Today, I conclude my weeklong exploration of doing business in Cuba from the perspective of the Foreign Corrupt Practices Act (FCPA) with some final observations. One of the key themes throughout this week’s blog posts has been the inherent complexity of preparing for and then doing business in Cuba when such opportunities become available. All of these issues are overlaid by the biggest issue, which is the political settlement that will have to occur before there can be anything close to full and open trade between the US and Cuba.
It appears to me that the two biggest issues are from the American side, reparations to be paid to person and companies whose land and properties were confiscated. From the Cuban side, the biggest issue is the US trade embargo. There are other issues that I heard discussed during my weeklong visit and they include Guantanamo, the Cuban Adjustment Act and subversion. I am sure there are others but even with this list you can see the difficult negotiations ahead for both sides. Couple these issues with an American political system which is in or near complete dysfunction and the continued rule of the Castro brothers, formerly Fidel and now Raul, and it is clear that the path will be challenging.
Additionally as I have tried to make clear throughout this week, everyone you deal with is a government employee in Cuba. This means that the plumber you hire to help renovate or fix your buildings pipe systems is a government employee. The same is true for the air conditioning repairman, the telephone technician, electrical repairman and all other similarly situated workers. They are all paid a set wage by the state; something like 300, 500 or 800 pesos per month. This leads to everyone trying to do anything to supplement their income.
Now consider what will happen when you need their services. Under the FCPA, a Facilitation Payment might be considered to move yourself or your company up the list to obtain repairs or work earlier. Now consider the amount of this Facilitation Payment. What might be appropriate: 20, 50 or 100 pesos? Even at a one-to-one exchange rate, these amounts would all probably pass muster under a FCPA analysis, if they were properly recorded in your books and records as Facilitation Payments.
But what if the US government looked at it in a different manner? Such as considering the amount of the Facilitation Payment as a part of a monthly income? Now how does 50 pesos look to someone whose monthly pay is 500 pesos? Does a Facilitation Payment become a bribe when it is 10% of the monthly income of the person receiving the payment? How about on an annual basis, does a Facilitation Payment of 1% of the receiver’s annual salary constitute a bribe? The best I can say at this point is there are no FCPA enforcement actions where this issue has arisen. This would lead to speculation that such an amount is a Facilitation Payment so it is exempt from FCPA enforcement but I can certainly see an argument going the other way.
How about the hiring of Cuban government official when they leave the employ of the government? The government has announced it plans to reduce the size of its bureaucracy by over 10% by the creation of jobs in the soon to arise private sector. This could well lead to a very fast moving one way (not revolving) door from government regulator to private sector employees in the same industry or business segment. On the one hand it makes perfect business sense to hire someone from the Ministry of Agriculture, if your US based company is entering into the Cuban agricultural market because of their technical expertise or knowledge. On the other hand, it may certainly appear as if a promise might have been made that if my company’s license is approved, that some government official who had decision-making authority or even influence received something in return for discretionary decision.
If the latter were true how long should there be between receipt of license and hiring away of the government official? Should there be window for non-poaching? Yet, where else are you going to find a talent pool specific to a Cuba business segment? How about local content requirements? All potentially difficult questions where the answer might appear quite reasonable under one analysis. Yet a few years later, under a different review it may appear to raise a FCPA issue. You only need consider the investment banks under scrutiny for conduct in Libya for their interactions around that country’s sovereign wealth fund to see the potential danger.
Finally, with all of the potential issues I have laid out in this series, simply under a FCPA analysis, why would your company even go into Cuba? You need to consider not only the FCPA but a whole host of topics I have not touched upon, such as the legal system, rule of law, independence of judiciary, monetary and export controls and a whole host of others; all the while trying to make a profit. This is not China with a potential market of billions but an island nation of 11.2m people.
Yet even with all these considerations, I believe you should contemplate going into Cuba for several reasons. It is only 90 miles south of the United States and sits at the very crossroads of the intersection between North American, Central America and South America. It is by far the largest island in the Caribbean and has the potential to be one of the leaders in the Caribbean basin. The potential market is still available to your company and has a population with literacy approaching 99% so it presents a workforce with an education level far above any other country in the region. Lastly, how many times in your lifetime or your company’s existence do you have the chance to enter into a truly new market?
The inherent complexity of preparing for and then doing business in Cuba when such opportunities become available.Click to tweet
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© Thomas R. Fox, 2016