Freshfields Bruckhaus Deringer – On December 17, 2014, President Obama announced sweeping policy changes that will influence investment and commercial relations with Cuba. The announced changes may also impact US nationals and corporations whose assets were nationalized by the Cuban government prior to the US embargo. This briefing focuses on the likely future of those property claims.
Background
As noted in our parallel briefing on limited lifting of sanctions regulations, on December 17, 2014, President Obama announced sweeping policy changes that will influence investment and commercial relations with Cuba. The announced changes may also impact US nationals and corporations whose assets were nationalized by the Cuban government prior to the US embargo. This briefing focuses on the likely future of those property claims
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Implications for companies with FCSC-certified claims
Between 1959 and 1961, the Cuban government nationalized almost all US-owned assets on the island, including electricity companies, the entire telephone system, oil refineries, over two million acres of land,1 private homes, and small businesses.2
In 1964, Congress established the Cuban Claims Program, which authorized the US Department of Justice, through the Foreign Claims Settlement Commission (FCSC) , to collect and assess evidence from US nationals concerning allegedly confiscated assets. The deadline for submission of claims was May 1, 1967.3 The FCSC held a second program in 2005 for any claims that arose after May 1, 1967, which had a filing deadline of February 13, 2006.4 Based upon the evidence presented, the FCSC certified both the validity and value of individual claims.5 In six years of work, the FCSC adjudicated over 8,000 claims, of which it found almost 6,000 as valid and compensable, with an aggregate value of nearly US$ 2.0 billion,6 an amount worth around US$ 7 billion today.
It is not yet clear what effect the recently announced policy changes will have on the Cuban Claims Program.7 What is clear, however, is that under the terms of the embargo, trade restrictions cannot be lifted without settlement of the certified claims.8 In respect of the property claims, Roberta Jacobson, Assistant Secretary of State for Hemispheric Affairs, has indicated that “this is a process, and it will get started right away.”9
This briefing outlines how these long-dormant claims may finally be settled.
While the FCSC has not issued updates for certified Cuban claimholders, the following analysis draws upon prior experiences with FCSC-certified claims against other countries and other mass claim programs to examine how the Cuban claims might finally be settled.
What might the settlement process look like?
Two alternative scenarios are most likely. First, the US and Cuba could constitute an international tribunal to adjudicate individual FCSC-certified claims. The tribunal would be comprised of judges appointed by the US and Cuba, most likely with the backstop of a neutral appointing authority, and would be governed by a set of rules agreed upon between the two nations.
As a second option, the US and Cuba could negotiate a lump-sum settlement of the certified claims, with the FCSC distributing the settled amount on a pro-rata basis among certified claimholders.10 A variation might be a hybrid program, with a tribunal adjudicating high-value claims and a lump-sum settlement covering smaller claims, as happened with regard to US nationals’ claims against Iran following the Iranian Revolution.11
Until a settlement mechanism is agreed upon, there is no way to estimate how long the process will take.
I have a certified claim. Can I expect to receive the full certified amount? Can I challenge the amount certified by the FCSC?
Absent rapid growth of the Cuban economy, it is unlikely that Cuba will be able to afford to make full payment with interest on the certified claims in cash. Further, the US government has nearly unlimited authority to settle the claims for less than face value.12 In previous settlements, however, certified claimants have successfully challenged their designated pro rata amounts on limited grounds, including due process.13 If a tribunal were constituted to hear individual claims, US jurisprudence suggests that the FCSC-certified valuation would not be binding upon that tribunal.14 However, in similar circumstances, Congress has established a presumption in favor of the amount certified.15
The outlook need not be entirely pessimistic. As part of the thaw in US-Cuba relations, Cuba might be able to negotiate financing, either from the US government or from multilateral finance institutions, to meet its obligations to claimholders.16 Additionally, a lump-sum settlement, or individual adjudications, could include new bond issues and new investment opportunities.
I never submitted my claim / my claim was rejected. May I seek reconsideration now?
With some exceptions, those who failed to file claims by the deadline of May 1, 1967 or, for claims arising after that, February 13, 2006, or whose claims were rejected by the FCSC, will face an uphill battle in being included in the program and receiving compensation.17 However, applicants whose claims were denied for failure to prove US nationality could seek recourse before alternative fora.18 With respect to US nationals who did not file, the Executive Branch could re-open the claims process to address serious injustice, as it did in 2005.19
Conclusion
We expect to see more clarity on the way forward for the reset of US-Cuba relations and the claims process in the coming weeks. We will issue periodic briefings on this issue as the path becomes clearer.
Freshfields’ International Arbitration Group has significant experience with claims processes and tribunals, including before the Iran-US Claims Tribunal, the UN Compensation Commission, and the Claims Resolution Tribunal for Dormant Accounts in Switzerland. The Group also includes some of the leading Latin American dispute specialists who have successfully litigated, arbitrated, and settled over 30 expropriation claims under investment treaties in the region.
1 US Agency Int’l Dev. et al., Report on the Resolution of Outstanding Property Claims Between Cuba & The United States 131 (2007) [hereinafter US AID Report].
2 See Foreign Claims Settlement Commission of the United States, Section II Completion of Cuban Claims Program Under Title V of the International Claims Settlement Act of 1949 at 73, available at http://www.justice.gov/sites/default/files/fcsc/docs/final-report-cuba-1972.pdf.
3 Id. at 112.
4 Program Overview, Foreign Claims Settlement Commission of the United States, http://www.justice.gov/fcsc/claims-against-cuba.
5 Id.
6 Id.
7 News, Foreign Claims Settlement Commission of the United States, http://www.justice.gov/fcsc.
8 22 U.S.C. § 6067(d) (“It is the sense of the Congress that the satisfactory resolution of property claims by a Cuban Government recognized by the United States remains an essential condition for the full resumption of economic and diplomatic relations between the United States and Cuba.”).
9 See Cuba’s Change Opens Door to Assets Lost in 1960s, N.Y. Times, Dec. 22, 2014.
10 The Cuban government has indicated its intention to negotiate a settlement for the expropriated US assets. See Ley No. 80, Nov. 24, 1994, Ley de Reafirmación de la dignidad y soberanía cubanas, Art. 3.
11 The US-Iran Claims Tribunal was established to determine both large and small claims, the cut-off being US$ 250,000. The US and Iran ultimately settled the small claims, with the agreed lump-sum amount being allocated via FCSC proceedings.
12 Dames & Moore v. Regan, 453 U.S. 654 (1981); US AID Report, supra note 1, at 205.
13 Ralpho v. Bell, 569 F.2d 607 (D.C. Cir. 1977). But see Fraenkel v. United States, 320 F. Supp. 605 (S.D.N.Y. 1970) (holding that the finality statute as to Commission decisions bars judicial review); Shanghai Power Co. v. United States, 4 Cl. Ct. 237 (1983) (denying Fifth Amendment challenge to forced settlement for 10% of value).
14 Banco Nacional de Cuba v. First Nat’l City Bank, 505 F. Supp. 412 (S.D.N.Y. 1980) (ruling that the FCSC’s valuation was probative but not conclusive), aff’d as modified, 658 F.2d 875 (2nd Cir. 1981).
15 22 U.S.C. § 6082(a)(2).
16 US AID Report, supra note 1, at 255.
17 22 U.S.C. § 1643m.
18 US AID Report, supra note 1, at 207.
19 See Letter from Condoleezza Rice, Secretary of State, to Mauricio Tamargo, Chairman of the FCSC (July 15, 2005), available at http://www.justice.gov/sites/default/files/pages/attachments/2014/06/23/cuba_ii_a.pdf.
