Foreign banks in Cuba feel heat of U.S. regulations

Posted on Wed, Nov. 08, 2006

EMBARGO
Foreign banks in Cuba feel heat of U.S. regulations
The Bush administration's vow to enforce U.S. regulations is stifling
Cuba's ability to operate in international markets.
BY PABLO BACHELET
pbachelet@MiamiHerald.com

WASHINGTON - Weary of navigating the Treasury Department's stringent
rules on money transfers to Cuba, MoneyGram International called it
quits. Starting mid-September, the cash transfer company stopped serving
the island.

''It was too complicated,'' said Cathy Rebuffoni, a spokeswoman for the
Minneapolis-based firm, ``and we weren't getting any volumes.''

MoneyGram was the latest big-name financial services company to cut back
or end its dealings with Havana under a U.S. crackdown that appears to
be hitting Cuba hard, severely disrupting the government's ability to
make and receive international payments.

A story Monday in the Cuban state-run Trabajadores newspaper put the
total amount ''frozen'' by the U.S. measures at $268 million for 2005
alone but gave no further details. It called the restrictions ''one of
the most refined and sweeping'' sections of the U.S. trade embargo on
the island.

Trying to deny resources to Cuba's communist system, the Bush
administration has long pushed the Treasury Department's Office of
Foreign Assets Control, which enforces U.S. sanctions on foreign
countries, to keep a more vigilant eye on Havana. So far, much of the
focus has centered on restrictions on cultural and academic exchanges
and visits by Cuban Americans.

But OFAC also has quietly stepped up its oversight of foreign banks that
deal with Cuba, like the giant UBS of Switzerland and HSBC Group of
Britain. Since most either have U.S. branches or use the services of
U.S.-based companies, they are subject to U.S. embargo laws. Given the
U.S. clout in the global marketplace, this has sent shock waves to
financial firms that do business with Havana.

''It's very effective,'' said Ignacio Sanchez, a Washington trade
attorney with the law firm DLA Piper, noting that most of the world's
money flows go through U.S. financial centers.

2004 BEGINNINGS

The opening salvo came in 2004 when UBS was fined $100 million for
swapping old U.S. dollar bills with new ones for countries under U.S.
sanctions, including Cuba and Iran. This put other banks on notice and
helped force Havana to shift its monetary system toward the European
Union's euro.

But OFAC appears to have continued to tighten its enforcement. A recent
report presented by Cuba to the United Nations complains of a ''marked
increase in the pressure on foreign banks'' to cut ties with their Cuban
counterparts.

A year ago, the report says, HSBC Group discontinued the dollar and
Swiss frank current accounts held by the Cuban banking system. The
London-based bank also closed the dollar accounts of Banco Metropolitano
de Cuba, which serves foreign diplomats in Havana.

The Canadian subsidiary of HSBC also returned two payments made by
Cuba's Banco Internacional de Comercio -- one for C$1 million and the
other for 819,000 euros, according to the report.

The November issue of the newsletter Cuba Trade and Investment News -- a
Sarasota publication that tracks business trends in Cuba -- said this
marked the first major case of a foreign bank refusing to perform
nondollar transactions.

France's Natexis Banques Populaires and Trinidad and Tobago's Republic
Bank also have declined to deal with Cuban financial entities because of
OFAC restrictions, the Cuban report added. In March, the Jamaican branch
of Canada's Bank of Nova Scotia refused to serve the Cuban embassy in
Kingston.

The report also says Cuba could not pay its fees to the International
Union of Telecommunications and World Meteorological Organization, both
U.N.-linked multilateral organizations based in Geneva, because UBS --
the bank for both institutions -- refused to receive transfers from Cuba.

ORGANIZATIONS CLOSE

The Havana report added that several Cuban officials working for
organizations such as the World Health Organization and the World Food
Program also have been told to close their dollar accounts.

Pedro Alvarez, the head of the Cuban food import agency Alimport, has
said that the financial restrictions have raised the cost of doing
business with the United States by 20 percent and that Cuba would cut
its imports of U.S. foodstuff this year.

The U.S. regulatory squeeze on Cuba has never been harsher than under
President Bush, and companies are feeling the heat, said Kirby Jones, a
consultant who has advised companies wanting to do business with Cuba
since the late 1970s.

''They may not like [the regulations] and most don't,'' he said, ``but
you have to deal with reality.''

U.S. companies are allowed to export agricultural products to Cuba,
provided they receive cash payments before the goods are delivered. But
even cash payments must move through banks, so the restrictions are
giving U.S. corporations headaches. U.S. laws also permit humanitarian
shipments and some medical sales to Cuba

Crowley Martime Corp., a shipping company based in Jacksonville,
experienced the difficulties firsthand. For several years, the company
used the Netherlands Caribbean Bank -- jointly owned by Cuba and the
Dutch giant ING Group -- to receive payment from Havana for its services.

''This was a completely above-board operation,'' said Jay Brickman,
Crowley's vice president of government services, ``OFAC was fully aware
of it.''

But earlier this year, he noted, the bank started asking to see
Crowley's U.S. license for doing business with Cuba. Crowley mostly
ships agricultural products to the island, such as poultry and apples.

Then, in early July, Brickman learned why: The bank had come under OFAC
scrutiny. OFAC sent Crowley a letter instructing it to stop using the
bank. A few weeks later, OFAC declared the bank as a ''specially
designated national.'' Often used against drug traffickers and suspected
terrorist networks, the designation prohibits institutions and
individuals subject to U.S. laws from dealing with the bank.

''ING is currently reviewing the possible implications of the OFAC
designation,'' Nanne Bos, an ING spokesman, told The Miami Herald in an
e-mail.

With fewer reputable international financial institutions daring to do
business with Cuba, Crowley consulted with OFAC and the Cubans on its
payment options. Eventually, the company decided to use its Cuban
revenues to cancel some of the debts and bills in Europe.

''It's the hassle factor,'' said John Kavulich, senior policy advisor
with the U.S.-Cuba Trade and Economic Council, which tracks bilateral
economic relations. ``They've coupled rhetoric with enforcement, and
it's worked.''

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