The U.S. authorizes an American investment in a private business in Cuba

In what appears to be a first in more than six decades, the U.S. has authorized an American company to finance and invest in a private business in Cuba, an unprecedented move that could open the gate to American investment to help Cubans on the island gain economic independence from the state.

The U.S. embargo on Cuba, in place since 1960, prohibits most financial transactions involving Cuban nationals or entities, unless they fall under an exception or are authorized by a license. The people behind the recent initiative believe this is the first time the U.S. government has authorized direct financing and investment in a Cuban private enterprise.

The decision came last week, when the U.S. Treasury Department allowed a company headed by John Kavulich, president of the U.S.-Cuba Trade and Economic Council, to invest in and lend money to a small private business in the service sector in Cuba.

The amount to be provided to the Cuban business is less than $25,000, but the transaction details are “tangential,” Kavulich said. What matters, he added, is that “now others can seek to benefit from the precedent the license established.”

“There is now a choice when days ago there was not,” he said.

The Biden administration’s decision would only be meaningful, however, if the Cuban government allows American investment to reach Cuba’s emerging private sector, a notion Cuban authorities have rejected in the past. And investment in Cuba remains risky, because Cuban laws offer little protection for private property and businesses. The government has frequently seized assets of both local and foreign investors, sometimes for political reasons.

It took 11 months for the Biden administration to agree to Kavulich’s license request. The administration’s Cuba policy has remained mostly unchanged since the Trump era, and White House officials paused a promised Cuba-policy review to assess the fallout of the widespread anti-government protests on the island in July.

Tensions between Washington and Havana grew after President Joe Biden imposed sanctions on several security agencies and officials responsible for the crackdown that followed, and Cuban authorities responded with unproven accusations that the protests were part of a U.S.-financed operation.

But the current exodus of Cubans to the U.S. border prompted high-level talks with Cuba in Washington in late April, the first since Biden took office. The Treasury license came days after.

“To my knowledge, there is no precedent, and no direct equity investment in Cuba has been authorized since the Kennedy administration imposed a full trade embargo,” said Bob Muse, a Washington, D.C.-based attorney who drafted the contingent investment agreement with the Cuban small business owner and the license application.

“It is a significant step,” Muse said.

The Treasury Department declined to comment.

In recent years, supporting the Cuban people and its emerging private sector has been an explicit goal of U.S. policy. Cuban Americans have long financed small businesses of family and friends in Cuba via remittances. But before Kavulich obtained the license, there was no formal legal mechanism to do so. And with official remittance channels shut down, Cuban entrepreneurs are struggling to get capital.

“Over the past three administrations, there has been a consensus view that encouraging the growth of a Cuban private sector independent of government control should be a key element of U.S. policy toward Cuba,” said Ric Herrero, the executive director of the Cuba Study Group, a Cuban-American organization that advocates engagement with Cuba. “Now that Cuban officials have finally taken long-delayed steps to legalize private sector enterprise, we should seize the immediate opportunity to cultivate this sector and inculcate it with western values. Otherwise, we leave it at the mercy of global investors outside the reach of U.S. regulators, who may not share the standards of Americans and Cuban Americans.”

Kavulich declined to name the Cuban company involved, since the response of Cuban authorities is uncertain, but he believes the license creates pressure on the Cuban government to “match up” what the U.S. has already allowed.

As the COVID-19 pandemic hit the Cuban economy, several Cuban officials have given public assurances that the country welcomes foreign investment. But in the past, authorities have shut down proposals by American companies and Cuban-American exiles. While increasing political unrest and poor economic outlooks have forced authorities to ease restrictions on the private sector, several remain in place, and distrust of all things American runs deep within the Cuban government.

Changes last year in Cuban laws and regulations granted small and medium private businesses legal status as limited liability companies, or LLCs, but the new legal framework is vague and gives broad latitude to the government to further regulate the private sector.

The private sector law says the recently created companies can seek any “legal” financing, but doesn’t specify what qualifies. The Cuban government sees foreign investment as a separate issue from legislation on the private sector and usually deals with foreign investment requests through the Ministry of Trade and Foreign Investment.

Muse said he doesn’t see why the Cuban government would not allow investment in the private sector. “The government itself has said the private sector is part of their economy and for that, private businesses need capital. Everyone benefits.”

Kavulich also hopes that the Biden administration takes further action to facilitate normal banking relations between the two countries.

But any easing of sanctions by the Biden administration is also likely to get pushback from Cuban exiles and activists on the island, who believe the Cuban government’s ongoing crackdown on dissent, and deterioration of the human rights situation on the island, should be met with more isolation.

Saily Gonzalez, an entrepreneur in Cuba who had to shut down her bed-and-breakfast business because of her opposition to the government, said American investment would likely benefit those private owners with connections to the government, the ones that are able to thrive despite the limitations upon the private sector.

“The Cuban Communist Party, the ultimate authority, will never allow that a local without proven loyalty to the regime has access to an injection of American capital,” she said on Twitter. “And the Biden-Harris administration should pay attention to this issue.”

Kavulich said he learned of the small private business in Cuba that he’s trying to help through Facebook and reached out by email. He said the person is not a member of the government or the military and that other Americans wanting to invest in the island would also have to do due diligence regarding the people and entities involved.

Other Cuban entrepreneurs believe the opportunity to seek finance abroad could be life-changing.

“For decades, the private sector in Cuba has been severely limited by both national policies and the U.S. embargo,” said Camilo Condis, a Cuban entrepreneur who runs a small lighting business in Havana and hosts the El Enjambre podcast about everyday life in Cuba. “Now, this type of license would open opportunities for Cuban entrepreneurs. We will see if the Cuban government would allow foreign direct investment in the private sector or continue to limit its development.”

“The ball is in the Cuban government’s court,” he said. “We will know soon.”

This story was originally published May 16, 2022 3:01 PM.