BigLaw Stands To Gain From New US Policy In Cuba
By Carolina Bolado
December 18, 2014
President Barack Obama’s announcement Wednesday that the U.S. would ease travel and trade restrictions with Cuba for the first time since 1961 positions Miami as a departure point for future investments and means major opportunities for lawyers in the hospitality, travel, telecommunications and construction sectors, experts say.
After 18 months of secret talks with Cuban President Raul Castro, Obama announced that the U.S. would begin normalizing diplomatic relations with Cuba and will lift restrictions on interstate money exchange, travel, trade, telecommunications and third-country financial transactions. While the announcement was met with mixed reactions in the political sphere, the legal and business communities looked to the opportunities that may open up with greater interaction with the island nation 90 miles away.
The easing of regulations and restoration of diplomatic relations is a “watershed moment,” according to Pedro Freyre, chairman of Akerman LLP’s international practice, who said he almost fell out of his chair when he heard the announcement.
“It’s not hyperbole to say that this is historic,” Freyre said. “The U.S. and Cuba have not had diplomatic relations since 1961.”
The hospitality and travel business will likely be immediately impacted thanks to loosened restrictions on travel to Cuba, according to Francis Rodriguez, a partner at Shutts & Bowen LLP in Miami. In addition to easing regulations on who can visit Cuba, the announcement that the U.S. would allow Americans to use credit and debit cards on the island will make travel in Cuba easier.
“In the immediate future, we see the primary opportunities for business interests and our clients in the tourist industry, including travel and hospitality,” Rodriguez said. “There has already been a lot of interest in Cuba in those sectors and we expect the president’s comments to increase those interests.”
He expects new opportunities for joint venture agreements with existing travel and hospitality operators to expand facilities and to market Cuba more broadly to the American public.
“Given the reality of the political situation in Cuba, our clients have been measured in their approach to investment in Cuba,” Rodriguez said. “However, the president’s comments may help facilitate Miami as a potential departure point for the investments which our clients wish to cautiously investigate and pursue.”
In many ways, South Florida, the hub of all things Cuban outside of Cuba, could be the epicenter of mid- to small-sized businesses that might want to participate in new opportunities opened up by the easing of regulations, according to Holland & Knight LLP partner Jose Sirven.
Sirven said that in addition to the travel sector, financial institutions, which previously were not permitted to have correspondent accounts with Cuban banks, will feel the immediate effect of the changes and that he expects his financial institution clients to call for advice on how these changes might affect them.
“It’s an immediate change that they need to figure out how to handle,” Sirven said. “They can’t currently have Cuban accounts, but that’s a particular change that the president has requested. It sounds like financial institutions will now be permitted to deal with Cuban banks.”
This will allow for more large-scale commerce to occur between the U.S. and Cuba, as opposed to just the family remittances that are regularly sent back to the island, according to Andrew Ittleman of Fuerst Ittleman David & Joseph PL. His partner at the firm, Mitchell Fuerst, added that he expects change to come quickly after the president’s announcement.
“There is a huge amount of business between the U.S. and Cuba, and it pings off of Colombia, Venezuela, Belize and Guatemala,” Fuerst said. “What you’re going to see is business instead of being directed in some ignoble way is going to go directly from the U.S. The embargo is not down, but I don’t believe that will influence people’s behavior. We’ve seen it already in remittances. With money transfers from the U.S. to Cuba, there is no barrier.”
Other attorneys think the increase in trade and business will be more incremental. Freyre at Akerman does not expect the trade floodgates to open immediately, but he said Obama’s move should facilitate trade in certain areas, beginning with foodstuffs, which are already allowed under the embargo and which U.S. companies have sold to the Cuban government for years. From there, trade could expand in telecommunications, which Obama specifically mentioned in his announcement Wednesday, and possibly construction materials, which are sorely needed on the island, where buildings are crumbling from decades of neglect.
“Step No. 1 is more trade, and that builds confidence and relationships,” Freyre said. “If things go well and there’s a lowering of tensions, you’ll see greater financial compacts and greater flow of goods. If that goes well and Cuba modernizes its corporate law, trade law and judiciary, investors will begin to feel confident that it’s a safe place to invest. It will not happen overnight.”
Among the many announcements made by the president Wednesday, one that exporters to Cuba were relieved to hear is that they will no longer have to wait for payment from Cuba before shipping their products. Cuba will still have to pay in cash for its purchases, but the payment can now be made just before handing over the goods at the port of entry, according to Freyre, who said the small tweak should make trade between the two countries run more smoothly.
But many of the impediments to increased trade come not from the U.S., but from Cuba, where the average citizen makes very little money. Trade is done with the government, which is cash-strapped, has no credit and whose economy is in shambles. The country is particularly suffering now that oil prices have plummeted, as it has in years past sold heavily subsidized Venezuelan oil on the open market to generate cash.
“They can’t rely on Venezuela anymore, which has its own problems,” Doug Jacobson of Jacobson Burton PLLC said. “They have to now fend for themselves, and that’s not easy to do in a truly state-run economy. The economy there is still very much a work in progress.”
Trade in agricultural products will likely increase incrementally, according to Jacobson, who added that suppliers of telecommunications products could also find buyers in not just the Cuban government but also with telecom companies from other countries that operate on the island.
Jacobson, who has worked on Cuba licensing issues for more than two decades, added that though the president’s goal of getting more Cubans connected with smartphones and computers is a good one, the Cuban government’s agenda is a different one.
“Average Cubans have very little access to the Internet, and infrastructure in Cuba is still very very poor,” Jacobson said. “In terms of what we want to accomplish, it sounds great, but if the Cuban government doesn’t want that, it won’t happen.”
Even if the embargo were lifted completely, large-scale changes will need to be made on the island before investors are willing to dip their toes in the market. But re-establishing diplomatic relations is an important first step, according to Freyre.
“We are now taking steps on our side to make things easier,” Freyre said. “We’re opening our valve a little bit. Cuba needs to do the same.”