By Jacob Gershman
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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