On May 2, 2019, Title III of the Helms-Burton Act came into force, governing the possibility for U.S. citizens affected by the expropriation of properties due to the Cuban revolutionary process to take legal action to claim compensation from the people who traffic in them. The U.S. International Claims Settlement Registry has identified some 6,000 potential claims. In this scenario, it is key to know the duties of information and relationship with the European Union that can be demanded of the addressees of such claims; as well as to plan in advance the reactive judicial measures that may be initiated in the EU to neutralize or mitigate the effects that these procedures may have for individuals and companies from the EU Member States.
What will happen from May 2, 2019 onwards?
In March 1996, coinciding with the shooting down in Cuban airspace of two light aircraft of the Hermanos al Rescate group, President Bill Clinton’s administration signed what is known as the Cuban Liberty and Democratic Solidarity Act of 1996; also known as the Helms-Burton Act.
One of the most controversial titles of the Helms-Burton Act is known as Title III whereby essentially the possibility is regulated of any U.S. citizen that has been affected by expropriation of assets the result of the Cuban revolutionary process, filing claims against natural or legal persons that traffic with such assets.
The controversial nature of the above-mentioned title, given the extraterritorial nature of the rule, gave rise to the inclusion of a presidential prerogative so as to be able to suspend it. Based on such prerogative, the application of Title III has been suspended from the very time of signature of the legislation, for successive six-month periods.
However, with the commencement of 2019 there has been a change of trend in relation to the use of the prerogative of suspension of Title III, which has culminated in its
The entry into force of Title III has given rise to numerous reports warning of the claims which could arise, in this case, against Spaniards with interests in Cuba. The extremely broad terms in which the Helms-Burton Act defines the term “trafficking”, would favor the attempt to extend the effects of the U.S. extraterritorial legislation to a very broad range of persons and entities that include, not only owners, purchasers and sellers of confiscated assets, but also anyone who controls, uses or manages these assets, participates in a commercial activity which benefits from confiscated property or in general obtains a benefit from the operation of them, even when it is through the intermediation of another person. Proof of this is the fact that at present there are already 6,000 claims included in the U.S. Foreign Claims Settlement Registry. Therefore, it is highly advisable to analyze in detail the link existing with any business activity carried on in Cuba, so as to ascertain whether it is included within the term “trafficking”.
A summary will be provided below of some of the measures which such persons can –and, in some case, must- adopt within the European Union if they are the subject of a claim, or of a threat of application, under the Helms-Burton Act. All of this is essentially in the light of the antidotal legislation approved by the European Union.
EU responses. Regulation no. 2271/96 and its implementing legislation
As has just been pointed out, the EU (at that time the EC) staunchly opposed the enactment of the Helms-Burton Act and the U.S. Iran and Libya Sanctions Act of 1996, since it considered them extraterritorial legislation contrary to public international law. For the purpose of combating or at least limiting the effects of such legislation, the Community legislature adopted a range of rules to ward off the effects of this legislation (“antidotal rules”), which constitute the so-called “Community blocking statute”. The essential tool of this legislation is Council Regulation (EC) No 2271/96 of November 22, 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom.
Regulation 2271/96 has been recently updated and implemented by means of two instruments. That of most importance with a view to combating the effects of the Helms-Burton Act is Commission Implementing Regulation (EU) 2018/1101, of August 3, 2018, laying down the criteria for the application of the second paragraph of Article 5 of Council Regulation (EC) No 2271/96 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom. Regulation 2271/96 is also supplemented by provisions of the Member States, focused, in particular, on specifying the system of sanctions established by the Regulation itself. In the case of Spain, those provisions are provided in Law 27/1998, of July 13, on sanctions applicable to infringements of the rules established in Council Regulation (EC) No 2271/96 of November 22, 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country.
The cornerstones of Regulation 2271/96 are as follows:
- Prohibition of compliance by Community private individuals and companies with the requirements or prohibitions, including requests of foreign courts, based on legislative instruments of third countries listed in its Annex, unless the European Commission authorizes compliance.
- Obligation to notify the Commission when any of the above-mentioned persons are directly or indirectly affected by the application of the U.S. legislation.
- Recognition of a right to compensation for the damage suffered as a consequence of the application of the U.S. legislation.
- Possibility of suing in the courts of Member States to exercise the above-mentioned right.
- Refusal to recognize judgments issued by foreign courts that apply the U.S. legislation.
The persons protected by the Regulation, but also bound by duties listed in it, are listed in Article 11, namely:
- any natural person being a resident in the EU and a national of a Member State;
- any company incorporated in the EU;
- any natural or legal person referred to in Article 1 (2) of Regulation (EEC) No 4055/86 (nationals of the Member States established outside the EU and to shipping companies established outside the EU and controlled by nationals of a Member State, if their vessels are registered in that Member State in accordance with its legislation);
- any other natural person being a resident in the EU, unless that person is in the country of which he is a national; and
- any other natural person within the EU, including its territorial waters and air space and in any aircraft or on any vessel under the jurisdiction or control of a Member State, acting in a professional capacity.
What duties does EU law impose on individuals and companies affected?: notificaTION AND SENDING OF informaTIOn
Article 2 of Regulation 2271/96 obliges the persons listed in Article 11 to notify to the Commission if their economic or financial interests are directly or indirectly affected as a consequence of the Helms-Burton Act or by the possible actions which are based on it. The notification must be made within a period of 30 days from the date on which the person becomes aware of such circumstance. If the interests of a legal person are affected, this obligation will be imposed on the directors, executives and other persons with management responsibility.
The Commission and, in the case of Spain, the Secretariat of State for Trade (Article 2.2 Law 27/1998) may require the person affected to provide all information which he considers relevant within a period of 30 days from the date of the request. The information may be supplied, either directly to the European Commission, or in the case of Spain, through the Secretariat of State for Trade (Article 2.3 of Law 27/1998). If one chooses to supply the information directly to the Commission, the latter must immediately inform the competent authorities of the Member State in which the person that has supplied the information resides or has been incorporated.
The general prohibition of complIANCE with the Helms-Burton act AND the possibility of requesting authorization so as not to observe such prohibition
Article 5 of Regulation 2271/96 forbids the persons mentioned in Article 11 of the Regulation to comply, directly or through subsidiaries or intermediary persons, with the requirements or prohibitions provided in the Helms-Burton Act. This prohibition also includes the possible requests of foreign courts based on that Act.
However, the Commission may authorize full or partial compliance with the U.S. extraterritorial legislation when it is considered that noncompliance may seriously damage the interests of the private individual or of the EU itself (Article 5.2). The Commission will be assisted by a Committee formed by representatives of the Member States and chaired by the representative of the Commission.
The procedure for obtaining such authorizations is governed in detail in Implementing Regulation 2018/1101. Applications, duly reasoned, shall be sent to the European Commission and, specifically, to the Service for Foreign Policy Instruments. Article 4 of Regulation 2018/1101 contains 14 non-exhaustive and noncumulative criteria which may be taken into account when assessing applications. The above-mentioned provision grants a considerable degree of flexibility to the Commission and, in any event, the final criterion listed contains a closing clause which permits consideration of any other relevant factor to prove the existence of serious damage to the private individual or to the EU itself, if the provisions of the Helms-Burton Act are breached.
System of sanctions and penalty payments
In the event of a breach of the obligations or prohibitions imposed by the Regulation, the latter provides for the imposition of sanctions, although it leaves it in the hands of each Member State to specify them. As regards Spain, the system of sanctions is governed in Law 27/1998. An element of the Spanish legislation (Article 4.2) to be taken into account is that in cases in which the interests of a legal person are affected, the legal person and the directors of the company will be jointly and severally liable.
The sanctions provided in Law 27/1998 (Article 5) are ranked as: minor, serious or very serious. The amount of the sanction must be determined in view of the extent of the economic or financial interests affected and ranges from €1,502.53 to €60,101.21. However, the amount may be greater if the economic or financial interests affected exceed €6,010,121.04. In these cases, the serious infringement may be penalized by a greater fine, in proportion to the economic or financial interests involved, up to a maximum of €601,012.10. It must be borne in mind that the amounts are quantified in the Law in pesetas and have not been updated since it was enacted.
In addition (Article 7), provision is made for the possibility, apart from the sanctions outlined, for the imposition of penalty payments, following a warning, in cases in which the persons required to supply information to the European Commission or to the Secretariat of State for Trade fail to comply with such requests. The overall maximum amount of the penalty payments will be €30,050.61.
Defensive/reactive litigation scenario
From a more private law perspective arising from claims or commencement of actions applying, or based on, the Helms-Burton Act, Regulation 2271/96 provides the following antidotal measures:
Refusal of recognition of foreign judicial or administrative rulings which apply the Helms-Burton Act and no cooperation with foreign authorities
According to Article 4 of Regulation 2271/96, judgments of courts or tribunals and decisions of administrative authorities located outside the EU giving effect, directly or indirectly, to the Helms-Burton Act or to actions based on or resulting from it, shall not be recognized or be enforceable in any manner in the EU. By this countermeasure it is sought to safeguard from the Helms-Burton Act assets located in the EU of the persons included within the scope of Regulation 2271/96.
To the above must be added the prohibition provided in Article 5.1 of the Regulation of compliance with requests of foreign courts which are hearing proceedings arising from the application of the Helms-Burton Act. This impedes, for example, compliance with notices or requests for taking evidence which originate in such courts. Law 27/1998 considers the breach of this prohibition as a serious infringement (Article 3.2). However, it should be remembered that it is possible to request the relevant authorization from the Commission to avoid this prohibition.
The measures outlined must be implemented in the relevant proceedings for recognition and enforcement of foreign rulings (for assistance/cooperation, interim or final) which may be commenced in the EU in relation to proceedings arising directly or indirectly from Title III of the Helms-Burton Act conducted in the United States. Therefore, faced with a claim or threat of a claim under Title III of the Helms-Burton Act, it is advisable to identify what European Union jurisdictions could be related to such proceedings, for the purpose of planning the proper reaction in advance.
Right to obtain compensation for the damage arising from the application of the Helms-Burton Act
Article 6 of the Regulation grants to the persons included within the scope of Regulation 2271/96 a right of action to obtain compensation for any damage, including procedural costs, which is caused to them as a consequence of the application of the Helms-Burton Act. By this countermeasure it is sought to counteract the claims which may be commenced under Title III of the Helms-Burton Act, legally classifying as compensable damage any consequence which may arise from such application; by means of the counterclaim scenario.
Actions claiming such compensation can be commenced against the natural or legal person that has caused the damage, and against any other persons that act on their behalf or as intermediaries. In such case, actions can be brought before the courts of any EU State that have jurisdiction under Regulation (EU) 1215/2012, also known as recast Brussels I Regulation (Regulation 2271/96 refers to the 1968 Brussels Convention, but that convention has been replaced by the above-mentioned Regulation). In addition, Article 5.1 opens new forums with jurisdiction, in addition to those provided in the recast Brussels I Regulation and allows the claim to be filed in the courts of any State in which the person or entity causing the damage or who acts on their behalf or as intermediary owns property.
For the purposes of this measure, therefore, it is important to identify the natural or legal persons that institute proceedings under Title III of the Helms-Burton Act, including the identification of the representatives or intermediaries that they use in such claim, so as to subsequently identify and locate the economic interests and property which all of them may have in any EU Member State.
Consequently, it is advisable for any claim which is pursued in the United States, under Title III of the Helms-Burton Act, against companies with interests in Cuba, to be analyzed from the perspective of the body of European Union law for the purposes of planning in advance the reactive judicial measures which may be commenced in the EU in order to counteract or mitigate the effects of such proceedings.