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

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.8In 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.14However, 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.16Additionally, 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.