuela. Until now, Title III has been suspended by every administration since 1996. Effective May 2, 2019 (when the most recent suspension expires), a US national, which is defined under the Act as any US citizen or any legal entity organized under the laws of the United States and which has its principal place of business in the United States, will be able to file civil lawsuits against third-country individuals and companies whose business activities in Cuba involve property that was confiscated from them by the Cuban government on or after January 1, 1959. Following the US announcement, the European Union and Canada announced their opposition to Washington’s shift in policy, stating that pursuant to their own blocking statutes, which went into effect shortly after the Helms Burton Act was passed, US judgments under Title III will not be recognized or enforceable and that EU and Canadian defendants will be authorized to pursue counterclaims against successful US claimants in EU and Canadian courts. As described in more detail below, this could result in litigants being involved in lawsuits in multiple jurisdictions.
The coming into effect of Title III was announced along with a broader package of sanctions targeting Cuba, Venezuela and Nicaragua.
Yesterday’s action in Washington, as well as the international response, has implications for companies on both sides of potential disputes involving confiscated Cuban property. Companies with affected interests in Cuba should carefully consider any potential exposure and their strategic options in relation to the possibility of claims. Individuals and entities with potential claims must consider not only the merits of their claims but also the issues relating to navigation of foreign blocking statutes and the impact that this may have on their overall litigation strategy.
The Helms Burton Act was enacted into law on March 12, 1996, prompted by the downing by Cuban government fighter jets of two private airplanes, which were operated by members of a Miami-based organization opposed to the Cuban regime, that had entered Cuban airspace. The Act includes a variety of provisions intended to overthrow the Cuban Communist regime and is one of the instruments of the US embargo against Cuba.
Title III of the Act provides a cause of action under US federal law pursuant to which US nationals may bring lawsuits against any person who “traffics” in confiscated property. The term “traffics” is broadly defined and essentially includes any transaction or activity involving confiscated property, including causing, directing, benefitting or profiting from any such transaction or activity. “Traffickers” are exposed to liability for money damages in the amount established for claims to confiscated property exceeding $50,000 that were certified by a US Department of Justice commission in the early 1970s, plus interest.1 Claimants can obtain greater damages if they show by clear and convincing evidence that fair market value or some other value, plus interest, is the appropriate amount of liability. Furthermore, Title III authorizes US claimants to recover attorneys’ fees and court costs from the foreign party.
The Trump administration’s decision to allow the suspension period to lapse has significant extraterritorial implications. Specifically, non-US persons that are deemed to have “trafficked” in confiscated property are now at risk of litigation in US federal courts for directly exploiting such property or otherwise indirectly benefitting from the exploitation thereof, regardless of their ties to the United States.
Although the precise scope of Title III has never been litigated, given the broad language of the Act, foreign parties may face a potentially large number of suits by US persons, regardless of whether they have any direct presence or activities in the Unites States (which is typically required for US courts to have jurisdiction over a person). To illustrate the potential scope of the Act, Title III’s language could conceivably give a US federal court jurisdiction over a suit brought by a US person against any foreign financial institution or investor that provided a loan or invested in a project in Cuba that involves confiscated property. Additionally, any foreign person that has a direct involvement in such a project would also face the possibility of litigation. For example, if a foreign bank or investor provides capital to a foreign development company for a tourist project that will be developed on confiscated land, Title III could allow both the foreign bank or investor and the foreign development company to be sued in US federal court, regardless of whether such foreign persons had any connection to the United States.
International Response to Trump Administration’s Announcement
The international community has responded, as it did to the Act’s 1996 passage, with considerable criticism. Prior to the Trump administration’s official announcement, EU leaders indicated that such an action could lead to a challenge in the World Trade Organization (“WTO”), in addition to actions and claims under the EU Blocking Statute offering protection against the extraterritorial effects of US sanctions or actions. Specifically, on April 10, 2019, the High Representative of the EU for Foreign Affairs and Security Policy Federica Mogherini and EU Trade Commissioner Cecilia Malmström stated in a letter to US Secretary of State Mike Pompeo that if the US government deviated from its agreement to suspend Title III, then the European Union would be “obliged to use all means at its disposal, including in cooperation with other international partners, to protect its interests.” Most recently, on April 17, 2019, High Representative Mogherini and Commissioner Malmström issued a joint statement reiterating that the European Union “will consider all options at its disposal…including in relation to its WTO rights and through the use of the EU Blocking Statute.”
First, pursuant to the EU Blocking Statute, no judgment of a court or tribunal and no decision of an administrative authority located outside the European Union giving effect, directly or indirectly, to the Helms-Burton Act or to actions based thereon or resulting there from, will be recognized or be enforceable in the European Union. In addition and more significantly, the EU Blocking Statute could result in retaliatory litigation in EU member state courts against US claimants that are successful under the Helms Burton Act. In particular, the EU Blocking Statute authorizes EU companies that were sued under Title III to recover any damages by going after the US claimants’ assets in the European Union. In this regard, it has been reported that the 50 largest US claimants, who constitute 70 percent of the value of potential claims under Title III, have assets in the European Union. Accordingly, US persons that can bring claims under Title III should consider the potential implications of bringing suit, particularly if they have significant assets in the European Union.
Another US ally significantly affected by the Trump administration’s decision is Canada, which has had a blocking statute in place since the 1980s, specifically amended in 1996 to counter the Helms Burton Act. Both the EU and the Canadian blocking statutes will impede enforcement in the European Union and Canada, respectively, of any judgments issued by US courts under Title III.
Obstacles related to access to defendants’ assets and enforceability of judgments abroad will likely test and, to a great extent, determine the actual impact of Title III on foreign parties with existing interests in Cuban confiscated property. Those foreign parties with significant assets in the United States stand in the most vulnerable position. In any event, Title III will no doubt represent a significant deterrent to potential investors in Cuba.
Other Sanctions Announced
In addition to allowing civil lawsuits under Title III, the Trump administration announced that it will tighten restrictions on travel and remittances to Cuba. While the regulations setting forth these restrictions are not yet public, these measures will likely affect US companies, particularly airlines, cruise lines and other companies in the travel sector that invested in Cuba-related business under the Obama administration’s engagement policies. The measures also include the addition of entities to the Cuba Restricted List maintained by the US Department of State, which are subject to heightened restrictions under the Cuba sanctions program. Additionally, previously authorized “U-Turn” transactions that allowed US financial institutions to process Cuba-related transactions subject to a number of requirements will also be prohibited.
The Trump administration also announced additional sanctions against Venezuela and Nicaragua, including the addition of various parties on the Specially Designated Nationals and Blocked Persons List (“SDN List”) maintained by the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), such as the Central Bank of Venezuela, a Nicaraguan bank and various individuals linked to the Nicaraguan government. As a result of OFAC’s actions, all property and interests in property of these banks, and any entity that is owned, directly or indirectly, 50 percent or more by these banks and individuals, that are in the United States or in the possession or control of US persons are blocked and must be reported to OFAC. Moreover, US persons are generally prohibited from engaging in all dealings within (or transiting) the United States that involve any property or interests in property of these designated banks and individuals. Several general licenses have been issued to mitigate the impact of these designations on certain parties and transactions. US businesses with dealings involving Venezuela and Nicaragua should carefully review whether any of the newly sanctioned banks and individuals are involved and take appropriate steps to unwind any operations, transactions, or contracts with these sanctioned parties as authorized by OFAC or otherwise block any property and interests in property of such parties.