Another – and somewhat counterintuitive – concern for investors is corruption.
Raúl Castro made cracking down on graft a priority when he took over from his brother. In the process, he put executives at three foreign firms (one British and two Canadian) behind bars. Toronto-area traders Sarkis Yacoubian, head of Tri-Star Caribbean, and Cy Tokmakjian, president of Tokmakjian Group, were detained in 2011 and held without charge for nearly two years.
“The government might have thought initially that foreigners would like an investment climate where there’s less corruption, but that’s not how it plays,” says Richard Feinberg, a Brookings Institution expert on Cuba. He points to the perceived arbitrary nature of the arrests and the lack of due process. “The net effect is that these one-off cases become a deterrent.”
He is also critical of the single-minded nature of Cuba’s crackdown. When officials making humble state salaries oversee transactions involving huge sums of money in a less-than-transparent environment, he explains, it’s hardly surprising that corruption occurs. “But repression alone doesn’t work. It may get you some results in the short run, but the incentive structures are misaligned.”
Once associates, Yacoubian and Tokmakjian became rivals in the lucrative business of selling vehicles and heavy equipment to state-run Cuban firms in the transport, construction and nickel industries. Tri-Star Caribbean brought in about $30 million a year, while Tokmakjian Group’s earnings topped $80 million.
Behind bars, Yacoubian blew the whistle on what he saw as systemic corruption. “If I didn’t pay [bureaucrats and officials], at the end of the day they would just create problems for me,” the 53-year-old told the Toronto Star from prison, adding he confessed everything he knew. “I gave them names, people, how they do it, why, when, where, what.”
Charges of bribery, tax evasion and damaging the economy were finally brought against Yacoubian in May. His two-day trial was closed to reporters but was attended by Canada’s ambassador, Matthew Levin. In addition to political concern over the extended detention of Canadian citizens, taxpayer dollars were potentially at stake: The Canadian Commercial Corp. has underwritten $650 million (Canadian) in transactions between exporters and the Cuban state since 1991. While its client list is private, it is probable that Tri-Star and Tokmakjian received CCC support.
In the end, despite his jailhouse co-operation, Yacoubian was sentenced to nine years. At press time, Tokmakjian, 73, remained behind bars without charge.
Sherritt – which saw its state-run partner at the Moa mine hit with corruption convictions in a separate case last year – would not say whether it purchased equipment from Tri-Star or Tokmakjian. But it did say its outlook in Cuba remains bright.
The Canadian Commercial Corp. is equally undeterred. None of its risk-assessment procedures or due-diligence checks have changed. And “in over 22 years of business in Cuba, the Cuban authorities have never approached the corporation to suggest any CCC-related contracts have been inappropriately obtained or undertaken,” government-relations manager Joanne Lostracco says.
Given that the British firm ensnared in the crackdown, Coral Capital Group, was best known for revamping Old Havana’s swanky Saratoga Hotel, I asked Chartier whether the resulting detentions were a deterrent to investors such as himself.
“The easy answer is no. It sends a clear message to everybody that Cuba is a place to do business on the up and up,” he says. “I spent my teens in Mexico, and there is no comparison. The only way to do business here is above board.”
When John Baird embarked on a Latin American tour in February, he made a one-day stop in Cuba – the first visit by a Canadian foreign minister in more than 15 years.
Stephen Harper’s top diplomat met two relatively young members of the Cuban government: Baird’s counterpart, Foreign Minister Bruno Rodriguez, 54, and Vice-President Marino Murillo, the 52-year-old architect and implementer-in-chief of economic reform.
Both of them – along with Miguel Diaz-Canel, also 52, whom Raúl Castro named first vice-president and his heir apparent a week after Baird’s visit – represent a new generation of leadership. Unlike their predecessors, they were not among the bearded rebels who toppled Fulgencio Batista’s regime in 1959. Assuming all goes as planned, they will inherit a markedly different country when Castro retires – at age 86—in 2018.
“We can already see that it will be an economy with a much larger private sector than before,” says Peters of the Cuba Research Center, “and a smaller government workforce than before, with many more actors operating independently.”