Cuba: Cutting Property Claims Down To Size

Until Cuba and the U.S. began restoring diplomatic relations last December, the status of legal claims against Cuba for expropriated property seemed moot. Not anymore. Like Freddie Krueger, the claims are back. Some analogize expropriation to theft. This overstates the case. Unfortunately, Cuban property claims have long been a staple of exile infotainment, especially in Miami, so misinformation abounds.

Consider the facts. Countries routinely expropriate private property for public purposes, e.g., the eminent domain power of the United States. When a country takes property from its own citizens, they must look to their country's law for a remedy. In contrast, when a country takes the property of foreigners, public international law applies. Claims settlement then typically takes place sovereign to sovereign.

What does this mean for Cuba? Cuba conducted most of its expropriations between 1959 and 1961. Its nationals who lost or abandoned property must find a remedy -- if at all -- in Cuban law, not U.S. law. U.S. companies and those who were U.S. citizens at the time have different rights. It appears that when seizing the property of U.S. nationals, Cuba offered compensation at least once. The United States refused any offers.

Instead, it established two claims programs with the U.S. Foreign Claims Settlement Commission, which has certified 5,913 claims: about 900 of these belong to corporations that own 85% of the face value of these claims, with the remaining 15% divided among roughly 5,000 individuals; of the 48 largest claims, all but five belong to corporations. Many Cuban and foreign national claimants already got tax benefits from deducting these losses, so any new recovery will be recognized as gross income.

When figuring out what to do with these claims, three points matter. First, property involves rights that are relative, contextual and politically contingent not absolute and categorical, so these claims aren't as binding as a contract. Second, these property claims are part of a more general problem of Cuban political risk, a systemic problem that should be addressed as a whole. Finally, the brouhaha about property claims detracts from dealing with the harder emotional issues about what people really left behind on the island.

Archie Bunker may have thought that a man's home is his castle, but it's not, as any Coral Gables homeowner knows who has ever tried to install new blinds. Property is more like Swiss cheese than a solid block. Consider limitations on using and transferring real property, such as zoning and bans on racially-restrictive covenants. In the name of protecting family relations, state law often forces an owner to share property with family members. For centuries, Anglo-American law has limited how long the dead hand of the past can tie up property through the rule against perpetuities.

Governments enact asset forfeiture laws, like those that apply in some criminal contexts. Time also alters property rights, relevant for a 50 year embargo, because equities shift over long periods. Statutes of limitation deprive owners of rights unless they are exercised on time. Acquiring or losing title through adverse possession also depends on the passage of time. After all, life belongs to the living.

The claims certified by the U.S. Cuba Claims Commission involve political risk, i.e., the risk of economic loss not from market factors, but from the exercise of state power. Expropriation, sanctions and capital controls are common examples, but political risk takes other forms too. Workers and retirees in public pension systems live exposed to state legislatures that can impose risks as bad as any market crash. A legislature´s inability to manage a debt limit is also political risk, one that can affect a country´s credit rating.

Both Cuba and the U.S. have created political risk in respect of the island, whose economy suffers as a result. Any settlement of property claims should be part of a more general purge of political risk in the island's economy. This means comprehensively taking into account all related forms of political risk, including Cuba's public international law claims against the U.S. for embargo losses.

The Helms-Burton law created some new sources of political risk - including against third parties -- but Presidents always suspend this part of the law. The Export-Import Bank also has a claim against Cuba that triggers the Johnson Act, a law that keeps countries in default of debt owed to the U.S. from raising money in U.S. capital markets. Purging political risk is a public interest, although the resulting legal certainty would favor property and entrepreneurial activity.

My final argument addresses what these claims mean at an emotional level. For many Cuban-Americans -- most really -- property was not the dearest thing they left behind. The real treasures were cultural and social intangibles, existential goods whose loss locked in the emotional destiny of many families. Because some losses have been reduced to a dollar value through property claims, though, this creates an illusion that loss can be made whole. These claims, however, are existential proxies for losses that cannot be monetized. They can only be experienced, acknowledged, and surrendered.

I am not minimizing the hardships of people, families and businesses that lost property in Cuba. Those losses deserve recognition, but only as part of a framework that moves beyond tabloid notions of fairness, emphasizes the economics of the present (not the dead hand of the past), and promotes national reconciliation between Cubans and Cuban-Americans. Many equities are at stake here, not just the interests of corporations and the island's old oligarchs.