Uncertainty Over Future Cuban Policies of Trump Administration

Journalists at an April 4 Miami conference voiced the unanimous opinion that the future Cuban policies of the Trump Administration were uncertain.[1]

This is not a surprising opinion due to the failure of the Administration to appoint senior State Department officials under new Secretary of State Rex Tillerson, the proposed large reductions in the Department’s budget for the next fiscal year, the overall disarray within the Administration and its preoccupation with other issues. In short, Cuba is not high on the Administration’s list of priorities.

In the meantime, the U.S. Treasury Department’s Office of Foreign Assets Control apparently is continuing to grant licenses to U.S. companies to operate on the island and to contract with Cuban state enterprises.[2]

At least this uncertainty and continuation of OFAC licensing is better than a return to overt U.S. hostility towards Cuba as has been suggested by President Trump himself and by some of the people involved in the Trump transition and Administration.[3]

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[1] Hernandez, Panel: Relations between Cuba, U.S. remain uncertain under Trump, Miami Herald (Apr. 4, 2017).

[2] Torres, Trump administration continues to issue OFAC licenses authorizing business with Cuba, Miami Herald (April 4, 2017).

[3] See posts listed in “U.S. & Cuba in the Trump Administration, 2017-“ at the end of List of posts to dwkcommentaries—Topical: CUBA.

Subdued Commemoration of Second Anniversary of U.S.-Cuba Rapprochement    

December 17, 2016 was the second anniversary of Presidents Obama and Castro’s joint announcement that their two countries had embarked on the path of normalization and reconciliation. The U.S. commemoration of this date was subdued. The White House held a small gathering that was not widely publicized .The Cuban government, on the other hand, apparently did not hold any such event. But two Cuban publications published sketchy comments on the anniversary.

White House Commemoration[1]

On December 15, the Obama Administration hosted a private gathering across the street from the White House at the Eisenhower Executive Office Building. President Obama did not attend, but did send a letter to the 20 or so attendees encouraging them “to carry forward the work of strengthening our partnership in the years ahead.”

The gathering was addressed by Benjamin Rhodes, Deputy National Security Advisor; Jeffrey DeLaurentis, the acting U.S. ambassador in Havana; and three high-level officials from the U.S. Commerce, State and Treasury departments. Another speaker was

José Ramón Cabañas, the Cuban Ambassador in Washington. Also in attendance were U.S. Senator Patrick Leahy of Vermont and U.S. Representative Kathy Castor of Tampa, Florida, both Democrats.

Rhodes and DeLaurentis touted the administration’s accomplishments and, at different times, got emotional — Rhodes remembering support from Cuban-American friends in the wake of stinging criticism over his work, and DeLaurentis describing his work in Cuba, where he began and might end his diplomatic career, as the most rewarding of his life.

The attendees were Cuban Americans, Cuban government officials and business partners in Washington, including Miami entrepreneur Hugo Cancio, who publishes an arts magazine in Cuba; Felice Gorordo, founder of the Roots of Hope nonprofit; former U.S. Commerce Secretary Carlos Gutierrez; John McIntire, head of the Cuba Emprende Foundation; Miami attorney Ralph Patino; Giancarlo Sopo, founder of the CubaOne foundation, and Miami Foundation president and chief executive Javier Alberto Soto.

Another attendee, Ted Henken, a Baruch College sociology professor and Cuba expert, observed, “It was partly a celebration of what has been achieved, and a mourning” for the intense political fight that awaits.”

As Ric Herrero, former head of the pro-engagement Cuba Now group and the current president of Manos Americas, a social entrepreneurship nonprofit, put it, the gathering was “bittersweet. There was just a lot of gratitude toward the administration for their commitment to this cause and to everything they’ve done.” But they all were left with the questions: “What next? Where do we go from here? Because there is no certainty.”

Indeed, a chief concern among attendees was that Trump’s “volatile” personality could ignite a war of words with the Cubans, who have so far kept silent about the president-elect’s Cuba statements. On the other hand, attendees noted, Trump doesn’t have a clear political ideology, and could be more interested in showing up Obama on Cuba by negotiating more concessions.  However, Rhodes said, “We would like nothing more than the new administration to succeed beyond what we did.”

Obama supporters at the meeting thought that Trump had a willingness to keep negotiating with Raúl Castro’s government and that U.S. regulatory changes, following a top-to-bottom policy review, could take time–so long, perhaps, that by then Castro might near his own retirement, scheduled for February 2018.

“We’re living through a lot of uncertainty, but there’s a pretty strong consensus that Trump is going to realize that turning back the clock is going to be very difficult,” said Carlos Saladrigas, president of the Cuba Study Group. “Returning to a failed policy doesn’t make any sense.”

However, at a December 16 “thank You” rally in Ordlando, Flordia, Trump told the crowd, “America will also stand with the Cuban people in their long struggle for freedom. Their support has been unbelievable. The Cuban people. We know what we have to do, and we’ll do it. Don’t worry about it.”[2]

Cuban Observance

No Cuban commemoration event was found in searching Cuban public sources, Instead, two articles on the subject were found.[3]

The CubaDebate article reviewed some of the key things that had happened since December 17, 2014, while reiterating Cuba’s fervent desire for the U.S. to end its embargo (blockade) and to return Guantanamo Bay to the island. It also alleged that President Obama had done “much less than he could, given the broad executive powers that he [allegedly]possesses and that [allegedly] would have allowed him to reduce the blockade to its minimum expression.”

Nevertheless, the article stated, on December 7, 2016, Josefina Vidal of the Cuban government reaffirmed Cuba’s willingness to continue this process and expressed its hope that President-elect Donald Trump will take into account, when he takes office on January 20, what has been achieved” over the last two years.

These same points were essentially repeated in the article in Granma, the official newspaper of the Communist Party of Cuba. It also added the following points:

  • Obama had acknowledged for the first time that the U.S. policy of “aggression” [“hostility” would be more diplomatic] against Havana was a failure and had ended up isolating the U.S. itself. It also alleged that the U.S. methods were changing, but not its objective – regime change in Cuba.
  • The U.S. still has a ban on US investment in Cuba, except in the area of telecommunications.
  • The Cuban state sector, where more than 75% of the labor force is employed, remains deprived of selling its products to the U.S. with the sole exception of pharmaceuticals and biotechnology.Also, Cuban imports of goods produced in the U.S. that the state-owned enterprise can make are very restricted.
  • Although several months ago the US approved the use of the U.S. Dollar by Cuba in its international transactions, it has not yet been possible to make deposits in cash or payments to third parties in that currency, due to international banks’ fears of fines by the U.S.
  • The U.S. has not yet ended Radio and TV Marti programs aimed at Cuba.

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[1] Mazzei & Torres, Muted White House celebration marks Obama Cuba anniversary, Miami Herald (Dec. 17, 2016).

[2] Lemmongello, Trump thanks Florida at Orlando rally, Orlando Sentinel (Dec. 116, 2016).

[3] Cuba-US: After two years, much remains to be done, CubaDebate (Dec. 17, 2016); Gomez, The keys of December 17, Granma (Dec. 16, 2016).

 

Reactions to New Presidential Policy Directive on U.S.-Cuba Normalization

As replicated in a prior post, on October 14, President Barack Obama issued a Presidential Policy Directive on U.S.-Cuba Normalization.

This Directive, to my knowledge, has no special U.S. legal status and instead is a roadmap for the next administration on the multiple ways the complex U.S. government is implementing such normalization. President Obama in a statement about the Directive said, “This Directive takes a comprehensive and whole-of-government approach to promote engagement with the Cuban government and people, and make our opening to Cuba irreversible. . . . [It] consolidates and builds upon the changes we’ve already made, promotes transparency by being clear about our policy and intentions, and encourages further engagement between our countries and our people.”[1]

Here are comments on some of the key unresolved issues in that process.

  1. Ending the U.S. Embargo of Cuba

 Cuba repeatedly has called for ending the U.S. embargo, and on October 27 it will present its annual resolution condemning the embargo (blockade) to the U.N. General Assembly, which undoubtedly again will overwhelmingly approve the resolution.

The Presidential Directive correctly notes that the Obama Administration repeatedly has asked Congress to end the embargo and states that the U.S. Mission to the United Nations “will participate in discussions regarding the annual Cuban embargo resolution at the [U.N.], as our bilateral relationship continues to develop in a positive trajectory.”[2]

  1. Expanding U.S.-Cuba Trade

The Directive correctly includes a “prosperous and stable Cuba” and expanded U.S.-Cuba trade as parts of its vision for normalization, and the Directive correctly reported that the Obama Administration has adopted regulations relaxing some of the restrictions on U.S. trade with Cuba.[3]

In addition, President Obama’s statement about the Directive noted that on the same day, “The Departments of Treasury and Commerce issued further regulatory changes . . . to continue to facilitate more interaction between the Cuban and American people, including through travel and commercial opportunities, and more access to information.”[4]

According to the two departments’ press release, these new changes will enable “more scientific collaboration, grants and scholarships, people-to-people contact, and private sector growth.” More specifically, the changes “are intended to expand opportunities for scientific collaboration by authorizing certain transactions related to Cuban-origin pharmaceuticals and joint medical research; improve living conditions for Cubans by expanding existing authorizations for grants and humanitarian-related services; increase people-to-people contact in Cuba by facilitating authorized travel and commerce; facilitate safe travel between the United States and Cuba by authorizing civil aviation safety-related services; and bolster trade and commercial opportunities by expanding and streamlining authorizations relating to trade and commerce.”[5]

There is also “a new authorization that will allow persons subject to U.S. jurisdiction to provide services to Cuba or Cuban nationals related to developing, repairing, maintaining, and enhancing certain Cuban infrastructure in order to directly benefit the Cuban people.” Other new rules permit certain foreign ships carrying certain cargo to travel directly to U.S. ports after docking in Cuba, the export of U.S. pesticides or tractors to Cuba without advance payment in cash and U.S. businesses to enter into binding contracts with Cubans that are contingent on the lifting of the U.S. embargo.

  1. U.S. Promotion of Economic Change in Cuba

The Directive states the U.S. “will not pursue regime change in Cuba. We will continue to make clear that the [U.S.] cannot impose a different model on Cuba because the future of Cuba is up to the Cuban people.”

Nevertheless the Directive recognizes as does the Communist Party of Cuba (CPC) that “Due to Cuba’s legal, political, and regulatory constraints, its economy is not generating adequate foreign exchange to purchase U.S. exports that could flow from the easing of the embargo.” Helping to meet this economic problem, both the U.S. and the CPC also recognize, “With an estimated 1 in 4 working Cubans engaged in entrepreneurship, a dynamic, independent private sector is emerging. Expansion of the private sector has increased resources for individual Cubans and created nascent openings for Cuban entrepreneurs to engage with U.S. firms and nongovernmental organizations. We take note of the Cuban government’s limited, but meaningful steps to expand legal protections and opportunities for small- and medium-sized businesses, which, if expanded and sustained, will improve the investment climate.” While the Cuban government pursues its economic goals based on its national priorities, we will utilize our expanded cooperation to support further economic reforms by the Cuban government.”[6]

The Directive makes clear that the U.S. seeks and promotes Cuban economic reform that includes “the development of a private sector that provides greater economic opportunities for the Cuban people.”

  1. U.S. Promotion of Human Rights in Cuba

According to the Directive, Cuba continues with “repression of civil and political liberties.” As a result, the U.S. “will utilize engagement to urge Cuba to make demonstrable progress on human rights and religious freedom” and “continue to speak out in support of human rights, including the rights to freedoms of expression, religion, association, and peaceful assembly as we do around the world. Our policy is designed to support Cubans’ ability to exercise their universal human rights and fundamental freedoms. . . . In pursuit of these objectives, we are not seeking to impose regime change on Cuba; we are, instead, promoting values that we support around the world while respecting that it is up to the Cuban people to make their own choices about their future.”

  1. U,S. Democracy Promotion Programs in Cuba

The U.S. through private contractors with the U.S. Agency for International Development (USAID), the U.S. State Department and other U.S. government agencies surreptitiously has been conducting what the U.S. calls “democracy promotion” programs in Cuba. Cuba rightfully and consistently has objected to such programs.[7]

Nevertheless, the Directive asserts the U.S. “will not pursue regime change in Cuba. We will continue to make clear that the [U.S.] cannot impose a different model on Cuba because the future of Cuba is up to the Cuban people.”

“While remaining committed to supporting democratic activists as we do around the world, we will also engage community leaders, bloggers, activists, and other social issue leaders who can contribute to Cuba’s internal dialogue on civic participation. We will continue to pursue engagements with civil society through the U.S. Embassy in Havana and during official [U.S.] Government visits to Cuba.”

“We will pursue democracy programming that is transparent and consistent with programming in other similarly situated societies around the world.” (Emphasis added.) The State Department will continue to be responsible for “coordination of democracy programs” and “will continue to co-lead efforts with the U.S. Agency for International Development to ensure democracy programming is transparent and consistent with programming in other similarly situated societies. (Emphasis added.)

The Directive correctly anticipates that “the Cuban government will continue to object to U.S. democracy programs, [and] Radio and TV Marti.” This blog has consistently agreed with the Cubans on this issue because the so-called democracy programs are carried out surreptitiously by the U.S. How can they be promoting democracy if they are undercover? If indeed the U.S. wants to do so transparently, then they should only be done with the knowledge and consent of the Cuban government.

Is the statement that such programs in Cuba are to be “consistent with programming in other similarly situated societies” supposed to be the purported justification for conducting such programs in Cuba secretly from its government?

  1. U.S. Special Immigration Rules for Cubans

Cuba repeatedly has called for the U.S. to end its special immigration benefits to Cubans: (a) the U.S. dry feet/wet feet policy that allows any Cubans who arrive on land at a U.S. point of entry to be admitted into the U.S.; and (b) the U.S. Cuban Medical Professional Parole Policy that allows such Cubans to gain entry to the U.S. as parolees from other countries. Therefore, the Directive correctly anticipates “the Cuban government will continue to object to U.S. migration policies and operations.”

This blog has concurred with Cuba’s objections to these policies.[8]

The Directive correctly recognizes that “significant emigration of working-age Cubans further exacerbates Cuba’s demographic problem of a rapidly aging population.” Yet the Directive fails to discuss either the specific U.S. immigration rules for Cubans themselves or their being one of the causes of this societal and economic problem for the island. This, in my opinion, is a major failing of the Directive.

Instead, the Directive merely states that the DHS “will safeguard the integrity of the U.S. immigration system, to include the facilitation of lawful immigration and ensure protection of refugees. The Secretary of Homeland Security (the United States Government lead for a maritime migration or mass migration) with support from the Secretaries of State and Defense, will address a maritime migration or mass migration pursuant to Executive Orders 12807 and 13276 and consistent with applicable interagency guidance and strategy.”

  1. U.S. Lease of Guantanamo Bay from Cuba

Cuba repeatedly has alleged that the U.S. use of Guantanamo Bay for a naval base is “illegal” and that the U.S. should return this territory to Cuba while the U.S. consistently has rejected such allegations and demands. The Directive maintains this U.S. position; it states, “The [U.S.] Government has no intention to alter the existing lease treaty and other arrangements related to the Guantanamo Bay Naval Station, which enables the [U.S.] to enhance and preserve regional security.”

This blog has analyzed this dispute, rejected Cuba’s unsupported allegation that the U.S. use of this territory is illegal and suggested that the dispute over Guantanamo be submitted to an international arbitration panel for resolution. A better solution, as this blog also has recommended, would be a renegotiation of the lease with a much larger annual rent to be paid by the U.S. Such a change, in my opinion, would provide Cuba with much-needed foreign exchange to pay its foreign obligations, including the undoubted obligation to pay U.S. nationals for expropriation of property at the start of the Cuban Revolution in the early 1960’s. Returning the territory to Cuba, while it would probably provide an emotional boost to its pride, would which not add to its economy. In the background is the larger geopolitical threat to the U.S. if Russia (or China) and Cuba agree to the installation of Russian (or Chinese) military bases on the island.[9]

  1. Other Issues

Although the Directive is stated to be “comprehensive,” it does not mention at least the following serious unresolved issues that have arisen in the two countries’ discussions since December 17, 2014:

  • Cuba’s claims for over $ 300 billion of alleged damages resulting from the embargo and certain other U.S. actions;
  • Cuba’s claim against U.S.for unpaid rent for Guantanamo Bay, 1960 to date;
  • The U.S. claims for nearly $8 billion (including interest) for property owned by U.S. nationals that was expropriated by the Cuban government in the early days of the Cuban Revolution in the early 1960’s;
  • Mutual return of fugitives from the other’s criminal justice system.[10]

Conclusion

There are many reasons why a supporter of U.S.-Cuba normalization like this blogger should be happy over this Directive. It provides a roadmap for the complex U.S. governmental pursuit of normalization that should be helpful to a new U.S. president who wants to continue that pursuit. Moreover, many of the specifics are laudable, in this blogger’s opinion.

However, the Directive has failed to announce cessation of secretive “democracy promotion” programs for Cuba and special immigration benefits for Cubans, as urged by this blogger and others. In addition, as just noted, the Directive fails to cover some of the serious, unresolved issues between the two countries. All of these points, in this blogger’s opinions, are serious deficiencies.

Cuba immediately responded to this Directive.[11] Josefina Vidal, Cuba’s Foreign Ministry’s Director General of the United States, said the Directive “is a significant step in the process towards lifting the blockade and to the improvement of relations between the two countries. We consider it important that the Directive recognizes the independence, sovereignty and self-determination of Cuba, which should continue to be essential in relations between the two countries.” On the other hand, she noted, the Directive “does not hide the [U.S.] purpose of promoting changes in the economic, political and social system of Cuba.”

Yes, as President Obama recently said to the author of an article in The New Yorker, the President and many Americans, including this blogger, believe that changes in Cuban human rights and economy would be beneficial to the Cubans and the hemisphere. So long as the U.S. seeks these objectives above-board and with the knowledge and consent of the Cuban government, both governments and peoples should be pleased.

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 [1] White House, Statement by the President on the Presidential Policy Directive on Cuba (Oct. 14, 2016); Davis, Obama, Cementing New Ties With Cuba, Lifts Limits on Cigars and Rum, N.Y. Times (Oct. 14, 2016).

[2] This blog also repeatedly has pleaded with Congress to end the embargo. (See posts listed in “U.S. Embargo of Cuba” in List of Posts to dwkcommentaries—Topical: CUBA).

[3] This blog has applauded these relaxations of restrictions. (See posts listed in “U.S. & Cuba Normalization, 2014-2015,” and “U.S. & Cuba Normalization, 2015-2016” in List of Posts to dwkcommentaries—Topical: CUBA).

[4] Reuters, Obama Eases Restrictions on Cuba, Lifts Limits on Rum and Cigars, N.Y. times (Oct. 14, 2016); Schwartz, U.S. Takes Additional Steps to Ease Restrictions on Trade, Ties with Cuba, W.S.J. (Oct. 14, 2016); Whitefield, Obama moves to make Cuba policies ‘irreversible,’ InCubaToday (Oct. 14, 2016).

[5] U.S. Treasury Dep’t, Treasury and Commerce Announce Further Amendments to Cuba Sanctions Regulations (Oct. 14, 2016).

[6] Raúl Castro as First Secretary of the Communist Party of Cuba at its April 2016 Congress bluntly laid out Cuba’s economic problems, including state-owned enterprises’ inefficiencies, and the need to facilitate the growth and prosperity of private-owned businesses. (See Raúl Castro Discusses Socio-Economic Issues in Report to Seventh Congress of Communist Party of Cuba (April 19, 2016).) See also, e.g., Other Signs of Cuban Regime’s Distress Over Economy (April 21, 2016); Cuban Press Offers Positive Articles About the Island’s Private Enterprise Sector (June 1, 2016).

[7] This blog repeatedly has objected to these “democracy promotion” programs and called for any such programs to be conducted with the cooperation of Cuban authorities. (See posts listed in “U.S. Democracy Promotion in Cuba” in List of Posts to dwkcommentaries—Topical: CUBA.)

[8] See posts listed in “Cuban Medical Personnel & U.S.” and “Cuban Migration to U.S., 2015-2016” in List of Posts to dwkcommentaries—Topical: CUBA).

[9] This blog has discussed various issues relating to Guantanamo Bay. (See posts listed in “U.S. & Cuba Damage Claims” in List of Posts to dwkcommentaries—Topical: CUBA).

[10] These issues have been discussed in posts listed in “U.S. & Cuba Damage Claims” and “U.S. Embargo of Cuba” in List of Posts to dwkcommentaries—Topical: CUBA  and in and in Issues Regarding Cuba and U.S. Extradition of the Other’s Fugitives (Feb. 24, 2015).

[11] Ellizalde, Obama presidential directive is a significant step: Josefina Vidal, CubaDebate (Oct. 14, 2016).

IRS’ Unjustified Threats Against IFCO/Pastors for Peace

The Interreligious Foundation for Community Organization (IFCO) is a multi-issue U.S. ecumenical agency whose tax-exempt status is being challenged by the Internal Revenue Service (IRS). In order to understand this challenge, we will look at IFCO’s background and the purported bases for the IRS’ position before concluding that people concerned about U.S.-Cuba normalization should support IFCO in this matter.

IFCO Background[1]

According to its own website, IFCO “is a multi-issue national ecumenical agency, which was founded in 1967 by progressive church leaders and activists. For [nearly 50 years it] . . . has assisted hundreds of community organizations and public policy groups – by providing technical assistance, training organizers, making and administering grants, and using our global network of grassroots organizers, clergy, and other professionals to advance the struggles of oppressed people for justice and self-determination.”

“IFCO has assisted the poor and disenfranchised in developing and sustaining community organizations to fight human and civil rights injustices. This work includes education about the realities of the poor in the U.S. and the third world and to organize and to assist local communities who are organizing around issues of racial, social, and economic justice. . . . In pursuit of this mission, IFCO promotes, funds and coordinates domestic and international community development efforts – programs designed to improve people’s own communities.”

“IFCO’s international work, which began in Africa in the 1970s, has focused on Central America and the Caribbean since the early 1980s. IFCO’s project Pastors for Peace was founded in 1988,” and in 1992 it started its annual “Friendshipment” caravans which IFCO/Pastors for Peace delivers to Cuba” to provide “humanitarian aid to the Cuban people   . . . as a nonviolent direct challenge to the brutal US economic blockade of Cuba. The caravans, brigades and delegations have also provided an opportunity for numerous US citizens to see Cuba with their own eyes.”

IRS Challenge to IFCO’s Tax-Exempt Status

On October 3, 2015, IFCO publicly announced that the IRS planned “to revoke the group’s non-profit tax exempt status because of its humanitarian work in Cuba and other countries.” This announcement was the result of the organization’s learning that the IRS Appeals Office planned to uphold the revenue agent’s recommendation to revoke our 501(c)3 status . . . . [because of IFCO’s] humanitarian aid to Cuba as well as IFCO’s fiscal sponsorship of a humanitarian flotilla that delivered aid to the people of Palestine.”[2]

On August 24, 2016, the organization apparently told a journalist, “The IRS claimed that our work to bring humanitarian aid and build friendship with the Cuban people was done in violation of the Treasury Department’s ‘Trading with the Enemy Act.’”

On September 1, 2016, IFCO’s Executive Director, Gail Walker, stated that the IRS had abandoned its efforts to remove its tax-exempt status because of its Cuba programs and instead was basing its efforts on IFCO’s alleged sloppy record-keeping.[3]

The IRS, on the other hand, has not made any public comment about IFCO’s tax-exempt status.

U.S. Legal Requirements for Tax-Exempt Organizations

The IRS summary of the U.S. legal requirements for tax-exempt (501(c)(3)) status[4] states the following:

  • “To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”
  • “The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”
  • Political activities and legislative activities (commonly referred to as lobbying) are two different things and are subject to two different sets of rules and have different consequences of exceeding the limitations. The rules applied in a given situation depend on several issues: the type of tax-exempt organization (different rules apply to private foundations than to other section 501(c)(3) organizations), the type of activity (political or lobbying) at issue, and the scope or amount of the activity conducted.”

The U.S. Trading with the Enemy Act

On April 6, 1917, the U.S. Congress declared war on Germany followed by a similar declaration against Austria-Hungary on December 7, 1917. In between these events–on October 6, 1917–the Trading with the Enemy Act (12 U.S.C. §§ 95a95b and 50 U.S.C. App. §§ 1—44) was enacted. Here are the relevant provisions of this statute:

  • Section 2(b) defines “enemy” as including “The government of any nation with which the United States is at war, or any political or municipal subdivision thereof, or any officer, official, agent, or agency thereof.”
  • Section 3(a) makes it unlawful for “any person in the [U.S.], except with the license of the President, granted to such person, . . . to trade, or attempt to trade, either directly or indirectly, with, to, or from, or for, or on account of, or on behalf of, or for the benefit of, any other person, with knowledge or reasonable cause to believe that such other person is an enemy or ally of enemy, or is conducting or taking part in such trade, directly or indirectly, for, or on account of, or on behalf of, or for the benefit of, an enemy or ally of enemy.”
  • Section 5(b)(1) of this statute: “During the time of war, the President may, through any agency that he may designate, and under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise (A) . . . regulate, or prohibit, any transactions in foreign exchange . . . and (B) . . . regulate . . . or prohibit. . . transactions involving, any property in which any foreign country . . . has any interest. . . .”
  • Section 16 provides that any person who “willfully violate[s]” the statute or any regulation thereunder “shall, upon conviction, be fined not more than $1,000,000 [or $100,000 for natural persons] or imprisoned for not more than ten years.

On December 28, 1977, this Act was amended by Public Law 95-223, which provides in section 101(b) that “authorities conferred upon the President by section 5(b) of the Trading With the Enemy Act, which were being exercised with respect to a country on July 1, 1977, as a result of a national emergency declared by the President before such date, may continue to be exercised with respect to such country . . . . [upon a determination by the] President [to] extend the exercise of such authorities for one-year periods upon a determination for each such extension that the exercise of such authorities with respect to such country for another year is in the national interest of the United States.”

This authority has been annually used by every president since 1978 to extend the prohibitions of the Act with respect to Cuba. Should a president fail to renew this designation, the statute’s application to Cuba will die as will the president’s executive authority to relax and modify regulations causing the embargo to automatically revert, word-for-word, to the strict form they had on March 1, 1996 under the Helms-Burton Law and thereby require congressional action to change its terms.[5]

The latest such annual extension occurred on September 13, 2016, when President Obama signed a document determining “that the continuation for 1 year of the exercise of . . . [certain authorities under the Trading With the Enemy Act] with respect to Cuba is in the national interest of the United States.” [6] Those authorities are found in the Cuban Assets Control Regulations, 31 C.F.R. Part 515. Specific information about these regulations is set forth in a U.S. Department of the Treasury website.

Conclusion

I personally am glad that IFCO has been engaged in providing certain goods to Cuba, and I have enjoyed riding around in Cuba in a garishly decorated Pastors-for-Peace bus that was left there after one of IFCO’s caravans. I have signed a petition asking the IRS and Congress to stop this persecution of IFCO and urge others to do the same. I also am pleased that IFCO has obtained the support in this dispute from many Cuban organizations: the Cuban Council of Churches, Havana’s Martin Luther King Center, the Religious Organizations of Cuba, Cuba’s Institute of Friendship with the Peoples (ICAP) and Cuba’s First Deputy Education Minister.[7]

The U.S. use of the Trading of the Enemy Act with respect to Cuba after the December 17, 2014, announcement of the beginning of normalization of U.S.-Cuba relations is paradoxical and contradictory on its face. However, as noted above, this statute gives the president authority to relax the embargo, which President Obama has done. Without the annual renewals regarding Cuba under this statute, the president would not have any such authority and the embargo would be tightened unless and until Congress passes a law to end the embargo, which certainly will not happen during the remaining months of Obama’s presidency.

This statute, however, is not directly linked to the tax-exempt status of IFCO or any other organization, and the IRS does not have authority to enforce it. Perhaps the IRS’ apparent abandonment of this ground for revoking IFCO’s tax-exempt status is the IRS’ implicit recognition of the validity of the argument against any IRS use of the Trading with the Enemy Act.

Instead the Department of Justice has the authority to enforce statutes that carry criminal penalties for their violation. As previously mentioned, the Trading with the Enemy Act calls for a fine of not more than $1,000,000 [or $100,000 for natural persons] or imprisonment for not more than ten years. Thus, if IFCO were charged with such a crime and found guilty after a trial in federal court, IFCO would be subject to such a fine. I suspect that the fine would be relatively small in light of the organization’s overall religious purposes, its not making a financial profit from such activities, its not secretly conducting its activities regarding Cuba, its not having been previously challenged by the U.S., and IFCO’s not adversely affecting U.S. national security.

Moreover, I do not see how IFCO’s caravans to Cuba could be deemed to be attempting to influence legislation as a substantial part of its activities or participating in any campaign activity for or against political candidate, all of which are illegal for a 501(c)(3) organization and would be a ground for revoking tax-exempt status.

However, I must confess that I am not familiar with the case law interpreting these provisions. As always I invite comments of concurrence or disagreement or pointing out errors and omissions.

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[1] IFCO, About IFCO.

[2] IFCO Press Release, IRS Attacks Faith Based Civil Rights Group for Humanitarian Work with Cuba (Oct. 3, 2015).

[3] Whitney, Pastors for Peace Close to Losing Tax Exempt Status Courtesy of IRS Assault, CounterPunch (Sept. 2, 2016); Torres, IRS goes after Pastors for Peace for sending aid to Cuba, InCubaToday (Aug. 24, 2016); Barbosa, Solidarity organization harassed for its work in Cuba, Granma (Sept. 13, 2016).

[4] IRS, Exemption Requirements—501(c)(3) Organizations; IRS, Exempt Purposes—Internal Revenue Code Section 501(c)(3); IRS, Political and Lobbying Purposes.

[5] Muse, Press Release: Presidential Embargo Authority over Cuba: Renew it or Lose it, Latin America Goes Global (Sept. 2, 2015).

[6] White House, Presidential Determination—Continuation of the Exercise of Certain Authorities Under the Trading with the Enemy Act (Sept. 13, 2016);Obama renews Act trading with the Enemy supporting the blockade of Cuba, CubaDebate (Sept. 13, 2016); Muse, Press Release: Presidential Embargo Authority over Cuba: Renew it or Lose it, Latin America Goes Global (Sept. 2, 2015).

[7] Cuban Council of Churches, Communioqué from Cuban Council of Churches, Granma (Sept. 1, 2016); Reuters, Cuban Churches Denounce U.S. Probe of Humanitarian Aid Project, N.Y. Times (Sept. 7, 2016); Gomez, Love should not pay taxes, Granma (Sept. 7, 2016); Cubans support ecclesiastics Pastors for Peace, “Love and faith cannot pay taxes, CubaDebate (Sept. 7, 2016); Statement by religious organizations of Cuba in support of IFCO/Pastors for Peace, Granma (Sept. 1, 2016); Rodriguez, Pastors for Peace faces attack on solidarity work, Granma (Aug. 30, 2016).

 

 

 

 

 

 

 

 

Conference on “Prospects for United States Cuba Normalization, Commerce and Investment”

On February 18, 2016, the Cuba Consortium hosted its first annual Washington Conference: “Prospects for United-States Cuba Normalization, Commerce and Investment.” [1]

The speakers at the Conference included Penny Pritzker, U.S. Secretary of Commerce; Rodrigo Malmierca, Cuban Minister of Foreign Trade and Investment; Tom Vilsack, U.S. Secretary of Agriculture; Benjamin Rhodes, Assistant to the President and Deputy National Security Advisor for Strategic Communications and Speechwriting; and Andrea Gacki, Assistant Director, Compliance and Enforcement, Office of Foreign Asset Control, U.S. Department of Treasury. Here is a summary of their remarks.

Secretary Pritzker

Secretary Pritzker
Secretary Pritzker

In her speech, Pritzker said that she and the U.S. delegation on their visit to Cuba last October learned more about how the Cuban economy works, including the rules and regulations that govern the import, export, and distribution of goods across the island. This information helped to guide the most recent (January 2016) U.S. regulatory changes regarding Cuba.

Those new U.S. regulations created a general policy of approval of exports for purposes such as: disaster preparedness and relief, education, agricultural production, artistic endeavors, food processing, public transportation, Cuban civil society, enhanced communications on the island, and civil aviation safety.

Those new regulations also provided that the Commerce Department’s Bureau of Industry and Security will now review on a case-by-case basis proposed exports from U.S. companies to Cuban state-owned enterprises and government entities to determine if the export will meet the needs of the Cuban people. We had learned in our visit that in Cuba – as in many of our other trading partners around the world – it is necessary to work with state-owned enterprises in order to support the local private sector.

The corresponding new regulations from the U.S. Department of the Treasury permit financing for most authorized exports and travel authorizations.

In sum, whether environmental goods, telecommunications equipment, or products that private sector entrepreneurs need, the U.S. government’s regulatory changes permit a wide variety of trade and commercial activities.

However, if the U.S. is to truly maximize the benefits of our regulatory changes for the Cuban people, the Cuban government needs to make it easier for Cuban citizens to start their own businesses, purchase goods through wholesale markets, engage in external trade, secure credit, and access information online. These steps include making Cuban economic and business regulations publicly available; providing clear public guidance on the relevant government units and officials that are empowered to make decisions on potential transactions; and authorizing Cuban imports of U.S. products that are now allowed by U.S. regulations.

The bilateral civil aviation agreement signed on February 16 is an example of what we have accomplished together.

“The U.S. embargo continues to be a roadblock to increasing engagement between our countries. As President Obama reaffirmed during his State of the Union address, our Administration strongly supports lifting the embargo, and we will continue to call on Congress to repeal it immediately.”

Minister Malmierca

Minister Malmierca
Minister Malmierca

Malmierca asserted that President Obama has the legal authority to adopt additional regulations that would permit Cuba to use the U.S. Dollar in international financial transactions, authorize Cuban exports to the U.S. and allow U.S. companies to invest in other Cuban sectors besides telecommunications.

The U.S. regulatory changes to date are positive, but they are not enough. For example, he said, since the December 2014 joint U.S.-Cuba announcement of normalization, six financial institutions have been fined nearly two billion dollars for trading with Cuba. These fines and the ban on the use of the U.S. Dollar have had serious negative effects on Cuba.

The previous day (February 17), Malmierca led a Cuban delegation at a meeting with Secretary Pritzker and other officials of the U.S. Department of Commerce. [2] On that occasion he made many of the same points just mentioned. He also pointed out that Cuba does not apply any coercive measures against U.S. companies or businesspeople and, in fact, welcomes them to do business on the island.

At that prior meeting in response to a question by Secretary Pritzker, Malmierca said that the next meeting of the Congress of the Communist Party of Cuba will seek to define the priority economic sectors for long-term development. “The most complex issue is that Cuba wants all these changes to be implemented without affecting the population; we do not want to apply shock measures or measures that may have a negative effect.”

This upcoming Congress will address the role of the market in the Cuban economy and the role of foreign investment in its economic development. This will seek to further consolidate changes adopted by Cuba before December 17, 2014, which are irreversible. “All the measures we are adopting, and which were sovereignly chosen long before December 17, 2014, . . . will also contribute to making the decisions we are making together more feasible,” he concluded.

Secretary Vilsack

Secretary Vilsack
Secretary Vilsack

Secretary Vilsack also criticized the U.S. embargo (blockade), noting that it restricts opportunities for trade between Cuba and the U.S. One area of such negative impact was the U.S. helping Cuba’s organic and urban farming practices.

The U.S. Agriculture Department is looking to identify business opportunities through a fund to which several U.S. agricultural companies voluntarily contribute. This fund, however, cannot use federal resources to explore business opportunities with the island, as is common practice, thus obstructing U.S. companies’ access to the Cuban market.

Although a U.S. law in 2000 authorized sales of agricultural products to Cuba, it required Cuba to pay in cash in advance, which has had a severe negative impact on such U.S. exports.

Associate Director Gacki

Associate Director Gacki
Associate Director Gacki

Gacki was unable to identify the specific law which prohibits Cuba’s use of the U.S. Dollar in international transactions, but said the Treasury Department currently was investigating whether there were other executive measures President Obama could adopt to reduce the adverse impacts on Cuba of restrictions on its use of the U.S. Dollar.

Assistant to the President Rhodes

Assistant to President Rhodes
Assistant to President Rhodes

Rhodes confirmed that Obama still has broad executive powers to make further and more substantial modifications to the U.S. embargo (blockade) policy.

Rhodes said that while the embargo policy may have had relevance in the past, the island is changing as are opinions of some Cuban-Americans. In addition, the increased numbers of Americans visiting Cuba are seeing why the embargo should be ended.

The Obama Administration, he added, is reviewing other potential regulatory changes that could be made within the existing legal framework.Thus, he believed it is possible to do more before the end of this administration to generate the necessary momentum to definitively end the embargo.

Conference Background

The Cuba Consortium is an assembly of companies, non-profit organizations, investors, academics, and entrepreneurs organized to track and examine the normalization process in both countries and to inform and prepare its members for opportunities to engage Cuba. They are complemented by foreign policy, political, economic, international development, legal, and cultural experts who have specialized knowledge of the diplomacy, politics, and economics of the normalization process.

The Consortium’s Advisory Board is co-chaired by Senators Nancy Kassebaum Baker and Tom Daschle and includes Dr. Michael Adams, Lon Augustenborg, Richard Blum, Sheila Burke, Tomas Diaz de la Rubia, Senator Byron Dorgan, Rodney Ferguson, Senator Bill Frist, Dr. Helene Gayle, Maurice Greenberg, Senator Bob Kerrey, Linda Klein, Fred Malek, Janet Napolitano, Thomas Ross, Senator Olympia Snowe, The Honorable Ellen Tauscher, Bill Weldon, and Rob Wilder.

The Consortium was organized by the Howard Baker Forum, which was founded by former Senator Howard Baker to provide a platform for examining specific, immediate, critical issues affecting the nation’s progress at home and its relations abroad under a philosophy of reasoned consensus, founded upon an agreed set of facts.

Conclusion

The Consortium and its conference join the U.S. Agricultural Coalition for Cuba and Engage Cuba as important bipartisan U.S. efforts to promote U.S.-Cuba reconciliation. I applaud all of their efforts.

On the same day of this conference, the White House announced that President Obama and Michelle Obama will be visiting Cuba on March 21 and 22. The White House Press Secretary said, “In Cuba, the President will work to build on the progress we have made toward normalization of relations with Cuba – advancing commercial and people-to-people ties that can improve the well-being of the Cuban people, and expressing our support for human rights. In addition to holding a bilateral meeting with Cuban President Raul Castro, President Obama will engage with members of civil society, entrepreneurs and Cubans from different walks of life.”

The previously mentioned Benjamin Rhodes also issued a similar statement that also reviewed the various steps towards normalization since December 17, 2014.

Before President Obama’s trip, I anticipate and hope that the U.S. will announce additional steps in the process of normalization, including:

  • issue new regulations allowing or expanding Cuba’s ability to use the U.S. Dollar in international transactions, authorize Cuban exports to the U.S. and allow U.S. companies to invest in other Cuban sectors besides telecommunications;
  • announce the ending of special U.S. immigration benefits for Cubans, including the policy of allowing entry without visas into the U.S. of Cubans arriving by land (the dry feet policy); and
  • announce further steps in the process of resolving U.S. claims against Cuba for expropriation of property owned by U.S. persons without compensation.

In addition, it is hoped that before President Obama’s trip Cuba will make Cuban economic and business regulations publicly available; provide clear public guidance on the relevant government units and officials that are empowered to make decisions on potential transactions; and authorize Cuban imports of U.S. products that are now allowed by U.S. regulations. In addition, some improvement in Cuban human rights would be helpful, an objective apparently to be pursued in Havana next week by Secretary of State John Kerry. ==========================================

[1] Gomez, Rapprochement moving forward, Granma (Feb. 22, 2016). Amazingly a 2/23/16 Google search of “Cuba Consortium” did not reveal any U.S. media coverage of this Conference. Secretary Pritzker’s speech was on the website of the U.S. Treasury Department.

[2] Gomez, Malmierca: Obama has support to continue dismantling the blockade, Granma (Feb. 18, 2016).

 

 

 

 

U.S. Loosens Certain Restrictions on Transactions with Cuba

On January 26, the U.S. Departments of the Treasury and Commerce released additional amendments to regulations regarding export payment and financing and airline travel with Cuba that will be effective on January 27.[1]

The changes will authorize financial transactions regarding professional meetings, disaster preparedness, information and informational materials and professional media or artistic productions in Cuba.

Other changes will allow U.S. airlines to have blocked space, code-sharing and leasing arrangements with Cuban airlines.

Treasury Secretary Jacob J. Lew said, “Today’s amendments to the Cuban Assets Control Regulations build on successive actions over the last year and send a clear message to the world: the United States is committed to empowering and enabling economic advancements for the Cuban people.  We have been working to enable the free flow of information between Cubans and Americans and will continue to take the steps necessary to help the Cuban people achieve the political and economic freedom that they deserve.”

Commerce Secretary Penny Pritzker said, “Following the first ever U.S.-Cuba Regulatory Dialogue and my fact-finding trip to Cuba in October, we have been working tirelessly to maximize the beneficial impact of U.S. regulatory changes on the Cuban people.  Today’s Commerce rule builds on previous changes by authorizing additional exports including for such purposes as disaster preparedness; education; agricultural production; artistic endeavors; food processing; and public transportation.  These regulatory changes will also facilitate exports that will help strengthen civil society in Cuba and enhance communications to, from and among the Cuban people.  Looking ahead, we will continue to support greater economic independence and increased prosperity for the Cuban people, as we take another step toward building a more open and mutually beneficial relationship between our two nations.”

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[1] Reuters, U.S. Eases Air Travel, Export Financing Sanctions on Cuba, N.Y. Times (Jan. 26, 2016); U.S. Treasury Dep’t, Treasury and Commerce Announce Further Amendments to the Cuba Sanctions Regulations (Jan. 26, 2016).

 

Developments in U.S.-Cuba Normalization

As noted in a prior post, on September 12, 2015, the U.S. and Cuba established an agenda for their bilateral commission to address various issues relating to normalization of relations. Since then there has been limited progress on that agenda.

On September 18, the U.S. Departments of Treasury and Commerce issued new regulations to ease sanctions related to travel, telecommunications and internet-based services, business operations in Cuba, and remittances. The new rules will allow U.S. companies to establish offices and subsidiaries in Cuba, permit joint ventures between U.S. and Cuban firms and make it easier for airlines and cruise ships to import parts and technology to Cuba to improve the safety of their operations.[1]

Secretary Penny Pritzker in Cuba
Secretary Penny Pritzker in Cuba
Secretary Pritzker with Cuban children
Secretary Pritzker with Cuban children

 

 

 

 

 

On October 6 and 7, U.S. Commerce Secretary Penny Pritzker was in Cuba to launch a new Regulatory Dialogue between the U.S. and Cuba focused on the impact of new U.S. regulations by her Department and by the Department of Treasury’s Office of Foreign Assets Controls (OFAC). The Dialogue also gave Secretary Pritzker and additional U.S. officials from the Departments of Commerce, State, and Treasury the opportunity to hear from their Cuban counterparts on the structure and status of the Cuban economy. Secretary Pritzker also visited the Mariel Special Development Zone with U.S. charge d’affaires Jeffrey DeLaurentis.[2]

On October 27-30, high-ranking officials of the U.S. Department of Homeland Security visited Cuba to meet with leaders in the Cuban Ministries of Interior, Transportation and Foreign Relations. Issues discussed included aviation security, combating drug trafficking, cybersecurity and resumption of passenger ferry services between Havana and Florida.[3]

Secretary Mayorkas in Havana
Secretary Mayorkas in Havana

The DHS delegation was led by the Department’s Deputy Secretary, Alejandro Mayorkas, who as an infant left Cuba with his family in 1960. On the last afternoon of his DHS trip, he visited a family cemetery, where his grandmother, great aunt and great uncle are buried as well as his father’s elementary school and steel-wool factory. His Cuban hosts, Mayorkas said, were aware of his personal history and “could not have been more gracious and kind” in presenting him with a gift: his family’s original Cuban government immigration file.[4]

The last week of October also was the occasion for the annual Havana International Fair. Attending was an U.S. Chamber of Commerce delegation of 40 U.S. companies including Caterpillar, Amway, Sprint and Cargill for meetings with Cuban officials and the first board meeting of the U.S.-Cuba Business Council, a group dedicated to trade between the two countries. Jodi Bond, the Chamber’s vice president of the Americas, said the council was optimistic that trade will begin to flow between the U.S. and Cuba as each country figures out how to harmonize clashing sets of byzantine regulations. “We want to see U.S. products as part of that beautiful build-out of Cuba,” Bond said. “We’ve done this in so many markets around the world we know that it just takes time.” One of the U.S. companies in the delegation, Sprint, signed an agreement with Cuba to broaden its service to the island[5]

The U.S. and Cuba also are discussing cooperation on baseball, including making it easier for Cuban players to join U.S. professional baseball organizations and for U.S. major league teams to play spring games in Cuba.[6]

Despite these developments, there are voices of disappointment that the process of normalization is not leading to more business transactions. Another post will explore possible reasons for the slow pace of such transactions.

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[1] U.S. Announces Concrete Improvements in Relations with Cuba (Sept. 18, 2015).

[2] Dep’t of Commerce, Secretary Penny Pritzker’s Trip to Cuba (Oct. 15, 2015)  Davis, U.S. Commerce Chief Makes a Pitch in Cuba, N.Y. Times (Oct. 6, 2015).

[3] Dep’t of Homeland Security, Readout of Deputy Secretary Mayorkas’ Trip to Cuba (Oct. 30, 2015).

[4] Markon, ‘I went with a nervous heart’: Top Cuban American DHS official makes emotional return to Cuba, Wash. Post (Nov. 4, 2015).

[5] Assoc. Press, US Companies in Cuba for Week-Long Celebration of Commerce, N.Y. Times (Nov. 3, 2015); Reuters, Cuba Signs Deal with Sprint, Says It Is Open for More Business, N.Y. Times (Nov. 2, 2015).

[6] Schmidt & Davis, U.S. and Cuba in Trade Talks, for Ballplayers to Be Named Later, N.Y. Times (Oct. 31, 2015).