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Law Journal
Thaw Boosts Cuba-Asset Claims
From the Wall Street Journal of Mon, 22 Dec 2014 11:33:32 EST
A demonstration in support of the Cuban revolution in front of the old presidential palace in 1959.
A demonstration in support of the Cuban revolution in front of the old presidential palace in 1959. Roger Viollet/Getty Images

Now that the U.S. has moved to normalize relations with Cuba, the countries will have to deal with decades-old claims from companies like Office Depot Inc., whose property was taken after Fidel Castro took power in 1959.

U.S. companies and citizens have filed claims now valued at more than $7 billion for factories, oil refineries, power plants, land and other assets that were nationalized after the revolution. They include several Fortune 500 companies, including Coca-Cola Co. , Exxon Mobil Corp. , Starwood Hotels & Resorts Worldwide Inc. and Colgate-Palmolive Co.

The largest claim is one now held by an Office Depot subsidiary after a long chain of corporate deals that culminated in its merger with rival OfficeMax last year.

Office Depot wasn’t around during the Cuban revolution, but a subsidiary, Cuban Electric Co., supplied more than 90% of all the electricity sold on the island in 1960. The Castro regime nationalized the company’s operations, including a utility plant valued at more than $200 million at the time.

Boise Cascade , a timber company, became a majority owner of Cuban Electric stock in 1969. In 2003, Boise Cascade bought OfficeMax and adopted the latter’s name. Last year, OfficeMax merged with Office Depot, which now controls Cuban Electric.

President Barack Obama didn’t mention the issue when he unveiled his Cuba plan last week. The U.S. State Department, the agency responsible for negotiating a settlement of the claims, says the issue is still an important part of the process of moving toward normalization.

“Reestablishment of diplomatic relations will allow the U.S. to engage more effectively with the Cuban government on a range of important issues, including the claims of Americans,” a State Department spokesperson said Friday. “Resolution of outstanding U.S. claims remains a priority for the U.S. government, but we are unable to provide a specific time frame or details at this time.”

Assistant Secretary of State Roberta Jacobson suggested that a settlement could be way off. “We do not believe those things would be resolved before diplomatic relations would be restored, but we do believe that they would be part of the conversation,” she told reporters Thursday.

A spokeswoman for Office Depot declined to comment.

The government formally involved itself in the claims process in 1964, when Congress directed the U.S. Foreign Claims Settlement Commission, a quasi-judicial agency within the Justice Department, to determine the validity and value of the claims. The complex undertaking took six years and resulted in the certification of nearly 6,000 claims totaling roughly $1.8 billion. With interest, the claims rise to $7 billion.

Corporate claims make up the lion’s share of the money. Cuban Electric’s losses of $267.6 million, excluding interest, are the largest of any single entity.

Another large claim is Coca-Cola’s. By the late 1950s, the company had a profitable operation in Cuba with annual sales of more than $7 million, according to the commission.

A chunk of Coke’s pre-interest claim of $27.5 million is for the lost value of its business. But the claim also encompasses bottling and syrup plants, coolers, dispensers and containers that were snatched away by the Castro regime.

Coke, Starwood, Exxon and Colgate didn’t respond to requests for comment.

In the event of a deal, the commission would be the agency in charge of distributing money to claimants.

The rights linked to the claims are still enshrined in U.S. statutes. The U.S. embargo was imposed largely in retaliation for the property that was confiscated. Lifting it without settling the claims may not even be legal under current law, according to Matias Travieso-Diaz, a partner at Pillsbury Winthrop Shaw Pittman LLP who has written legal analyses of the U.S.-Cuba sanctions.

Sanctions against Cuba give other legal protections to claimants. A provision of the 1996 Helms-Burton Act holds “any person or government that traffics in U.S. property confiscated by the Cuban government liable for monetary damages in U.S. federal court,” according to a 2014 report by the Congressional Research Service. Presidents Clinton, Bush and Obama, though, have waived that provision.

Some Cuba observers, including Julia Sweig, a Cuba specialist at the Council on Foreign Relations, say the issue of outstanding claims isn’t as big an obstacle to more open trade with Cuba as it used to be because of how much time has passed.

Settlement negotiations over the claims have never gone very far. Cuba, for its part, says America owes Cubans more than $100 billion for the harm caused by the embargo. Whether Cuba has the money to pay compensation is another question.

Michael J. Kelly, an international law professor at Creighton University School of Law and a co-author of a U.S. government-funded study of the outstanding property claims, said a settlement could take the form of a lump sum payment but doesn’t have to be just cash. Companies, he said, could also be compensated with development rights and tax incentives encouraging foreign investment in Cuba.

“As a country, we have a long history of making sure that our citizens are compensated for losses suffered at the hands of foreign governments,” said Timothy J. Feighery, a partner at Arent Fox LLP and a former chairman of the settlement commission.

Write to Jacob Gershman at jacob.gershman@wsj.com



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