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Helms-Burton poses litigation risk for Canadian businesses with ties to Cuba

Author(s): Gajan Sathananthan, Peter Glossop, Riyaz Dattu

Apr 23, 2019

In our last international trade brief, we examined the implications of the Canadian International Trade Tribunal releasing its report in the steel safeguard inquiry. In this international trade brief, we explain the implications of the U.S. administration announcing that it would, as of May 2, 2019, no longer continue the suspension of Title III of the Cuban Liberty and Solidarity Act of 1996 (commonly known as Helms-Burton).

On April 17, 2019, the U.S. administration announced that it would no longer continue the suspension of Title III of the Cuban Liberty and Solidarity Act of 1996 (commonly known as Helms-Burton). The previous suspension is expected to expire effective May 2, 2019.

Title III of Helms-Burton creates a cause of action and allows for up to treble-damage claims to be brought against persons (including non-U.S. persons) engaged in “trafficking” in property confiscated in Cuba. Specifically, it provides U.S. nationals (including those who were at that relevant time Cuban nationals and since then have become U.S. nationals), who have a claim to property that was confiscated by the revolutionary Cuban Government on or after January 1, 1959,  the private right to sue, in U.S. Federal courts, persons who “traffic” in that property.

The definition of “traffic” in Helms-Burton is extremely broad, with limited exceptions. As set out in Title III of Helms-Burton:

a person “traffics” in confiscated property if that person knowingly and intentionally--

 (i) sells, transfers, distributes, dispenses, brokers, manages, or otherwise disposes of confiscated property, or purchases, leases, receives, possesses, obtains control of, manages, uses, or otherwise acquires or holds an interest in confiscated property,

 (ii) engages in a commercial activity using or otherwise benefiting from confiscated property, or

 (iii) causes, directs, participates in, or profits from, trafficking (as described in clause (i) or (ii)) by another person, or otherwise engages in trafficking (as described in clause (i) or (ii)) through another person,

without the authorization of any United States national who holds a claim to the property.

Helms-Burton was enacted by the U.S. Congress in 1996 following the downing by Cuban fighter jets of two private U.S. airplanes belonging to a Miami organization opposed to the Cuban regime. However, Title III was from the very outset suspended for six months at a time (as permitted by Helms-Burton) and has remained suspended through every U.S. administration since its enactment, until now. U.S. Secretary of State Mike Pompeo announced on January 16, 2019, that the Trump administration would be suspending Title III for only 45 days, instead of the usual maximum permitted period of six months, in order to conduct a review of the Title III right to bring an action. On April 17, the administration announced the results of that review, stating that the Title III suspension would not be continued. The stated reasons are Cuba’s poor human rights record and its support of the Maduro regime in Venezuela.

Given the broad definition of “traffics,” which includes benefiting from or profiting from certain commercial activities or transactions in relation to “confiscated property,” it would be prudent for Canadian businesses to assess their activities with Cuban-owned entities and their own activities within Cuba.  However, any such assessment should be undertaken with guidance from Canadian and U.S. legal counsel with expertise in economic sanctions laws.

The Canadian government, as well as governments of other nations which allow their businesses to trade with Cuba such as the European Union and Mexico, have objected to the U.S. administration’s decision. Global Affairs Canada promptly issued a release stating that it was disappointed with the U.S. decision, which it indicated was reached despite concerns raised by Foreign Affairs Minister Chrystia Freeland directly with the U.S. Secretary of State.

The statement from Global Affairs also quoted Minister Freeland, stating that the government “will fully defend the interests of Canadians conducting legitimate trade and investment with Cuba.” The statement references Canada’s Foreign Extraterritorial Measures Act (FEMA), which was designed to “mitigate the extraterritorial effects of the Helms-Burton Act and to offer explicit legal protections for Canadian businesses.”

FEMA seeks to target the extra-territorial impact that Title III of Helms-Burton could have on Canadian companies. Specifically, it:

  • allows the Attorney General to prohibit the disclosure of records that are in Canada or under the control of a Canadian person;
  • allows the Attorney General to prohibit the enforcement of judgements issued by U.S. courts under Title III; and
  • allows the Attorney General to make an order for the recovery of any amount obtained from a Canadian under a judgement made by U.S. courts under Title III, and allows the Canadian to file a suit in Canadian courts for the recovery of damages from the person in favour of whom the U.S. judgement was rendered.

FEMA also places certain obligations and restrictions on Canadian corporations that might be doing business with Cuba. Pursuant to an Order issued under FEMA in 1992 and amended in 1996, notice must be provided to the Attorney General where a Canadian corporation receives any directive, instruction, intimation of policy or other communication relating to the U.S. embargo of Cuba from a person who is a position to direct or influence the policies of the Canadian corporation. The Order also references other laws that could impede trade between Canada and Cuba, and therefore may include the Helms-Burton law.

In addition to the provisions concerning notification to the Attorney General of Canada, the Order also prohibits compliance by a Canadian corporation and its directors, officer, managers and employees in a position of authority from complying with the extraterritorial measures of the United States or with any directive, instruction, intimation of policy or other communication relating to the U.S. embargo of Cuba from a person who is a position to direct or influence the policies of the Canadian corporation.

These “non-compliance” obligations have typically posed potentially irreconcilable obligations on  Canadian companies with U.S. affiliates (particularly those controlled by U.S. owners), which are themselves directly subject to the U.S. embargo and could be exposed to significant penalties for the activities  of non-U.S. affiliates that contravene the embargo. Until now, the legal analysis related principally to the application of the U.S. embargo as implemented by the Cuban Assets Control Regulations. With the revival of Title III of Helms-Burton and heightened sensitivity around possible “trafficking” activities, this additional consideration related to compliance with FEMA will now have to be assessed.

It should be noted that, while Title III of Helms-Burton has been under suspension from the outset, the provisions of Title IV did not benefit from the suspension. Title IV of Helms-Burton empowers the U.S. government to restrict entry into the U.S. of persons who are suspected of trafficking in confiscated property. Importantly, persons that may be denied entry from the U.S. include officers, principals and controlling shareholders of corporate persons, as well as their spouses and children. Title IV has to date been enforced sparingly by the U.S. government, but there is increased risk of enhanced enforcement given the reinvigoration of Title III.

It is strongly recommended that companies seek Canadian and U.S. legal advice before attempting to navigate these contradictory obligations, which carry potential criminal penalties of fines and imprisonment.