Background on Compensaton Issue by Nelson Valdes

On Cuban compensation for US nationalized properties
Posted by: "NPV" nvaldes@unm.edu
Mon May 25, 2009 4:53 pm (PDT)


On the matter of Cuban compensation for US properties -

It is important to consider the issues from each side of the conflict:

1. Cuba offered to pay compensation in 1960 to all foreign companies.
However, the Cuban position was that the compensation formula would be
similar to what the United States government did at the time that the US
military took over Japan in 1945. At that time the United States government
assumed that in order to have a political democracy in Japan it was
necessary to carry out an agrarian reform diminishing the economic (and
hence political power) of the landlords. The agrarian reform established by
the US had a compensation formula by which 1/3 of the value of the landed
property would be paid in cash and immediately, 1/3 would be paid in
installments during a 30 year period, and the last 1/3 would be paid in cash
[with interest] at the end of a 30 year period. The Cuban government adopted
a similar formula for US properties.

2. The US government, on the other hand, demanded that Cuba pay "in cash,
adequate and prompt" compensation. Adequate meant - pay what the owners of
the properties say the property is worth. Prompt meant pay all of the
compensation immediately. Finally, in cash meant that it should not be in
bonds, securities, etc.

3. The past issue that should be considered: the formula to determine the
worth of the property. The Cuban government maintained that the value of a
property should be determined on the basis of what the owners said the
property was worth for purposes of taxation throughout the 1950s. As a rule,
foreign investors undervalued their properties in order to pay fewer taxes
on a yearly basis. The Cuban government maintained that that would be the
figure that the state would accept; the US property owners disagreed. The
Cuban authorities offered to pay the worth that the owners claimed, but then
the owners had to pay back taxes (plus a penalty and interest). the United
States government considered such formula unacceptable.

The Cuban government also offered to establish a special fund for purposes
of compensation stemming from the sale of sugar to the United States. The
US government did not accept that proposal.

The majority of the US companies declared their investments in Cuba as
losses and consequently deducted their declared value to the IRS.

Nelson P Valdes