Investing in Cuba: Congressional Hardliners ‘Traders’ to the Cause

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Since 2001, America’s private sector has sold over $4 billion in agricultural, medical, and other goods to Cuba.  Who are these American traders?  If you ask the US government, they’ll tell you it’s a secret (if they tell you anything at all).

In a new twist on insider trading, the small group of elected officials that take a hardline on continuing the US embargo on Cuba also accept support from those lucky few currently authorized to trade with the island – and getting a license is evidently not that easy as only a third of the applications were approved last year by the US Office of Foreign Assets Control (OFAC).

Two Washington State congressional offices (both of which have had little to do with Cuba in the past) made a bi-partisan effort to contact the Treasury and Commerce departments over the summer for the list of license holders.  They were surprised as anybody not used to being OFAC’d when they were denied.  One was also informed that a Freedom of Information Act (FOIA) request would be declined under provisions of the Trade Secrets Act.  Another agency invoked the Export Administration Act to similar discouragement.  Of course, this was after the agencies said that there was no list – which is odd since every authorized entity has a numbered license which can be verified with a call to a government hotline.

More amusing is that one journalist was (somewhat) successful with his FOIA request earlier this year – and Treasury even posts some earlier lists of licensees (in both cases, redactions have ensured the documents are more black than white).  None of the departments’ representatives offered information about either (or seemed aware of these) when contacted by citizens or elected officials.  This continues to be perplexing as Cuba is clearly the most popular bad boy on the sanctioned list and has more requests and licenses than all the others combined.

Even Cuba’s ALIMPORT, the agency which acts as a clearinghouse for all American transactions with Cuba, is more forthcoming than the US government, and disclosed in the mid-2000s (during the peak of US-Cuba trade) that OFAC had authorized 137 commercial license holders.

While hypocrisy and corruption are disturbing, it is nothing new – even the Kennedy White House made Cuban cigars readily available to its privileged elites.  More disheartening is although private people-to-people transactions are a key driving force in social and economic reform around the world, US policies and regulations ensure that Americans can only conduct business with the Cuban state, while European, Canadian, and other companies are able to contract directly with Cuban citizens and the island’s nascent private sector (though the Cuban government ensures there are of course complications with even those arrangements).  More amusing is that in the hundreds of pages published by the US government listing specific individuals barred from conducting business with American citizens, neither Castro brother (nor a single Kim family member) are called out.

Yet even without an official list from the US government, it is still possible to ascertain which American and other corporations are operating in Cuba through first-hand accounts, official trade statistics, and many companies’ websites and annual reports.  Also, while it is technically possible for Americans to be fined for owning stocks in companies invested in Cuba, the US government has yet to punish anyone for doing so.  DC-based sanctions attorney Erich Ferrari points out that, "...there is no bright line rule, it all comes down to the specific facts of the case and OFAC will maintain discretion over whether to enforce or not based on the particular circumstances. That said...OFAC rarely chooses to enforce those apparent violations."

Although, with recent enforcement of decades old clauses and new directives goosing OFAC into action, anything seems possible – yet recent developments with other sanctioned countries (countries that don't have as vindictive a political lobby in Washington) may offer insights for Cuba-enthusiasts.

Almost everything written on the recent lifting of sanctions on Myanmar/Burma mentions that Coca-Cola (NYSE: KO) is now only unavailable in Cuba and North Korea.  However, since 1906 (when along with Canada and Panama, Cuba became one of the first international markets for Coke), the island has enjoyed an at times disrupted, though never interrupted, flow of the syrup water (usually cane-sugared as found in the Mexican secret formula).  Even during the ‘80s and ‘90s under virulently anti-Castro Cuban emigre Roberto Goizueta, the legendary Coke CEO who “left the island as a child with only $200 and 50 shares of Coke,” the island state continued to be supplied through third party Coke affiliates in Central America, many of which are now part of Coca-Cola FEMSA (NYSE: KOF), the world’s second largest bottler (after Coca-Cola Enterprises).

But hope and change spring eternal, as do policy headaches.  Kirby Jones, a longtime consultant on US-Cuba trade and President of Alamar Associates, notes, “Under the previous law, Coke was supposed to stop third parties from exporting to Cuba…Now there’s a new law that says it’s legal to sell direct, but illegal to sell through a third country.  Currently, they are still selling through a third country which is illegal…It will be interesting to see what they do.”

Similarly, Coke has found its way into the Democratic People’s Republic of Korea.  According to Roger Barrett of Korea Business Consultants, a specialist in North Korean investment, “Coke [is] brought over from Dandong [China] after being purchased from wholesale markets by North Korean traders.  So, with no official presence, it's all freely available…This has all been going on since the 1970s…One of my European friends told me, ‘My kids grew up with Coca-Cola in Pyongyang,’…I also remember when I participated in the 2001 Pyongyang Marathon that Coca-Cola was one of the official sponsors along with the Financial Times.”

Not to be outdone by Italian distributors that also supply Coke to Pyongyang, last year British SABMiller (LSE:SAB)(NASDAQOTH: SBMRY.PK), one of Coke’s major bottlers, was being encouraged by Schulze Global Investments to be part of a possible $10 million toe-hold to establish Coke and other Western interests in the DPRK market as a "symbolic" act of engagement.  

Even more symbolic of Cuban enterprise are cigars and rum. 


[continued in Investing in Cuba: Cigars, Rum, & the Fortune 500”]

Nick Slepko has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of The Coca-Cola Company. Motley Fool newsletter services recommend The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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