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International Law Views: July 2017

July 20, 2017


Threshold Concerns Regarding Doing Business in Cuba

Now that Cuba is open for American tourism, what does that mean for business interests?

Initial Coin Offerings: A New Form of Raising Capital for Startups

What you need to know about raising capital through blockchain technology.

Scroll down to read the full articles.

Threshold Concerns Regarding Doing Business in Cuba

For the first time in over 50 years, U.S. citizens have the ability to travel to Cuba as tourists subject to only limited restrictions.  This opening of access to U.S. citizens has caused both U.S. and foreign companies to have an increased interest in potential business opportunities in Cuba.

Set forth below is a list of threshold concerns related to a foreign company starting to do business in Cuba.  Under current applicable U.S. law, including the Cuban Assets Control Regulations enforced by Office of Foreign Assets Control of the U.S. Department of Treasury, most business transactions between U.S. persons and Cuba continue to be prohibited.  Therefore, this list assumes that the foreign company would not be U.S.-based or have any significant U.S. contacts. 

  1. Full Foreign Ownership Discouraged. Cuban laws discourage businesses that are wholly owned by non-Cubans from doing business in Cuba by imposing higher taxes on Cuban-based income if earned by a company not jointly owned by foreign and Cuban equity holders.  Therefore, many foreign-owned businesses in Cuba are established as joint ventures with significant Cuban ownership.
  2. Pervasive Government Control. The Cuban government owns most of the property in the country and has broad controls over many issues impacting commerce.  Therefore, any development of business in Cuba will depend on obtaining necessary governmental approvals and support.  This will apply to several aspects of a new business including obtaining entry visas, housing for employees and necessary governmental licenses for specific projects. (Note that the obtaining of such support may involve payment to government officials that could be restricted under foreign corrupt practices laws imposed by several countries).
  3. Inadequate Infrastructure. The infrastructure (and especially internet availability) is not fully developed in Cuba.  This complicates the ability to transact normal business operations.
  4. Commercial Dispute Resolution. Resolution within the Cuban judiciary systems may not be quick or unbiased. All commercial contracts should provide for dispute resolution by arbitration outside Cuba through a recognized international organization such as the International Chamber of Commerce.
  5. Criminal Exposure. There have been news stories about officers of foreign corporations who experienced criminal prosecution as a means of benefiting competitors favored by the Cuban government.  The Cuban criminal system is not transparent and therefore this risk is difficult to assess.
  6. Available Work Force. Cuba is known to have a high literacy rate (over 99%) and a substantial workforce available at relatively low wages.  However, it is not clear if that available workforce would have the technical training necessary for sophisticated manufacturing or other business operations.
  7. Collection Concerns. To limit the risk of non-payment for goods and services provided, payment should be obtained in advance or secured by instruments that can be drawn against outside of Cuba.
  8. Ability to Repatriate Profits. The level of governmental control over company operations and the banking system may make it difficult to transfer profits outside of Cuba.

Notwithstanding the challenges outlined above, Cuba’s educated workforce, growing customer market and proximity to major Western Hemisphere markets will likely continue to make Cuba an attractive new business location for European and Asian-based companies.

If you or someone you know has a matter related to doing business in Cuba, please call or write Shulman Rogers and mention Roger Klein.


A startup company that needs to raise capital has traditionally done so through the issuance of equity or debt, customer-based financing (pre-selling products and services) and, more recently, through crowdfunding platforms offering tangible rewards and/or experiences in exchange for their funding.

A new and potentially powerful form of raising capital available to startups, an Initial Coin Offering (ICO), has emerged through the advent of blockchain technology. Blockchain is a digital ledger that uses cryptography to keep exchanges secure, in which transactions are recorded chronologically and publicly. These transactions can be any movement of money, goods or secure data.

In an ICO, a company sells a portion of its own cryptocurrency through a “crowdsale.” Digital tokens are exchanged for an amount of an existing liquid cryptocurrency, such as Bitcoins or Ether (Ethereum), at a fixed or tiered exchange rate. The company usually retains a portion of its own digital token supply.

The company can then use the Bitcoins or Ether it raised in the ICO, or it can convert them into a fiat currency (i.e. dollars) and use such currency to finance the development of its products and/or services and to grow and operate the company. Buyers of the company’s digital tokens will, in a well-designed ICO, be able to use the digital token as part of the system, platform, product or service being created by the company, creating value for the buyers. Also, if the value of the company’s digital tokens increases, buyers can also sell their tokens on secondary markets.

Since Mastercoin launched the first ICO in 2013, raising $5 million, ICOs are now experiencing very rapid growth. As stated by the research firm Smith & Crown, there have already been dozens of completed ICOs in 2017 with more scheduled for the remainder of the year. The 30 companies reporting their gains have raised about $540 million through ICOs in 2017 alone.

An ICO does bear some resemblance to the more formal and regulated IPO, but there are key differences in a properly structured ICO.  For example, shares issued in an IPO represent equity interests with ownership rights, while ICO tokens generally represent rights to access, use, license or sell a system, platform product or services and/or to directly or indirectly participate in the product’s development. ICO tokens are fungible, tradeable and can have value, much like a license or franchise can appreciate in value as an application or concept is accepted and adopted.

ICOs are not without risk. If you are considering this new form of raising capital, it is extremely important to structure and implement the ICO in a manner that minimizes the financial, business and regulatory/legal risks of an ICO. 

Shulman Rogers attorneys can help you prepare for success and minimize your legal risks. If you are interested in possibly launching an ICO, please call or write Shulman Rogers and mention Anthony Millin.

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