Banking Woes Ground Some Charter Flights To Cuba- Miami Herald (11/9/15)

By Mimi Whitefield

Last month as it always does, Island Travel & Tours, which offers air charter service between three Florida cities and Cuba, asked its local bank to request a $35,000 wire transfer to pay the Cuban government $194 per passenger for landing fees and for mandatory health insurance for travelers.

Although the route of the money is a bit circuitous because of the embargo — the local bank asks a major correspondent bank to transfer the money to a Cuban account in a third country — it’s a procedure that Bill Hauf, president of the charter company, has been following for years. The money, he said, generally arrives in a day or two at most.

But this time, he said, four, then five days passed and the wire transfer still hadn’t been completed. Because he had other flights coming up and the Cuban government wants payment in full before a charter flight lands, he also requested transfers of $65,000, $100,000 and $50,000 to cover them. Those transfers also were delayed.

Hauf said it took numerous phone calls to the U.S. Treasury’s Office of Foreign Assets Control, his local bank and Chase — the correspondent bank that handles the transfers — before the problem was resolved. While he was waiting for a solution, he had to cancel a week of flights to Cuba because his payments hadn’t arrived in time.

And he is not alone. Other companies that need to transfer money to Cuban accounts to pay for flights, hotels, guides and rental cars also complain that since the rapprochement between the United States and Cuba, their wire transfers to Cuba have slowed to a snail’s pace and they have been peppered with extraneous questions about passengers, flights and itineraries that can further delay money transfers.

Under the opening toward Cuba outlined in December by President Barack Obama, Americans who fall into 12 categories ranging from those on educational and humanitarian activities to those taking part in sports and cultural events are allowed to visit Cuba without seeking prior approval from OFAC. (Cuban Americans are allowed to travel freely to the island as long as the Cuban government approves their visas.)

The onus of deciding whether Americans were authorized travelers used to fall to the air carriers. Under the new rules, the burden of proof as to whether travelers fit into the 12 categories falls on them — although all they have to do is check off a box on a form certifying which category they are traveling under.

But now Daniel French, general manager of Blanco International, a Miami charter company that had two of its Cuba flights canceled because of a delay in wire transfers, says that with all the questions they ask, it seems like the banks are taking it upon themselves to decide who is authorized to travel to Cuba.

“I keep telling myself [restoration of diplomatic relations with Cuba] is really great; we’ve been working for it for a long time. But what’s going on with the banks is very contradictory, and it’s a potential stumbling block in the process of normalization,” said Bob Guild, vice president of New Jersey-based Marazul Charters, which offers charters from Miami to various Cuban cities.

Guild said that Marazul has “certainly had similar problems” with wire transfer delays but that it has never reached a point where a Marazul flight had to be canceled. “We call up the banks and try to find out what’s going on and then we call the attorneys and ask them to intervene,” he said. “The last couple weeks have been relatively smooth for us. Will it happen again? I wouldn’t bet against it.

“Under the opening toward Cuba, the administration advised us that we would be able to make direct payments to Cuba and use U.S.-issued credit cards in Cuba. All those things have been talked about but it hasn’t happened,” Guild said.

Only Pompano Beach-based Stonegate Bank, which signed a correspondent banking deal with a Cuban bank in July, has availed itself of the new possibilities.

“Obama may have changed the banking and travel regulations but I don’t think the word has gotten down the pipeline to the banks,” said Vivian Mannerud, who books travel services to Cuba. She said she’s even heard of banks asking for a travel provider’s OFAC license number before transferring money. Under the new rules, specific licenses are no longer required and no one has a license number.

French, of Blanco International, which has been offering charter flights to Cuba for the past 20 years, said wire transfers involving Cuba have always been slow. What has changed in his view is the Cubans’ attitude toward tardy payments.

Cuba used to be more accepting about wire transfer delays, he said, and as long as Havanatur Celimar knew a payment was in progress, there wasn’t a problem with landing rights. But now, French said, “The Cuban goodwill has run out; they are enforcing the contracts.”

During a United Nations speech on Oct. 27, just before the U.N. overwhelmingly voted to support a resolution condemning the U.S. embargo, Cuban Foreign Minister Bruno Rodríguez mentioned not only U.S. banks’ holding up payments by charter companies but also said that the first payment to Cuba by Sprint to begin direct roaming service on the island had been delayed and that SWIFT, a global messaging network that financial institutions use to transmit instructions and information securely, had recently canceled its contract with Cuba.

Even though the United States has removed Cuba from its list of state sponsors of terrorism, which eliminates some financial sanctions against the island, and Obama has said he wants to work with Congress to lift the embargo, Rodríguez said: “We shouldn’t confuse reality with the desires and expressions of goodwill. Matters such as these can only be judged by actions. Ten months after the announcement of Dec. 17, there hasn’t been any tangible, substantial modification in the application of the blockade.”

The day after Rodríguez’s U.N. speech, French said he received an email from the Cuban Embassy letting him know that payments had to be made on a timely basis. “Cuba’s position is they won’t provide services if money doesn’t arrive on time,” he said. At 5 p.m. Oct. 30, French was informed that Blanco International’s landing rights for its Sunday flight had been canceled. His Monday flight was canceled for the same reason.

“I’ve seen Chase hold up a lot of our clients’ monies,” said Augusto Maxwell, a Miami lawyer who heads Akerman’s Cuba practice. “But they usually release them in a few days after they get a greater degree of certainty.”

Hauf said other banks also are asking charter companies questions that aren’t on point, delaying wire transfers. Chase, he said, asked for passengers’ itineraries in Cuba. “We take many Cuban Americans on our flights. We don’t ask them where they are having breakfast with their families,” Hauf said. “Every question can hold up the payments four or five days at a time.”

Cuban authorities canceled the first Island Travel flight on Oct. 21 and the payment problem wasn’t resolved until Oct. 28 when the company’s flights resumed.

Blanco International also is back in the air, but French said he’s now trying to send money 15 to 20 days in advance and is exploring doing business with a bank that doesn’t use Chase as its correspondent bank.

“Our reputation is being affected by this wire transfer problem,” French said. Not all of his U.S.-bound passengers could immediately be rebooked, leaving some stranded in Havana for a few days, he said. “The panic happens in Havana when people are trying to get home.”

When Hauf informed travelers at Miami International Airport that their Island Travel flights had been canceled, he had a police escort. “People were very upset; they were angry,” he said. “I sold them the tickets, so I had to try to make it right — even though it wasn’t our fault.”

Island scrambled to get passengers booked on other charters — no easy task because many flights are full during the high season, or refund their fares. Also adding to his costs were attorney fees and putting up out-of-town passengers at hotels until their rebooked flights departed.

“Why are the banks doing this when OFAC has told them this travel is legal?” Hauf said. “It’s a serious problem.”

JPMorgan Chase declined to comment.

“The challenge for banks is two-fold,” Maxwell said. “On one hand, they’ve been so drilled to avoid Cuba because the fines against some banks have been so staggering. Then on the other hand, the rules are brand-new and somewhat open-ended, giving some banks vertigo.”

In some cases, he said, bank software set to flag Cuba transactions and bank staff still need to be updated on the new regulations governing banking and commerce with Cuba.

“I’m not really terribly surprised [that banks’ are holding up wire transfers],” said Fernando Capablanca, managing director at Whitecap Consulting Group. “Once a bank starts to prevent something from happening, it’s very difficult to unwind.”

The volume of money being sent to Cuban accounts and the number of companies making payments also have increased, perhaps adding to banks’ queasy factor, Maxwell said.

Meanwhile, analysts said perhaps the biggest reason banks are wary of Cuba business are the huge — and recent — fines aimed at banks that have done business with sanctioned countries. Just last month, France’s Crédit Agricole bank paid nearly $800,000 to U.S. state and federal agencies to settle allegations it tried to hide or obscure references to transactions involving U.S.-sanctioned nations, including Cuba.

Maxwell said it is his understanding that the ongoing settlements have to do “with egregious violations that occurred in the past. These are long-standing investigations that are working their way through the system.”

In 2011, Chase agreed to pay more than $88 million to settle an OFAC investigation into wire transfers to Cuban nationals in late 2005 and early 2006 that totaled around $178.5 million.

“The banks are scared and I don’t blame them either,” French said. But in the meantime, he said, OFAC needs to provide very clear instructions on how banks should proceed with matters related to Cuba travel and payments.

“We continue to work with financial institutions and industry to clarify our regulations so that they can appropriately comply with our regulations,” the Treasury said in response to a Miami Herald inquiry. “In line with the president’s policies, OFAC’s regulatory changes over the past year underscore our commitment to empowering the Cuban people. As part of this, we are focused on facilitating authorized travel and commerce, to enhance engagement between Americans and Cubans, and improve the lives of the Cuban people. As with all of our regulations, it is our priority to make them as effective as possible.”

In his recent remarks at the United Nations, Ronald Godard, U.S. senior area adviser for Western Hemisphere Affairs, said progress had been made in the U.S.-Cuba relationship. Still, he said, “fully normalizing our bilateral relationship will require years of persistence and dedication on both sides.”