On April 17, 2019, US Secretary of State Mike Pompeo announced that the Trump administration will no longer suspend the private right of action under Title III of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 (the “Helms-Burton Act”), thus exposing Canadian and other non-US firms to civil claims in US courts for damages arising from “trafficking” in “confiscated” property in Cuba. The decision, which takes effect on May 2, will have a significant impact on companies doing business in or with Cuba.
This brief note is intended to provide some context for these developments and highlight the potential impact on Canadian companies and Canada’s response to date.
What is Helms-Burton?
In early 1996, shortly after the downing by the Cuban Air Force of two planes flown by “Brothers to the Rescue” (a Cuban-American organization), US President Clinton signed into law the Helms-Burton Act. The Helms-Burton Act is extraterritorial in nature – it applies to activities outside the territory of the United States. Further, unlike other US sanctions measures in place against Cuba, it applies regardless of any US ownership or control over the foreign entity and irrespective of whether US goods, services or technology may be involved in the transaction.
In other words, a Canadian company with no US ownership, employing no US citizens or residents and handling no US-origin goods or technology, can be subject to measures under the Helms-Burton Act for its business activity occurring entirely outside of the United States.
The most controversial elements of the legislation are contained in Title III (“Protection of Property Rights of US Nationals”) and Title IV (“Exclusion of Certain Aliens”).
Title III - Private Right of Action
Title III of the Helms-Burton Act, which has been in effect since August 1, 1996, accords a private right of action to US nationals (including those who were not US citizens at the time of expropriation) who have a claim to property expropriated during the Castro revolution in Cuba to bring suit against those considered to be “trafficking” in such confiscated property. The Helms-Burton Act grants authority to the US President to suspend the coming into force of Title III as well as to suspend the right to bring an action under Title III, both of which are renewable every six months. On July 16, 1996, US President Clinton announced that he would not exercise his right to suspend the coming into force of Title III, but that he was suspending the right of US nationals to bring actions under Title III on a six-month basis. Since then, the right to bring action has been suspended every six months under the administrations of President Clinton, President Bush, President Obama and, until now, President Trump.
Persons are considered to be trafficking in confiscated property where they knowingly and intentionally, and without the authorization of any US national owning a claim to the property, engage in any one of a broad range of specified commercial activities or profit or benefit from such activities. Notably, the definition of trafficking is broad enough to include not only direct dealings in confiscated property, but also the conduct of business with the owners of such property -- for example, indirect activities, such as purchasing from or selling to traffickers, could be considered to be either “engaging in a commercial activity . . . otherwise benefitting from confiscated property” or “profiting from trafficking”.
Also of significant concern is the availability of treble damage awards to claimants under Title III. Any person found to have been trafficking after November 1, 1996 in confiscated property, a claim to which has been certified by the US Foreign Claims Settlement Commission, will be subject to treble damages. In respect of non-certified claims, traffickers will be liable for treble damages if they continue to traffic in confiscated property after receiving written notice of a Title III action against them at least thirty days before its initiation.
Title IV - Bar on Entry into the United States
Title IV of the Helms-Burton Act came into force on March 12, 1996 and provides for the exclusion from entry into the United States of any foreign national, and their spouses and minor children, who has converted confiscated property for personal gain or who traffics in confiscated property in Cuba, a claim to which is owned by a US national. Although the definition of trafficking for the purposes of Title IV differs somewhat from that applied for the purposes of Title III, trafficking again is defined in broad and vague terms.
The US State Department’s first notification under Title IV was made to Sherritt Inc. of Canada, the largest private investor in Cuba, and a company well known for its public intentions to continue expanding its business activities in Cuba despite the existence of the US trade embargo. Since August 24, 1996, certain officers and directors of Sherritt, along with their spouses and minor children, have been barred from entry into the United States. Although the US State Department since then has also from time to time banned from the United States executives, and their family members, from other companies, including those of Mexico and Israel, at the present time Sherritt is the only listed company.
What is Canada’s response?
Canada’s Foreign Extraterritorial Measures Act (FEMA) is best known for its Blocking Order that (i) makes it a criminal offence to comply with certain measures comprising the US trade embargo of Cuba and (ii) requires Canadian companies to immediately notify the Attorney general of Canada of certain communications they receive in respect of such US measures. For over 25 years, Canadian companies have attempted to navigate their way through potentially conflicting obligations between US sanctions against Cuba and the FEMA Blocking Order.
However, in the specific context of Title III of the Helms-Burton Act, the Canadian government made some potentially helpful amendments to FEMA in 1997 to respond to the threat of lawsuits against Canadian companies. These remain in effect today and provide for the following:
- Helms-Burton Title III judgments shall not be recognized or enforced in Canadian courts;
- the Attorney General may prohibit or restrict the production of records in Canada for purposes of Title III actions in the United States,,
- Canadian companies who have had damages awarded against them in the United States may claim an equivalent amount of damages from the US Title III plaintiff in Canada (i.e., a “clawback”), and
- Canadian Title III defendants may recover their costs from US plaintiffs before a judgment has been issued in the United States.
Of course, if a US plaintiff under Title III has no presence or assets in Canada, some of these mechanisms may be of limited value.
Could this be challenged under international trade and investment agreements?
To date, Canada has not challenged the Helms-Burton Act under its trade agreements in place with the United States. This is in contrast to the approach taken by the European Union.
In October of 1996, the EU initiated a challenge of key elements of the US trade embargo of Cuba by requesting the establishment of a World Trade Organization (“WTO”) panel to consider the consistency of the US measures with WTO agreements, including the General Agreement on Tariffs and Trade 1994 (“GATT 1994”) and the General Agreement on Trade in Services (“GATS”). The EU challenge was made in respect of the Helms-Burton Act (including the Title III right of private action, the Title IV ban on entry into the United States, and restrictions on US persons financing transactions involving confiscated property), the US Cuban Assets Control Regulations, and certain other sanctions measures.
In April of 1997 the EU agreed to suspend its challenge at the WTO, pending attempts by the US Administration to have Congress amend the Helms-Burton Act enabling EU individuals and companies to be exempt from the application of Title IV of the Helms-Burton Act, and to obtain a Title III waiver for the EU without a specific time limit. The EU agreed not to challenge the Helms-Burton Act as long as the waiver of Title III remained in effect and no action was taken against EU companies.
This EU-US “truce” has no doubt come to an abrupt end with the Trump administration’s decision to cease suspending the Title III right to bring action.
Indeed, an April 17, 2019 joint statement issued by EU High Representative/Vice President Federica Mogherini, Minister of Foreign Affairs of Canada Chrystia Freeland and EU Commissioner for Trade Cecilia Malmström declared that Canada and the EU are “determined to work together to protect the interests of our companies in the context of the WTO”.
In addition to likely challenges at the WTO, Canadian companies subject to Title III claims in US courts may also consider pursuing damages against the US government under the NAFTA Chapter 11 investor-state dispute mechanism. This, however, may not be available for long as NAFTA’s proposed replacement, the US-Mexico-Canada Agreement, eliminates the application of investor-state dispute settlement as between Canada and the United States.
Canadian companies across all sectors should be carefully reviewing their activities that relate to Cuba and their potential exposure to claims that those activities are connected to “confiscated” property. These include not only companies operating in Cuba or on Cuban property, but also those who supply goods or services to the island. Such review would include due diligence regarding affected properties and claims filed with the US Foreign Claims Settlement Commission,
As with any steps that may be taken in reaction to US measures regarding trade with Cuba, Canadian companies must also be fully mindful of the potential application of the “non-compliance” and notification obligations under the FEMA Blocking Order.