Anyone who talks about doing business in Cuba should read this first.
These events didn't transpire fifty years ago, but within the last five years.
From VICE News:
'A Series of Razors Waiting to Cut You': The High Cost of Doing Business in Cuba
Sarkis Yacoubian swore he was just a businessman, but the state security agents holding him in a Havana interrogation room called him a spy.
It was July 2011, and Yacoubian, then 51, had been working in Cuba for nearly two decades. An Armenian-Canadian born in Beirut, he owned a trading company called Tri-Star Caribbean, which imported emergency vehicles, mining equipment, and auto parts for Cuba's state-run industries.
About eight months before his arrest, Yacoubian says, a regime official visited Tri-Star's Havana offices a handful of times — "Let's call him 'the Colonel,'" says Yacoubian, who claims not to recall the man's name. The Colonel said that Cuba wanted to buy a fleet of BMWs, and asked Yacoubian to arrange it. The government's wish list: sixteen 5-series sedans for the rental market and diplomatic use, and an armored X5 SUV for Cuban president Raul Castro's personal motorcade. Yacoubian, knowing the contract could lead to many more, agreed to deliver the cars to Tecnotex, a state-owned conglomerate under the purview of the military run by Castro's son-in-law, Colonel Luis Alberto Rodriguez.
The problems, however, started almost immediately. The government had previously been working with Eric Soulavy, a BMW dealer based in Venezuela who had run into financing problems. Yacoubian says a BMW rep got in touch with him and said that he needed to buy out Soulavy's contract with BMW, which still had one year remaining. (A spokeswoman for the auto company said it does not comment "on the behavior of third parties as a matter of principle.")
Yacoubian says he was at that point contractually obligated to deliver the vehicles to the Cubans, so with his "back to the wall," he began negotiating with Soulavy. Yacoubian says they agreed to $800,000, with an initial transfer of $100,000. Soulavy, who is now a real-estate developer in Key Biscayne, Florida, says he doesn't recall the exact amount he received from Yacoubian, but remembers charging him "something for the tools and parts we had invested in that business."
Yacoubian says the buyers at Tecnotex were also asking him to take a $1,000 loss on each car, but "you don't tell Raul Castro no." Still, Yacoubian wasn't doing the deal out of fear — he estimated the foothold the deal was gaining him could one day be worth up to $250 million.
Instead, he was accused of plotting to kill Castro.
* * *
When President Barack Obama announced a diplomatic thaw between the US and Cuba in December 2014, American companies began salivating at the thought of entering a virtually untapped market of more than 11 million people. And as the relationship slowly continues to warm — Obama made a high-profile visit to the island this week — business looks like it's about to boom. Starwood Hotels and Resorts, the Stamford, Connecticut–based company behind the Westin, Sheraton, and W chains, recently signed a deal to refurbish and manage two state-owned Havana properties. MasterCard is now being accepted at a small number of locations in Cuba.
One analyst described the present time as a "rare opportunity" for US businesses to get into Cuba. Another called Cuba the "greatest investment opportunity of the 21st century."
But there's also danger. Any entrepreneur entering Cuba "will want to be overly cautious right now," says Paolo Spadoni, a professor of political science at Georgia Regent University and author of the book Cuba's Socialist Economy Today: Navigating Challenges and Change. "Even inviting your [business] partner to a restaurant, this kind of activity will be way more scrutinized than it was before."
Fidel Castro didn't allow outside investment in the country for more than 30 years after he took power in 1959, and when he did, it was only to stave off an impending humanitarian disaster. In 1991, Cuba stopped receiving billions of dollars in yearly subsidies from the disintegrating Soviet Union, shrinking the island's economy by as much as 50 percent. Thus began what Castro dubbed the "Special Period in a Time of Peace," an economic crisis so severe, Cuban citizens were cooking and eating grapefruit rinds and mop tassels.
Castro finally relented to investment from Canada, Europe, Latin America, Asia — anywhere but the United States, whose citizens were and in large part still are prohibited by law from doing business in Cuba.
Yacoubian got to Havana in 1993, and eventually came to accept the cost of doing business there. When he wanted to start selling equipment to the Cuban nickel mining industry, he says he was granted access only after "donating" a $400,000 articulated mining truck to the regime. To facilitate another business deal, Yacoubian says he was forced to sell $1.5 million worth of tires to the Cuban Army — at cost.
For the BMW sale, Yacoubian also agreed to spend $35,000 on a set of diagnostic tools called the Integrated Safety Information System (known by its now-unfortunate acronym, ISIS). Every two weeks or so, performance data from each vehicle would be recorded and sent to BMW headquarters in Germany, which remotely tracked diagnostic information about each of its cars worldwide.
Yacoubian would need to download several very large files to get everything set up, in addition to installing ongoing updates. Cuba still doesn't have a high-speed Internet backbone, and in an email at the time, Gernot Volkmer, BMW's representative for Latin America and the Caribbean, told Yacoubian the lack of a reliable connection would have to be solved before a deal could go through. He suggested Yacoubian send a Cuban technician to Panama every two weeks to transfer the data, but Yacoubian knew that would look extremely suspicious to Cuban authorities.
Knowing he had to make things work with what he had available in Havana, Yacoubian says he and his IT guy did late-night test runs to see if they could wring the full 760 kbps out of Tri-Star's dial-up connection in the middle of the night, when internet usage was at its lowest.
Two weeks later, on July 13, 2011, plainclothes Cuban state security officers showed up at Yacoubian's second-floor office and, he says, held him at gunpoint. He tried to close his personal email account, which was open on his computer screen, but as soon as he moved his index finger, one of the agents shouted at him to freeze. They then led Yacoubian out of the building, past his employees, and into a waiting van.
Yacoubian says he was brought to Villa Marista, a former Catholic school that has served as the nerve center of Cuba's Ministry of the Interior since 1963. He then spent several months in a series of government safe houses in Havana, where he says he was continually questioned and threatened while being kept in solitary confinement 23 hours a day. He had a rotating cast of interrogators he knew as Major Carlito, Colonel Estrada, and Raisa.
The trio wanted to know why Yacoubian was using so much bandwidth at such odd hours. And, most of all, they wanted to know whether Yacoubian was planning to help Cuba's enemies, namely the United States, pinpoint Castro's exact location through the onboard ISIS system in his yet-to-be-delivered X5. (Yacoubian calls the accusations "absurd.")
When investigators searched his office, they found about 40 laptop computers. Long suspicious of technology's ideological influence, and having heavily restricted online access, the Cuban authorities wanted to know why Yacoubian had so many.
Investigators also discovered business cards that belonged to USAID employees. The year before, a USAID subcontractor named Alan Gross had been arrested on charges of trying to destabilize the Cuban government by covertly helping Havana's small Jewish community access the Internet free of government filters and controls. Yacoubian says he assured the Cubans he'd never met Gross.
The Cubans told Yacoubian that the penalty for spying was life in prison, according to his account. But the longtime businessman knew that punishments meted out for small transgressions — the occasional bribe, payoff, or kickback — were mild in Cuba. Graft was predictably commonplace; government employees who were in charge of assigning multimillion dollar contracts earned official state salaries of $25 a month. Yacoubian believed that copping to a few minor infractions would satisfy his captors.
So the dealmaker tried to make a deal. In a bid for leniency, Yacoubian told investigators about some of the things he'd done wrong while doing business in Cuba: paying Cuban officials up to 3 percent of the value of deals to ensure contracts would be honored and payments made, or trying to pry loose frozen funds in hard-currency accounts the Cuban government blocked during one of the country's liquidity crises.
After he finished implicating himself, he began ratting out others.
* * *
Amado Fakhre, the British-Argentinean founder and CEO of Coral Capital, a Havana-based investment group, was arrested on October 11, 2011.
While Yacoubian claims to have related only instances of corruption to his interrogators, Fakhre, who has before never spoken publicly of the ordeal, says authorities informed him that Yacoubian identified him as a covert Israeli operative who had been trained by the Mossad in the Negev Desert.
A Lebanese Maronite born in Argentina and raised in England, Fakhre says he is "quite an unlikely candidate to be such a person."
Still, having been subjected to the same kind of interrogation as described by Yacoubian, Fakhre says he "can't really blame him" for doing what he did. "A person would say anything to get out of there."
Fakhre, whose company spent $28 million restoring Havana's Hotel Saratoga — it's where Jay-Z and Beyonce stayed during a 2013 trip to Cuba — was forced to sign a document confirming he had been arrested for "revealing state secrets." He would spend the next 20 months under interrogation at a Havana safe house, and later, at a military hospital where he says he saw Alan Gross, but was "too chickenshit" to talk to him. (Gross was released in 2014.)
'If the Cubans jailed everyone for corruption, there'd be no one left.'
"They were making me read articles about spy exchanges between the Russians and the Americans," Fakhre recalls. "They said, 'We know you're working for Cuba's enemies.' They brought me to a psychiatrist who was a specialist in espionage to see what he could find out. They brought me to [survival] training, to see if I could catch and eat serpents. It was laughable."
After three days, Fakhre says he was forced to sign a document confirming that he had been arrested for "revealing state secrets." A few months later, his captors finally "cottoned onto the fact that I was not a spy." That's when they switched gears and started accusing him of corruption.
In June 2013, more than 600 days after he was arrested, Fakhre was tried, in secret, for a list of economic "crimes" that outside of Cuba would have looked like little more than a corporate expense report. According to Cuban court documents, one of the charges stemmed from having treated a director of a state-run enterprise to a night at the Hotel Saratoga, which Coral Capital ran as a joint venture with the Cuban government, for her birthday. Fakhre said Coral had done millions of dollars worth of oil tank cleaning work with them, yet he purposely avoided giving the woman a gift, "even a bottle of Champagne," lest it be misinterpreted by the state security apparatus as graft.
Other charges included giving the father of a business associate an auto part, and giving a Cuban colleague $20 to get his government-issued car fixed. Fakhre was also hit with charges for loaning money to other foreign companies on the island — something he says he was told was legal as long as none of the parties involved were Cuban — and for taking part in "activities damaging to the economy" after his company made a 20 percent profit on the sale of a piece of mining equipment.
"That's not a huge margin, considering the many months I spent making the deal," Fakhre says. "Because I didn't pass on those savings, I committed an economic crime against Cuba."
Under Cuban law, defendants are entitled to the last word in court at the end of the proceedings. Fakhre delivered a 7,000-word statement.
"As you will understand, my personal principles are those of a businessman that is a capitalist," he said.
"However, I have always respected the extraordinary achievements of Cuba in the areas of public health care, education, and everything to do with human dignity. In fact, all my actions and efforts in Cuba for the past 18 years have been always in tune and solidarity with the leadership and aspirations of the Revolution."
Fakhre told the court that Coral Capital spent large amounts of money on "purely social works," including $131,000 to renovate a Havana primary school and more than $400,000 worth of electrical transformers to help fortify Old Havana's rickety municipal electric grid.
When the judges' decision was handed down, Fakhre was sentenced to five years in prison for "continued bribery," and an additional three years and six months for "illegal trafficking in currencies." Coral Capital's property and bank accounts — reportedly worth $17.3 million dollars — were turned over to authorities for "useful economic and social purposes."
Fakhre was then informed that he wouldn't actually have to serve any time, and was free to leave.
Fakhre, stunned by the reprieve, expected to be handcuffed and driven straight to the airport for immediate deportation. But instead he was told he could do whatever he wished. So he spent the next several days in Havana recuperating, then packed his bags and headed home to Europe.
He was never given an explanation for his release.
Two months earlier, Yacoubian had gone through a closed-door trial of his own, charged with bribery, tax evasion and, like Fakhre, "activities damaging to the economy."
Although he spilled his guts to authorities, taking down dozens of Cuban officials and state purchasers in addition to Fakhre and other foreign investors like his one-time-boss-turned-bitter-rival, Vahe "Cy" Tokmakjian — he was eventually sentenced to 15 years for bribery, forfeiting a reported $100 million in assets, and released in February 2015 — Yacoubian did not fare as well as Fakhre.
He was fined $7.5 million, had $19 million in assets seized by the government, and was sent to La Condesa, a prison for foreigners 30 miles south of Havana, to begin serving a nine-year sentence.
* * *
Outside investors can be stripped of their Cuban holdings for a number of different reasons, says Chris Simmons, a former special agent with the United States Defense Intelligence Agency, where he spent his career tracking Cuban spies.
For instance, one might simply run afoul of the wrong person — last summer, a Spanish investor was expelled from the country and had the two Havana lounges he owned taken over by the regime after he found himself in a romantic triangle with Raul Castro's grandson. Or, Simmons says, a person's business could be "just doing too well." Sometimes, a favored insider needs a surging competitor to disappear. In other instances, the perpetually cash-strapped Castro regime sees a cash cow they'd like to have for themselves.
In many respects, these "personal horror stories" all follow the same basic script, Simmons explains. First come espionage charges, which are used as a scare tactic to lay the groundwork for corruption charges.
"And of course you're guilty of corruption," he says. "If [the Cubans] jailed everyone for corruption, there'd be no one left."
State security begins compromising foreign investors the moment they arrive, says Enrique Garcia-Diaz, a former high-level Cuban intelligence officer who now lives in Miami. Every foreign extranjero has a dedicated government "shadow," and detailed files are kept on their movements and activities. The officials dealing with foreigners are also monitored "by the same security apparatus," says Regina Coyula, who worked for the Cuban Interior Ministry's Counterintelligence Directorate for 17 years, and still resides in Havana.
"These cases show the utter helplessness of foreign businessmen on the island of Cuba when they fall out of favor with the regime," says Garcia-Diaz.
Almost anyone can get burned. Even Fidel Castro's close friend Max Marambio, a Chilean with impeccable socialist bona fides, had his company and assets expropriated after a financial dispute with his government partners in 2010.
Yet foreign investment keeps flowing into the country.
"Foreign investors in Cuba are like women who date cheaters," says Tania Mastrapa, a Washington, DC-based consultant who advises Cuban expats on reclaiming assets seized by the Castro regime. "Everyone thinks they're clever, that they're somehow special, that it won't happen to them."
Perhaps not surprisingly, Fakhre says investors would be wise to avoid Cuba altogether. He emphasizes that he's "not on a crusade to bad-talk Cuba," and thinks financing other people's deals from afar could be one way for those absolutely determined to invest in the Cuban market to do so without the risk of suffering his fate. But anyone thinking about going all-in on Cuba like he did would be making "a big mistake."
"Even if they don't confiscate anything, the Cubans are masters at contract frustration," Fakhre says. "They will increase your workers' salaries, jack up your electricity rates, basically fuck you in a different way, and make it very difficult for you to make any money."
Two-and-a-half years after he was arrested, Yacoubian says he was abruptly given 48 hours to gather his belongings and get ready to go home. Two days later, Cuban authorities drove Yacoubian to an immigration jail in Havana, where he spent another two days being processed for expulsion from the country.
Yacoubian's sister bought him a business class ticket back home — on Air Canada, not Cubana, just in case — and several hours later, they touched down at Toronto Pearson International Airport. Yacoubian says he was never told exactly why he was freed. He now lives in a "modest condo" in North York, Ontario.
Fakhre now lives in Marbella, Spain with his Cuban-born wife and two kids. He says his name is now in a commercial risk management database that has made it impossible for him to get a business loan or open a bank account. His confiscated property, he says, is probably gone forever.
"Cuba is very seductive, like a woman," Fakhre says. "She opens her legs easily, but once you put it in there, you find a series of razors waiting to cut you."
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