Cuba Seizures Now Present Opportunities

http://www.nytimes.com/2014/12/22/world/cuba-seizures-now-present-opportunities.html

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MIAMI — It was a routine Saturday morning, almost two years after Fidel Castro took power in Cuba, when Lois and Roy Schechter went to check on their tobacco farm 100 miles west of their home in Havana.

The American couple encountered soldiers posted outside their property.

“My husband got out of the car, exchanged a few words with the soldiers, got back in the car, and we drove away,” Mrs. Schechter, of Saratoga Springs, N.Y., recalled of that day in October 1960. “Things were getting scary, and there was nothing else we could do.”

After nearly 60 years in the country, the Schechter family fled and never returned.

The Schechter family farm in Pinar del Río became one of almost 6,000 properties owned by American citizens and companies that were confiscated by the Cuban government. With the stroke of a pen or the pointing of a rifle, countless farms, oil refineries, homes, factories and other businesses were nationalized — losses that ultimately led the United States government to prohibit trade with Cuba.

On Wednesday, President Obama announced that the United States will begin normalizing relations with Cuba, bringing the Schechter family a step closer to resolving its decades-old property claims. Although the president did not mention the contentious issue in his announcement, lawyers are scrambling to determine whether normalized relations with Cuba will create an opportunity to get compensation for lost properties now estimated to be worth nearly $7 billion.

Cuba’s gross domestic product is about $68 billion, making cash payouts highly unlikely. But companies interested in foreign investment in Cuba are probably imagining how their settlements could be exchanged for other investment deals, said Robert L. Muse, a Washington lawyer who represents several claimants and watches the issue closely.

“I think a large flare has gone up over the corporate claimants. They are not going to miss it,” Mr. Muse said. “I think it’s unlikely that Coca-Cola’s highest aspiration is to recover a state-of-the-art 1950s bottling plant. If people approach it with the right flexibility, innovation is going to be key.”

The list of claimants includes national hotel chains and an electric company, sugar mill owners and tobacco farmers like the Schechters.

The Schechters lost their farm, a shirt factory and a 17-room home in Marianao, which is now being used as a residence by the Chinese Embassy.

Confiscation of American properties in Cuba began in 1960 after United States oil companies refused to refine Russian crude. Cuba in turn nationalized the oil companies, so the United States refused to buy Cuban sugar. The Schechters lost the farm in October 1960, when Cuba announced it would nationalize all remaining American property on the island.

The retaliatory tit-for-tat that helped begin one of the most enduring Cold War standoffs also resulted in staggering losses for many companies and individuals. At the same time, a policy of redistributing idle land to the masses also meant that Cubans and Americans alike had their holdings seized by the state.

In 1967, the United States government created the Foreign Claims Settlement Commission, a quasi-judicial agency within the Department of Justice, to calculate American losses in Cuba. In six years, the commission logged 5,913 claims totaling $1.8 billion.

The American-owned Cuban Electric Company submitted the largest claim, for $267 million. Large corporations with claims included United Fruit, Standard Oil, American Sugar Company and Texaco.

“Those corporations bounced back from their losses,” said Carolyn E. Chester, whose father, a speechwriter for Fulgencio Batista, the leader who was ousted by Mr. Castro, lost land in the Isle of Pines and $250,000 worth of telephone company stock. “These families that lost all their land and all their property, they did not bounce back. I went to junior college and didn’t have riches. When I was a little girl, all my life I heard, ‘When the embargo ends, we will get paid for our losses.’ ”

The United States trade embargo against Cuba prohibits full economic trade with the island until those claims are settled. Experts say restoring diplomatic relations is likely to open the door for claims to be resolved sooner, although the Cuban government has expressed no interest in doing so and the embargo remains in place.

Roberta S. Jacobson, the assistant secretary of state for Western Hemisphere affairs, said registered claims against the Cuban government have always been included in discussions about restoration of diplomatic relations.

“We do not believe those things would be resolved before diplomatic relations would be restored, but we do believe that they would be part of the conversation,” she said last week. “So this is a process, and it will get started right away, but there’s no real timeline of knowing when each part of it will be completed, because it has to be completed by agreement of both governments as you go along.”

The Department of Justice said in a statement on Friday that it was “not yet clear” what effect the policy changes would have on the claims, but that it would “continue to monitor the issue.”

Even Cuban-Americans opposed to Mr. Obama’s rapprochement see opportunity.

“As a pro-democracy activist, this is morally repugnant, disproportionate, possibly illegal and bad for America,” said Nicolás J. Gutiérrez Jr., a Miami consultant who has studied the confiscation issue for decades, referring to the normalization of relations. “Putting that aside, as a member of a family that lost significant property and someone who has worked with claimants for years, it may ironically create opportunities.”

Mr. Gutiérrez noted the Foreign Claims Commission was available only to property owners who were American citizens at the time of the confiscation. Cubans who later became American citizens were excluded, which could allow them to negotiate on more favorable terms, while the State Department negotiates on behalf of American claimants, he said.

About 15 percent of the confiscated land is in the hands of cooperatives. Small farmers use about 2 percent, and large Cuban state corporations control much of the rest, he said.

“It’s not like we’re going to take this property back from potentially good guys or little guys,” Mr. Gutiérrez said. “When the government crumbles, the legitimate owners should have a chance to get their properties back, put them in production or give them to someone who can.”

Teo Babún, whose consulting firm tried unsuccessfully to register Cuban-American losses, said experts had spent years studying reparation models used in other countries, including Vietnam and Nicaragua. In post-unification Germany, a temporary commission of judges and lawyers put all the claims into a pool and then negotiated them one by one, often making deals with investors.

“I think a lot of larger corporate entities in Cuba are thinking that at the appropriate time, they will go to Cuba and negotiate one on one,” Mr. Babún said.

Frank O. Mora, a former Obama administration official who now heads the Latin American and Caribbean Center at Florida International University, warned against too much optimism. Aside from a prisoner swap last week, he said, all the other major policy changes were unilateral decisions by Washington.

“You need two sides to play, and the Cubans have not agreed to anything,” Mr. Mora said. “There is no indication that the Cubans in the near future are going to sit down and negotiate.”

Last week’s announcement was also closely watched by companies with Cuba-related trademark disputes.

Although companies were allowed to register trademarks despite the embargo, they could not renew them without a special license, which meant some trademarks lapsed, setting the stage for future litigation, said Jorge Espinosa, a Miami lawyer who represents firms that register trademarks in Cuba.

A 1998 law made it illegal to register a trademark that belonged to an expropriated company. With that law on Bacardi’s side, in 2012 the United States Supreme Court let stand a lower-court ruling in favor of the company in a decades-long dispute with the French firm Pernod Ricard over the use of the Havana Club brand.

Pernod Ricard has a joint venture with the Cuban government and took the Havana Club name when Bacaradi’s registration lapsed. After the court loss, Pernot Ricard came up with a new name, “Havanista,” for the identical product, ready for the American market should the embargo be lifted.

“What I can tell you is that the day the embargo is lifted, we will become the first company to send boxes of genuine Cuban rum to the United States,” Pernod Ricard’s spokesman, Olivier Cavil, said by telephone from France on Sunday. “The question is whether it will be named Havana Club or Havanista is the point. Havanista for sure — it’s registered. Havana Club is a question mark for the moment.”