U.S. companies with business prospects in Cuba are going to need a better understanding of the Cuban entities they are contracting with following the Trump administration’s changes to U.S.-Cuba policy, lawyers say.
The hospitality industry in Cuba will likely be affected most.
After policy change details trickled out throughout the week, President Donald Trump on Friday announced tweaks to policies enacted during the Obama administration regarding travel, trade and interaction with Cuba.
While most of the categories under which U.S. travelers can visit Cuba remain the same, people-to-people travelers must once again participate in tours, rather than travel individually.
Just as importantly for lawyers in the U.S., the changes also ban much U.S. trade with any Cuban entity linked to the Cuban military.
Prohibiting work with any company owned or controlled by the Cuban military will directly affect anyone operating in the hotel space, said Andres Fernandez, a partner at Holland & Knight in Miami who leads the firm’s Cuba team.
“We have existing clients with prospective projects that have tabled them,” Fernandez said, at least temporarily.
The Cuban state companies responsible for overseeing the tourism and hotel industry are largely owned by the Cuban military, Fernandez said. The Cuban company known as GAESA, and another under it, Gaviota, which specifically contracts with the hotel industry, are usually the counter parties in the hotel management contracts, he said.
The State Department is expected to provide a list of Cuban entities that U.S. travelers and business people should avoid.
“Companies will have to make sure that they are not directly or indirectly doing business with the Cuban military in connection with an otherwise permitted activity,” said Hunton & Williams partner Gus Membiela, which has advised clients in the financial services, consumer good and tourism industry in Cuba.
It boils down to a policy that soft tourism should be avoided and U.S. companies need to better understand who their counter party is, said Augusto Maxwell, chair of the Cuba practice at Akerman.
“The U.S. government and businesses are going to have to better understand who the counter party is—which up until now is not something anyone did,” said Maxwell. He said not all tourism or hospitality-related state companies fall under the Cuban Ministry of the Armed Forces.
The changes are not expected to significantly affect the cruise industry.
Airlines, cruise lines and the payment of port fees are exempted from the ban, said Pedro Freyre, chairman of the international practice at Akerman, and companies that already have U.S. Office of Foreign Assets Control licenses will continue to operate. But the ban will make investment more difficult, Freyre said, and put a damper on the hospitality industry.
“For the time being this will give pause to any U.S. hospitality industries,” Freyre said. “You can see the policy of the U.S. is more restrictive of travel.”
Other industries, however, including telecommunications, pharmaceuticals and agricultural sales, will not be affected, he said.
Travelers will have to keep records and may face increased scrutiny upon returning to the U.S. The change makes a quick trip more difficult to schedule as travelers must find a tour and times that work for them. Lawyers said the move is likely to reduce the number of Cuba travelers that travel by air directly from the U.S.
“It will narrow the entranceway to Cuba,” Freyre said. “You’re going to have fewer authorized travelers from the U.S.”
In the days leading up to the announcement, Holland & Knight had been communicating daily with client Southwest Airlines to monitor possible changes to the frequency of permitted flights to Cuba, or in the categories for which Americans do not need U.S. government licenses to go to Cuba, Fernandez said. While it appears that airlines, which have made heavy investments in Cuba travel, can continue to travel directly to the island, they will be hurt by the Trump administration changes.
“If you’re going to reduce the pool of travelers, it’s going to make it more difficult for the commercial airline industry in general,” Fernandez said.