Abstract

The change of regime in Cuba in 1959 led to a considerable migration of citizens from that country. Many of these émigrés held insurance policies issued by U.S. or Canadian companies that had been doing business in Cuba. A wave of litigation based on these policies flooded into courts in the United States against both groups of companies.1 One company alone had more than 6,000 policies outstanding that had been issued through its Havana branch. “The pending suits involve all kinds of policy claims, including death claims, suits for cash surrender values of policies, annuity benefits and endowment proceeds, as well as actions to force insurers to accept premiums and maintain policies in force.” 2

The change of regime in Cuba in 1959 led to a considerable migration of citizens from that country. Many of these émigrés held insurance policies issued by U.S. or Canadian companies that had been doing business in Cuba. A wave of litigation based on these policies flooded into courts in the United States against both groups of companies.1 One company alone had more than 6,000 policies outstanding that had been issued through its Havana branch. “The pending suits involve all kinds of policy claims, including death claims, suits for cash surrender values of policies, annuity benefits and endowment proceeds, as well as actions to force insurers to accept premiums and maintain policies in force.” 2

The actions instituted by policyholders involved a wide range of legal problems including issues of the act of state doctrine, nationalization, and private international law. They also raided many questions relating to Article VIII, Section 2(b), of the Fund’s Articles of Agreement:

Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member. In addition, members may, by mutual accord, co-operate in measures for the purpose of making the exchange control regulations of either member more effective, provided that such measures and regulations are consistent with this Agreement.3

Indeed, they raised almost all the questions that had already been discussed in the growing body of case-law involving that provision, together with a number of questions that were considered for the first time. The cases were remarkable not only because of the issues that were involved but also because of the amount of money at stake. Estimates of the total maturity values of the policies range from US$100 million to US$250 million, but it is doubtful that any estimate can be regarded as reliable. “Never before in a series of cases has the potential effect, both legal and economic, of the Fund Agreement on the rights of individuals and private corporations been more clearly brought into focus than in the suits brought by Cuban refugees seeking to recover the cash surrender value of their policies of life insurance in this country.” 4

All aspects of the cases deserve close study, and one detailed examination of them in relation to the Fund’s Articles has already appeared.5 The present pamphlet also is confined to that aspect of the cases; the only cases considered are those in which the courts dealt expressly in some way with the Articles. In other cases the briefs of counsel discussed the Articles, but the courts did not react overtly to these arguments. The implications of this silence are, on the whole, too problematical to warrant speculation here. It must be said at the outset, although the point will be discussed later, that the issues involving the Articles of the Fund disappeared with the withdrawal of Cuba from the Fund and ceased to affect those cases that had not yet been finally decided. But the judicial treatment of these issues while they remained active deserves study because of the possible impact of these cases on future litigation, in the United States or elsewhere, in which Article VIII, Section 2(b), is relevant.

Cuba and the Fund

Cuba became a member of the Fund on March 14, 1946 and notified the Fund, in accordance with Article XIV, Section 3, that it intended to avail itself of the transitional arrangements of Article XIV, Section 2. On December 18, 1953, Cuba notified the Fund that it was prepared to accept the obligations of Article VIII, Sections 2, 3, and 4. As a result, Cuba was required, inter alia, to avoid the imposition, without the approval of the Fund, of restrictions on the making of payments and transfers for current international transactions (Article VIII, Section 2(a)). On April 2, 1964 the Fund received Cuba’s notice of withdrawal from the Fund, and, in accordance with Article XV, Section 1, the withdrawal became effective at once.

From time to time in the course of the litigation discussed in this pamphlet, the Fund was asked by counsel about the consistency with the Fund Agreement of the exchange restrictions applied by Cuba. The Executive Directors of the Fund authorized the following reply:

This is in response to your inquiry concerning the consistency with the Articles of Agreement of exchange restrictions maintained or imposed by Cuba.

A member of the Fund, like Cuba, which has accepted the obligations of Article VIII is required to obtain Fund approval of exchange restrictions on payments and transfers for current international transactions, multiple currency practices and discriminatory currency arrangements pursuant to Article VIII, Sections 2 and 3 of the Fund’s Articles of Agreement. The Fund has approved the maintenance by Cuba of a two per cent exchange tax on remittances abroad. Any other existing restrictions on current transactions, multiple currency practices or discriminatory currency arrangements do not have the Fund’s approval.

In accordance with the Articles of Agreement, Fund approval for controls of capital transfers is not required. Thus, to the extent any controls are confined to capital transfers, they are maintained or imposed consistently with the Fund’s Articles of Agreement.

Cuban legislation and decrees

The Cuban laws and decrees that have been regarded in the cases as relevant to the issues are a mixture of enactments dealing with legal tender, exchange control, and nationalization.6 They begin with Law No. 13 of December 23, 1948, which established the National Bank of Cuba as the central bank and dealt with the national currency. Article 90 provided that the banknotes of the National Bank would be legal tender and have unlimited power to discharge obligations. Under Article 95 the national currency would be the only legal tender currency in Cuban territory and would have to be accepted in payment of obligations contracted or payable in Cuba. Article 97 provided that U.S. currency would cease to be legal tender in Cuba one year after the National Bank began operating or for an additional period of not more than one year thereafter if that was decreed. Decree No. 1384 of April 9, 1951 established June 30, 1951 as the effective date under Article 97. From that date, U.S. currency would cease to be legal tender in Cuba, and “all obligations contracted or payable in the national territory shall be expressed and settled in national currency,” the substitution of pesos for dollars to be at par.

Law No. 568 was enacted on October 2, 1959, after the Government of Dr. Castro had taken office, in order to establish a sweeping exchange control. Article 1 declared a list of actions to be “felonies of monetary contraband,” and those treated as relevant in the cases were set forth in paragraphs 6 to 12:

6. To export currencies or securities, or to transfer funds to points abroad by means of checks, transfers, drafts, letter-orders, orders of payment, compensations, travellers checks, letters of credit, reimbursements of collections, purchases or sales of passage tickets or through any other similar means, regardless of the origin or source of the funds, except for those cases authorized by the Currency Stabilization Fund, through a member bank or a firm duly authorized by Banco Nacional de Cuba.

7. To export or import national currency in excess of the limit that [sic] set now or hereafter by the Currency Stabilization Fund.

8. To establish credits in national currency for persons residing abroad or for residents of Cuba for the account of residents abroad.

9. To assign or transfer credits in national currency to residents abroad, make payments for their account in national currency and set up credits in bank accounts the holders whereof reside abroad without first complying with the rules issued by the Currency Stabilization Fund in this respect.

10. To receive and credit to bank accounts kept abroad, or to transfer to third parties collections made abroad for business transacted or services rendered in Cuba, regardless of the source of the respective funds.

11. To secure financing payable abroad in foreign currency without the prior authorization of the Currency Stabilization Fund, except for transactions of banks associated to the Banco Nacional de Cuba with their home offices or foreign correspondents, for the establishment of letters of credit, overdrafts and other normal activities of the banking business.

12. Any other violation or infringement of the rules of the Currency Stabilization Fund under which funds are transferred or remitted abroad in violation of the prohibitive rules of the same Fund or in a larger amount than is permitted thereby.7

Law No. 851 of July 6, 1960 was adopted in order to permit the nationalization of all businesses and properties of natural or juridical persons of the United States or in which they had a majority share or interest even though the enterprise was organized under Cuban law. The payment for nationalized properties was to be made in bonds of the Republic of Cuba, which would be amortized from a fund constituted by annual allocations of foreign exchange based on a formula related to purchases of sugar in each calendar year by the United States from Cuba in excess of a stated price. Interest also was to be payable from this fund. The bonds were to be amortized in a period not less than 30 years from the date of nationalization.8

Resolution No. 3 of October 24, 1960 was promulgated under Law No. 851 for the purpose of effecting the nationalization of all the properties and firms in Cuba of U.S. persons. Among these were the U.S. insurance companies that were the defendants in the cases. The Canadian insurance companies were not affected and continued to do business under policies issued in the past. The Resolution declared that the Cuban State was “subrogated in place and grade of the natural and juridical persons referred to … with respect to the properties, rights and rights of action mentioned, as well as the assets and liabilities constituting the capital of the concerns referred to.”9

Finally, Law No. 930 of February 23, 1961 provided that operations involving foreign currencies were a monopoly of the State, which would carry them out exclusively through the National Bank. Only the Bank was authorized to hold foreign currencies, and any foreign exchange received in Cuba had to be surrendered to the Bank. Only the Bank might authorize the acquisition and holding of foreign currencies within or outside Cuban territory by persons domiciled in Cuba (Article 23). “All receipts and payments in foreign currency and, similarly, all settlements with foreign countries and natural or juridical persons abroad shall be carried out only through and under the control of the National Bank of Cuba” (Article 24). “Holdings in local currency maintained at credit institutions or other agencies which belong to natural or juridical persons domiciled abroad may be utilized only by these persons with the express authorization of the President of the National Bank of Cuba or such officers as he may designate” (Article 26). “All exports and transfers to foreign countries of foreign exchange, checks, securities or other kinds of monetary instruments or instruments representing foreign means of payment are prohibited without authorization of the National Bank of Cuba” (Article 42). Coins and notes issued by the National Bank “shall be the only currency of legal tender status and shall be accepted in payment of all obligations payable” in Cuba (Article 14). “When other currency has been or is specified, the obligations shall be liquidated and paid necessarily in legal tender currency” (Article 14).