Canada Cuba US Business Hazards

With President Trump’s recent rollback of Obama era changes to Cuban relations have come new challenges to Canadian firms.

In this CBC articleU.S. punishes American firm after its Canadian subsidiary leases cars to Cuban embassy in Ottawa” a number of pitfalls are pointed at.

The gist of the article is that a Canadian subsidiary of American Honda Finance Company leased 13 vehicles to the Cuban embassy in Ottawa. The US government has regulations that forbid US firms from dealing with Cuba and they have fined the American parent company $89K in response.

Even though it’s a Canadian company doing business in Canada it is a subsidiary of an American company being held to American law which the US government feels it has a right to do. Some think this is “interference with a Canadian business transaction.”

How about Canadian companies doing business in or with Cuban companies?

It’s complicated.

From the text of the article:

“in 1992 Canada enacted the Foreign Extraterritorial Measures (United States) Order, which was passed in response to the passage of the Cuba Democracy Act in Washington the same year.

The order requires any Canadian company that is contacted by U.S. authorities responsible for enforcing sanctions to notify the Canadian federal government. The order also bars Canadian companies from complying with any U.S. law that seeks to limit their business dealings with Cuba.

A Canadian businessman who pays a fine such as the one levied on Honda could face five years in a Canadian prison as a result.”

So what’s a Canadian business to do: comply with Canadian law or American law?

Let’s say you are a Canadian business person who wants to comply with Canadian law but also desires to do business in Cuba. If you have business interests in the US then you have exposure – the US government could retaliate by punishing those businesses directly. If you don’t then you have to only worry about what might happen if you find yourself visiting the USA because if they find your violation serious enough in their eyes then you could be arrested and detained until they decide what to do with you.

Situations like this are part of the power of the US embargo. It keeps businesses afraid of doing business with Cuba.

It gets worse though . . .

“One new prohibition in the measures announced by Trump in Florida Friday could have particular consequences for Canadian companies that have U.S. affiliates or U.S. ownership.

They specifically prohibit all business dealings with businesses owned by the Cuban Armed Forces.

… many of the island’s hotels are majority-owned by the Cuban military …

Consequently, almost any foreign company involved in Cuban tourism is likely to have dealings with the Cuban military’s enterprise group, GAESA, or one of its holding companies, such as the Gaviota Group.

… Gaviota works with numerous Canadian entities, including Sunwing Vacations, Air Canada Vacations and Transat Holidays.”

Those last three companies are subsidiaries of Canadian airline companies.

What’s the worst that could happen?

Let’s say the US government tells those companies to stop what they are doing – cease arranging vacations for Canadians (and anyone else) in those Cuban hotels. And let’s say that they try to comply with the Canadian law that counters that.

The US could theoretically impound every Sunwing, Air Canada and Transat airliner that finds itself on a tarmac within the USA. Passengers would be left to find their own way home because employees of said companies could also be detained and prevented from doing their jobs. That would be disaster for those companies and disaster for US/Canada relations.

Potentially flights from Canada to Mexico and points south would have to circumvent US airspace because if they found themselves within the territory of the USA they could be forced to land at a US airstrip and face legal measures.

Think I’m being alarmist?

This New York Times article ) from 1996 tells the tale of a Canadian mining company doing business in Cuba and the legal issues it faced. The US government warned that non-compliance meant that executives, and their families, would be barred from entry into the US if the firm did not comply. This same threat was posed to executives from telephone companies in Mexico and Italy.

This was the Helms-Burton law and it was enacted under Bill Clinton. For more info here is the Wikipedia article on the Helms-Burton Act.

The first point is “International Sanctions against the Cuban Government. Economic embargo, any non-U.S. company that deals economically with Cuba can be subjected to legal action and that company’s leadership can be barred from entry into the United States. Sanctions may be applied to non-U.S. companies trading with Cuba. This means that internationally operating companies have to choose between Cuba and the U.S., which is a much larger market.”

Now I still to do more research on the history of application of the Helms-Burton act over the past two decades to find more useful information. But my inner Cassandra is having a field day with this because Trump has added this twist about doing business with the Cuban Military and, like the Egyptian and other militaries around the dictatorial world, they have their fingers in many of their country’s economic pies.

 

 

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