The Intersection of Cuba and the FCPA

The Intersection of Cuba and the FCPA1
Aryeh Khan


In Miami, few words evoke more passionate discussion than “Cuba.” Though controversy surrounding the United States’ shift in policy toward the island nation continues to make headlines, the economic interest from American businesses wishing to gain traction in a new market has paralleled that narrative. From cruise lines to construction equipment, Cuba is seen as an important new market. Interest has perhaps been punctuated by the Sep. 21, 2015, amendments to Cuba regulations by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), which amendments eased certain restrictions on domestic companies seeking to enter the Cuban market. By example, restrictions have been loosened in areas such as travel, telecommunications, internet-based services, and certain types of financial transactions. Significantly, the amendments also allow certain businesses to establish a physical presence in Cuba. While these changes may make conducting business more attractive, companies must be mindful of the labyrinth of rules and regulations that apply specifically to this new market. Running afoul of this thicket of regulations can have serious—and even criminal—consequences.

At the outset, two regulatory schemes in particular should be analyzed by any business seeking entry into the Cuban market.
First, companies must be advised regarding the Foreign Corrupt Practices Act (FCPA).

The FCPA governs U.S. issuers (regardless of where they are incorporated), domestic concerns (i.e. U.S.-based individuals or entities, regardless of whether they issue securities in the United States or elsewhere) and foreign concerns that violate the FCPA in the territory of the U.S. At its core, the FCPA makes it illegal for a company or individual to make corrupt payments to any foreign official in an effort to obtain business. The FCPA broadly requires that (1) corporations must keep accurate books, records and accounts; (2) issuers registered with the Securities and Exchange Commission maintain responsible internal accounting control systems; and provides that (3) U.S. issuers, domestic concerns as well as foreign concerns transacting in a U.S. territory are prohibited from bribing foreign officials. Each of the three parts of the FCPA is equally important and impactful to any business looking to Cuba for opportunity and each should be seriously considered prior to embarking on any business venture there.

The first and second parts of the FCPA are colloquially referred to as the “books and records provisions.” Though on their face they may seem less imposing and hazardous than the prohibition against bribery, they are just as menacing. Indeed, businesses should familiarize themselves with the books and records provision of the FCPA because a partner’s and even subsidiary’s failure to comply can be imputed to the company doing business with it as well.

The third part of the FCPA is referred to as the “anti-bribery provision” and is equally important to businesses because the definition of “foreign official” under the FCPA is broad and therefore has the potential to be perilous. The FCPA defines “foreign official” generally to include any officer or employee of a foreign government and any department, agency, or instrumentality of the foreign government. The fact that the FCPA extends to governmental instrumentalities is particularly key in the context of Cuba business ventures because the Cuban government directly and indirectly through state-owned enterprises continues to be the source of the majority of Cuba’s economic activity. Consequently, many business opportunities are likely to fall under the jurisdiction of the FCPA. For example, practices which are considered business as usual when developing business, such as buying a potential business partner a meal, or treating them to tickets to a sporting event, or even paying for travel, may be considered bribery under certain circumstances if they involve a state-run company. It is also noteworthy that just as is true with the books and records provisions of the FCPA, third-parties can subject a company to FCPA violations.

The second set of regulations arise in the context of the Office of Foreign Assets Control’s (OFAC) enforcement of economic and trade sanctions against Cuba. Specifically, Cuba continues to be subject to a U.S. embargo, making most transactions involving Cuba by U.S. businesses and individuals illegal. Discerning permissible conduct from that which is still prohibited is all important as failure to comply with the law may result in hefty penalties and even incarceration.

The Department of Justice has collected hundreds of millions of dollars of fines from the prosecution of companies under the FCPA in the last several years. For example, approximately one year ago Alstom S.A., a French power and transportation company, pleaded guilty and agreed to pay $772 million fine to resolve FCPA charges. Similarly, prosecution for sanctions violations has yielded billions of dollars’ worth of fines. One such instance made headlines earlier this year, when BNP Paribas SA was ordered to forfeit $8.83 billion, pay a $140 million fine and serve a five year probationary period for violating sanctions against Iran, Sudan and Cuba.

To manage exposure, businesses and individuals wishing to do business in Cuba should consult with experienced FCPA and OFAC counsel, implement policies as clear safeguards, conduct due diligence with respect to potential business partners and their conduct and ensure that all embargo laws are properly complied with. Cuba will prove to be an enticing business landscape to many US companies; however, in venturing forward, it is prudent to remember the importance of complying with the many regulatory schemes that impact on this new business frontier, keep in mind the consequences of failing to do so, and act accordingly.

Aryeh Khan is an associate at Boies, Schiller & Flexner in its Miami office. His practice focuses on large, complex commercial matters and high-risk product liability and tort matters.

Endnote
1Reprinted with permission from the October 29, 2015 issue of the Daily Business Review. © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

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