January 22, 2019 – On January 16, 2019, Secretary of State Mike Pompeo issued a statement indicating that the Trump Administration may enable a never-before-used provision of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 – known colloquially as the Helms-Burton Act after its original sponsors, Senator Jesse Helms and Representative Dan Burton – to come into effect. That provision would allow U.S. individuals and companies that had their property expropriated by the Cuban government to seek treble damages in U.S. courts from foreign companies profiting from the use of that expropriated property.
If permitted, such lawsuits would represent a major expansion of U.S. secondary sanctions directed at Cuba. The threat of treble damages allowed under the Helms-Burton Act would likely be a major obstacle to sustaining and attracting new foreign investment to the island nation, as well as almost certainly increase friction with important U.S. trading partners whose companies could become the targets of such lawsuits. While there are some notable limitations on the right of action created by the Helms-Burton Act, as well as the unknown impact of “blocking” legislation in foreign jurisdictions, non-U.S. companies with interests in Cuba are advised to assess their potential liability in the event that the lawsuits are permitted.
Historical Context for the Helms-Burton Act
In the aftermath of the Cuban Revolution, between 1959 and 1961, the Cuban government nationalized most of the island’s industry. Because U.S. parties controlled approximately two-thirds of the Cuban economy, extensive American property interests – including land, factories, hotels, and personal homes – were expropriated by the Cuban government, without compensation.
In response to these and other acts of the Cuban regime, in 1963 the U.S. imposed a comprehensive economic embargo against Cuba, administered by the Treasury Department’s Office of Foreign Assets Control. At the same time, the U.S. Foreign Claims Settlement Commission (“FCSC”) registered and recorded claims of U.S. citizens against the Cuban government for the expropriation of property or disability or death of U.S. nationals since January 1, 1959. To date, the FCSC has certified 5,913 claims – collectively worth $8 billion with interest – as valid.
Following the 1991 collapse of the Soviet Union – the Cuban government’s primary economic lifeline – the Cuban government amended its constitution to allow foreign entities to own partial ownership interests in certain industries (including tourism, real estate, sugar, and construction) in order to attract outside economic investment. Many of these industries involve property and assets that were expropriated after the Cuban Revolution.
Passage of the Helms-Burton Act
In 1996, the U.S. enacted the Helms-Burton Act. While U.S. parties whose property had been expropriated by the Cuban government have always had a claim against the Cuban government (as adjudicated by the FCSC under Title V of the International Claims Settlement Act of 1949), Title III of the Helms-Burton Act created a right of action in U.S. federal courts against any foreign party who “traffics” in property that was expropriated from a U.S. party by the Cuban Government after December 31, 1958.
The term “trafficking” is defined broadly under the Helms-Burton Act to include any person that knowingly and intentionally:
transfers, distributes, dispenses, brokers, or otherwise disposes of confiscated property,
purchases, receives, obtains control of, or otherwise acquires confiscated property,
improves (other than for routine maintenance), invests in (by contribution of funds or anything of value, other than for routine maintenance), or begins after the date of the enactment of [the Helms-Burton Act] to manage, lease, possess, use, or hold an interest in confiscated property,
enters into a commercial arrangement using or otherwise benefiting from confiscated property, or
causes, directs, participates in, or profits from, trafficking . . . by another person, or otherwise engages in trafficking . . . through another person.
Under Title III of the Helms-Burton Act, U.S. plaintiffs are entitled to monetary damages of three times the value of their property, which is calculated as the higher value of (i) the amount certified by the FCSC (plus interest), (ii) a value determined by a court-appointed special master (plus interest), or (iii) the fair market value of the property, either at the time it was confiscated (plus interest) or its current market value. In most if not all cases, the current monetary value would almost certainly exceed the values at the time of expropriation and the values as certified by the FCSC.
Title III of the Helms-Burton Act, however, also allows the President to suspend that right of action against foreign party “traffickers” of expropriated U.S. property for up to six months at a time “if the President determines and reports in writing to the appropriate congressional committees at least 15 days before the suspension takes effect that such suspension is necessary to the national interests of the United States and will expedite a transition to democracy in Cuba.” Every President since the Helms-Burton Act became law has continuously exercised this suspension provision, so that the Title III cause of action has never before been active.
On January 16, 2019, however, Secretary Pompeo, acting as President Trump’s designee, announced that the administration would only extend the Title III suspension for 45 days past its current February 1, 2019, expiration date. Secretary Pompeo explained, “This extension will permit us to conduct a careful review of the right to bring action under Title III in light of the national interests of the United States and efforts to expedite a transition to democracy in Cuba and include factors such as the Cuban regime’s brutal oppression of human rights and fundamental freedoms and its indefensible support for increasingly authoritarian and corrupt regimes in Venezuela and Nicaragua.” While it is possible that the Administration could again extend the suspension after the expiration of the 45 days, Secretary Pompeo’s statement signals a clear threat that Title III could be activated.
Anticipated Effect on Foreign Companies in Cuba
Non-U.S. companies doing business in Cuba with expropriated U.S. assets could face significant private liability if the suspension provision is allowed to lapse. Given the broad definition of “trafficking” under the Helms-Burton Act, a great number of non-U.S. businesses are likely to be exposed to potential private liability under the right of action. There are, however, several limitations on the right of action in Title III of the Helms-Burton Act that somewhat narrow the potential for liability.
First, while the right of action is not exclusively for claims certified by the FCSC, U.S. parties who were eligible to file with the FCSC but failed to do so, or who filed and were denied certification, are not entitled to the right of action.
Second, while the largest claims certified by the FCSC are worth tens or even hundreds of millions of dollars (before interest and trebling), according to data from the FCSC, most certified claims are fairly small, with the average certified loss being $272,081. On the other hand, since damages under Title III will include interest accumulated over decades, and can in the alternative reflect a higher current market value, these smaller amounts could turn out to be much larger – particularly when trebled.
Third, the Helms-Burton Act provides a relatively short, two-year statute of limitations that begins to run “after the trafficking giving rise to the act has ceased to occur.” To the extent non-U.S. companies doing business in Cuba with expropriated assets are able to divest the business of those assets, those companies might be able to appreciably limit their potential exposure to future liability.
Last, the impact of “blocking” legislation in the EU, Canada, and Mexico is likely to have some impact on the claims process, at least where the “trafficker” is a national of one of these jurisdictions. Specifically, these laws – the EU Council Regulation (EC) No. 2271/96, the Canadian Foreign Extraterritorial Measures Act, and the Mexican Law of Protection of Commerce and Investments from Foreign Policies that Contravene International Law– may discourage some potential claimants from invoking Title III remedies, either by making it more difficult to discover necessary information or to enforce a judgment. Further, all three laws allow nationals of these jurisdictions to sue to recover any damages they are required to pay under Title III.