Must-Read: Risky Business in Cuba

Tuesday, September 30, 2014
Column by Peter Foster in Canada's Financial Post:

Risky business in Cuba

After forty years of ‘constructive engagement’ with Cuba, government-backed Canadian investment has effectively propped up the regime

The Canadian government has for three years asked the Cuban authorities either to lay charges against Canadian businessman Cy Tokmakjian or release him. Unfortunately they got their wish last week, when the 74-year old was tried and sentenced behind closed doors to fifteen years in jail.

The conviction appears outrageous, as does the sentencing for shorter periods of two of his executives, Claudio Vetere and Marco Puche. But the affair raises many questions. Did Mr. Tokmakjian not realize he was operating in a corrupt system that could turn on him at any time? Did he see himself as an agent of change? Was he naïve? To what degree were his Cuban operations financed by the Canadian government? Is such financing defensible?

Businessmen should be allowed to risk their capital wherever they want. Investment in Cuba, as in China and Russia, is also often presented as a subtle way of undermining repressive regimes, but it is clear now, after forty years of “constructive engagement” that government-backed Canadian investment has effectively propped up the regime.

The days have long gone when the Cuban regime can blame the U.S. embargo for the endlessly dismal state of its economy, but the loosening of the U.S. embargo has resulted in as little reform as has investment from other countries.

Tokmakjian Group is a classic story of Canadian immigrant success. Starting with servicing diesel engines, Mr. Tokmakjian, an Armenian immigrant, moved into transit and shuttle bus services both in Canada and abroad. In Cuba, where he set up shop more than 20 years ago, his company distributed Hyundai vehicles and equipment, along with other types of mining equipment.

Mr. Tokmakjian was swept up in a move against “corruption” when Raul Castro took over from his ailing brother Fidel in 2011.

Earlier this year, another Canadian businessman, Sarkis Yacoubian, who was arrested before Mr. Tokmakjian, was expelled from Cuba one year into a nine year sentence. The circumstances are unclear but Mr. Yacoubian reportedly “cooperated” with the Cuban authorities, and may not only have played a part in fingering Mr. Tokmakjian, but in unleashing the whole anti-corruption campaign.

We assume that there is lots of quiet diplomacy taking place on Mr. Tokmakjian’s behalf. According to government spokesman John Babcock, “We continue to follow this case closely and remain actively engaged at senior levels. Consular officials continue to provide assistance to Mr. Tokmakjian and his family.” Somewhat bland, but grandstanding can be dangerous when one of your nationals is in jail under a barbaric regime. That makes it all the more puzzling why Canada remains one of that barbaric regime’s major aid donors and trading partners.

Some still naively – or self-interestedly – claim that Canadians have an “advantage” in Cuba because they are not American. That apparently includes Marc Whittingham, the head of the Canadian Commercial Corp., a shadowy Crown Corporation that specializes in state-to-state deals in areas such as armaments, and which may have provided finance to Tokmakjian Group. He reportedly told a Cuban audience that Canada had also been invaded by the U.S., in 1812, and had responded by burning down the White House. In other words, “We’re all anti-American here.”

The section on Cuba on the website of the Department of Foreign Affairs, Trade and Development is a masterpiece of pussyfooting. It notes that “The Government of Cuba has acknowledged that its centralized political structure poses a barrier to economic productivity.” I guess “centralized political structure” is more diplomatic than “corrupt dictatorship.”

According to the document, “Cuba needs assistance in developing modern business practices and increasing accountability and transparency of public institutions.” In fact, Havana has zero interest in increasing accountability and transparency, and modern business practices require the rule of law. The Tokmakjian Group’s mission statement stresses “respect, honesty and integrity,” three virtues that could not be more antithetical to a regime whose only priority is to maintain power.

It is almost sickening to read the Canadian government congratulate the island Gulag for meeting targets on “universal primary education; promoting gender equality and empowering women; and reducing child mortality.” Even worse is the declaration that “The country is on track to meet the targets for eradicating extreme poverty and hunger” when it is the Castro regime that has created extreme poverty and hunger in the first place.

The most obvious explanation for arresting Mr. Tokmakjian was simply to seize his business. Communist regimes have never needed lessons in theft, but in this case Vladimir Putin’s expropriation of Yukos might have been a model, since “Putinismo” is seen in Cuba as a possible transition from the disaster of Communism to crony statism. Clearly the fact that an international arbitration court ordered Russia to pay former Yukos shareholders $50 billion didn’t deter Cuba. Nevertheless, Tokmakjian Group has launched a $200 million lawsuit against the Cuban regime.

Mr. Putin may have thoughts about reestablishing the links with Cuba that were severed when the Soviet empire collapsed. Venezuela’s Hugo Chavez, for whom Fidel was a role model, eventually took up the slack of subsidizing the Cuban economy with cheap oil, but Venezuela too is now a basket case, so the return of Russia may be timely if the Castros are to continue their geriatric chokehold.

None of this is good news for foreign investors, for whom Mr. Tokmakjian’s experience is a warning. Let’s hope quiet diplomacy works soon in his case, but let’s also stop taxpayer backing for Cuban trade and investment. And let’s hope all those Canadian tourists who flock to Cuba every year give a passing thought to what their dollars are supporting.