Business in Cuba promises rewards, but there's risk, too

Business Forum: Business in Cuba promises rewards, but there's risk, too
By Evan Berquist APRIL 10, 2016 — 2:00PM

After President Obama's historic visit to Havana, many Americans are
excited about greater trade and travel opportunities to the island. For
good reason: Cuba is an alluring place, and new regulations issued by
the Obama administration now permit an unprecedented level of economic
activity by U.S. interests. But amid the optimism, U.S. businesses and
individuals must be mindful of the risks — as well as rewards — of
greater engagement.

As a student at the University of Havana in 2002, I saw firsthand what a
challenging environment Cuba can be. The Castro regime exerts total
control over almost every aspect of daily life. Poverty on the island is
endemic. Free speech is forbidden. Infrastructure is decayed.

All of which is to say, Cuba will not be an easy place for U.S.
companies to do business. For companies and individuals considering
trade or travel to Cuba, here are just a few things to keep in mind.

First, the embargo is still in place. This means that many economic
transactions are still prohibited for U.S. activities. Only Congress has
the power to repeal the legislation that underpins the embargo.

Until the embargo is lifted, any economic transactions involving Cuba
must be authorized by a license, either general or specific. In most
cases these licenses will be issued by the Department of Treasury's
Office of Foreign Assets Control (OFAC) or Commerce's Bureau of Industry
and Security (BIS). Penalties for violating the embargo can include
stiff fines and even criminal charges.

The good news is that OFAC and BIS have done nearly everything in their
power to authorize travel and trade within the limits of existing law.
Since Presidents Obama and Raul Castro announced a path of normalization
in December 2014, OFAC and BIS have issued five sets of regulatory
amendments that significantly expand the types of licensed activities.
Here are just a few of the highlights:

Travel

The most recent round of regulations permits so-called people-to-people
exchanges by individuals. Practically speaking, this means that
individuals no longer have to travel to Cuba as part of a licensed
group. For businesses seeking to carry out permitted economic
activities, travel to Cuba is also permitted, including for sales or
marketing purposes.

Financial transactions

U.S. banking institutions can engage in certain Cuban-related
transactions that involve Cuban parties, as long as the beneficiaries
are not U.S. persons. The rules also increase the remittances that U.S.
persons can send to Cuba, permit the use of U.S. credit and debit cards
on the island, and allow U.S. financial institutions to open
correspondent accounts with Cuban counterparts.

Telecom and related transactions

Telecom-related transactions will now be subject to a general license.
Already AT&T and Verizon have established roaming networks that U.S.
travelers can use while on the island. Google will also open a new
high-tech artists' studio in Havana, offering superfast Wi-Fi
connections and the latest Google gadgets, in a country with one of the
lowest rates of Internet connectivity in the world.

This list is by no means exclusive. Other industries benefited by recent
regulations include commercial aviation, cruise lines and energy.
Moreover, OFAC officials have signaled that they will look favorably on
any activities that are "incident to" licensed activities. So, for
example, if your company sells a product with general application that
can also be used to improve the telecommunications network, you may be
able to sell to Cuba.

Any project that helps the Cuban people without enriching the regime
will also be evaluated on a case-by-case basis.

Risks to U.S. companies

While these opportunities for U.S. businesses are real, so are the
challenges. Here are the main risks U.S. companies are likely to face
when doing business in Cuba.

First, be prepared for the Cuban bureaucracy. Before a project can
proceed in Cuba, it must go through a lengthy and confusing permitting
process by the Cuban government. Oftentimes, it is not clear even which
Cuban government agency is responsible for issuing a final decision on a
project. It will take some time before this process becomes more
streamlined.

Second, Cuba's economy is in tatters. Average wages are just $20 a
month. Many professionals, including doctors, have abandoned their
former careers and begun working in the tourist economy, driving
taxicabs or waiting tables. Cuba has a shortage of hard currency,
limiting the government's purchasing power.

The third main concern is one that investors look to in any foreign
market: rule of law and political risk. Put simply, companies want to
know that any money they invest will be safe. In Cuba, there are no such
guarantees. While Raul Castro has introduced some modest reforms, Cuba
is still a one-party state. There is no independent judiciary to resolve
commercial disputes.

In the United States, of course, there is cause for uncertainty as well.
The next president could reverse all of Obama's policies with the stroke
of a pen.

This is not to suggest that U.S. businesses should avoid Cuba at all
costs; far from it. The thaw in relations and new regulations make this
an opportune time to explore Cuba's potential. But when evaluating Cuba,
make sure that you do your due diligence and proceed with a clear view
of the risks involved.

Cuba is an enchanting place with lots to offer. But it is not for the
faint of heart.

Evan Berquist, an attorney at Fredrikson & Byron, worked on the Cuba
program of a Washington, D.C.-based organization that promotes democracy
and human rights. He can be reached at eberquist@fredlaw.com.

Source: Business Forum: Business in Cuba promises rewards, but there's
risk, too - StarTribune.com -
http://www.startribune.com/business-forum-business-in-cuba-promises-rewards-but-there-s-risk-too/375097621/