Damned If You Do/Damned If You
Don’t: Foreign Extraterritorial
Measures Act and Trump’s Cuba
Policy
June 17, 2017
Authored by Cyndee Todgham Cherniak
On June 16, 2017, President Trump gave a speech in Miami and announced he was reversing some of President Obama’s Policy on Cuba. Just as Canadian businesses were getting used to the Obama Policy on Cuba, there has been a partial snap-back. Not only has there been a partial snap-back, there is a stronger enforcement mentality in the United States. The Trump Policy on Cuba overlaps with the America First Doctrine and Art of the Deal negotiation style of President Trump. The combination of the Trump Policy on Cuba, America First, and Art of the Deal means that U.S. sanctions against Cuba should be taken very seriously and Canadian companies should know that a contravention under U.S law could mean significant fines and failure to report to the Canadian government as required by Canadian law could result in a Canadian prosecution (and fines up to $1,500,00 and/or imprisonment up to 5 years in Canada).
What does this mean for Canadian businesses who have activities in Cuba? Canadian businesses that have U.S. citizens as shareholders, management, directors, officers, employees or representatives/agents, etc. need to understand the do’s and don’t of the Trump Cuba Policy or they might find themselves in trouble in both the United States and Canada. The United States imposes various economic sanctions against Cuba effectively prohibiting many transactions with Cuba. Canada, on the other hand, blocks U.S. anti-Cuba legislation with the Foreign Extraterritorial Measures Act (Canada) (“FEMA”) and the Foreign Extraterritorial Measures (United States) Order, 1992, as amended. In Canada, persons must report to the Attorney General of Canada when they prevented, impeded or trade or commerce between Canada and Cuba is reduced:
(a) the Cuban Assets Control Regulations, Code of Federal Regulations, Title 31, Part 515, as amended from time to time or replaced, and (b)any law, statute, regulation, by-law, ordinance, order, judgment, ruling, resolution, denial of authorization, directive, guideline or other enactment, instrument, decision or communication having a purpose similar to that of the Cuban Assets Control Regulations referred to in paragraph (a), whether enacted, passed, made, done, voted, established, issued, rendered, given, taken or executed by any legislative, executive, administrative, regulatory, judicial or quasi-judicial authority or body of the United States, the District of Columbia or any of the member states or territories or possessions of the United States, or any municipality or other local authority in the United States or its territories or possessions.
“Trade or commerce” is defined to include the following:
“… the free exchange of goods and services, between Canada, or Canadian nationals, corporations or other legal entities or federal, provincial or local government institutions, and
(a) Cuba, or Cuban nationals, corporations or other legal entities or national, provincial or local government institutions, or
(b) Canadian nationals or corporations that are designated as, deemed to be, or otherwise treated as, Cuban nationals or corporations by or pursuant to an extraterritorial measure of the United States, whether by the use of the expression designated national or specially designated national or in any other manner."
Section 5 of FEMA prohibits Canadian companies and its directors, officers, managers and employees from complying with U.S. anti-Cuba legislation that prohibits, infringes or otherwise influences trade between Canada and Cuba. In other words, a Canadian company or representative cannot not undertake business activities that are legal under Canadian law on the basis of compliance with U.S. anti-Cuba laws. The prohibition applies to trade in goods, including technology and trade in services, including technology-related services.
This results in tension between complying with Canadian law and complying with United States laws (e.g, Helms-Burton). Multi-national companies sometimes get caught between the two sets of opposing laws. For example, recently (on June 8, 2017) OFAC fined a US company (American Honda Finance Corporation) $87,255 in connection with leases of Honda vehicles by Honda Canada Finance, Inc. to the Cuban Embassy in Ottawa. The leased vehicles were on Canadian soil. The financing of the vehicles driven on Canadian roads went through the fined US entity. The transaction was perfectly legal in Canada and could not have been rejected in Canada even if the reason was to comply with U.S. laws. If the Canadian entity was asked to not lease vehicles to the Cuban officials in Ottawa, they would have had to report that request under provisions of FEMA. This recent OFAC file should act as a wake-up call to Canadian companies to understand the Trump Cuba Policy and re-visit compliance programs relating to business with Cuba/Cuban persons. This recent U.S. fine should be a wake-up call to Canadian companies that the U.S. will enforce its Cuba sanctions even if the activities are legal in Canada.
It is therefore, very important to review the Trump Policy on Cuba. Courtesy of our friend, Jennifer Diaz of Diaz Trade Law in Miami, who wrote on her blog an article entitled “President Trump Outlines New U.S. Policy on Cuba”, the Trump Cuba Policy will enact the following changes to U.S. law:
- No new direct transactions with entities related to the Cuban military, intelligence, or security services;
- The State Department will be publishing a list of entities with which direct transactions generally will not be permitted;
- President Trump advised “we will very strongly restrict American dollars flowing to the military,” “we will take concrete steps to ensure investments flow directly to the Cuban people”;
- The 12 categories of authorized travel will remain, BUT, there will be an end to “people to people” travel on your own (group travel is not impacted). President Trump stated “easing restrictions on travel and trade does not help the Cuban people, they only enrich the Cuban regime”. “The profits from investment and tourism flow directly to the military, the regime takes the money and owns the industry;
- President Trump stated: “we will not lift sanctions on the Cuban regime until “all political prisoners are free, freedoms of assembly and expression are respected, all political parties are legalized, and free and internationally supervised elections are scheduled.”
- Remittances will NOT be impacted; and
- We can expect the new provisions to be actively enforced. President Trump advised: “our new policy begins with STRICTLY ENFORCING U.S. law”. Review our previous travel tips to you, and ensure you meet them!
- The Embargo will REMAIN in place.
The White House released a Fact Sheet on Cuba Policy and OFAC released a three page FAQ discussing the main questions and answers.
What this means for Canadian businesses is risk. The number of “Do Not’s” have increased. This means, the FEMA risk has increased.
What should Canadian companies do?
We cannot list all of the actions that should be taken – here are ten to demonstrate the types of relevant considerations for Canadian companies:
- Canadian companies with any activities with Cuba, Cubans or the Cuban Embassy in Canada should review FEMA to know if and when they have a Canadian reporting requirement;
- Canadian companies with any activities with Cuba, Cubans or the Cuban Embassy in Canada should review their compliance policy with respect to business in or with Cuba or Cubans (or implement a policy if they do not have one);
- Canadian companies must know who they are dealing with in Cuba. Many Cuban businesses are government owned or owned by government officials. Any transaction with a state-owned or government official owned enterprise should be reviewed;
- Canadian companies must consider who within their organization is traveling to Cuba on business matters. The removal of “people-to-people travel” from the categories of authorized travel may mean that U.S. citizens working for U.S. companies ca no longer participate in business travel to Cuba;
- Canadian companies must review whether U.S. citizens in management positions could be prosecuted under U.S. anti-Cuba laws and whether reporting structures need to be adjusted;
- Canadian companies who borrow from U.S. financial institutions should review their loan documents to see if there is a requirement to comply with U.S. laws (which would include U.S. anti-Cuba laws and President Trump’s Cuba Policy) and then determine what are the U.S. and Canadian reporting requirements applicable to the company;
- Canadian companies who have insurance from a U.S.-based or affiliated insurance company should review their insurance policies to see if there is a requirement to comply with U.S. laws (which would include U.S. anti-Cuba laws and President Trump’s Cuba Policy) and then determine what are the U.S. and Canadian reporting requirements applicable to the company;
- Canadian companies who provide goods and services to the Cuban embassy in Canada should review the transactions to determine whether they have similar problems as Honda;
- Canadian companies must review how they get paid by Cuban businesses (for Canadian goods and services provided to Cuba) to ensure the funds do not flow through U.S. financial institutions in a manner that is contrary to U.S. anti-Cuba laws; and
- Canadian companies must review how they pay Cuban businesses (for Canadian goods and services provided by Cuba to Canada) to ensure the funds do not flow through U.S. financial institutions in a manner that is contrary to U.S. anti-Cuba laws.
For more information about FEMA, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.
This article first posted on www.canada-usblog.com. Reprinted with permission.
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