U.S. punishes American firm after its Canadian subsidiary leases cars to Cuban embassy in Ottawa

U.S. President Donald Trump rolled back some of the key measures of his predecessor's rapprochement with Cuba Friday, making it harder for American tourists to travel to the island, and harder for American corporations to do business there.

That move was immediately met with a rebuke from Canada's Prime Minister Justin Trudeau.

"We have tremendous respect and a constructive relationship with the United States, but in the matter of Cuba there's always been a certain amount of disagreement," he said at a news conference on Parliament hill with Belgian Prime Minister Charles Michel.

"The investments in Cuba by Canadian companies and business people, the opportunities for tourism, for trade and for mutual benefit in this relationship will certainly continue," Trudeau added.

"I don't see anything new in the dynamic between Canada and Cuba other than a continued desire to work together for mutual benefit."

But as a recent case in Ottawa illustrates, American sanctions against Cuba don't only affect Americans or American businesses.

Last week the U.S. Office of Foreign Assets Control announced it had reached a settlement with the American Honda Finance Corporation — the institution that finances the sale and leases of Hondas and Acuras in North America.

The civil liability settlement requires the company to hand over $87,255 US for violating the sanctions.

The American Honda Finance Corporation is based in California, and the fine will likely be paid in the U.S., but the transaction that brought it on occurred in Canada.

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The cause of the dispute is a series of 13 lease agreements between Honda Canada Finance, Inc. — a majority-owned subsidiary of the American Honda Finance Corporation — and the Cuban Embassy in Ottawa.

According to a notice published by the U.S. Treasury last Thursday, the 13 leases were signed between Feb. 2011 and March 2014.

Under U.S. law, the fact that a U.S. company was a majority shareholder of Honda Canada Finance makes the transaction subject to U.S. sanctions — even though both the lessor and the lessee were in Canada.

Interfering in Canadian business

In a statement, the Cuban government argued that the fine "not only hampers the work of Cuban diplomats in a third country, but also harms Canadian citizens and companies that maintain relations with Cuban entities."

Brittany Venhola-Fletcher of Global Affairs Canada told CBC News the sanction constitutes interference with a Canadian business transaction.

"Canada has consistently opposed the extraterritorial application of United States sanctions, which interfere with the right of Canadian companies to conduct their business in a manner consistent with international trade practice and the laws of Canada."

The U.S. Embassy in Ottawa referred CBC to the U.S. Treasury Department in Washington, which did not return calls about the sanction.

It's not clear whether the Cuban Embassy in Ottawa still leases vehicles from Honda.

Backing Cuba by law

Canadian companies that have business dealings with Cuba have a tough road to navigate because complying with U.S. laws can lead them to fall afoul of Canadian laws, and vice versa.

That is because in 1992 Canada enacted the Foreign Extraterritorial Measures (United States) Order, which was passed in response to the passage of the Cuba Democracy Act in Washington the same year.

The order requires any Canadian company that is contacted by U.S. authorities responsible for enforcing sanctions to notify the Canadian federal government. The order also bars Canadian companies from complying with any U.S. law that seeks to limit their business dealings with Cuba.

A Canadian businessman who pays a fine such as the one levied on Honda could face five years in a Canadian prison as a result.

New sanctions

One new prohibition in the measures announced by Trump in Florida Friday could have particular consequences for Canadian companies that have U.S. affiliates or U.S. ownership.

They specifically prohibit all business dealings with businesses owned by the Cuban Armed Forces.

Few of the 1.3 million Canadians who vacation in Cuba are aware that many of the island's hotels are majority-owned by the Cuban military, a legacy of Cuba's former minister of defence Raul Castro — now the country's president. He was an early convert to capitalist experimentation, while his more famous brother, Fidel, was still reluctant.

Raul went into business with the funds he controlled as minister of defence, and the business he focused on was tourism.

Consequently, almost any foreign company involved in Cuban tourism is likely to have dealings with the Cuban military's enterprise group, GAESA, or one of its holding companies, such as the Gaviota Group.

Today, all are run by Raul Castro's son-in-law, Army General Luis Alberto Rodríguez López-Callejas.

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​The El Senador resort was a joint venture between Army-owned Cubanacan and a Canadian syndicate that included former Montreal Canadiens captain Serge Savard. It was named in honour of his former Habs nickname, "Le Senateur."

Rankings compiled by the trade publication Hotel show that GAESA is the world's 34th largest hotel company with 39,383 rooms, just behind The Walt Disney Company with 39,751.

Gaviota works with numerous Canadian entities, including Sunwing Vacations, Air Canada Vacations and Transat Holidays.