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CubaNews v April 2012

TELECOMMUNICATIONS

SEC pressures Spains Telefnica over Cuba business ties

BY VITO ECHEVARRA

he U.S. Securities and Exchange Commission is hounding Spanish telecommunications giant Telefnica over its business dealings with Cuba. In a Nov. 29 emailed letter to Telefnica CEO Csar Alienta Izuel, Cecilia Blye the head of SECs Office of Global Security Risk cited a September 2009 news report in which Telefnica allegedly confirmed its interest in investing in Cuba. Blye, who asked Alienta if the liquidation of his companys Cuba affiliate, Telefnica Data Cuba (TDC), was completed in 2005, advised him to describe any equipment, technology or support that you have provided into Cuba, directly or indirectly, and any agreements you have had with the government of Cuba. Even though Blye didnt directly threaten Telefnica with legal action if it failed to comply with the SECs request, the letters very existence and the fact that it mentioned Washingtons designation of Cuba as a state sponsor of terrorism suggested that her agency would find a legal cause of action against Telefnica if necessary.
TELEFNICA HAS NO IMMEDIATE CUBA PLANS

es, Escrig Meli wrote, noting that some of Telefnicas subsidiaries in Spain and Latin America have roaming agreements with telecom providers in Cuba. The CFO also said that after having studied the potential purchase of Cuban state phone monopoly Etecsa, his company decided not to go ahead with the acquisition and that it has no plans to do so. The timing of the SECs pursuit of information from Telefnica is curious, since that company has invested in telecom services throughout Latin America for years. More importantly, the SECs letter appears to contradict the Obama administrations policy of encouraging open telecom links between the United States and Cuba.
CUBA EXPERT SAYS POLITICS IS TO BLAME

Meanwhile, the Madrid newspaper El Pas carried a report about the SECs legal harassment of Telefnica. That article included not only Blyes letter to the company but also the Dec. 30 response by Telefnicas chief financial officer, Miguel Escrig Meli, who confirmed in writing that TDC had been liquidated in September 2005. U.S. sanctions against Cuba permit, in varying degrees, activities in connection with the provision of telecommunications servic-

In April 2009, President Obama exempted that portion of the U.S. trade embargo which prohibited American phone companies from doing business with the Marxist regime. Even though the new policy technically covered only prospective U.S. telecom deals with Cuba, even efforts by Spains Telefnica to modernize Cubas telecom infrastructure would have still worked toward achieving the White Houses goal of a more open flow of communications on the island. New York attorney Tony Martnez, who closely follows trade and regulatory issues affecting Cuba, said he saw this coming. It is not surprising that the SEC made its inquiry to Telefnica, he told CubaNews. The designation of a country being on the State Sponsor of Terror List has wide-ranging implications for that country. Martnez said Cubas continued presence

on that list makes Obamas telecom liberalization policy virtually meaningless, since under the Terrorism Risk Insurance Act, Cuba has no sovereign immunity in U.S. courts. That, in turn, makes prospective U.S. phone revenues destined for Cuban coffers vulnerable to seizure from American plaintiffs with multmillion-dollar default judgments (see CubaNews, June 2010, Page 11). Martnez recalled that at a Feb. 14 compliance conference in Washington hosted by the Treasury Departments Office of Foreign Assets Control (OFAC), officials warned that foreign companies doing business with countries on the terror list would be subject to more U.S. government scrutiny. In addition, the 1996 Helms-Burton Act effectively discourages foreign firms from doing business with both the U.S. and Cuba even though in practice, it has been selectively enforced due to diplomatic pressure from Canada and the 27-member European Union. Martnez insists that Washington politics is behind the latest harassment of Telefnica. It is irrelevant that the reasons for Cuba being on that list are domestic political reasons. It is on the list, and the enforcement agencies have to carry out the law until it is no longer there, he told CubaNews by email. The subtle and indirect manipulation to hammer Cuba comes from Capitol Hill, where the pro-embargo Congressional cadre presses executive agencies to do more on Cuba. Rather than Congress doing an objective oversight of our failed policies with Cuba at the expense of both the U.S. and Cuban economies, this political manipulation ensures that scenarios like Telefnica will continue.
MARTNEZ TO COMPANIES: MAKE SOME NOISE

Cuba struggles to hit sugar projections

ncient mills and old equipment are taking their toll on Cubas sugar harvest, with scattered media and source reports indicating that many mills will have to remain open in May to meet output targets, Reuters reported Mar. 9. Fifteen mills opened in December, another 28 in January and three in February, in the first harvest since the Sugar Ministry was replaced in November 2011 by a staterun holding company. The industry hopes to reverse a long decline, with plans calling for output to reach 1.45 million tons, compared with the 1.2 million tons Reuters estimates Cuba produced during the previous harvest. While there appears to be enough cane to meet this years production plan, milling in May is costly as summer rains set in and yields drop due to hot and humid weather. Official media reported eastern Santiago

de Cuba was milling at just 60% capacity due mainly to mill problems and the constant breakdown of harvesting equipment, but was nevertheless performing better than all the other 13 sugar-producing provinces except Sancti Spritus. In neighboring Holgun, mills produced just 52% of their daily target on Mar. 6, according to the provincial radio station. Key sugar-producing provinces such as Matanzas, where local media reported a 17,000-toe shortfall, and Camagey, Ciego de Avila, Holgun, Las Tunas and Granma where sources said there were similar deficits will now have to mill through May to meet production targets. Cuba consumes 600,000 to 700,000 tons of sugar annually and has a 400,000-ton toll agreement with China. Cuban sugar is also sold for export on the spot market.
REUTERS NEWS SERVICE

Martnez has a few suggestions for companies like Telefnica that find themselves under undue OFAC scrutiny. Comply with U.S. laws by ensuring you have an active sanction compliance program in place, and expect that any foreign company in Cuba that happens to also do business in the United States to be under economic surveillance by U.S. agencies and embassies, the lawyer advised. Those companies who do business in the U.S. need to get politically active and inform their congressmen and senators. Foreign companies need to complain to their respective foreign ministries so this matter is brought up in the context of diplomacy as well. El Pas noted that other Spanish companies such as Repsol-YPF SA and BBVA have been subjected to similar pressure from OFAC over its dealings with Cuba and Iran. El Pas didnt disclose how it re-ceived copies of SECs correspondence with Telefnica, though its our guess that company attorneys or top officials leaked it to the newspaper in order to step up Spanish and EU pressure against the White House to back off. q