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Rodolfo's Casa Caribe in Cuba: Business, Law, and Ethics of Investing in a Start-up in Havana: Rodolfo's Casa Caribe in Cuba

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This case study presents the true story of Rodolfo—a former tailor and attorney from the provinces of Cuba—who moved to Havana to start a hospitality business. Guest reviews currently rank Rodolfo’s as one of the top ten places to stay on the island. In 2016, the author (referred to throughout as Adam), a business law professor from the United States, visited Havana to interview Rodolfo and learn about the factors for success in starting up a business in the rapidly transforming economy of Cuba. At that time, Rodolfo presented a highly attractive investment opportunity. The investment opportunity raised several business, legal, and ethical questions with generalizable lessons, including whether and how to invest in markets restricted by rapidly evolving sanctions regimes. What originally was planned to be a teachable case study of entrepreneurship expanded to include an additional part focused on the legal and ethical aspects of investing in Cuba.
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Journal of Legal Studies Education
Volume 34, Issue 1, 127–162, Winter 2017
Rodolfo’s Casa Caribe in Cuba:
Business, Law, and Ethics of Investing
in a Start-up in Havana
Adam J. Sulkowski
I. INTRODUCTION
This case study presents the true story of Rodolfo—a former tailor and attor-
ney from the provinces of Cuba—who moved to Havana to start a hospitality
business. Guest reviews currently rank Rodolfo’s as one of the top ten places
to stay on the island.1In 2016, the author (referred to throughout as Adam),
a business law professor from the United States, visited Havana to interview
Rodolfo and learn about the factors for success in starting up a business in the
rapidly transforming economy of Cuba.2At that time, Rodolfo presented a
highly attractive investment opportunity. The investment opportunity raised
several business, legal, and ethical questions with generalizable lessons, in-
cluding whether and how to invest in markets restricted by rapidly evolving
sanctions regimes. What originally was planned to be a teachable case study
of entrepreneurship expanded to include an additional part focused on the
legal and ethical aspects of investing in Cuba.
Associate Professor, Babson College. The author wishes to thank several individuals for their
expert opinions, including Emilio Morales, President of the Havana Consulting Group; Luis
Manuel Alcalde of Kegler Brown Hill +Ritter; Pedro Freyre, Chair International Practice of the
law firm Akerman LLP; Assistant Professor Kevin Fandl of Temple University; Professor Larry
Cat´
a Backer of Penn State University; the professionals of the Office of Foreign Asset Control
of the U.S. Treasury and in the banking industry (who, as a matter of policy and preference,
asked not to be named); Jonas Haertle, Head, PRME Secretariat/UN Global Compact Office;
and Rodolfo Baster, his partner Carlos, and the staff of Casa Caribe.
1Guest reviews of Hostel Casa Caribe Havana on TripAdvisor, https://www.tripadvisor.com/
Hotel_Review-g147271-d3729227-Reviews-Hostel_Casa_Caribe_Havana-Havana_Ciudad_de_la_
Habana_Province_Cuba.html (last visited Sept. 2, 2016).
2For background information on this case, see Adam J. Sulkowski, The Rolling Stones and a
Start-up in Cuba: Take-aways, HUFFINGTON POST, May 18, 2016, http://www.huffingtonpost.
com/adam-sulkowski/what-the-rolling-stones-a_b_10015206.html.
C2017 The Author
Journal of Legal Studies Education C2017 Academy of Legal Studies in Business
127
128 Vol. 34 / The Journal of Legal Studies Education
The case is presented in three parts. Part II presents the case—ready to
use in a classroom setting—for debating business, legal, and ethical aspects
of the story. The case presents questions for students to consider from the
perspective of Rodolfo, the Cuban entrepreneur, and Adam, the potential
U.S. investor. Part III presents a Teaching Note that includes background
information useful in guiding class discussions of how Adam might proceed
in responding to the opportunity presented to him in Cuba. The Teaching
Note includes a discussion of related concepts in standard business school
curricula on business and law. There are also explanations of “what really
happened,” including reflections shared by Rodolfo. The Note includes pro-
visions of current U.S. and Cuban law and how they would impact an Ameri-
can’s decision to pursue an investment in a Cuban start-up. The discussion of
law and ethics in the Teaching Note can be used to inform further scholarly
research and debate on questions related to globalization, trade, and the
themes of the Principles for Responsible Management Education (PRME).3
The questions of when and how an American can do business with individuals
in a sanctioned country are similar to those raised in the context of roughly
forty of the 193 sovereign states in the world today, including Iran and Rus-
sia. Students are asked to consider what they should do when humanitarian
interests, business interests, and ethics align to support investment in a sanc-
tioned country. Part IV concludes with a recapitulation of key takeaways and
suggestions on contexts for using the case.
In business school curricula, discussing legal and ethical aspects of in-
ternational commerce helps prepare managers to reason through options in
the face of contemporary challenges.4There is a dearth of published legal
scholarship since 2013 on the evolving U.S. sanctions regime, and only a
trickle of information dealing with Cuban real estate law and social respon-
sibility of business in Cuba.5The lack of information is partly explained by
3Six Principles,PRINCIPLES OF RESPONSIBLE MANAGEMENT EDUCATION (PRME), http://www.
unprme.org/about-prme/the-six-principles.php (last visited May 29, 2016).
4Larry A. DiMatteo and Virginia G. Mauer, Choosing Values: Public-Private Relationships in a Global
Economy,32J.L
EGAL STUD.EDUC. 313, 313 (2015). For a discussion of the importance of
business leaders engaging in self-governance to address contemporary problems, see generally
Stephen Kim Park and Gerlinde Berger-Walliser, A Firm-Driven Approach to Global Governance and
Sustainability, 52 AM. BUS. L.J. 255 (2016).
5See Kevin Fandl, Foreign Investment in Cuban Real Property: The Case for American Investors,
45 REAL ESTATE L.J. (2016), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=2779220; Larry Cat´
aBacker,Global Corporate Social Responsibility (GCSR) Standards with Cuban
2017 / Rodolfo’s Casa Caribe in Cuba 129
the fact that changes to Cuban law to recognize private business forms were
announced only on May 25, 2016.6
II. CASE PRESENTATION:RODOLFOSCASA CARIBE
A. Starting a Hostel in Havana
Rodolfo was a Cuban tailor and an attorney making the equivalent of $25 per
month. He pined to see the world but could not because of travel restrictions
in Cuba that would not be removed until 2013.7One way to interact with the
world, as Rodolfo discovered, was to work in the tourism industry. The end
of the Cold War had precipitated phases of reform to the centrally planned
Cuban economy.8The first reforms to allow earning income from house-
guests and other self-employed activities emerged in 1993 when Fidel Castro
allowed the first market reforms. The casas particulares scheme allows Cubans
to host tourists in a private room, house, or apartment for, the equivalent of
$20 to $25 per night (which typically includes breakfast).9
A friend told Rodolfo about someone opening a hostel. Rodolfo learned
that the policy that permits a bed-and-breakfast did not place an upward limit
on how many persons could be hosted for the night, as long as guests were
Characteristics: What Normalization Means for Transnational Enterprise Activity in Cuba (Dec. 6, 2015),
available at http://ssrn.com/abstract=2699855. Writing about Cuban law presents a curiosity in
that several key sources of guidance on legal citation formats do not include a set of rules or
examples for citing Cuban law. Author’s correspondence with Larry Cat´
a Backer (May 26, 2016)
discussing The Bluebook (2015), Guide to Foreign and International Legal Citations (2015), and Guide
to International Legal Research, (2015).
6Simons Chase, Cuba Legalizes Private Companies, Foreshadowing Currency Unification,CUBA J. (May
25, 2016). http://cubajournal.co/cuba-legalizes-private-companies-foreshadowing-currency-
unification/.
7Associated Press in Havana, Cuba Relaxes Travel Restrictions for Citizens, THE GUARDIAN (Jan.
15, 2013), https://www.theguardian.com/world/2013/jan/15/cuba-relaxes-travel-restrictions.
8See EMILIO MORALES &JOSEPH L. SCARPACI,MARKETING WITHOUT ADVERTISING:BRAND PREFER-
ENCE AND CONSUMER CHOICE IN CUBA, (2011).
9For information on casas particulares, see http://www.casaparticularcuba.org. There are two
currencies in Cuba: the CUP—national pesos for Cuban-to-Cuban transactions—and the CUC,
or Cuban Convertible Pesos (pegged to the U.S. dollar) for transactions involving foreigners.
When staying at a casa particulare, one pays in CUC.
130 Vol. 34 / The Journal of Legal Studies Education
registered correctly with an immigration office.10 Rodolfo also learned that
the first hostel in Havana was not truly what the international backpacker
community expected. There was no common area, book exchange, open
kitchen, nor, most importantly, the general spirit and atmosphere where
travelers from different parts of the world could meet and share advice and
sometimes even team up for onward adventures.
The independent international backpacking traveler is often a budget
traveler expecting basic accommodation, such as a bunk in a shared dorm
room and shared bathrooms, for roughly $12 to $50 a night, depending
on the city in the world and amenities provided. Sometimes sheets and a
towel are included in the price, while other hostels supply these for an extra
fee. Breakfast may be included. Policies and offerings can differ widely as to
quiet hours, curfews, dining facilities, and kitchen use. Some hostels offer
the option of private rooms with en suite bathrooms and facilities such as
swimming pools, rooftop bars, scooter or bicycle rental, massage services,
and activity and travel booking.
In 2012, Rodolfo secured the rental of a two-bedroom apartment within
a block of the seaside in the prestigious and secure Vedado neighborhood of
Havana. Imagine yourself in Rodolfo’s place.
rGiven the choice of what to do with a two-bedroom apartment, would you
start a hostel or a bed-and-breakfast (limited to one family at a time), once
you established (as stated above) that the relevant policy allowed for using
the space as a hostel?
rHow would you go about creating the atmosphere that Rodolfo aspired to
provide?
B. What Do You Do When Your Source of Clients Is Cut Off?
Rodolfo worked quickly. The apartment, one block from the seaside in the
desirable Vedado neighborhood, opened as Hostel Casa Caribe Havana on
January 13, 2013. Rodolfo placed three bunk beds in one room. Sometimes
he rented out his private bedroom if guests wanted privacy and their own
bathroom or if demand exceeded supply. He set his price at $12 per bunk
per night and accommodated an average of six guests per night. Each guest
10L. 65 of 1988, art. 74, as amended by Decree L. 275 of 2010 (Cuba), amending the Lease
Regime.
2017 / Rodolfo’s Casa Caribe in Cuba 131
received sheets, a towel, and a breakfast of sliced tropical fruits, fresh buns,
and coffee.
Rodolfo relied on the booking website Hostelbookers.11 Hostelbookers,
however, was bought by Hostelworld, another site for rating and booking
hostels.12 As an American company, Hostelworld had to cease listing Cuban
options because of the United States’ embargo of Cuba.13 Rodolfo received
a letter from Hostelworld politely informing him that it would cease listing
his business. Rodolfo had relied almost exclusively upon this online booking
site. Without access to this site, new bookings ceased completely.
rHow would you go about promoting your business, if your online listing
was removed?
C. Would You Invest in Rodolfo’s Expansion? How?
Rodolfo persevered. As of 2016 Hostel Casa Caribe Havana was among the
top ten of over 215 places to stay in Cuba, as ranked by reviews posted by
former guests.14 Rodolfo’s love of hosting is evident in the reviews visitors
have written at the site.15
The Vedado neighborhood is considered a premium location by locals,
but tourists, especially backpackers, appreciate being within walking distance
to Old Havana’s historic sites and museums. This information led Rodolfo to
seek a place closer to Old Havana. With the help of a $10,000 loan from an
aunt in Florida, Rodolfo bought a flat closer to Old Havana. In local parlance,
the new property is called a “house” because it includes rights to a terrace on
the roof. The new location has more rooms, including a ten-bed bunkroom, a
private guestroom, and two shared bathrooms in addition to Rodolfo’s private
room. Another room could be remodeled to accommodate more bunks. The
terrace, which features a view of rooftops, a small park, and towers of historic
buildings, could be transformed into a bar/breakfast/hang-out area. Features
11Hostelbookers, http://www.hostelbookers.com/ (last visited May 30, 2016).
12Hostelworld, http://www.hostelbookers.com/ (last visited May 30, 2016).
13The United States’ embargo of Cuba is explained in the Teaching Note infra Part III.
14Guest reviews of Hostel Casa Caribe Havana on TripAdvisor, https://www.tripadvisor.
com/Hotel_Review-g147271-d3729227-Reviews-Hostel_Casa_Caribe_Havana-Havana_Ciudad_
de_la_Habana_Province_Cuba.html (last visited Sept. 2, 2016).
15Id.
132 Vol. 34 / The Journal of Legal Studies Education
of the current space include two small balconies overlooking the street and
a common room and dining area with fifteen-foot ceilings and chandelier.
(see Appendix A for images).
In 2015 the U.S. Department of Treasury authorized listing of Cuban
properties on Airbnb, the popular home-sharing site.16 Airbnb is proud of
its role in the Cuban market.17 It advertises casas particulares on its website
and figured out a creative work-around for directing revenue to Cubans
advertising property on their website or app.18 The website permits linking
American bank accounts to rental properties in Cuba. Rodolfo’s aunt in
Florida therefore has listed the current location of Hostel Casa Caribe in
Cuba. The site allows her to link reservations so that future guests can make
their deposits to her American bank account. After one year in the new
location, Rodolfo had repaid almost the entire $10,000. His aunt received a
part of this amount directly to her bank account through Airbnb deposits.
The remainder was brought to her as checks or cash by tour guides and other
travelers returning to the United States.
Rodolfo could stay and scale up his business in his current location.
However, as he showed Adam, an even better location was currently for
sale (see Appendix B for images). Built around 1900, it is called a colonial
building and is even closer to the Old Havana sights and is a three-minute
walk to the sea. It has nine rooms with palatial fifteen-foot ceilings. The
property features two courtyards, nine bathrooms, and a sprawling rooftop
terrace. Four rooms around the smaller, more intimate courtyard could be
remodeled and marketed as boutique bed-and-breakfast rooms for $50 per
night. The other five could be bunkrooms around the main courtyard. A
kitchen, dining room, and hang-out area are also adjacent to the larger
courtyard. A rooftop bar and restaurant that Beyonc´
e and Jay-Z have visited is
adjacent, while across the street is a restaurant and bar owned by a legendary
star of Cuban ballet. The property could be purchased from a family of
owners with prerevolution proof of ownership.
The price of the property Rodolfo was considering was $160,000, half
of which Rodolfo could cover by selling all his assets for $80,000. He offered
16Issie Lapowsky, That Didn’t Take Long: You Can Now Book an Airbnb in Cuba,WIRED (Apr. 2,
2015), http://www.wired.com/2015/04/airbnb-cuba/.
17Airbnb, Welcoming Cuba to the Airbnb Community, http://blog.airbnb.com/cuba/ (last visited
May 30, 2016).
18Brad Stone, Airbnb Is Now Available in Cuba,BLOOMBERG BUSINESSWEEK (Apr. 2, 2015),
http://www.bloomberg.com/news/articles/2015-04-02/airbnb-is-now-available-in-cuba.
2017 / Rodolfo’s Casa Caribe in Cuba 133
Adam the opportunity to contribute $80,000 in return for half of the profits
and half of the ownership of the property, including the ability to share that
stake or receive half of the proceeds in the event of a sale. Having reviewed
revenue and cost estimates, the time needed to pay back the original principal
could be two years or less.
rBased on everything presented above, and any information you can find
by any means, do you think Adam should pursue the investment?
rHow could you arrange the investment legally under Cuban law?
rIs the arrangement of Rodolfo’s aunt legal? Would it matter if Adam were
related to Rodolfo?
rDoes it matter if Adam is both a U.S. and EU citizen, or transfers money
from a foreign bank account?
rWhat are the risks and consequences of “just doing it”?
rWhat are the side effects and ethical and sustainability aspects of your
options, and would they affect how ethical you believe the investment
to be?
III. TEACHING NOTE:BACKGROUND,CONNECTIONS
TO CURRICULUM,AND WHAT HAPPENED
A. Starting a Hostel in Havana?
Authorities on business success and professional coaching highlight the role
of motivation, drawing attention to the question of why an individual is driven
to pursue an activity.19 During an in-person interview in March 2016, Rodolfo
said,
I want to introduce something I say to my travelers when they ask me why I
decided to start hosteling. There is a saying: “If Muhammad cannot make it to the
mountain, then I will bring the mountain to Muhammad.”20 I was hungry to know
19See, e.g., Abraham H. Maslow, A Theory of Human Motivation,50PSYCH.REV. 4, 370–96 (1943).
20There are two variations of this saying—the more commonly known (and true to the origi-
nal) version is “If the mountain won’t come to Muhammad, then Muhammed must go to the
mountain.” While referring to Muhammad, the Prophet of Islam, the first known appearance
is in Francis Bacon’s ESSAYS, Chapter 12, Of Boldness (1625): “The people assembled; Mahomet
called the hill to come to him, again and again; and when the hill stood still, he was never a whit
abashed, but said, If the hill will not come to Mahomet, Mahomet will go to the hill.” Rodolfo’s
134 Vol. 34 / The Journal of Legal Studies Education
the world. So I brought the world to my house. If I cannot go to Rome, I bring
Romans to my house. If I can’t go to Greece, I bring Greeks to my home.21
In other words, one of Rodolfo’s most important reflections—and a gener-
alizable lesson for entrepreneurs of all kinds—is to take stock of your true
motivations. Is it just to make money? Do you actually have a passion for the
service or good that you are providing? Is it tied to your intrinsic needs or
desires or joys? Would you find the ultimate mission of your activity rewarding
if you already had enough money to provide for your household’s needs and
to assure your comfort? From watching Rodolfo interact with guests and talk
about his experience and future, it is clear that he is driven by a love of guests
and passion for hosting as much as any monetary rewards.
This is not to say that research, planning, good execution, and hard
work are not essential to success, but a key takeaway is that the answer to the
question “would you start a hostel?” (or any other business) should also take
into account the answer to the question: “can you see yourself doing anything
else—is this what you most want to be doing, even if you were independently
wealthy?”
rGiven the choice of what to do with a two-bedroom apartment, would you
start a hostel or a bed-and-breakfast (limited to one family at a time), once
you established (as stated above) that the relevant policy allowed for using
the space as a hostel?
The quick answer is that a hostel arrangement allows you to host more
guests at a lower cost per-guest and is likely to be more profitable. In Rodolfo’s
original location, he had three bunk beds (sleeping six guests) in the same
room. At a cost of $12 per bed, he could earn $72 per night. The going
rate for a private room in a bed-and-breakfast with one queen bed would
be $25 per night. Although market rates for private rooms are increasing,
Rodolfo’s current ten-bed bunkroom at $12 per guest per night generates
more revenue. Other considerations include labor. In hostels, it is often an
expectation that guests put the sheets on the bed themselves. In fact, as
mentioned above, some hostels charge for sheet and towel rental. There is
less labor and lower expectations involved in certain aspects of the guest
misquotation (intentionally or coincidentally) reflects the essence of what he meant: he wanted
to see the world but could not, so he brings the world to Havana.
21Author’s conversation with Rodolfo Baster (Mar. 26, 2016).
2017 / Rodolfo’s Casa Caribe in Cuba 135
experience in a hostel. But a successful hostel may also require a greater
investment of one’s time, energy, and personality, as described next.
rHow would you go about creating the atmosphere that Rodolfo aspired to
provide?
“It starts with the heart,” Rodolfo answered. “It starts with what you
would like in a foreign country. You would not want it to be unpleasant.”22
He went on to elaborate that he imagines that the worst feeling as a guest
is to have a cold and transactional experience, or worse, to feel financially
exploited. When pressed for more details on how he succeeds at creating an
atmosphere where guests feel at home, mingle, exchange information, and
sometimes form groups to pursue onward adventures, Rodolfo explained,
If you don’t make it happen it will just be a casa. You have to make them feel that
this is a home. Make them feel like they have a family here that will take care of
them. Generally owners don’t get familiar with their guests.
I try to be family far from family. Some guests are traveling six months or more.
They have no one with whom to share, they are needing love, someone who is
there for them. I try to protect them until the last minute. To get best prices. There
are many people who won’t care—thinking that foreigners are millionaires. I
know they have limited budgets.
And generally, some hostels in the world do not provide sheets or towels for free.
We do, and there’s always soap in the bathroom [again, it is not uncommon in
hostels around the world to have a “bring your own” approach to everything].
We always welcome guests with a coffee and a cigar . . . we treat them well.23
B. What Do You Do When Your Source of Clients Is Cut Off?
As described above, Rodolfo’s primary source of bookings was Hostelbook-
ers (later acquired by Hostelworld), an online hostel booking site that also
allowed guests to rate and review their experiences.24 Rodolfo had created
a website25 and there are now at least fifty portals listing places to stay in
22Id.
23Id.
24Id.
25Id.
136 Vol. 34 / The Journal of Legal Studies Education
Cuba,26 but Hostelbookers had become Rodolfo’s predominant source of
new clients. Consequently, the scrubbing of Cuban listings practically elim-
inated new bookings. Overreliance on one source of clients, as this case
illustrates, can be very risky.
rHow would you go about promoting your business, if your online listing
was removed?
“The world is not that big.” This conclusion is one of Rodolfo’s biggest
takeaways from his adventure as an entrepreneur so far.27 After the first
four to five months of operation, during which he sold his jewelry to make
rent payments, Rodolfo was suddenly completely cut off from his supply of
guests. The impact of Hostelbookers scrubbing all Cuban listings due to
its acquisition by an American company subject to the constraints of the
embargo was catastrophic. According to Rodolfo, this change completely
deprived him of new bookings.
Rodolfo temporarily came to rely on word of mouth. First, delighted
former guests left glowing reviews on TripAdvisor, leading new travelers to
seek out his address. Second, Rodolfo gave his guests fliers to take with them to
give to other travelers to distribute at their onward destinations. Guests going
from Cuba to Mexico, for example, would cross paths with other travelers
in hostels and at the airport in Cancun (a popular transit point for getting
to Cuba). They passed on the fliers and spread the word that Rodolfo was a
good host. Rodolfo says that TripAdvisor and these fliers attracted enough
guests to persevere.28
One key takeaway is clearly not to be overly reliant on one channel
for communicating with potential customers. Another is that word of mouth
is the base of the marketing pyramid and especially critical in the hospi-
tality industry.29 In informal economies, such as Cuba, word of mouth is a
26Author’s correspondence with Emilio Morales, President of the Havana Consulting Group
(May 28, 2016).
27Author’s conversation with Rodolfo Baster (Mar. 26, 2016).
28Author’s correspondence with Emilio Morales, President of the Havana Consulting Group
(May 28, 2016).
29Mohammad Reza Jalivand & Neda Samiei, The Impact of Electronic Word of Mouth on a Tourism
Destination Choice, 22 INTERNET RESEARCH 5, 591 (2012).
2017 / Rodolfo’s Casa Caribe in Cuba 137
powerful marketing tool.30 Tourists meet and repeat whether they had a great
experience or a bad experience. Rodolfo repeated for emphasis the lesson
of this episode: “the world is not as big as we often imagine—the world is not
that big.”31 Regardless of the communications channel, whether it is a rating
site or a flier passed hand to hand between travelers, this was word of mouth
at work, and an illustration that delighted clients are the best advertising.
C. Would You Invest in Casa Caribe’s Expansion?
There are many facets to this question, and instructors might proceed in a
variety of ways. The following is one suggestion.
First, we briefly touch on the characteristics of Rodolfo as a busi-
ness partner; then we consider the tourism sector and the potential of the
real estate market in Cuba. We then explore whether American investors
can make an investment in Cuba, based on the background of U.S. and
Cuban law.
The following sections will address the question of exactly how to ar-
range the investment under American and Cuban law and also examines a
few variations of this main question. Does it make a difference if the investor
is a Cuban American helping a family member on the island? Does it matter if
the American investor also has citizenship in an EU country or uses a foreign
bank account? Could Rodolfo’s partner’s work at a medical clinic play any
factor in how one makes the investment?
Students are also encouraged to consider precisely how they would
proceed—whether they would “just do it” without regard for formalities of the
law, find a way that respects American and Cuban law (as explained below),
or abstain from investing in this opportunity. This conversation opens the
door to evaluating the probability—if someone is inclined to “just do it”—of
being detected and potentially punished. An interesting question to consider
is, assuming no penalization, whether breaking the law is an ethical option
in this scenario? What if the suggested steps are followed and laws arguably
skirted but not broken—is the investment ethical? An ethical framework is
next suggested and applied, where students are asked to apply a stakeholder
impact analysis and consider the PRME Principles and related sustainability
goals. The conversation can be broadened to consider a discussion of the
30Author’s correspondence with Emilio Morales, President of the Havana Consulting Group
(May 28, 2016).
31Author’s conversation with Rodolfo Baster (Mar. 26, 2016).
138 Vol. 34 / The Journal of Legal Studies Education
merits of sanctions and embargos, the ethics of civil disobedience in the
context of commercial activity, and under what conditions we would honor
the attempt to boycott an economy or endeavor to do business in a country,
despite a sanctions program.
rBased on everything presented above, and any information you can find
by any means, do you think Adam should pursue the investment?
The best answer, as is often the case with legal questions, is “it depends.”
The short answer is that there is a way to effectively arrange assistance to grow
this start-up without breaking either U.S. or Cuban law, albeit without the
assurances that some would ideally prefer. For someone willing to tolerate
some risks in exchange for very large potential financial returns—possibly in
combination with other, intrinsic motivations (after considering the stake-
holder impacts, as discussed below)—the investment opportunity may be
worth pursuing.
Before launching into legal background information and precisely how
to navigate U.S. and Cuban law, it makes sense to briefly consider whether
we would trust Rodolfo as a business partner and whether his proposal, if
honored, would be lucrative. If one has doubts about one’s potential business
partner’s abilities or integrity, or doubts the likelihood of the success of the
business, there is little point in further consideration of the offer.
D. Factors to Consider in Whether to Pursue This Opportunity Further
1. Rodolfo as a Business Partner
Some questions students might raise about Rodolfo as a business partner
include the following: (1) What is his track record of success? (2) Have
the historical bookkeeping and project budget been reviewed? (3) How are
relations between Rodolfo, his staff, and guests? (4) Does Rodolfo listen to
his guests and adapt rapidly to new opportunities and challenges?
In response to these questions, (1) his record of positive reviews and
his high ratings in his industry help substantiate that he is competent at
running an operation that both works within the system and delights guests;
(2) yes, Rodolfo and Adam reviewed his records and calculated projected
revenues and costs and, without overdisclosing, yes, it was clear that, even
in a very conservative scenario, the principal could be paid back in two
years; (3) observed relations with employees and guests were very positive;
and, critically, (4) over the past three years, Rodolfo listened to his guests,
2017 / Rodolfo’s Casa Caribe in Cuba 139
changed locations to better meet their needs, and secured and repaid a loan
in one year to make it happen. Based on these facts, Adam concluded it
would be reasonable to work with Rodolfo. Adam has little doubt intuitively
that Rodolfo would continue to honor agreements.
The case is amenable to a discussion of why we trust some people—is
it because we intuitively feel they would honor agreements for their own
sake or out of the fear of sanction? Marriage is similar in that aspects of the
relationship can be enforced or eliminated by operation of law, but it does
not fully explain why and how people decide to marry, with all the enormous
financial risks and obligations that it entails. In this case, putting aside the
question of legalities and whether and how to formalize a relationship on
paper, an investor would have to consider reputational risk. Some might
feel more assured of Rodolfo’s likelihood to honor his agreement because
of the extent to which his business lives and dies based on his reputation. A
comprehensive discussion of why and when people decide to trust each other
is outside the scope of this article, but the case conversation might consider
which factors would affect students’ judgment in trusting a potential business
partner.
2. Background on Cuban Tourism and Real Estate
The other sine qua non of further considering Rodolfo’s offer is the prospect
of his hostel continuing to thrive and the potential for the real estate to sustain
or increase in value. Economic trends in Cuba continue to improve since the
thawing of relations with Washington, with tourism growth rates increasing,32
due to the decision of the Office of Foreign Asset Control (OFAC) of the
U.S. Treasury granting general licenses for Americans to travel in any of
twelve circumstances.33 The number of American tourists visiting Cuba could
foreseeably double and double again, contributing to a total of over eight
million tourist visits per year by 2022, even taking the impacts of fears of the
Zika virus into account.34 In terms of real estate investing, there has been
32Arch Ritter, U.S.-Cuba Normalization and the Zika Virus Risk: Probable Impacts on Cuban
and Caribbean Tourism,C
UBAN ECONOMY (Mar. 14, 2016), http://thecubaneconomy.com/
articles/tag/tourism/.
33The twelve circumstances are explained on the website of the Cuba Sanctions Re-
source Center, U.S. TREASURY DEPARTMENT, https://www.treasury.gov/resource-center/
sanctions/Programs/Pages/cuba.aspx (last updated Oct. 18, 2016). Exceptions include person-
to-person visits and travel for purposes of research and education.
34Id.
140 Vol. 34 / The Journal of Legal Studies Education
a steady drumbeat of stories in the news media documenting the growing
property values and tremendous potential of real estate values to increase
further.35 In short—again, putting aside all other questions for a moment—
Rodolfo’s offer could very likely lead to a valuable investment and a steady
source of passive income.
3. Background on U.S. Law
The Cuban embargo—a policy involving five laws and accompanying reg-
ulations and executive orders—is widely perceived to have banned trade
with the island.36 The policy dates to 1960, when President Eisenhower and
Congress restricted trade to punish the Castro regime for nationalizing pri-
vate assets.37 Nearly every administration since then has taken steps to both
tighten and loosen restrictions, depending on exigencies of the moment,
domestic political dynamics, and cooling or thawing relations between
Havana and Washington.38 The Helms–Burton Act’s prohibition on engag-
ing in commerce in Cuba is commonly cited as the primary impediment to
U.S. presidents exercising their executive authority under the U.S. Consti-
tution to manage foreign affairs and to generally permit U.S. citizens to do
business on the island.39
35See, e.g., Alex Finkelstein, Cuba’s Next Revolution: Real Estate,WORLD PROPERTY J., Aug. 14, 2015;
Omri Barzilay, Cuba: The Next Best Real Estate Investment for Americans,F
ORBES, Sept. 9, 2015.
36Key statutes include the Trade Sanctions Reform and Export Enhancement Act of 2000
(TSRA), 22 U.S.C. §§ 7201–7211 (2016); the Cuban Liberty and Democratic Solidarity (Lib-
ertad) Act of 1996, 22 U.S.C. §§ 6021–6091 (2016), the Antiterrorism and Effective Death
Penalty Act of 1996 (AEDPA), 18 U.S.C. § 2332d (2016); the Cuban Democracy Act of 1992
(CDA), 22 U.S.C. §§ 6001–6010 (2016), and sections 5 and 16 of the Trading with the Enemy
Act (TWEA), 50 App. U.S.C.A. §§ 1 et seq. (2016).
37PATRICK JUDE HANEY &WALT VANDERBUSH,THE CUBAN EMBARGO:THE DOMESTIC POLITICS OF
AN AMERICAN FOREIGN POLICY 15 (2005).
38For an excellent summary of decades of interplay between Cold War tensions, U.S. domestic
political dynamics, misunderstandings, perceptions, and realities of Cuban hostile activities,
and possible overreaching of congressional power into the constitutional prerogatives of the
executive branch to manage foreign affairs in real time, see Kevin J. Fandl, Adios Embargo: The
Case for Executive Termination of the U.S. Embargo on Cuba (Fox School of Business Research Paper
No. 16-027, 2016), available at https://ssrn.com/abstract=2789819 (forthcoming in the American
Business Law Journal).
39Pub. L. No. 104-114, 110 Stat. 785 (1996). For a convincing explanation of why the actions
of Congress, including the Helms-Burton Act, which appear to cement trade restrictions, could
be unconstitutional overreach into the discretion of the executive branch to flexibly manage
foreign relations. See Fandl, supra note 38.
2017 / Rodolfo’s Casa Caribe in Cuba 141
President Obama’s 2014 Policy Statement regarding the easing of sanc-
tions against Cuba set the stage for the most significant change in relations
with Cuba in over fifty years.40 OFAC has since then published revisions to the
rules on travel and other forms of contact with Cuba.41 OFAC’s website links
to updates to the Code of Federal Regulations as they apply to the Cuban
embargo regime.42
As further explained below, OFAC sets rules for both general licenses
(for example, clarifying which twelve types of nontourist travel are now
permitted without seeking specific permission from U.S. authorities) and
administers a special license-granting process. In other words, it is always
possible to ask for permission to engage in an activity—such as investment
in a small Cuban entrepreneurial venture—that U.S. sanctions otherwise
prohibit.
Pedro Freyre, a leading expert on law and investment in Cuba, has
publicly stated that he foresaw bipartisan consensus in favor of loosening
restrictions on investment in Cuba.43
4. Background on Cuban Law
The end of the Cold War and loss of the Soviet Union as a key trading
partner precipitated several phases of attempts at reform in Cuba to at-
tract foreign investment.44 Raul Castro succeeded his brother Fidel as Pres-
ident of Cuba in 2008. Raul Castro set in motion significant changes in
2011 that are now seen as the largest and most irrevocable since the period
40Office of the Press Secretary, THE WHITE HOUSE,Statement by the President on Cuba Policy
Changes (Dec. 17, 2014), https://www.whitehouse.gov/the-press-office/2014/12/17/statement-
president-cuba-policy-changes.
41Office of Public Affairs, U.S. TREASURY DEPARTMENT,Treasury and Commerce Announce
Significant Amendments to the Cuba Sanctions Regulations Ahead of President Obama’s His-
toric Visit to Cuba (Mar. 15, 2016), thttps://www.treasury.gov/resource-center/sanctions/
Programs/Documents/cuba_fact_sheet_03152016.pdf.
42Cuba Sanctions Resource Center, supra note 33.
43Ashley Chappo, Cuba: The Emerging Regulatory Framework,WORLD POLICY BLOG (Feb.17, 2016),
http://www.worldpolicy.org/blog/2016/02/17/cuba-emerging-regulatory-framework.
44These reforms included the Foreign Investment Act of 1995 (Cuba).
142 Vol. 34 / The Journal of Legal Studies Education
after the revolution in the 1950s.45 The current legal framework for foreign
investment in Cuba was created by the Law on Foreign Investment (LFI) of
2014.46
To publicize Cuba’s foreign investment priorities, the Cuban govern-
ment annually prepares and markets through official channels a Portfolio
of Foreign Investment Opportunities (hereinafter referred to as “the Invest-
ment Portfolio”), which lists preapproved options for foreign investment.47
The LFI allows investments in real estate such as housing and buildings for
private residences, foreign companies, and tourism.48 The latest Investment
Portfolio, issued in late 2015, included 326 offerings worth $8.2 billion.49
However, the LFI and accompanying regulations are meant to steer invest-
ments to large and state-approved (if not state-owned) projects. The LFI is
not intended to facilitate access to foreign capital for the expansion of a small
Cuban start-up like Rodolfo’s.50
45See generally SIXTH CONGRESS OF THE COMMUNIST PARTY OF CUBA,GUIDELINES ON THE PO-
LITICAL AND SOCIAL ECONOMY OF THE PARTY AND THE REVOLUTION (Apr. 18, 2011) (Cuba),
http://www.cuba.cu/gobierno/documentos/2011/ing/l160711i.html.
46L. 118 of 2014 (Cuba). For a discussion of the interaction between Cuban law
and emerging global corporate responsibility governance norms, see Backer, supra
note 5.
47Regulations on Foreign Investment Law, Chapter II (Cuba).
48L. 118 of 2014, ch. VI, art. 17.1 and 17.2 (Cuba).
49Jaime Hamre, Cuba Seeks $8.2 Billion in Foreign Investment for 326 Projects,REUTERS (Nov.
3, 2015), http://www.reuters.com/article/cuba-trade-idUSL1N12Y3HK20151104. These in-
vestment portfolios typically lack any chance to invest in small scale start-ups. Richard
Feinberg, Cuba’s Foreign Investment Invitation: Insights into Internal Struggles,B
ROOKINGS PRESS
(Nov. 21, 2014), http://www.brookings.edu/blogs/up-front/posts/2014/11/21-cuba-foreign-
investment-feinberg.
50Luis M. Alcalde, Cuba’s New Foreign Investment Law,KEGLER,BROWN,HILL &RITTER (Aug.
8, 2014), http://www.keglerbrown.com/publications/cubas-new-foreign-investment-law/. Ac-
cording to Luis Alcalde’s summation, based on reviewing the details of the law and related reg-
ulations: “only well-funded big capital projects will be approved. Cubans employed in approved
projects will continue to work for Cuban employment agencies and not directly for companies
created with foreign money. Only Cuban companies approved by the Cuban government can
partner with foreigners; and, it is not clear that native Cubans will be allowed to form companies
to invest with foreigners. The LFI is meant to channel big investments to government-approved
sectors. It is not a law intended to promote individual domestic entrepreneurship with foreign
money.”
2017 / Rodolfo’s Casa Caribe in Cuba 143
After decades of fluctuating policies,51 private ownership was most re-
cently and comprehensively legalized in 2011.52 Rodolfo’s ownership of a
residence, as well as that of others who never relinquished or had a residence
confiscated, is therefore fully legitimate and defensible. His operation of a
guest house is clearly permitted under the laws pertaining to casas partic-
ulares.53 However, foreign ownership of real estate (outside of the limited
state-approved options in the Investment Portfolio or a leasing scheme for
specially approved full-time residents involved in the tourism industry) is
not allowed.54 Also, outside of specified self-employment opportunities and
limited exceptions, for-profit private businesses are technically illegal or, at
best, operate in a questionable legal vacuum.55 The government only recently
announced that laws would be updated to formally recognize private busi-
nesses.56 At any rate, it is not an option under current Cuban law to form
a business entity with Rodolfo, to invest and become a co-owner, or for the
co-owned business entity to purchase and own real estate.
To summarize, under the Cuban legal framework for foreign invest-
ments and property ownership, aside from a limited number of state-
approved exceptions, there is no option for a non-Cuban to have a legally
defensible ownership stake in real estate or a business in Cuba. One re-
maining option is to marry a Cuban; however, in the event of divorce, the
ownership of the property would be retained by the Cuban former spouse.57
The last remaining option is engaging in the time-honored Cuban tradition
of a work-around that relies to a large extent on trust.58 However, as will be ex-
plained below, some legal formalities can be arranged under Cuban contract
law to protect the foreign investor from a complete loss of invested capital.
51For a detailed history of the drastically different approaches taken over decades, see Fandl,
supra note 5.
52L. 288, 2011 (Cuba).
53L. 65 of 1988, art. 74, as amended by Decree L. 275 of 2010 (Cuba).
54L. 288, 2011 (Cuba).
55Simons Chase, A Complete Guide to Investing in Cuba,CUBA J. (Sept. 29, 2015), http://
cubajournal.co/a-complete-guide-to-investing-in-cuba/.
56Chase, supra note 6.
57Finklestein, supra note 35.
58Id.
144 Vol. 34 / The Journal of Legal Studies Education
E. Legal Analysis
1. How Could You Arrange the Investment Legally Under U.S. Law, and
What Specifics of the Situation Could Affect the Chances of Securing
Permission?
The short answer with regard to U.S. restrictions is to file for a special li-
cense from OFAC. Information on how to get a special license and an
application are available online on a website of OFAC.59 Filing an appli-
cation for a special license is free, but OFAC estimates the response time
is approximately ninety days. According to Pedro Freyre, the success rate is
very high, but it is not a foregone conclusion that each application will be
successful.60
According to a source who works at OFAC, while it is not required, it may
help to document any humanitarian aspect of an investment or to explain
how it is consistent with U.S. policy goals.61 In this case, one advisor noted
that it might help to point out that profits from Rodolfo’s hospitality business
could potentially be used by his partner’s medical clinic.62 This argument
would be stronger if some kind of agreement and donations for the purchase
of medical equipment were documented.
The advisor further noted that investors can document how the invest-
ment would serve the goals of U.S. foreign policy;63 namely, the fostering of
an entrepreneurial middle class, the private sector, and civil society.64 Promi-
nent experts are lobbying for a general license that would exempt broad
categories of investments from the embargo, analogous to the exceptions
allowing twelve categories of travel to Cuba without application for a license
59Cuba Sanctions Resource Center, supra note 33.
60Author’s conversation with Pedro Freyre, Chair International Practice of the law firm Akerman
LLP (May 26, 2016). Mr. Freyre is a leading advisor to U.S. companies doing business in Cuba.
Freyre explains that there can be a ninety-day wait period because some fifteen-to-twenty people
are responsible for handling requests involving licenses related to business in forty countries
that are sanctioned.
61Author’s conversation with confidential OFAC source (May 18, 2016) [hereinafter OFAC
source].
62Id.
63Id.
64Id.
2017 / Rodolfo’s Casa Caribe in Cuba 145
in each instance. At this time, however, the solution with regard to U.S. law
is to apply for a special license.65
2. How Could You Arrange the Investment Legally Under Cuban Law?
While acquiring and defending an ownership interest in real estate in Cuba
is not presently an option for a non-Cuban (outside of the narrow exceptions
mentioned above), one could still pursue the goals of Rodolfo’s proposal
and at least protect one’s invested principal using contract law.66 The Cuban
Civil Code contains the basics to enforce a noncommercial agreement be-
tween two parties.67 Rodolfo and Adam could prepare a written document,
sign and notarize copies, agreeing to a person-to-person loan, with no in-
terest payments, with the principal to be repaid within a specified period of
time. Rodolfo could then pursue one of his two options: remodeling and
growing his business at his current residence or selling his current property
and purchasing the larger colonial house. Either way, Adam could estab-
lish an Airbnb account, as Rodolfo’s aunt has done, and take payments for
reservations at Casa Caribe directly into an American bank account. Alter-
natively or additionally, money could be periodically entrusted for delivery
by tour guides and Cuban Americans shuttling back and forth from the
island.
As noted elsewhere, this arrangement is ultimately betting on a friend.
It would be a business relationship largely built on trust and enforced by en-
lightened self-interest: as illustrated above, one’s reputation can be a matter
of life and death for a small independent start-up in the hospitality field.
However, inasmuch as one can trust a court system, Cuban law would, at
least in theory, provide some measure of certainty regarding repayment of
the principal. Having any assurance (however tenuous) of still having one’s
principal at the end of a specific period of time is actually an outcome that is
better than what stocks or mutual funds can guarantee.
65Id.
66The content of this section has been discussed in conversations and correspondence with the
individuals thanked in the acknowledgments footnote, supra at note *. It should be clarified
that some believe Cuban contract law to be fairly robust while others caution that while the
steps suggested here could work, there is no case on point to confirm that it would. Author’s
correspondence with Emilio Morales, President of the Havana Consulting Group (May 28, 2016).
67CUBAN CIVIL CODE,BOOK THREE:THE LAW OF OBLIGATIONS AND CONTRACTS, http://www.
gacetaoficial.cu/html/codigo%20civil%20lib1.html#l3t9 (last visited May 30, 2016).
146 Vol. 34 / The Journal of Legal Studies Education
All further details of the proposed agreement, beyond repayment of
the principal, could be written down but would not be enforceable under
current Cuban law. Any payments or other benefits beyond the repayment
of the loan amount stemming from ownership, including sharing profits
from the renting of rooms or the potential future resale of the property,
would be practically voluntary acts.
Some may argue that if Adam wants to view the personal loan as a
means of eventually generating a financial benefit, the arrangement is cor-
rectly viewed as a bet that Cuban law will evolve during the payback period.
However, even if there are eventual legal reforms allowing the enforcement
of agreements for co-ownership of a business or property or profit shar-
ing, then the parties would not have any obligation to formalize what they
had previous agreed upon. Again, we are left with the same conclusion:
ultimately, such arrangements are a matter of trust between the parties in-
volved. The only additional nugget of certainty outlined above is that a for-
eign investor can enforce the repayment of one’s principal under the laws
of Cuba.
3. Is the Arrangement of Rodolfo’s Aunt Legal? Would It Matter if Adam
Were Related to Rodolfo?
Transactions involving relatives are different from those involving a foreigner
with no familial ties to the island. Cuban Americans can and do transfer
money to relatives on the island, per the regulatory reforms of the Obama
administration.68 However, remittances are in theory supposed to be of a
personal nature. According to one OFAC source, payments should be for
“life expenses, not commercial—it is not supposed to be an investment.” The
practice is effectively an honor system, similar to the guidance for American
travelers to not engage in tourism per se while visiting Cuba.
Airbnb has created an interesting additional layer to this paradigm. It
enjoys a general license, as clarified by OFAC.69 Part of the rationale is that
Airbnb is a travel service provider, serving as a conduit, enabling person-to-
person visits or travel to the island for one of the other eleven permitted
reasons. However, the fact that Airbnb allows for linking American bank
accounts, such that guests’ payments for staying at a Cuban property can show
6831 C.F.R. 515 § 570.
6931 C.F.R. 515 § 572 (2016).
2017 / Rodolfo’s Casa Caribe in Cuba 147
up directly as a deposit in an American bank account, raises the question of
whether Airbnb is effectively enabling commerce in violation of U.S. law.
So is the conduct of Rodolfo’s aunt legal? Would the investment that
he is now proposing (for $80,000) be permissible under U.S. law if the
money came from a relative? According to an OFAC source, a relative in
either scenario falls into an ambiguous category. Are these transfers of
money between family members? Clearly, yes. Are these transfers of money
to help improve someone’s living situation? Arguably yes, as in both cases,
the relative is using transferred money to buy a better primary residence.
The transfer of $10,000 by the aunt plausibly fits that definition. Would
a transfer of $80,000? What about $1 million? There is no “bright line”
test or threshold, but as the amount increases, one is naturally inclined
to ask a potentially dispositive question: is it a gift (with no expectation of
repayment), a loan (with little or no interest) between family members, or
is it a payment to acquire an interest in property with an expectation of
making a return, either from rental payments or at the time of sale?
In the case of Rodolfo’s aunt loaning $10,000 and expecting to be repaid
the same $10,000 during a year, the transfer must be considered noncommer-
cial in nature and therefore her receipt of money back (whether by Airbnb or
any other means) is legal. It fits the classic definition of a remittance—helping
a family member without an expectation of earning a profit or return.
In the case of a relative transferring $80,000 (regardless of whether it
is within the United States or remitted to Cuba) to help in the acquisition
of a nine-bedroom residence, one could still plausibly argue (especially
given the notarized written promise to only pay back the principal with no
interest) that, at least in the short term, the arrangement comes closer to
fitting the mold of a remittance rather than an obvious business venture.
By all accounts, many Cuban Americans are following this logic and betting
that authorities have higher priorities than investigating what their Cuban
relatives are doing with transferred money.
4. DoesItMatterifAdamIsBothaU.S.andanEUCitizen,orTransfers
Money from a Foreign Bank Account?
While it is tempting to consider using a foreign bank to make the transac-
tion, it does not change the fact that U.S. law still applies to Adam as an
American citizen, even if he has a second citizenship. It does not change
the guidance to apply for a special license. While the scandal known as the
Panama Papers has cast a light on the extent of the use of shell companies
148 Vol. 34 / The Journal of Legal Studies Education
and offshore accounts to conceal transactions from scrutiny,70 it does not
change the answer to the question of whether a transfer from a bank account
in a foreign jurisdiction is lawful. In this specific instance, the transfer would
be to a U.S. bank anyway, so, as explained below, there is a chance of it
being detected by the banks’ automated systems and flagged as potentially
suspicious.
5. What Are the Risks and Consequences of “Just Doing It”?
A black market (or gray market) in Cuban real estate has been functioning
for decades.71 This is no surprise, as such shadow economies naturally exist
in contexts of central planning or prohibition.72 So the question naturally
arises: if both parties benefit from a transaction and the externalities are
positive, and even consistent with certain long-term policy goals (of the very
same laws that they are skirting or violating in the short term), is it ethical
and advisable to “just do it?” Is it really more ethical to obey the law, even
when the law does not advance its own purpose and actually hampers both
private and societal interests?
Assuming that a Cuban partner, accustomed to a lifetime of gray mar-
kets and work-arounds, is comfortable with the risks on his side, the remaining
question is whether the potential American investor either wants to obey the
law for its own sake, or, otherwise, is comfortable with the risks of detection
and penalization under U.S. law.
A logical starting point is to ask whether there is an obligation to report
the violation of law to anyone. All income, including income from outside
of U.S. borders, has to be reported for income tax purposes.73 However,
during the anticipated payback period, there is no income being generated.74
70What Are the Panama Papers? A Guide to History’s Biggest Data Leak,THE GUARDIAN (Apr. 5,
2016), https://www.theguardian.com/news/2016/apr/03/what-you-need-to-know-about-the-
panama-papers.
71Leo Siqueira, Cuba Real Estate: Booming, Challenging Market,15CLASSIFIED INTELLIGENCE REP.
16, 47 (Aug. 24, 2014), available at http://www.akerman.com/documents/8-28-14-Freyre%20
in%20Classified%20Intelligence%20Report.pdf.
72Juana Paola Bustamante & Kevin J. Fandl, Incentivizing Grey Market Entrepreneurs in Emerging
Markets,N
ORTHWESTERN J. INTLL. & BUS. (forthcoming 2016).
73Author’s correspondence with Katrina Kowalski, CPA at Auerr, Zajac & Associates, LLP (Oct.
12, 2016).
74Id.
2017 / Rodolfo’s Casa Caribe in Cuba 149
Therefore, no loan repayments from Rodolfo would have to be reported for
tax purposes, so long as payments are solely of principal and include no
interest.75
Taking into account the stress, time, and cost of having to defend one’s
self from potential penalization, not to mention reputational or professional
harms as an attorney and law professor, the next step is to consider the
risk of detection if one were to “just do it.” According to a source at OFAC
and as corroborated by a manager in the commercial banking industry, banks
have automated systems for detecting suspicious transactions and compliance
personnel dedicated to identifying and investigating transactions that may
involve illegal activity.76 The automated system of the receiving bank may
already take into account whether individuals have connections to countries
that make them a higher-risk profile.77 Further, the automated systems have
expected activity profiles, and both the sending and receiving banks’ systems
may, depending on typical activity of the individuals involved, flag the transfer
as suspicious.78
Given that the transfer of $80,000 is arriving at the bank account of a
Cuban American, that may be enough for the receiving bank’s back office
automated systems to flag the transaction. It would further increase the prob-
ability of detection if the receipt of $80,000 is an anomaly in the account
holder’s transaction history. The banks’ automated systems are sensitive to
aberrational credits and debits, especially from sources that are not already
familiar or common. So, depending on several factors, an unusual transfer
of $80,000 to a stranger who happens to be a Cuban American retiree with
property in Havana may lead to a question from the receiving bank as to the
purpose of the transfer.79
A foreseeable response would be for the receiving bank to block the
transfer and ask about the purpose of the transfer and whether it is for
personal reasons or commercial, and supporting documentation may be
requested. If one answered that it was to help complete a payment to take title
of property in Cuba, then the transaction may still be allowed if the purpose
75Id.
76Author’s conversation with confidential banking industry source, (May 18, 2016).
77Id.
78Id.
79OFAC source, supra note 61.
150 Vol. 34 / The Journal of Legal Studies Education
is identified as acquiring a residence or a location for a humanitarian activity.
A transfer for a commercial purpose or as an investment, however, may block
the transfer.
Without a special license, the activity could be immediately and proac-
tively reported to OFAC if the bank wanted to shield itself from any possible
negative repercussions.80 Once reported, entities that can become involved
include the Financial Crimes Enforcement Network, the Federal Deposit
Insurance Corporation, and the Federal Reserve Bank.81
Civil fines would then be conceivably pursued, and, depending on the
severity of the violation, the matter could be turned over to the Department of
Justice for prosecution.82 The imposition of criminal penalties would require
proof of criminal intent.83 Specifically, a willful intent to break the law is
required.84 Negligently failing to investigate regulations is not an adequate
basis for someone being subject to criminal penalties.85 Given the signed and
notarized document showing that this is an interest-free person-to-person
loan, it is not certain that there is sufficient evidence to support either civil
or criminal penalties for engaging in commercial activity, at least during the
period that Adam receives repayment of the loan.
Nevertheless, recent enforcement actions reveal that OFAC does still
enforce the embargo, including in cases where an American’s only involve-
ment is having an ownership stake in a European company that helps tourists
visit Cuba.86 Considering the consequences of chances of detection, it is not
advisable to “just do it.” It is advisable to apply for a special license.
80Id.
81Id.
82Id.
8378 AM.JUR.2DWar § 65 (2016).
84United States v. Tooker, 957 F.2d 1209, 1213 (5th Cir. 1992), as amended on denial of reh’g 5th
Cir. May 8, 1992.
85Id. at 1214.
86Shearman & Sterling, OFAC Settles Civil Enforcement Action with Dutch Company for Alleged
Violations of US Trade Embargo on Cuba, SHEARMAN &STERLING, LLP, CLIENT PUBLICATION
(Apr. 25, 2014), http://www.shearman.com/˜/media/Files/NewsInsights/Publications/
2014/04/OFAC-Settles-Civil-Enforcement-Action-with-Dutch-Company-for-Alleged-Violations-
of-US-Trade-Embargo-on-Cuba-LT-042514.pdf.
2017 / Rodolfo’s Casa Caribe in Cuba 151
F. Ethical Analysis: Stakeholder Impacts, PRME Principles, and the Question of
Sanctions
Accepting the offer to invest in Rodolfo’s business raises ethical questions.
Certainly the “just doing it” approach, without a license, besides potentially re-
sulting in penalties for violating U.S. law, presents an ethical quandary. Some
would argue that, even with a special license, investments in some countries
are ethically questionable because of a governments’ human rights records,
lack of democratic practices, or other objectionable actions. Arguably, the
very nature of the business and its environmental footprint and societal side
effects should be evaluated. Finally, a growing number of investors, managers,
and academics believe—and a growing body of research substantiates—that
these nonfinancial impacts have to be seen as part of the core activity of a
business and vital to its long-run potential to thrive.87 Below, two approaches
to evaluating the ethical responsibilities of a business decision are briefly
described and then applied to this case. The instructor may choose various
methods of presenting the ethical dilemma, in conjunction with course ma-
terial. One suggested framework follows. It can be used more expansively
and comprehensively than what is possible in the context of this case.88
The stakeholder approach to management highlights the vital nature
of engaging individuals, groups, and entities that are affected by one’s
actions. This concept is key to following the guidelines of the Global
Reporting Initiative.89 In using this case for teaching purposes, students
should be invited to list all the individuals, groups, and entities impacted by
Rodolfo’s business and the potential foreign investor’s decision to cooperate.
Next, students should brainstorm ways to engage with the listed parties or
otherwise evaluate the impacts of the business activity on those stakeholders.
Ideally, this process should solicit feedback and ideas from stakeholders
that could help optimize the functioning of the business, both in terms of
effects on stakeholders and as gauged by conventional financial measures of
87See Gerlinde Berger-Walliser et al., Using Proactive Legal Strategies for Corporate Environ-
mental Sustainability, 6M
ICH.J.ENVTL.&ADMIN. L. 1 (forthcoming 2017), available at:
http://ssrn.com/abstract=2789801 (last visited Sept. 2, 2016); Adam J. Sulkowski & Sandra
Waddock, Beyond Sustainability Reporting: Integrated Reporting Is Practiced, Required & More Would
Be Better, 10 U. ST. THOMAS L.J. 1060 (2013).
88For an excellent teaching note and toolkit of reasoning-through ethical aspects of international
business decisions, see DiMatteo & Maurer, supra note 4.
89Global Reporting Initiative, G4 SUSTAINABILITY REPORTING GUIDELINES, https://www.
globalreporting.org/standards/g4/Pages/default.aspx (last visited May 30, 2016).
152 Vol. 34 / The Journal of Legal Studies Education
performance and success. Finally, the impacts of action versus inaction
of the foreign investor with regard to effects on stakeholders should be
evaluated.
A more expansive approach involves the six PRME Principles,90 which
dovetail with the ten principles of the UN Global Compact.91 In 2015, the
United Nation’s seventeen Sustainable Development Goals (SDGs) and 169
related targets were added to the themes that PRME endeavors to promote
in management education.92 Taken together, these can be seen as a set of
themes to consider in our analyses of stakeholder impact, yet some relate to
side effects far beyond immediate and obvious stakeholders. For example,
they include effects such as land-based and oceanic ecosystems. Taking these
principles and goals into account therefore adds significantly to the review
of externalities that otherwise might have been missing.
The use of PRME Principles, Global Compact Principles, and SDGs
as part of an ethical reasoning framework is a novel approach endorsed by
Jonas Haertle, the Secretariat of PRME.93 The deployment of these princi-
ples and goals is consistent with the mission of PRME, as recently expressed
at the 2016 meeting of Association to Advance Collegiate Schools of Business
to help business schools become drivers of change and “enablers of global
prosperity.”94
Applying the frameworks described above to the case of Casa Caribe,
one would, at a minimum, consider the effects of the business on guests,
employees, their families, and Cuban society. All of these stakeholders gain
from Rodolfo’s business and would likely benefit from the growth that an
investment would help to finance.
Taking into account PRME, Global Compact principles, and the SDGs,
we further consider impacts of Casa Caribe and the proposed coopera-
tion upon, at a minimum, the following broad themes: poverty reduction,
90See Appendix C. Six Principles, UN PRME, http://www.unprme.org/about-prme/the-six-
principles.php (last visited May 29, 2016).
91See Appendix D. The Ten Principles of the UN Global Compact, UN Global Compact, https://www.
unglobalcompact.org/what-is-gc/mission/principles (last visited May 29, 2016).
92See Appendix E. Sustainable Development Goals, UN, http://www.un.org/sustainabledevelopment/
sustainable-development-goals (last visited Oct. 13, 2016).
93Author’s correspondence with Jonas Haertle, PRME Secrtariat (May 30, 2016).
94Jonas Haertle, PRME NEWSLETTER (Apr. 2016), available at http://bulletin.unglobalcompact.
org/t/r-6DEE9D59FD239AC42540EF23F30FEDED.
2017 / Rodolfo’s Casa Caribe in Cuba 153
ecological systems and climate, sustainability, peace, and corruption. Boost-
ing tourism in Cuba helps alleviate poverty. While not clearly a “green busi-
ness,” it can be asserted that hosteling has a much smaller environmental
footprint per guest than hoteling, as a dozen or more people may be accom-
modated in the same physical area as one person, a couple, or a small family.
Further, sheets and towels are changed less often, further reducing impact-
per-person. In the case of Casa Caribe and most casas particulares, the sus-
tainability profile is further improved by the fact that these are homestays—
rooms in residences are being used. Given the fact that heat, hot water, and air
conditioning are rarely used in Cuba, many guests from colder climates often
have a miniscule environmental footprint every day they are on the island
relative to the footprint they would have had at home. In other words, if
travel remains an activity that humans pursue, hosteling, especially in a cli-
mate like that of Cuba, is a very green option compared to conventional
hotels.
One of the arguments in favor of travel is that it builds familiarity across
cultures and people, leading to more mutual understanding and conditions
conducive to peace. Some may argue that, at least in some contexts, it even
boosts the probability of tolerance, inclusion, and progressive political re-
forms as people share ideas across boundaries.
Finally, with regard to corruption, the operation of a hostel hardly
contributes to the phenomenon of bribery or abuse of authority. If a special
license is granted, there are no legal infractions as far as U.S. law is concerned.
As discussed, Cuban law is not violated, as Rodolfo in any case remains the
only owner of the real estate, and the would-be investor for several years is just
being paid back principal. As mentioned above, laws will likely be reformed
during the next several years such that returns on the investment will be legal
by the time they can be paid.
In other words, the contemplated cooperation to grow Rodolfo’s hos-
tel contributes “in the bigger picture of things” to mutual understanding
and peace between people and a reduction in poverty with a comparatively
smaller ecological footprint than alternatives. While arguably skirting laws,
this investment does not violate them, does not contribute to corruption, and
even contributes to the improvement in societal conditions that Cuban and
U.S. policy ultimately share as a goal.
In summation, the investment generates positive societal effects with a
comparatively smaller environmental footprint than other business models
in its industry. Inaction generates fewer benefits for all involved. One could
easily feel it is ethical to move forward, all the more so if a special license is
154 Vol. 34 / The Journal of Legal Studies Education
granted by the U.S. government, because then the formalities of following
U.S. law would be respected. Cuban law is somewhat skirted in the proposed
solution, but not broken—making the case ripe for discussion. Some could
reasonably argue that, even if a law were outright violated, the positive soci-
etal externalities differentiate this case from instances of “victimless crimes”
wherein transactions between willing individuals nonetheless create harms
for themselves or others.
This case may lead to an interesting discussion about when it is ethical
to violate laws that are unjust. To provoke discussion, an instructor could
ask: was it ethically correct to violate laws requiring segregation or apartheid
or those of Nazi Germany or the Soviet Union under Stalin? Does it make
a difference if a law deprives an individual of economic freedom rather
than a civil right—in other words, if someone violates a law to generate a
financial profit, does that rule-breaking seem somehow less noble or ethical?
In that case, was Gandhi’s leadership of the civil disobedience movement to
sell locally produced salt in India (in violation of British law) not ethical?
Further provocative questions might include: what differentiates past civil
disobedience movements involving commerce from those related to saving
seeds or marijuana farming in jurisdictions where it is still illegal?
Another tangent for discussion is whether there are some countries
whose economies deserve to be boycotted or embargoed. Does it make a
difference if one does business with a controversial or oppressive regime, as
opposed to investing in a business completely independent from the gov-
ernment? In that case, would students either follow laws or voluntarily re-
frain from transactions, as part of efforts to enforce economic boycotts of
apartheid-era South Africa or Russia after the annexation of Crimea? One
could ask students whether they would pursue an investment in an Iranian
business or in a disputed settlement in the occupied Palestinian territory of
the West Bank or Syria or Sudan? If controversial annexation of territory
or questionable human rights practices or environmental practices are the
barometer by which to judge the ethical soundness of an investment in a
foreign jurisdiction, then how do students believe investments in China are
rationalized? Most provocatively, by that standard, how many would have boy-
cotted transactions, either with businesses or the public sector, of the U.S.
during much of its history?
Perhaps this last question—whether students would have supported vol-
untarily boycotting or legally enforcing an embargo against the U.S. during
the eras of slavery, segregation, and violent Native American oppression—
is the best way to close a conversation in class. Most of us would likely
2017 / Rodolfo’s Casa Caribe in Cuba 155
refrain from an investment in the slave trade, a plantation using slave la-
bor, and products such as clothing derived from cotton grown by those
slaves. Some may argue the jurisdiction—including the nation-state toler-
ating the slave labor—should be embargoed. Many may conclude that an
embargo makes sense only if the resulting economic discomfort is acute
enough that it brings pressure on a regime to change or be overthrown.
Some may conclude that they would want to retain the freedom to in-
vest in a jurisdiction with a controversial regime or objectionable labor
practices and that each investment opportunity has to be evaluated on a
case-by-case basis.
Effectively, this is the direction in which U.S. policy is turning with
regard to Cuba in 2016. The hurdle of applying and waiting for a special li-
cense could be the final, temporary relic of a failed attempt at regime change
through economic embargo. Arguably, the U.S. embargo contributed to im-
poverishment over the decades that it was in effect. Leading Cuban American
advocates are lobbying for a general license that would broadly exempt cer-
tain kinds of business transactions from the embargo, the same way that
broad categories of travel are now permitted.95 As others point out, the
“internal blockade” of Cuban laws that are inhospitable to direct foreign
investment into the private sector also have to evolve.96 In the present era
of transition in Cuban and U.S. law, against a backdrop of global sustain-
ability concerns, the onus is more than ever on businesspeople to weigh the
ethical implications of their actions and investments in tandem with legal
questions.
G. What Did Rodolfo and Adam Ultimately Do with the Opportunity?
After some soul-searching, Rodolfo, his partner, and their team concluded
that their recent move and renovations, and their existing hosting commit-
ments, had already been a massive exertion. They were burnt out. As exciting
as the new investment opportunity was, they decided there were enough op-
portunities in their existing property to grow and enhance it. This option
allowed them a better work-life balance and would be ultimately better for
all stakeholders for the foreseeable future.
95Author’s conversation with Pedro Freyre, Chair International Practice of the law firm Akerman
LLP (May 25, 2016).
96Author’s correspondence with Emilio Morales, President of the Havana Consulting Group
(May 28, 2016).
156 Vol. 34 / The Journal of Legal Studies Education
This decision came as somewhat of a relief to Adam. The exercise of
researching and debating whether and how such an investment could be
made had led to enlightening conversations with colleagues and students.
However, as discussed above, the investment would entail inherent risks and
limitations. For Adam, the probability of positive outcomes was nearly can-
celled out by the risks of neutral or disappointing outcomes. The reactions of
others in response to the question of what they would do ran the gamut
from intense positive enthusiasm—even requests to coinvest—to a clear
preference to wait until there was greater clarity and certainty, and further
legal reforms in both Cuba and the United States. Overall, the interest ex-
pressed by colleagues and students seemed commensurate with the general
enthusiasm of U.S. investors with regard to real estate investments on the
other side of the Florida Straits.
IV. CONCLUSION
At the risk of oversimplification, there are at least seven takeaways from the
story of Casa Caribe. For students of successful start-ups, the first is to appre-
ciate the importance of love for the ultimate mission of your business—
the significance of intrinsic motivation on the part of an entrepreneur.
It is the reason that one’s drive can be sustained to overcome obstacles
later and can be the font of the culture of an organization. Second, to
be mindful of the reality that “the world is not that big”—word of mouth
from delighted clients can help an organization survive a disruptive event.
Third, do not become overly reliant on one channel for communicating
with potential new customers. Fourth, constantly listen to customers and
adapt to new opportunities in the market. Fifth, in terms of legal restric-
tions, the U.S. sanctions regime does allow for special licenses that still allow
commercial relationships despite popular perceptions. Sixth, creative work-
arounds are often available to overcome obstacles but can raise questions
related to ethics. Finally, one’s willingness to pursue an opportunity may
depend more on trust in one’s partners than the power of formal legal
frameworks.
Given the issues presented in this case, it is amenable for use in both
classes on entrepreneurship and legal frameworks courses. As with any case,
the class discussion can be lengthened or truncated depending on the total
amount of time available. For a class exclusively focused on entrepreneurship,
just the first two parts may be used. For a class on law, only the third part
2017 / Rodolfo’s Casa Caribe in Cuba 157
may be used. Given the issues raised, the third part may fit best in a law
course after contracting, business formation, and basics of trade, regulation,
legislation, and rule of law have been covered. It can serve as a chance for
students to see how discrete rules and concepts from those subject areas fit
together in a complicated and evolving legal and business landscape in the
real world. Finally, it catalyzes reflection and conversation about the role of
law, stakeholders, ethics, and how investing and the pursuit of profit relate
to other activities, values, motivations, priorities, and outcomes.
APPENDIX A: IMAGES OF CASA CARIBESCURRENT
LOCATION
Left-to-right: Adam and Rodolfo
and Rodolfo’s partner, Carlos
A guest enjoys the common area of
the current location of Casa Caribe.
158 Vol. 34 / The Journal of Legal Studies Education
APPENDIX B: IMAGES OF THE AVAILABLE PROPERTY
The larger courtyard of the available property
Rodolfo on the rooftop of the available property
Rodolfo with one of the current inhabitants of the available property
in the lounge area adjacent to the larger courtyard
2017 / Rodolfo’s Casa Caribe in Cuba 159
The larger courtyard of the available property. The smaller courtyard is visible
through the dining room entrance. One of the hippest rooftop bars in
the city is visible in the background.
APPENDIX C: PRME PRINCIPLES
The six PRME Principles are:
Principle 1 | Purpose: We will develop the capabilities of students to be future
generators of sustainable value for business and society at large and to work for an
inclusive and sustainable global economy.
160 Vol. 34 / The Journal of Legal Studies Education
Principle 2 | Values: We will incorporate into our academic activities and curricula
the values of global social responsibility as portrayed in international initiatives
such as the United Nations Global Compact.
Principle 3 | Method: We will create educational frameworks, materials, pro-
cesses and environments that enable effective learning experiences for responsible
leadership.
Principle 4 | Research: We will engage in conceptual and empirical research
that advances our understanding about the role, dynamics, and impact of cor-
porations in the creation of sustainable social, environmental and economic
value.
Principle 5 | Partnership: We will interact with managers of business corporations
to extend our knowledge of their challenges in meeting social and environmen-
tal responsibilities and to explore jointly effective approaches to meeting these
challenges.
Principle 6 | Dialogue: We will facilitate and support dialog and debate among
educators, students, business, government, consumers, media, civil society organi-
zations and other interested groups and stakeholders on critical issues related to
global social responsibility and sustainability.
Six Principles, UN PRME, http://www.unprme.org/about-prme/the-six-principles.
php (last visited May 29, 2016).
APPENDIX D: UN GLOBAL COMPACT PRINCIPLES
The ten principles of the UN Global Compact are grouped into four categories and
are as follows:
Human Rights
Principle 1: Businesses should support and respect the protection of interna-
tionally proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.
Labor
Principle 3: Businesses should uphold the freedom of association and the ef-
fective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
2017 / Rodolfo’s Casa Caribe in Cuba 161
Principle 6: the elimination of discrimination in respect of employment and
occupation.
Environment
Principle 7: Businesses should support a precautionary approach to environ-
mental challenges;
Principle 8: undertake initiatives to promote greater environmental responsi-
bility; and
Principle 9: encourage the development and diffusion of environmentally
friendly technologies.
Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, includ-
ing extortion and bribery.
The Ten Principles of the UN Global Compact, UN Global Compact, https://www.
unglobalcompact.org/what-is-gc/mission/principles (last visited May 29, 2016).
APPENDIX E: SUSTAINABLE DEVELOPMENT GOALS
The seventeen Sustainable Development Goals of the United Nations are:
Goal 1. End poverty in all its forms everywhere
Goal 2. End hunger, achieve food security and improved nutrition and promote
sustainable agriculture
Goal 3. Ensure healthy lives and promote well-being for all at all ages
Goal 4. Ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all
Goal 5. Achieve gender equality and empower all women and girls
Goal 6. Ensure availability and sustainable management of water and sanitation
for all
Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for
all
Goal 8. Promote sustained, inclusive and sustainable economic growth, full and
productive employment and decent work for all
Goal 9. Build resilient infrastructure, promote inclusive and sustainable industri-
alization and foster innovation
Goal 10. Reduce inequality within and among countries
Goal 11. Make cities and human settlements inclusive, safe, resilient and
sustainable
162 Vol. 34 / The Journal of Legal Studies Education
Goal 12. Ensure sustainable consumption and production patterns
Goal 13. Take urgent action to combat climate change and its impacts
Goal 14. Conserve and sustainably use the oceans, seas and marine resources for
sustainable development
Goal 15. Protect, restore and promote sustainable use of terrestrial ecosystems, sus-
tainably manage forests, combat desertification, and halt and reverse land degra-
dation and halt biodiversity loss
Goal 16. Promote peaceful and inclusive societies for sustainable development,
provide access to justice for all and build effective, accountable and inclusive
institutions at all levels
Goal 17. Strengthen the means of implementation and revitalize the global part-
nership for sustainable development
Sustainable Development Goals, United Nations, http://www.un.org/sustain
abledevelopment/sustainable-development-goals/ (last visited Oct. 11, 2016).
ResearchGate has not been able to resolve any citations for this publication.
Cuba Real Estate: Booming, Challenging Market, 15 CLASSIFIED INTELLIGENCE REP
  • Leo Siqueira
Leo Siqueira, Cuba Real Estate: Booming, Challenging Market, 15 CLASSIFIED INTELLIGENCE REP. 16, 47 (Aug. 24, 2014), available at http://www.akerman.com/documents/8-28-14-Freyre%20 in%20Classified%20Intelligence%20Report.pdf.
Rodolfo's Casa Caribe in Cuba 90 See Appendix C. Six Principles
  • Id
74 Id. 2017 / Rodolfo's Casa Caribe in Cuba 90 See Appendix C. Six Principles, UN PRME, http://www.unprme.org/about-prme/the-sixprinciples.php (last visited May 29, 2016).
The Ten Principles of the UN Global Compact
  • See Appendix
See Appendix D. The Ten Principles of the UN Global Compact, UN Global Compact, https://www. unglobalcompact.org/what-is-gc/mission/principles (last visited May 29, 2016).
Author's correspondence with Jonas Haertle
Author's correspondence with Jonas Haertle, PRME Secrtariat (May 30, 2016).
The Emerging Regulatory Framework
  • Ashley Chappo
Ashley Chappo, Cuba: The Emerging Regulatory Framework, WORLD POLICY BLOG (Feb.17, 2016), http://www.worldpolicy.org/blog/2016/02/17/cuba-emerging-regulatory-framework.