Foreign financial institutions are reluctant to deal with the Cuban Government. The main issue at stake is the long running Cuban Embargo by the Government of the United States. In February 1962, President John F. Kennedy proclaimed an embargo on trade between the United States and Cuba, in response to certain actions taken by the Cuban Government. ((U.S. DEP’T OF STATE, ECONOMIC POLICY AND IMPLEMENTATION: CUBA SANCTIONS, http://www.state.gov/e/eb/tfs/spi/cuba/ (last visited Dec. 14, 2016).)) The Department of Commerce and the Treasury were directed by Kennedy to implement the embargo through different regulations, most of which remain in place today. ((Id.)) Significantly, these regulations also apply to foreign financial institutions operating with U.S. dollars. ((Id.))
Foreign investors have reportedly been trying to obtain financing from French commercial banks for projects in Cuba, but these institutions are reluctant to lend to a Cuban project for fear of U.S. sanctions. ((William M. LeoGrande, Despite Loosened Embargo, Bankers’ Fears Block U.S. Commerce With Cuba, WORLD POLITICS REVIEW (May 24, 2016), http://www.worldpoliticsreview.com/articles/18866/despite-loosened-embargo-bankers-fears-block-u-s-commerce-with-cuba.)) On May 1, 2015 one of the biggest banks in France BNP Paribas was sentenced to a five-year term of probation, and ordered to forfeit $8,833,600,000 to the United States and to pay a $140,000,000 fine, for violations of U.S. economic sanctions with respect to Cuba and several other countries. ((DEP’T OF JUSTICE, BNP PARIBAS SENTENCED FOR CONSPIRING TO VIOLATE THE INTERNATIONAL ENERGENCY ECONOMIC ACT AND THE TRADING WITH THE ENEMY ACT (2015), https://www.justice.gov/opa/pr/bnp-paribas-sentenced-conspiring-violate-international-emergency-economic-powers-act-and.)) The violations included knowingly and willfully processing approximately $1.74 billion on behalf of Cuban sanctioned entities from 2004 through 2010. ((Id.)) Also in 2015 French bank Crédit Agricole SA and German Commerzbank AG were fined more than $700 million each by U.S. federal and state agencies, in part over Cuba- related dollar transactions. ((DEP’T OF JUSTICE, CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK ADMITS TO SANCTIONS VIOLATIONS, AGREES TO FORFEIT $312 MILLION (2015), HTTPS://WWW.JUSTICE.GOV/OPA/PR/CR-DIT-AGRICOLE-CORPORATE-AND-INVESTMENT-BANK-ADMITS-SANCTIONS-VIOLATIONS-AGREES-FORFEIT-312.)) Both of these sanctions come after the normalization of relations between the U.S. and Cuba, but were for transactions done before this change of policy.
When the sanctioned transactions took place, Cuba was still on the U.S. list of states that sponsored terrorism. The countries on this list are subject to various financial restrictions. ((U.S. DEP’T OF STATE, supra note 1). After President Obama’s announcement of the restoration of diplomatic ties between the U.S. and Cuba in 2014, the latter was taken off the terrorist sponsor list and other embargo related financial restrictions were repealed. In March 2016, the U.S. Department of the Treasury announced that U.S. banking institutions would be authorized to process U-turn transactions in which Cuba or a Cuban national has an interest. ((DEP’T OF TREASURY, TREASURY AND COMMERCE ANNOUNCE SIGNIFICANT AMENDMENTS TO THE CUBA SANCTIONS REGULATIONS AHEAD OF OBAMA’S HISTORIC TRIP TO CUBA (2016), https://www.treasury.gov/press-center/press-releases/Pages/jl0379.aspx.)) A U-turn transaction involves “transfers from a bank outside the United States that pass through one or more U.S. financial institutions before being transferred to a bank outside the United States, where neither the originator nor the beneficiary is a person subject to U.S. jurisdiction.” ((Id.)) In the same announcement it also states that Cuban entities may have U.S. dollar accounts in third-country financial institutions. ((Id.))
The lifting of these restrictions would allow French and other commercial banks to participate in the financing of projects in Cuba without being subject to U.S. sanctions. But although on paper it looks possible, international financial institutions do not want to be the first to try their hand in U.S. dollar transactions with Cuba. Banks are worried about the repercussions and the possible reinstatement of these sanctions and restrictions.