James Meyer of Harper Meyer. (Jill Kahn)
The specifics of President Donald Trump’s policy shift on Cuba are still hazy. But lawyers with Cuba practices are clear on one thing: The anticipated U.S.-Cuba business boom will have to wait.
In June, the Trump administration partially reversed some Obama administration rapprochement efforts after the long-running U.S.-Cuba embargo, cracking down on tourism and other business dealings that could profit Cuban military-linked companies. The new directive limits nonacademic educational travel to group trips and doesn’t permit the self-directed individual travel allowed by President Barack Obama but still allows Cuban-Americans to visit family and send remittances.
For now, law firms are lobbying to ensure the new regulatory framework is at least clear to their clients. And given the White House’s tougher stance on trade, U.S. firms have lowered their expectations.
“There is going to be a lot less interest now,” said James Meyer, a founding partner at Miami’s Harper Meyer Perez Hagen O’Connor Albert & Dribin. “It wouldn’t surprise me if most of the firms in town shut down their Cuba practices or dedicate fewer resources to them.”
Much like the demand for flights to Cuba, projections for Cuba law practices have dwindled. When a surge in demand for Cuba travel didn’t materialize, airlines dropped flights, ceased operations in Cuba or switched to smaller aircraft. Similarly, once the level of demand settled in the legal market, many decided a Cuba practice wasn’t profitable and abandoned the market, said Pedro Freyre, chairman of Akerman’s international practice and Cuba policy expert.
Now, with restrictions expected to re-tighten on travel and dealmaking, the limits of the practice are even more clear.
“Cuba is a niche practice, a boutique,” Freyre said. “Cuba, at the end of the day, is a fairly small jurisdiction that has significant legal restraints placed upon it. If you are a lawyer practicing international private or commercial law, if you want to do big deals, they aren’t in Cuba at the moment.”
That’s not to say work has totally dried up. For example, both Akerman and Holland & Knight’s Cuba practices, which already included major U.S. companies working on the island, reported new clients after the recent U.S. policy shift.
“Those of us who have very well-established Cuba practices are going to continue,” said Andy Fernandez, a partner at Holland & Knight who leads the firm’s Cuba action team. “Aside from the established firm clients we were working with, we still get inquiries from new clients and new businesses that want to seek work in Cuba. We still get contacted by new companies that want guidance on developing and implementing a Cuba strategy.”
Meyer said most firms will hold onto the Cuba contacts they made for the day conditions improve for significant improvement in the legal market.
When Obama announced the thawing of diplomatic relations with Cuba in 2014, excitement led many Miami firms to establish Cuba practices and build networks of legal professionals in Cuba. When Obama visited the island last year, lawyers said many firms were positioning themselves as experts because they saw Cuba and its long list of commercial needs as a boom in the making. For most firms, the boom never arrived.
“Cuba matters come in, some of them are very interesting, some of them are lucrative, but Cuba is not a cash cow. I don’t even think it’s a cash goat at the moment,” Freyre said.
Still, he added: “The potential is there. You have the opportunity to make a difference. … Is it my sole purpose to make all the money I can? No, because I could make more money doing other things, and I wouldn’t have anywhere near the level of grief I have doing something for Cuba.”
The biggest impediment to doing business in Cuba has not been on the U.S. side, said Yosbel Ibarra, co-managing shareholder of Greenberg Traurig’s Miami office and co-chair of its Latin American and Iberian practice.
“The slower part of this is on the Cuban side of things and how quickly they are processing these opportunities,” Ibarra said. “It has been very, very slow and not anywhere near the level anyone expected.”
With Obama’s diplomatic, banking, immigration and trade relations policies staying in place, as well as Cuba’s removal from the list of state sponsors of terrorism, much may remain the same. So far, the Cuba policy shift hasn’t affected interest in work in Cuba for Greenberg Traurig, Ibarra said, but lawyers and their clients are waiting to see the details of the regulations.
Freyre said he saw an uptick in Cuba work after Trump’s policy announcement because some of his clients waited to see whether there would be an about-face. When there ultimately wasn’t, they moved forward.
Among the issues law firms had been watching for was whether the Trump administration would lift the suspension of a portion of the Helms-Burton Act, which would allow lawsuits to proceed against people and companies using properties confiscated during the Cuban revolution. The confiscation of billions of dollars in U.S.-owned property is what led to the more than 50-year-old U.S. trade embargo in the first place.
“There had been some speculation that if the president really wanted to upset the apple cart on Cuba, he would lift the suspension, allow the lawsuits to proceed, and that would really create a ruckus,” Freyre said. “That would have been a real change in policy and a real dramatic shift. Instead he went along with every other president before him, starting with Clinton.”
Presidents have been reluctant to lift the suspension, which comes up every six months, partly because it would antagonize U.S. allies with significant business interests in Cuba, lawyers said.
Trump’s presidential memorandum on Cuba instead pulled back on allowing U.S. travelers to go to Cuba on people-to-people trips. Americans traveling there under this category would now have to go as part of organized tours. Greater enforcement of existing travel restrictions, which includes maintaining an itinerary for five years after the visit, is also likely.
GrayRobinson partner Peter Quinter said he and his wife planned take a trip to Cuba in October and rent a room in a private home, but they aren’t interested in traveling as part of a tour or in the added hassle or expense. Other travelers also will likely opt for easier destinations if the regulations tighten.
The Trump directive also prohibits direct financial transactions with the Cuban military. The Cuban military-run companies GAESA and Gaviota control over 60 percent of all business enterprise in Cuba, Meyer said, and many are tied to the hospitality industry where a lot of U.S. professionals were negotiating.
“It’s hard to do business in Cuba without touching the Cuban military one way or another,” Meyer said.
That may be true even when a military enterprise isn’t directly involved, Freyre noted. The Cuban military could theoretically hand off companies to the tourism ministry, but the state apparatus would still decide where the revenues go—to the military or otherwise.
And because the Cuban government is the only major employer in the country, Quinter said it’s often difficult for clients to know whether someone ultimately works for a company under the control of the military.
“Unless the U.S. is going to send out the daily email of ‘these are the organizations you can’t do business with,’ it’s an unworkable proposal,” said Quinter, a trade lawyer. “It just doesn’t reflect the reality of doing business with a country like Cuba—or frankly with China or Saudi Arabia or many other countries in the world where the military is so involved in the business activities of the country.”
Before the U.S. restored diplomatic relations with Cuba, Quinter dealt with clients facing customs penalties and fines when Cuba was involved. After the trade opening, his Cuba work turned more to helping companies obtain licenses to sell products in Cuba. He said all pending projects will go forward, but he sees that work dropping off and a return to assisting clients facing travel and trade enforcement penalties.
In the meantime, licenses that used to take three months to get through federal regulators are now taking longer, he said.
Gretel Echarte, an associate in Mayer Brown’s Washington office who focuses on helping clients establish a presence in Cuba, said GAESA controls not only almost all the tourism and hospitality industry, but also retail, car rental, gas stations and many import companies.
“If you take GAESA off the map, that is a significant proportion of the businesses that are in the travel tourism and hotel sector as well as other sectors,” Mayer Brown partner Simeon Kriesberg said. “It will be a substantial impediment.”
Echarte said businesses should see any changes under the Trump administration as a temporary regulatory framework, at least until Cuban President Raul Castro is scheduled to step down next February. Echarte said that could spark major policy changes in both countries.
“There is a big open question as to how much the guard is going to be changing,” Ibarra said. “The expectation on the U.S. side is that if there is no one on the other side named Castro, that will help move things along.”