Due Diligence on USA’s Recognition of Cuba and the Impact on CARICOM

Due diligence is about asking questions until you get the answers you need. It is a quest for information upon which to make choices. Many of the questions should be based upon current circumstance and future proposed changes. Well a big change is going to hit the Caribbean basin as a result of the USA’s recognition of Cuba and the march toward normalization of relationships. I am using this large regional change as an exercise to show that due diligence, is not about history. Due Diligence is about asking questions, seeking answers to understand risks.

I spent some time and a few dimes and called several different experts and regional economists to get their take on the impact of USA’s normalization of relations with Cuba. Here are a few comments – and in no particular order.

Shipping and Ship’s Repair Services

A big potential winner are Brazilian businesses, and the Singapore operating company, which have invested heavily in Cuba’s Mariel port and Free Trade Zone. Mariel could become one of the most important new hub ports in the Caribbean, able to handle up to one million containers per year. The position of Mariel will be furthered by the completion of the widening of the Panama Canal, sometime between 2016 and 2018. The expansion of the canal will permit an increased volume and size of ships ‘New Panamax’ (from 5,000 TEU to 13,000 TEU) through the region, including container ships, which will be in the market for nearby ports and facilities to consolidate and transform cargo, such as Mariel. Lower labour and fewer regulations will increase the attractiveness of Cuban based repair facilities. The Caribbean ports that are not modernised and can only handle up to the current 'Panamax’ size will be marginalized unless retrofitted to handle the ‘New Panamax’ sized vessels expect to be sailing in November of 2015. The ports include those in Trinidad, and Free Port in Bahamas, Barbados and several ports in Columbia and Venezuela.

Tourism

Cuba is the forbidden fruit of American Tourism. 300 million people in the USA want to see Cuba and taste the food, cigars, rum and enjoy legendary Cuban music and hospitality. Cuba will continue to be a fringe destination, for those looking for more mischief than relaxation, for some years to come and will exert a considerable draw. The high end destinations of Cuba will also attract the vacationers from the north east in droves, especially those who want tourist bragging rights – or a cheap place to go when it snows. Flights to Cuba are cheaper and closer than the Dominican Republic, Puerto Rico, Mexico and much closer than all of the leeward and windward islands. Miami to Tampa, is the same distance (within ±7 miles) as Miami to Havana. Cuba is that close. Cuba will exert a considerable draw to American Tourists to the deficit of CARICOM destinations.

Cruise Lines

Why go to a Disney Island or fly all the way to San Juan when you can go on a Cruise from Miami and visit Cuba from big cities and bright lights to tobacco and cane fields with homemade rum and local cigars. San Juan, Puerto Rico and the CARICOM Nations will lose out as cruise destinations beginning in the fall of 2015.

Financial Services

Financial services are a bright star, but only as long as they offer a competitive advantage. The economies of the IFC are already suffering as the USA and EU and OECD out strip one another and snuff the advantages. But the services will suffer greatly as the populations of these nations resort to mischief to make a living (working with drugs and criminals) as opposed to aggressively working to provide excellent laws, courts, and services. Furthermore, some of the drift to mischief maybe unnoticed as those employed in shrinking industries look to make money by any means possible.

Drug Trafficking

Speaking of any means possible., Traffickers and criminals take advantage of those under stress.   Many persons in the CARICOM nations will be under stress and the archipelago of island nations offer an appealing path as a smuggling route.

Fugitives

Cuba is host to about 70 fugitives from the USA. One notable fugitive is one Joanne Chesimard who was granted asylum by Fidel Castro after she escaped from the prison where she was serving a sentence for killing a New Jersey state trooper. She is now known as Assata Olugbala Shakur, and is an African-American activist, escaped convicted murderer, and member of the former Black Panther Party and Black Liberation Army. She is a notable one among many who may be sacrificed by Cuba for better bilateral relations. Based upon a bad and poorly conducted tally of the bounties offered for those thought to be in Cuba – it cost an estimatedUS$17 million in hard cash to hand them over to the USA. I wonder if Robert Vecso is really still alive?

It’s The Numbers

CARICOM covers about six million persons, excluding the Dominican Republic. Cuba has 11.27 million and a highly educated and motivated workforce. The USA’s recognition of Cuba will have a direct impact on the CARICOM nations, their businesses, their tax revenue, and their futures. Even the USA Territory of Puerto Rico will be significantly and negatively impacted by USA’s recognition of Cuba.

The Future

The archipelago of Caribbean nation states must do their due diligence on the future impacts of this large development. CARICOM, the Inter-American Development Bank, the International Monetary Fund, the OECD and the USA need to get out ahead of the economically negative and dark trends that portend the future of the region.

The Exercise

I was aware of the impact on tourism, but had not considered how quickly Cruise Ships can adapt. They will be cruising Cuba within 12 months. I was wholly unaware of the combined impact of the ‘New Panamax’, Muriel Port and FTZ, as well as the follow on impact and the dark mischief to the nations who lose out on tourism. And that is the point. I kept asking questions and follow on questions of many to gain, what I hope, was a clearer understanding of what the USA’s recognition of Cuba might mean to the region.

Due diligence is not just about what has happened. Due diligence is not about history. While, indeed historical events political and commercial do impact a country or a company, it is about asking questions so one can see the risks both today in the future. The USA’s recognition of Cuba is an excellent example of an event exterior to both the countries and the companies of the region that will possess a profound impact that will include many fine OFCs and service providers.

L. Burke Files DDP CACM
Mr. Files is an international financial investigator and due diligence expert who has run cases in over 130 countries and has visited over 100 countries. Mr. Files has tackled investigations running from a few hundred thousand dollars to over 20 billion. Along the way, he became familiar with the knowledge of what people need to do, for due diligence, preventing corruption, and to avoid helping criminals launder money. He brings this experience of hands-on investigating and problem-solving experience to his lectures on Due Diligence, AML, and Anti-Corruption. Prior to founding FE&E, Inc., he served as the Director of Corporate Finance for American National an investment bank focused on development stage venture capital. He was also employed by Oppenheimer/Rouse as a commodities specialist trading customer accounts in Agri-Business, 24-hour gold and silver, and foreign currencies. Mr. Files has authored six books, and many white papers and articles. He has been quoted in major publications including The Guardian, The Financial Times, Forbes, US Newsweek, and more. He is the author of the award-winning book Due Diligence For The Financial Professional 2nd Edition. Mr. Files serves on the board of directors for several private companies, funds, and non-profits. The companies include Unicus Research a specialty advisory service for fund managers and family offices, SGS Glazing a specialty glazing design and estimating firm, and NSI a premium spirits company.