Significant shift in US extraterritorial sanctions against Cuba. US sanctions and EU regulations go head to head.

On 17 April 2019, the Trump Administration announced that US nationals will be allowed to file lawsuits against any person or company trafficking in Cuban confiscated property, before US courts. This by activating the long-suspended Title III of the Libertad Act. In his reasoning, the Secretary of State remarked that "Sadly, Cuba’s most prominent export these days is not cigars or rum; it’s oppression." The EU views the decision as contrary to international law and will, according to its High Representative, use the EU Blocking Regulation to prohibit EU persons from complying with it.

 

Background

The US sanctions against Cuba date back to 1962, when President Kennedy proclaimed an embargo on trade between the US and Cuba in response to actions taken by the Cuban government. Since then, the US policy towards Cuba has consisted of economic sanctions aimed at isolating the government.

A major policy shift occurred in 2014 when the Obama administration moved away from comprehensive sanctions and towards engagement and normalization of relations. The Obama administration's policy changes from 2014 - 2015 included (i) removing Cuba from the list of state sponsors of terrorism; (ii) reopening US and Cuban embassies; and (iii) amending the Cuban Assets Control Regulation ("CACR") and the Export Administration Regulations ("EAR") to ease restrictions in an effort to increase travel, commerce and the flow of information.

The US sanctions against Cuba have taken a different turn under the Trump administration. In 2017, the Trump administration issued a new policy towards Cuba, which introduced new sanctions and rolled back some of the Obama administration's efforts to normalize relations. So far in 2019, the Trump administration has further increased the economic sanctions against Cuba significantly – currently culminating in the previously mentioned activation of Title III of the Libertad Act. Referring to Obama's past policy towards Cuba, and this new direction in attitude, the Secretary of State Mike Pompeo stated on 17 April 2019 that:

"Detente with the regime has failed. Cozying up to Cuban dictators will always be a black mark on this great nation's long record of defending human rights."

The activation of Title III

As touched upon previously, the activation of Title III of the Libertad Act (the Cuban Liberty and Democratic Solidarity Act of 1996)will allow for US nationals to file lawsuits in US courts for monetary damages against those who are, or have been, trafficking in property  confiscated by the Cuban regime after the communist revolution in 1959 led by Fidel Castro.  Under Title III, "any person" that "traffics" in confiscated property is liable for money damages to any US national whose property was confiscated.

Although Title III of the Libertad Act was formally passed by the Congress already in 1996, the enforcement has been regularly suspended by every President ever since.  As of  yesterday, on 2 May 2019, the suspension of Title III is, for the first time, revoked. According to Mike Pompeo, Title III of the Libertad Act will now be "implemented in full".

The scope of application of Title III is extremely broad. Firstly, lawsuits under Title III may be filed against "any person". This includes foreign persons. This means that also European individuals and companies may be liable under Title III. Secondly, one may be deemed liable for a wide array of actions relating to the confiscated property. The term "traffics" is widely defined to include, inter alia, a person's use, sale, lease, transfer, control and management of, or other commercial engagement in, the property. A person also "traffics" in the property if he or she more indirectly profits from the trafficking of another person. Both direct and indirect economic transactions touching expropriated property interests is included. Thus, the scope extends further than direct owners of, and investors in, the confiscated property, and may include, inter alia, shareholders in European hotel chains with Cuban operations, investors in funds with Cuban property interests, institutions acting as lenders to Cuban property developers or businesses engaged in profitable trade with Cuban businesses based on, or utilizing, confiscated property.

Directly, the purpose of Title III is to provide recourse and justice for the US nationals whose property was confiscated by the Cuban regime. Due to its remarkably wide reach, an effect of Title III may also, more broadly, be that the threat of US legal action deters foreign investors from investing in Cuba.

The reasons behind the decision to revoke the suspension of Title III are, according to Mike Pompeo, that the Cuban regime "continues to deprive its own people of the fundamental freedoms of speech, press, assembly, and association," and undermines "the security and stability of countries throughout the region, which directly threatens United States national security interests". Further, the tightening of US sanctions against Cuba is intended to intensify the pressure on the Cuban regime to end its support for the Venezuelan President Maduro, as the Cuban regime according to Mike Pompeo "has for years exported its tactics of intimidation, repression, and violence" to Venezuela.

Most likely, the end of the limitations to Title III of the Libertad Act will not only be a symbol of the Trump Administration's stricter sanctions policy towards Cuba. According to Reuters, the US State Department has informed that Title III could potentially produce up to 200 000 claims in the tens of billions of dollars range.

The decision to activate Title III is thus viewed as a significant step on the road towards a tougher US sanctions regime on Cuba.

Relevance of the EU Blocking Regulation

The EU has strongly opposed the activation of Title III, viewing the measures as secondary sanctions on foreign companies operating in or with Cuba. Yesterday, on 2 May 2019, the EU High Representative Federica Mogherini stated that the EU "deeply regrets" the activation of Title III. The EU views the decision as "contrary to international law" and that it will "will cause unnecessary friction and undermines trust and predictability in the transatlantic partnership".

As a consequence, the EU Blocking Regulation (Regulation No 2271/96 of 22 November 1996), that prohibits EU persons from complying with certain 'blocked' US sanctions, has become increasingly relevant. 

The Blocking Regulation was originally implemented as a countermeasure to protect EU Persons from wide-ranging US sanctions against Cuba, and was brought into force shortly after the Libertad Act was passed in 1996. As set out in Article 1 of the Blocking Regulation, it "provides protection against and counteracts the effects of the extra-territorial application of the laws specified in the Annex of this Regulation". In the Annex of the Regulation, Title III of the Libertad Act is included.

The main feature of the Blocking Regulation is that no judgement of a court or tribunal, and no decision of an administrative authority, located outside the EU that gives effect, directly or indirectly, to the laws specified in the Annex, or to actions based thereon or resulting there from, shall be recognized or enforceable in the EU in any manner, cf. Article 4 of the Blocking Regulation. Thus, US court decisions relating to Title III claims will not be enforceable in the EU. Further, if a EU Person is ordered to pay damages following a lawsuit brought forward under Title III in a US court, such EU Person is entitled to recover any damages by filing a damage claim against the US person before EU courts, cf. Article 6 of the Blocking Regulation.

In her previously mentioned statement, Frederica Mogherini underlined that:

"[t]he EU will consider all options at its disposal to protect its legitimate interests, including in relation to its WTO rights and through the use of the EU Blocking Statute."

What are the practical implications?

Firstly, it is difficult to predict the consequences of the implementation of Title III since it has previously not been in force. The wide scope of its application, combined with the potentially significant amount and economic value of outstanding damage claims, could mean that the implications of the now active Title III will be significant.

Secondly, it is challenging to predict the practical consequences of the EU Blocking Regulation since it has not been in much use to this date - neither in relation to Cuba nor other sanctions programs. If, however, claims based on  Title III will be set forth, it is not unlikely that the relationship between US sanctions and the EU Blocking Regulation will be tested.

Against this background, EU businesses may be faced with an obvious dilemma where one may find oneself in violation of the EU Blocking Regulation if one seeks to comply with the US sanctions regulations set out in Title III. If one rather opts for compliance with the EU Blocking Regulation, and thus violating Title III instead, it is, however, doubtful whether the Blocking Regulation will in itself be sufficient to protect EU companies from the risk of consequences imposed by US authorities. This in particular since the US authorities historically have not seen the Blocking Regulation as a legitimate defence against actions that are targeted by US sanctions, and the US also has other tools in their sanctions tool box, such as US visa bans.

Thus, any person or company doing business in Cuba or with Cuban entities, may nevertheless have to initiate measures in order to ensure that their activities do not utilize confiscated property, whether directly or indirectly, following the implementation of Title III of the Libertad Act.