Cuba’s Rodolfo Davalos arrives at the High Court in London, Thursday, January 26, 2023. The Cuban government and an investment firm are fighting in a British court over decades-old debts racked up by the communist-ruled island nation .
Kincheung | PA
Illegally recorded videos, chaotic protests and the testimony of a jailed Cuban banking official marked the first week of a high-stakes trial in the UK High Court between Cuba and an investment fund.
The fund has sued Cuba for tens of millions of dollars in unpaid commercial loans since the 1980s, when Fidel Castro still ruled the island. The debts are so old that they are denominated in Deutsche Mark, a currency replaced by the euro in 2002. If Cuba loses, it could end up costing the nation billions.
Representatives of the fund testified in court on Wednesday and repeatedly said they did not want to press charges, but said it was a ‘last resort’ after the Cuban government ignored repeated requests negotiation for a decade.
“Litigation is not attractive to CRF,” fund chairman David Charters said Thursday, on day four of the trial. “It’s slow, it’s expensive, it takes time. But if it’s the only way to bring the other side to the table, then you have to go that route.”
The trial is considered a test. CRF1, formerly known as the Cuba Recovery Fund, holds more than $1 billion in face value of European bank loans extended to Cuba in the late 1970s and early 1980s, on which Cuba defaulted in 1986.
CRF1, which began accumulating the position in 2009, is suing Cuba and its former central bank over just two of the loans they hold for more than $70 million. If the CRF wins on this small slice of Cuba’s total outstanding commercial debt, estimated at $7 billion, it could lead to further legal action from other holders of the debt, claims against Cuba s amounting to billions.
The Cuban team argued in court filings before trial and during trial that the debt had not been legally transferred or “reassigned” to the CFR, which is registered in the Cayman Islands, and focused on the technicalities of Cuban law arguing that the CRF has no right to sue Cuba based on Cuban law.
The scene in court
It attracted so many attendees, including the press, that the judge ordered the opening of a second courtroom, equipped with a video monitor, to handle the overflow.
At least four people recorded videos in the overflow room and posted them online, prompting reprimands from judge Sara Cockerill. Recording proceedings in the High Court is a breach of UK law. Cockerill has demanded more than once that the videos be removed from social media and ordered those who posted them to appear in court to apologize or face contempt of court charges.
On Wednesday, a frustrated Cockerill said that if there was any further violation of the rules regarding the recordings, she would shut down the overflow courtroom and force anyone wishing to watch the proceedings “to sit on the floor here”.
Adding to the plot: a court aide who is the lookalike of Raul Castro’s son and Fidel Castro’s nephew, Alejandro. Cuban officials say the man is just a press secretary for the Cuban embassy in the UK.
In front of the courthouse, Cuban exiles protested and shouted “asesinos” and “cobardes” (Spanish for “killers” and “cowards”) whenever Cuban government officials and the legal team entered or left the building.
distressed debt
Sovereign debt in default, such as that of Cuba, is traded on the secondary market. “Distressed” investors specialize in buying unpaid debt at a discount to its face value and then negotiating with the government in question to settle it, usually for part principal and part interest in suffering. Many countries have experienced debt restructuring, from Greece to Nicaragua via Iraq.
In a 2009 CRF investor presentation, used as evidence at trial, the fund wrote, “Historic emerging market debt restructurings point to potential returns of 100% to 1,000%.”
In court testimony, a CRF representative said the fund’s “entire strategy” was based on the election of President Barack Obama in 2008 and Obama’s desire to work towards the end of the year. decades-long US embargo against Cuba, imposed during the Cold War.
When Obama and then-Cuban President Raul Castro announced a thaw in relations in 2014, Cuban debt temporarily soared to 30-35 cents on the dollar, after trading at 6-8 cents for decades. decades, testified Wednesday a representative of the CRF.
But the investment thesis did not work. Despite numerous diplomatic efforts by the Obama administration, the Cuban government has expressed little interest in a US commercial presence or investment on the island.
After Obama’s historic visit to Cuba in 2016, there was a harsh crackdown on political dissent. The embargo has not ended and many of the easings announced under Obama have been reversed under President Donald Trump.
What Cuba stands for
According to court documents and testimonies, the CRF sent several letters to the Cuban government and offered Cuba a “debt-for-equity swap” – not uncommon in debt restructurings involving countries with little cash. In such an agreement, the creditor receives a concession or ownership of government-owned property, such as an airport or port. Creditors then invest in the asset and receive some or all of the income generated by the asset.
Some of the most dramatic and combative testimony came from Raúl Olivera Lozano, a former Banco Nacional de Cuba official, who is currently serving a 13-year prison sentence in Cuba. He was convicted for accepting a bribe of 25,000 pounds in exchange for signing documents allowing the transfer of the debt in question to the CRF, which then allowed the fund to sue Cuba.
But Olivera Lozano says he was never paid. “I made this document because I was expecting economic benefits and money,” he testified via video link from Cuba, adding that the CRF representative “did not comply with this, and found myself being used by this gentleman,” referring to Jeet Gordhandas. , a CFR representative.
The CRF argued that the corruption charges are “slanderous” and were falsified by the Cuban government solely to justify non-payment of the debt.
Although it may be dramatic, the corruption allegation is not central to Cuba’s defense. Instead, government lawyers focused on legal interpretations of Cuban laws, improper paperwork, and whether the CRF could legitimately sue the Cuban government.
Even though Cuba’s defaulted debt dates back nearly 40 years, there is precedent for bondholders waiting even longer. More than 300,000 holders of Tsarist-era Russian bonds, on which the Bolsheviks defaulted in 1917 after the revolution, received payment in 2000.
Due to the U.S. embargo against Cuba, U.S. investors are barred from owning and trading Cuban debt, frustrating some frontier market hedge fund managers in the United States. They argue that holding Cuban debt would better serve US foreign policy interests, as it would give Americans a seat at a future negotiating table.
Beyond the European trade debt, there remain nearly 6,000 unpaid US debts from individuals and businesses whose properties were confiscated by the Castro government in the 1960s.
John Kavulich, the head of the Cuban-American Business and Economic Council, is closely following the lawsuit on behalf of the American companies whose claims are still pending.
“It hasn’t been an elegant show,” he said. “Companies and financial institutions are watching, and so far the message they’ve gotten from the lawsuit and the lawsuit is to avoid Cuba.”
