What are the main legal and economic risks of investing in Cuba?


1- The judicial power is not independent. According to Articles 75 and 121 of the Cuban Constitution, Judges (and particularly Supreme Court Magistrates) are subordinated to and given their jobs by the "Popular Assemblies" who can remove them at will. The "Popular Assemblies" result from one party one voice, no opposition elections. Furthermore according to Art. 90 the executive power can issue instructions to the judges.

2- The judicial power sees its independence further diminished by the lack of incompatibility of functions. According to Arts. 71 & 125 of the Ley de Organización del Poder Judicial, Cuba is perhaps one of the few countries in the world where a person is allowed to be a judge and also act as a member of the "Popular Assembly."

3- In spite of the above Art. 122 of the Constitution states that the courts and judges are independent.

4- The professionality and impartiality of court panels is in question. According to Art. 124 of the Constitution, Cuba incorporates permanent lay judges (i.e., without legal training) to the panels and these persons are chosen amongst the party faithful.

5- Art. 121 gives the Supreme Court the right to issue obligatory instructions (sic). to the lower courts in order "to establish a uniform judicial practice in the interpretation and application of the law." Note that these are not purely administrative issues but instructions on how cases must be decided, thereby preempting the judicial function.

6- There is no judicial review of the constitutionality of the laws. Art. 75.c) confers that function to the Asamblea Nacional del Poder Popular, that acts in a simultaneous capacity of judge and interested party.

7- Should anybody have doubts as to how the system works, Art. 3 designates the communist party as the "vanguard and superior force that directs society and the State." It goes on to say that all citizens have the right to resist by all means any change to the existing order including when necessary by armed struggle

8- The body of commercial and civil law has not been used in any serious way during the past 35 years. There is a lack of court experience in these matters.

9 - The foreign investment law grants access to the weakened courts for resolution of disputes, but Cuba's new Constitution does not grant the protections against expropriation that existed under Articles 22 and 24 of the 1940 Constitution. The Government can practically do whatever it wants as far as expropriation and payment of compensation. The foreign investment law establishes arbitration, as an alternative procedure if there are disputes as to the price to be paid in an expropriation but the arbiter must be chosen from a list pre-approved by the Government. See Arts. 3 and 58 of the Ley de Inversión Extranjera.


1- The naked truth is that Cuba today has a "plantation economy" that is, an exploitative economic regime where short term investors aiming for a quick return on capital are pampered and allowed use and abuse of natural resources, and where tourists out to enjoy a Caribbean vacation at a cheap rate can obtain it at the expense of the Cuban population. Why do we say this?

2- Labor must be contracted through a government hiring hall, that also must be used to replace workers that are not satisfactory. Worker's salaries must be paid by the foreign investor directly to the government and in dollars. The government in turn pays the workers an equal amount in pesos pocketing the exchange differential. The peso has fluctuated between 20 and 30 to the dollar during the past 18 months. Cuban workers only receive between 1/20 and 1/30 of their dollar wages.

References: Ley de Inversión Extranjera; Contracting of workers; Art 33.1 ; Payment in pesos : Art. 34.4 and Art. 27 demand the delivery of foreign exchange to the Banco Nacional. Art. 34: how to discharge and hire workers.

3- To add insult to injury the foreign investment law establishes a tax on the "utilization of the labor force" therefore equating people to chattels. The economic design is none other than that of a huge plantation served by impoverished workers. It is useful only to the plantation owner and to those who profit from the system.

Reference: Art. 38 b) y 39 c) Ley Inversión Extranjera.

4- Such exploitation is not conducive to good labor relations, motivation or creativity. The natural creativity and laboriousness of the Cuban people, praised by many, is being stifled by the system. There is much written against the exploitation of poor country workers. In the case of Cuba the argument appears to have been lost or forgotten.

The inherent instability of all of the above encourages the quick payback type of investment that cares little about anything but profit. It is deeply resented by the Cuban population and carries the risk of retribution upon a change in Cuba.


Is unconditional foreign investment the best way to encourage transition to a free market democracy, that respects human rights or is it necessary to approach this issue differently?

1- The theory behind development of the foreign investment approach is that it will promote the creation of an independent class of economically self reliant workers, and that it will foster dissemination of ideas. Prima facie this sounds like a reasonable proposition, but Castro's Government is aware of it. It has not earned the dubious distinction of being the last of the communist totalitarian regimes for nothing. Thus it has created the hiring hall and compensation system described before.

2- Cubans do not lack information or ideas but the opportunity to express them. According to the Cuban Government million tourists have visited Cuba in 1996. This provides very substantial exposure to the outside world. Add the fact that proximity to the US permits the reception of A.M. radio. In addition Cuba boasts of 2 billion of foreign investment. Whether or not this figure is correct or exaggerated, the pertinent question is: Has this tourist presence coupled to foreign investment produced liberties or real changes in the penal legislation?

3- What follows answers the question. It is but a sample of the political crimes existing today under the Cuban Penal Code.

Art. 73 defines the "state of dangerousness for antisocial conduct." Result: you can be sent to an asylum or work camp for up to 4 years until you "conform" your conduct.

Art. 103 creates the crime of dissemination of enemy propaganda which it defines as "instigating acts against social order or the socialist state" or "the dissemination of news that may cause alarm or malcontent amongst the population" Penalty: 1 to 8 years or up to 15 if the crime resulted from the use of massive media.

Art. 206 creates a brand new crime: "abuse of religious liberty" which takes place by "opposing religious convictions to the objectives of education." Penalty from 3 months to one year.

Art. 208 punishes illicit association with 3 months to 1 year. All associations or meetings not previously authorized are illegal.

Art. 216 punishes the attempt to exit the country without a permit with 1 to 3 years.

Art. 204 punishes the defamation, denigration or belittling of the political organizations of the country with a sanction ranging from three months to a year.

If the person is not caught actually doing any of the above but merely talking about it, there is also Art. 202 that punishes "instigation to commit a crime" and Art. 207 . 1 that defines the felony of "association to commit a crime."

4- Due process? Art. 29 of the 1940 Constitution that Castro abrogated, granted "habeas corpus" within 24 hours to all prisoners and mandated the firing of any judge or magistrate that would not grant it. Castro himself used the writ and benefited from it. Under the law in existence before Castro the accused upon being served with a bill of indictment, (issued by an investigating magistrate) had a right to counsel and to propose or impugn evidence before the trial was opened. Today the indictment is issued by the state security and the accused is defenseless until the trial begins during which he or she is only allowed a pro-form a defense. Further the Constitutional amendment of 92 eliminated "habeas corpus" as a constitutional right.

Reference: Art. 105 "Ley de Procedimiento Penal"

5- One would expect substantial improvement and/or abrogation of this repressive legislation, (that incidentally contradicts even Castrós own Constitution) if it were true that investment and tourism by themselves produce changes. The European Union whence major investment comes has asked for changes in the Penal Code, liberty for political prisoners independence for the judicial power etc. Answer: Cuba does not accept preconditions. Results: zero.

Conclusion: Change does not take place if one party is only willing to take and not give anything back. The Cuban regime will not change unless the civilized world takes up the challenge in the same way it took it up with South Africa, Haiti and other regimes of the same ilk.

Alberto Luzárraga

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