COMMENTARY — The Helms-Burton Act, Part 1

The U.S. Congress recently enacted the Cuban Liberty and Democratic Solidarity (Libertad) Act, also known as “Helms-Burton,” after its sponsors Senator Jesse Helms and Congressman Dan Burton. The Act creates litigation risks in the U.S. for Canadian companies that have exploration and mining activities in Cuba. This, the first article in a 2-part series, discusses steps whereby such companies can reduce those risks.

Title III of Helms-Burton gives U.S. nationals who claim ownership to property confiscated by the Cuban government after Jan. 1, 1959, the right to sue anyone engaged in commercial activities relating to such property. Such commercial activities are defined under the Act as “trafficking.” American claimants who sue under Title III may recover three times the value of the Cuban property and legal fees.

The Act establishes two classes of litigants and provides different dates on which each class may start litigation under Title III. The first class consists of persons who have claims certified by the U.S. Foreign Claims Settlement Commission (FCSC). The FCSC has certified 5,911 claims involving Cuban property owned by U.S. nationals at the time of the Cuban revolution.

Suits by this class of litigants may be filed on or after Nov. 1, 1996. The second class consists of those whose claims were not certified by the FCSC, and, in general, consists of persons who were Cuban nationals at the time their property was confiscated, who then fled the revolution, and have become U.S. citizens. These lawsuits may be filed on or after March 12, 1998. This second class of plaintiffs is much larger than the class of certified claimants.

The U.S. President is authorized to suspend Title III if he concludes that it is in the national interest and will “expedite a transition to democracy in Cuba.” If the President intends to suspend Title III before it comes into force, the he must do so by July 16, 1996. It is unlikely he will do so before the presidential election on Nov. 5 of this year. However, there is a significant chance he will suspend Title III after certified claimants initiate suits before Cuban Americans are entitled to sue. Canadian companies thinking about investing in Cuba may wish to consider the following two measures to reduce the risk of exposure:

n Investigate the property — The Act punishes “trafficking” in property confiscated by the Cuban government since 1959 and subject to a claim by a U.S. national. Companies considering investing in Cuban property should conduct a title search to determine whether it was confiscated. If records are available, efforts should be made to determine who owned the property at the time of the revolution. If the property was confiscated, there is, under Helms-Burton, a risk of triggering liability.

If you have reason to believe the property was confiscated, a record search should be conducted in Washington, D.C., at FCSC. However, checking FCSC records will not disclose whether Cuban property is subject to a claim held by a Cuban-American. Reports filed by the Secretary of State under Helms-Burton will provide an important resource for determining whether Cuban property is subject to such claims. Section 207 of the Act requires the Secretary of State to prepare a report to Congress within 180 days of enactment, estimating the number and amount of claims held by U.S. nationals.

This report is due on or before Sept. 8, 1996. (It may be a useful source of information for a due diligence search.) If the property of interest is not identified in the report, the company will be armed with a powerful defence that it did not “knowingly” and “intentionally” invest in confiscated property (two key requirements for triggering liability under the Act.) n Spin off investments — Canadian companies with substantial investments in Cuba and the U.S. may wish to spin off their Cuban investments into a separate company that does not operate in the U.S. This approach appears to have been adopted by Sherritt, a Canadian fertilizer company with substantial investment activities in Cuba and the U.S.

Corporate reorganization raises a legal question — namely, Which members of a family of companies will be swept within the Act if one member “trafficks” in confiscated property but others do not do business in Cuba? Helms-Burton was drafted to bring a related company within the statute if it “directs, participates in, or profits from trafficking.” If a company is considering spinning off its Cuban investments to a separate company, it will want to consider whether the parent company and related companies will operate separately and apart from the subsidiary holding Cuban investments.

— The author is a lawyer with Washington, D.C.-based Nussbaum & Wald.Book explores world diamond market.