CRF I vs National Bank of Cuba the fight´s second round

CRF I vs Cuba: a fight of many rounds

HAVANA, July 8th  CRF I vs Cuba Judge Sara Cockerill, of the Commercial Division of the High Court of London, determined at the end of June that the Cuban State does not have the necessary arguments to appeal the sentence that was handed down on April 4, as part of the trial in which it is sued, along with the National Bank of Cuba (BNC), for non-payment of a part of its sovereign debt of close to 78 million dollars.

The news brought a new chapter to the legal battle that since the beginning of 2023 has been attracting wide media interest, especially due to the possibilities of setting a precedent applicable to future litigations of this type.

The trial in the British court is just the beginning of a process that runs through channels that are now unfathomable. By their nature, the dissimilar interpretations and legal technicalities mark the times and make any approximation more difficult.

To understand the origin of the legal pulse, what has happened so far, as well as the possible scenarios and outcomes, some keys that aim to shed some light.


  1. “Cursed” money
CRF I vs Cuba: a fight of many rounds


That the managers of CRF I Ltd. have decided to sue the Cuban State and the National Bank of Cuba (BNC) is part of the manual of strategies used by funds of its type to force negotiations and payment agreements for the debts that form part of their business portfolio.

These groups of private investors, almost always established in tax havens, are basically dedicated to buying sovereign debt from countries with fragile economies and difficulties in honoring their payment commitments.

They do so for prices much lower than the cost of issuance, from holders for whom possession of these titles is no longer profitable, due to difficulties in collecting debts. Getting rid of them in this way remains the most viable option to guarantee, at least, the return of part of the money invested.

Funds such as CRF I Ltd. acquire these debts trusting in the ability to pressure debtors through legal mechanisms so that they agree to honor their commitments, guaranteeing income greater than the depreciated amount disbursed for their acquisition.

The lawsuit filed before the High Court in London is the result of the Cuban government’s refusal to recognize CFR I Ltd. as a legitimate creditor of its sovereign debt.

However, to try to understand the origin of the situation, one would have to go back to 1984, when the Cuban State acquired through the National Bank of Cuba — then the country’s central bank — loans from the European banks Crédit Lyonnais Bank Nederland and Istituto Bancario Italiano. The debt originated in that year.

Three years later, Fidel Castro declared the foreign debt “unpayable” in what would be a campaign for the cancellation of the Third World debt. The government that he led stopped fulfilling its commitments. Since then, the possession of Cuban sovereign debt securities became a headache for those who had lent money to Cuba.

As reported, CRF I Ltd. is Cuba’s largest private creditor with sovereign debt securities acquired in secondary markets for a value that exceeds 1.3 billion dollars.

The figure in dispute is a small part of the amount that could be disputed in the future and concerns the debt originally contracted with the aforementioned European banks, and purchased by the investment fund from its previous owner, the Industrial and Commercial Bank of China (ICBC), through its ICBC Standard Bank.

  1. Broken bridges

At the time of presenting the complaint before the London court for non-payment of sovereign debt, the executives of CRF I Ltd. explained that it was the only possible solution, given the refusal of the Cuban government to negotiate a restructuring that, in their opinion, was “mutually beneficial.”

On the other hand, the Cuban authorities maintain their position of not recognizing CRF I Ltd. as a legitimate creditor, arguing that it is one of the so-called “vulture funds,” established for the sole purpose of buying at auction prices debt rights issued by countries, to later claim immediate payment under threat of legal action.

In addition, Cuba considers that it has no obligation to pay because the group of private investors would have fraudulently acquired the debt titles, which until then were managed by the ICBC Standard Bank, using the alleged bribery of a senior BNC executive.

In 2019, the then Director of Operations of the BNC, Raúl Olivera Lozano, authorized the assignment of the debt to the investment fund, apparently “unilaterally,” without consulting the island’s authorities. In addition, he allegedly violated the procedures established by the country’s legislation, which led to his arrest and sentence to 13 years in prison, a sentence he is currently serving.

The lawyers representing the Cuban side have argued that only Olivera Lozano’s signature appears on the authorization when it is stipulated that the document is also signed by another official.

In turn, they stated that this procedure was prompted by the promise to receive around 30,000 dollars from CRF I Ltd., an argument that the executive corroborated during his statement at trial through a videoconference from prison.

In response, the plaintiff’s lawyers stated that the Cuban State modified the interpretation of its regulations just for this trial, and they denied that a consultant in charge of Cuba issues tried to bribe Olivera Lozano.

In addition, they disqualified the statements of Olivera Lozano, which they called “false testimony” given the conditions in which he is due to a process that they considered a legal “farce.”

Once again, the fund argued in court that the litigation only aims to make the Cuban government agree to negotiate after they “ignored” several debt restructuring offers made in the last ten years.

  1. Who owes and to whom?

As has been said, the London trial, which began at the end of January 2023, was just a starting point. It was only intended to settle key aspects for the subsequent development of the litigation, and it was focused on determining whether the magistrate and that court were competent to judge the Cuban State in this case, as well as whether the CRF I Ltd. fund should be recognized as a legitimate creditor of part of its sovereign debt.

After listening to the arguments of the parties, Judge Cockreill was clear in a verdict that put the investment fund as the winner before the BNC, but with no options to enforce its purposes against the Cuban State: the fund aspired for the Cuban State to also be recognized as a debtor. In this way, it would have the possibility of collecting active assets abroad using the U.S. embargo on the island as a platform.

The decision based on the interpretation of Cuban and British laws, and taking into account its weight in the debt contract, led each party to consider itself the winner of this “first round.” Somehow, both found favorable responses to their claims, although based on the importance they attributed to their objectives and the particular interpretation of the sentence.

On the one hand, the magistrate recognized the existence of a legitimate debt and the CRF I Ltd. fund as a creditor with the right to claim its payment; on the other, she pointed to the BNC as the only one responsible for honoring the commitments assumed at the time on behalf of the Cuban State, but freeing the latter from being a debtor.

Seen in this way, the plaintiff received the green light to initiate a new legal action aimed at determining how much the BNC had to pay and the variants that CRF I Ltd. could have for the collection.

On the other hand, the Cuban State avoided what perhaps represented its greatest concern: being designated as a debtor.

The fact that it was the bank and not the State that was identified as the debtor was possible thanks to the fact that the Central Bank of Cuba (BCC) was founded in 1997 so that, among other functions, it would assume those of the country’s central bank, which until then had been carried out by the BNC.

The movement determined the inability of the fund, in a default situation, to demand the seizure of assets and funds of the Cuban State as a compensation formula.

When the debt originated, the BNC had the functions of the country’s central bank. When the BCC was created, it assumed these functions and the BNC was left without a direct link with the State. This is why the State now does not have to answer for a demand on a loan that was made to the BNC.

The judge’s decision also ruled out an assessment of CRF I Ltd. as a “vulture fund” and dismissed the argument of the irregular acquisition of debt securities. Incidentally, it forced the Cuban side to compensate the investment fund for the costs arising from the judicial process.

Despite assessing the verdict as a victory, the defendants announced at the time that they would take the appropriate actions for the judge to reconsider the terms of the decision that affected their interests.

  1. Revolving door

Judge Cockerill’s most recent decision gave a new turn to the process, since it significantly narrowed the margin of maneuver of the Cuban State, in its purpose of reversing the previous decision.

In her new opinion, in response to the Cuban request to review her verdict, the magistrate establishes that with none of the five arguments put forward, the defense has a “real possibility of success.” From this perspective, she denied the Cuban State and the BNC permission to take the dispute to a second instance.

In accordance with the British legal system, it was the judge herself who had to determine if the new arguments presented by the Cuban party deserved to be examined by a higher court.

Despite the new rejection, the possibility remains that the case could reach a higher court through expensive legal procedures. Until now, neither the Cuban State nor the BNC has ruled on the judge’s new assessment. The possible strategies that they will assume in the future are also unknown.

The truth is that the refusal closes an important door for the defendant, and opens a path with unpredictable consequences, but that underpins the aspirations of the investment fund.

This was assessed by its board of directors, for which this decision represents “important progress” in its favor, because “it limits Cuba’s defense options and significantly strengthens the position of CRF in the case,” according to a statement.

The investment fund took advantage of the new turn of events to confirm that the Cuban government had already compensated them for the legal costs of the case — according to some sources it would be around 3 million dollars —, something that, according to the fund, “recognizes the validity of CRF I vs Cuba lawsuits and is a positive indication for CRF and its investors.”

  1. Long way to go

Experts who follow the case in detail have avoided, as far as possible, making predictions about the end it will have; while they assure that the definitive resolution can take years.

Judge Cockreill’s recent decision is likely to encourage CRF I Ltd. to expedite the next part of the process, in order to define the applicable formula to collect the funds it claims.

It does not mean that, once the forms are established, it is viable in the short term to execute said collections on the BNC, which in practice lacks sufficient resources to face the commitment, and does not have goods or assets in other nations susceptible to an embargo ordered by the court.

Nor is it ruled out that, given the new circumstances, the Cuban State decides to listen to the debt restructuring proposals that the investment fund has been trying to agree on for years, and from there begin a negotiation process.

What seems like a fait accompli is the repercussion of the case as a precedent to be taken into account by other holders of Cuba’s sovereign debt, who have been waiting to decide on a viable strategy in defense of their interests.

One of the big questions during this part of the process was the position of the ICBC bank, as it is the entity that transferred its rights to the debt through a procedure questioned by the Cuban authorities.

In view of the chances of success of the lawsuit, and following Judge Cockreill’s recent position, the investment fund announced that the ICBC had initiated an “unprecedented” legal proceeding against Cuba for approximately 1.1 billion euros (almost 1.2 billion of dollars).

It is evident that the step taken by the previous creditor of this debt, which acts as custodian of the Cuban assets of CFR I Ltd., has positioned itself in defense of the interests of the investment fund, which generates even more pressure on the island’s government.

For the moment, and as if it were a game of chess, the Cuban State has received a check warning, and all eyes are now on the next move.