Bob Dylan won the Nobel Prize for literature. Those were words I never thought I would see in the same sentence, let alone write in the same sentence. Yet here we are, the first rock and roller to win the Nobel Prize. While he did win the award for his songwriting poetry, I do consider Dylan a rock and roller. It is not simply so I can claim him but, if you have ever seen him perform live, you know he can seriously rock out. In honor of Dylan, this week I will highlight songs which led him to this prestigious station in life, Bob Dylan – Nobel Laureate.
I open Bob Dylan – Nobel Laureate week with one of the most enigmatic Dylan songs of all time, Subterranean Homesick Blues, which was the lead track on the album Bringing It All Back Home. The song was Dylan’s first Top 40 hit in the US, peaking at number 39 on the Billboard Hot 100. With its open lines of Johnny’s in the basement, Mixing up the medicine; I’m on the pavement, Thinking about the government to my personal favorite You don’t need a weatherman to know which way the wind blows the song is a seemingly mixed metaphor of Jack Kerouac and Woody Guthrie. While the 1960s radicals The Weathermen took their name from this song, it now stands for understanding where things tend to be headed (cf. Mike Volkov).
I thought about where things might be headed for US companies, looking forward to doing business in Cuba, through the lens of the Foreign Corrupt Practices Act (FCPA) over the weekend when I read that the Obama Administration, through a Presidential Policy Initiative, lifted a portion of the trade embargo applicable to Cuba. I was more interested in the part which Dylan’s wind blowing lines portended. The Initiative stated, in part, that “our role will be to pursue policies that enable authorized U.S. private sector engagement with Cuba’s emerging private sector and with state-owned enterprises that provide goods and services to the Cuban people.” It then went on to direct the US Department of Commerce to “continue a robust outreach effort to ensure that U.S. companies understand that U.S. regulatory changes provide new opportunities to obtain licenses or use license exceptions to increase authorized exports to Cuba, including to Cuban state-owned enterprises that provide goods and services to meet the needs of the Cuban people.” [emphasis supplied]
According to the New York Times (NYT), “The action formalizes the shift toward normalization that the president unveiled nearly two years ago.” Most of the attention was centered on “lifting the $100 limit on bringing Cuban rum and cigars into the United States”. The Wall Street Journal (WSJ) reported, “The regulations announced Friday allow professional service companies, such as engineering and architecture firms, to work on projects related to developing, repairing or maintaining infrastructure… Businesses also may now enter into contracts that are contingent on steps to fully lift the U.S. embargo, which remains in place and requires congressional action to dissolve.”
The wind is clearly blowing for an opening of full relations between the US and Cuba and while there are still obstacles to overcome, it is no longer if full diplomatic relations will return but when. However, with its still full socialist state government doing business in or with Cuba presents some interesting issues from the FCPA perspective.
First, and foremost, 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 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.
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, it is safe to assume that the Department of Justice (DOJ) will be watching US companies very closely to monitor compliance with the FCPA. Here you can recall the several US entities which invested in Libya and are now under FCPA scrutiny for their dealing with the Libyan Sovereign Wealth Fund and its employees. Moreover, after the Nu Skin FCPA enforcement action, you should keep in mind that even a single FCPA violation can give rise to an enforcement action.
Yet any company that is actually doing compliance with an effective compliance program need not fear doing business with a socialist state such as Cuba. One of the key reasons to have a compliance program in place is so that you can manage high risk situations, including those with state-owned enterprises. Such is the situation in Cuba and no company needs to fear doing so going forward if they are they are doing compliance.
To be safe, consider that all commercial transactions in Cuba will be subject to the FCPA.Click to tweet
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© Thomas R. Fox, 2016