Cuba 3I am back from a week of cultural and professional exchange in Cuba. It had been a lifelong dream of mine to go to Cuba and I hopped on the first trip I could enroll in after the travel for cultural exchanges were opened up last year. All I can say is if you ever get the chance to go to Cuba, especially in the next couple of years, run don’t walk to sign up. It was a great experience, yet in many ways almost surreal, as if I stepped back into a 1960s movie set, complete with cars from the 1950s and buildings that have not been repaired from that time period going forward.

The International Section of the State Bar of Texas, led by Section Head George Humphrey and tour organizer, Sasha Dimitroff, sponsored this trip. Our tour agent was Cuba Cultural Tours (CCT) and our CCT tour host was Dani Perez. We were hosted locally by Havana Tours, with Annia de la Nuez as our local cultural expert and tour guide. All of the people we met were enthusiastic about the changes in store for their countries. While we met with some persons who spouted the party line on history and economics, everyone recognized that change is coming to Cuba and they all wanted to be a part of it.

We met with several representatives of the government, lawyers, a historian, professors and an economist who discussed recent changes in Cuban law that have opened the country up from a pure Socialist economic system towards something like a mixed economy. Over the next few blog posts, I will be considering the impending opening of Cuba to US business, what you can do now and what you must wait for until the embargo is lifted; all from the perspective of compliance with the Foreign Corrupt Practices Act (FCPA).

The first, and foremost, thing to understand about doing business in Cuba is that the government literally owns (almost) everything. There is some private enterprise but it is very small scale, from the guys peddling bottled water on the street corner to the restaurateur who has converted his house into an eatery catering to foreigners. However these small-scale entrepreneurs must stay small scale. You can basically have a license to operate one such private enterprise. And here even the homes are owned by the government, or as it would say, the property of the Cuban people.

This means that any US business that desires to open commercial operations in Cuba will have to deal directly with the Cuban government and this clearly means the FCPA will apply to every transaction. From the moment you apply for a Visa to travel to Cuba until you walk about the departure gate at the airport to board your return flight to the US, you will be interacting with people who work for the government of Cuba. They may work for the state in a ministry, in a business that delivers products or services inside the country or interact with foreigners, such as US companies who want to do business in Cuba. But make no mistake about it, they are all paid by the government under a set pay scale across the island, with each business delivering a product or service recognized as one provided by the government of Cuba. If those factors do not convince you, note that all such commercial businesses are owned directly by the government.

This also means that anyone (with the exception of one person I will note in a subsequent blog post) you hire to assist you in this process will be covered under the FCPA. Every Cuban law firm, authorized to do business with foreign clients is government owned. Another chamber of commerce type person, economist or even law professor you might hire to assist you is an employee of the Cuban government so the FCPA will apply in all of your dealings with those persons and entities as well. This is true whether you consider the foreign official or instrumentality prong of the FCPA.

There are three general forms of investment that a foreign entity can make in Cuba. The first is an International Economic Association. This is akin to a partnership or teaming agreement that a foreign entity would make with an existing Cuban entity. The second is Foreign Investment Capital Enterprise, where a foreign company creates a new Cuba entity, which can be up to 100% owned by the foreign company. Such an entity cannot simply be a branch office but a separately incorporated entity in Cuba. The third is called Mixed Investment, which is more akin to a joint venture (JV). Here you should note that the best you can hope for is 51-49 split, with the Cuban government always maintaining the majority position.

The process to obtain a license to do business in Cuba is long and very drawn out. Any business looking for a quick return on investment in this country should look elsewhere as it would appear that you are looking at most probably a two-year process just to obtain a license. Clearly an investment in Cuba is a long-term play so hopefully this means companies that understand such plays will be making the entrees going forward. Also with the government interactions you will need to make throughout the process, a robust set of internal controls will be a must going forward, with your key mantra of Document, Document, and Document.

As the world has seen what happens when a socialist economy moves dramatically to a market economy, most markedly in Russia, I think it is safe to assume that the Department of Justice (DOJ) will be watching US companies very closely to monitor compliance with the FCPA. As the Russian economy may be so large and diverse, the better example of such DOJ review of conduct might by Libya, after the opening under Gadhafi. The US government encouraged several US entities to invest in Libya and now a number of those same companies are under FCPA scrutiny for their dealing with the Libyan Sovereign Wealth Fund and its employees.

While it will be easier to do business in Cuba after the embargo is lifted, which may be several years down the road, if you are interested in doing business with Cuba, you need to start preparing now rather than later. Over the next few blog posts, I will be discussing some of the FCPA issues I see going forward. Tomorrow I will consider agents, more particularly when your agent is also a government employee.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

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