Sd metro no 9 vol xxxi 2016 reduced

NO. 9, VOL. XXXI

Divers for Conservation Amber Jackson and Emily Callahan want to turn old offshore oil and gas rigs into permanent ecosystems.

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GIVE DAD THE GIFT OF DONOVAN’S WORLD CLASS SERVICE OPEN 3PM - 9 PM, SUNDAY, JUNE 16, 2013.

2016 | ISSUE 9 Volume XXXI

Our mission is to always provide quality journalism for our readers by being fair, accurate and ethical and a credible resource for our advertisers.

Chairman | CEO Robert Page BobPage@sandiegometro.com Publisher Rebeca Page RebecaPage@sandiegometro.com Managing Editor Manny Cruz Manny@sandiegometro.com Graphic Designer Christopher Baker cbaker@sandiegometro.com Photography/Illustration Eric Peters David Rottenberg Contributing Writers Andrew Dyer Stephen Moore Jennifer Coburn April Harter Enriquez

COV E R STO RY Diving Deep for Conservation

Emily Callahan and Amber Jackson, two alumnae of Scripps Institution of Oceanography at the University of California San Diego, have made it their mission to dive below the surface of these oil and gas platforms to determine the best possible “afterlife” scenario for these complex structures.

See Page 10.

Advertising SALES & MARKETING DIRECTOR Rebeca Page

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6 Museum’s $75 Million Expansion Plans

The Museum of Contemporary Art San Diego unveiled plans to quadruple exhibition space in La Jolla and officially launched a $75 million campaign to fund it. Plans call for closing the museum in January 2017 and consolidating exhibitions at the Jacobs and Copley buildings downtown until the renovation is complete in 2020.

13 Doing Business in Cuba — An Opportunity?

For San Diego businesses open to new markets and challenges, Cuba has recently emerged as an intriguing possibility. A number of U.S. industries are jumping at opportunities to do business in Cuba. For San Diego businesses, there are three key factors to consider when making that decision: the ongoing embargo, compliance with trade regulations, and the state of the Cuban economy.

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This magazine will not knowingly accept any advertising for real estate which in in violation of this law. Our readers are hereby informed that all dwellings advertised in this magazine are available on an equal opportunity basis. To complain of discrimination call HUD Toll-Free at 1-800-669-9777. Th Toll-free telephone number for the hearing impaired is 1-800-927-9275.

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INSURANCE

The Real Cost of a Workers’ Compensation Claim Indirect costs could be significant

By Jeff Cavignac Workers’ Compensation insurance pays for occupational injury and illness – that’s why you buy the insurance. Often times it is an employer’s single most expensive line of coverage.

What many people fail to grasp, however, is that there are significant indirect costs not covered by insurance. In addition, if your company is large enough to have an Experience Modification, every claim will affect your mod factor and directly impact your costs.

The direct costs of a workers’ compensation claim are pretty straightforward. Generally speaking, they include the medical costs and any indemnity (wage replacement) payments. It is this dollar amount that the insurance company will pay to resolve a claim and it is also this dollar amount that will factor in to your experience modification. Employers, however, also experience significant indirect costs.

According to a study done by the Stanford University Department of Civil Engineering, these indirect costs often exceed the direct costs. For example, a fracture on average generates direct costs of $50,000. The indirect costs, however, are estimated at $55,000.

Indirect costs include, but are not limited to, the following:

mium for your workers’ compensation policy will be $105,600.

However, this single claim — where the fracture with direct costs is $50,000 — will drive your mod up 15 points. When this claim hits your mod, your premium will go up by $24,000 to $129,600. This claim will stay in your experience modification formula for three years. In other words, this $50,000 claim will ultimately end up costing you $72,000 in additional insurance premiums. In addition to this, you have another $55,000 in indirect costs making the total cost of this claim $127,000. If your company has a 10 percent profit margin, you will need to generate an additional $1,270,000 to cover these costs.

The indirect costs you pay and the additional premiums caused by an increase in your experience modification underscore why it is so important to be proactive in your safety efforts and to develop effective claims management strategies to deal with inevitable claims.

Workers’ compensation is more like a finance tool than an insurance policy. Ultimately, through the experience modification, you will pay for your actual claims. The only way to lower the cost of workers’ compensation in the long run is to lower the frequency and • Any wages paid to the injured employee for absences not covered severity of the claims that are driving those costs

by Workers’ Compensation; • Wage costs related to time lost through work stoppage associated with the worker’s injury;

Jeff Cavignac is president and principal of Cavignac & Associates, a risk management and commercial insurance brokerage firm in San Diego.

• Overtime costs; • Time spent by administrators, supervisors, safety personnel and many others who have to handle the claim; • Cost of hiring and training a replacement worker; • Lost productivity related to work rescheduling, new employee learning curves and accommodating the injured employee.

• Cost to clean up, repair and replace equipment and machinery damaged by the accident.

There could be other indirect costs as well including OSHA fines, third party liability costs, legal fees, worker’s pain and suffering costs and loss of good will.

You also have to take in to consideration the impact a claim will have on your experience modification and your insurance cost. Let’s assume, for example, that your base premium (before application of the mod and other credits) is $160,000, and you have not had any claims. You will have what is known as a claim-free experience modification. The claim free rating is a company’s best possible experience modification for the year the rating is effective.

The actual claim-free rating is dependent upon the size of the business and variables such as Expected Loss Rates, as determined by the Workers’ Compensation Insurance Rating Bureau. In our example, the claim-free experience mod is 66 percent, which means your pre31 ST A N N I V E R SA RY 1 985 -20 1 6

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A birds-eye view of the project.

SAN DIEGO SCENE Museum of Contemporary Art Launches $75 Million Plan to Expand in La Jolla The Museum of Contemporary Art San Diego unveiled plans on Oct. 18 to quadruple exhibition space in La Jolla and officially launched a $75 million campaign to fund it.

Plans call for closing the museum in January 2017 and consolidating exhibitions at the Jacobs and Copley buildings downtown until the renovation is complete in 2020.

The campaign comes as the museum celebrates its 75th anniversary, and the 180th birthday of Ellen Browning Scripps, whose home served as the original building for the museum.

“MCSAD has been making its mark on the San Diego-Tijuana region and the international art world for 75 years,” said Hugh M. Davies, the museum’s director and CEO, at a press conference. “We stand ready to make our mark on the next 75 years.”

He said the museum has already raised $56.7 million toward its $75 million goal and engaged the New York architectural firm of Selldorf Architects for the expansion.

Rep. Scott Peters presented a proclama-

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A rendering of the expanded museum as seen from Coast Boulevard.

tion and offered brief congratulatory remarks, telling arts supporters the project is “an example to the rest of us for how we can work together and make things happen.”

The museum has a 4,700-piece permanent collection of paintings, sculpture, prints, photographs, videos and installations, but most of it is in storage because of space constraints. The expansion will increase gallery space from 10,000 square feet to 40,000.

Davies is officially stepping down as the

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museum embarks on the expansion, and Kathryn Kanjo officially took over Tuesday as the new director and CEO. “MCASD is a local museum with a world class collection,” said Kanjo. “We’re poised to go from a hidden treasure to a civic necessity.”

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– Times of San Diego

SAN DIEGO SCENE

Major San Diego Life Sciences Cluster Sells for $182.5 Million Torrey Ridge Science Center, one of San Diego’s largest life sciences campuses, has been sold for $182.5 million to an affiliate of Alexandria Real Estate Equities Inc. The three-building, 291,799-square-foot property, located at 10578, 10614 and 10628 Science Center Drive, was 87 percent leased at the time of the sale to such tenants as Regulus Therapeutics, Pacira Pharmaceuticals, Nitto BioPharma, Interpreta and BP Technology Ventures. Many of Torrey Ridge Science Center’s existing leases are below market.

Walton Street Capital and StelWave were the sellers.

Torrey Ridge Science Center was built in 2004. Since 2012 the sellers invested $55 million in base building and tenant improvements, including upgrading common areas, signage and landscaping to first-class standards as well as creating a new dedicated central plant and adding chilled water systems for each building. The campus also includes newly built tenant amenities in-

The Torrey Ridge Science Center (Credit: Alexandria Real Estate Equities)

cluding a fitness center, conference center and Wich Addiction café.

CBRE representing the sellers. Alexandria Real Estate Equities represented itself.

“This was a highly strategic acquisition for Alexandria in Torrey Pines, one of our core San Diego submarkets,” said Daniel J. Ryan, executive vice president and regional market director of San Diego for Alexandria Real Estate Equities. “The Torrey Ridge Science Center campus provides us with the opportunity to achieve significant

cash flow growth as leases are renewed or rolled over, given that many of the in-place leases are below market. The campus also gives us the flexibility to convert traditional office space, which is approximately 22 percent of the project, to wet lab research space in order to respond to strong demand from leading biotech entities in San Diego.”

San Diego is home to one of the top three life science clusters in the United States. According to CBRE, the San Diego life science direct vacancy rate in second quarter 2016 was 6 percent and in Torrey Pines the rate was 1.4 percent.

In San Diego, Alexandria is the owner and operator of nearly 4 million rentable square feet of office/laboratory space (including development and redevelopment projects currently under construction) in the Torrey Pines, University Town Center, Sorrento Valley and Sorrento Mesa submarkets.

Northrop Grumman Building 10 More Fire Scout Drones for Navy Northrop Grumman Corporation is set to build 10 additional MQ-8C Fire Scout unmanned helicopters for the U. S. Navy, giving maritime commanders persistent, real-time intelligence, surveillance and reconnaissance.

The additional build will bring the total number of MQ-8C Fire Scout air vehicles procured to 29, extending the range and endurance of naval operations.

“MQ-8C is meeting all of its performance objectives, and the system is delivering a greater naval warfighting capability,” said Capt. Jeff Dodge, program manager, Fire Scout, Naval Air Systems Command. “We are looking forward to moving the MQ-8C operational testing and deployment as a part of surface warfare mission packages.”

The MQ-8C Fire Scout airframe is based on the reliable commercial Bell 407, a mature helicopter with more than 1,600 airframes produced and over 4.4 million flight

hours. Modifications to the MQ-8C’s airframes are carried out at the Bell Helicopter facility in Ozark, Ala., while final assembly is performed in Moss Point, Miss.

“In partnership with the U.S. Navy, we are dedicated to fielding this state-of-theart, ship-based ISR platform as part of a strategy that provides warfighters ISR,” said Leslie Smith, vice president, tactical autonomous systems, Northrop Grumman Aerospace Systems. “We are pleased to support the Navy with additional MQ-8C Fire Scouts with maritime dominance support through this procurement. Our team will strive to exceed expectations in affordability, quality and on-time delivery.”

MQ-8C Fire Scout has completed operational assessment, a developmental flight test program and is now preparing for Milestone C. MQ-8C Fire Scout has accrued over 730 flight hours and flown 353 sorties.

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MQ-8C Fire Scout’s on the assembly line at Northrop Grumman’s Manufacturing Center in Moss Point, Miss. (Photo by Northrop Grumman)

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SAN DIEGO SCENE

CivicSD Board Approves Plans For 20-Story Hotel Tower Downtown The CivicSD Board approved the design and related permits for J Street Development’s proposed 20-story hotel tower located on the northwest corner of Seventh and Island avenues in the East Village neighborhood of Downtown.

Designed by Delawie Architecture, the project will include 374 hotel rooms, 137 valet parking spaces, and 2,750 square feet of public urban open space along Seventh and Island avenues.

The project’s street level will be activated through the inclusion of the project’s public urban open space, views to the hotel’s restaurant and bar, seating and landscaping.

The project will pay approximately $1.1 million in development impact fees and generate approximately 480 construction jobs and 232 permanent jobs, according to CivicSD. Night rendering, 7th and Island (Credit Delawie Architecture)

Design Review Approved for 7-Story Residential Building The CivicSD Board also approved design review of MCRT Investments’ proposed seven-story residential building — Modera San Diego — located on the east side of 14th Street between K and L streets in East Village Designed by Carrier Johnson + Culture Architecture, the project will include 383 units and 464 parking spaces. Of those residential units, 206 are one-bedroom, 99 are two-bedroom, and 26 are studios. A total of 12,682 square feet of common open space will be included in the project. The project’s ground floor will be activated via a groundfloor residential lobby and a total of 12 ground-floor residential units with direct access to the sidewalk.

The project will pay approximately $2.9 million in development impact fees to fund new parks, fire stations and traffic circulation improvements. Additionally, it will pay approximately $1.9 million through the Floor Area Ratio Bonus Program that is

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Rendering of Modera San Diego (Courtesy Carrier Johnson + Culture Architecture)

used for public parks and enhances public right-of-ways.

The project will also construct a portion of the 14th Street Pedestrian Promenade along its 14th Street frontage, which is a 30-

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foot wide, enhanced landscaped streetscape ultimately connecting City College to the north to Barrio Logan to the south. The project will generate approximately 398 construction jobs and eight permanent jobs.

SAN DIEGO SCENE

UC San Diego Selected as Energy Storage Innovation Award Winner The University of California San Diego has been recognized as an Energy Storage North America 2016 Innovation Award winner for its innovation and leadership in energy storage and positive impact on the energy storage industry.

The campus won in the “Mobility” category for its “Second-life Energy Storage + Level 3 EV Charging” project, which combines the fastest electric vehicle charging technology, second-life battery energy storage and integration of solar energy to mitigate impact on the UC San Diego microgrid during peak hours.

“We are honored to receive this award,” said Gary C. Matthews, vice chancellor for Resource Management and Planning. “UC San Diego is committed to practices that promote sustainability and innovation, not just on our campus, but in our community and our world. We are proud to help advance this technology.”

The UC San Diego Center for Energy Research began a partnership with EVgo, a leading provider of electric vehicle charging solutions, two years ago to develop this project and others.

The first of its kind, the Second-life Energy Storage project consists of four electric vehicle charging stations, a solar panel roof and two second-life batteries. Second-life batteries are batteries that have been used in electric vehicles and still have capacity for alternate uses. These batteries help to reduce the cost of a charging station and, consequently, the cost of owning and operating electric vehicles.

As part of the agreement with UC San Diego, EVgo funds university faculty and staff to support the project’s physical in-

The UC San Diego/EVgo project combines the fastest electric vehicle charging technology, second-life battery energy storage and integration of solar energy to mitigate impact on the UC San Diego microgrid. (Credit: UCSD)

stallations as well as EVgo’s research, development and demonstration objectives. The project is also part of the California Public Utilities Commission’s Technology Demonstration Program, a program designed to help show the benefits of energy storage coupled with public DC fast charging stations, which can charge an electric vehicle in just 30 minutes.

Millions Spent on Art at Lindbergh Field Government officials are spending millions of dollars on art projects at San Diego International Airport. But who's paying for it? Take a look around Lindbergh Field and you'll see dozens of high-end art exhibits. The most expensive one, The Journey, cost more than $2 million. Another exhibit with a series of 13 bronze windows hanging on pedestrian overpasses cost, on average, $45,000 each per window.

Some travelers like the artwork.

"Money well spent because we enjoy seeing them. I appreciate art," said one passerby at the airport.

If you fly in or out of Lindbergh Field, you helped pay for the airport art; everything from the $650,000 MetroGnomes project at the new Car Rental Center, to the $500,000 giant kelp renderings on the underside of the airport's bridges.

The Reflection Room in Terminal 2 looks more like a new-age chapel, total cost $216,000.

Tail Light Swarm consists of 801 leftside, Hyundai Elantra taillights plastered to the wall at the Car Rental Center. Side Mirror Hive has 2200 chrome side-view mirrors on the wall in the shape of a honeycomb. Both projects combined cost $675,000.

There are 46 artworks within the airport's art collection.

“You know what? It’s a waste. I don’t care how nice it looks, it’s a waste,” said one rental car customer.

The government agency that approved all this spending on art projects is the San Diego Airport Authority. Decisions on the projects themselves are made by an appointed board. “We are an independent

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agency that was created to operate the airport,” said spokesperson Rebecca Bloomfield. “Art has been added to the airport as a way to improve ambiance, the environment and really just improve that passenger experience.”

The Airport Authority will tell you that none of the art exhibits at Lindbergh Field were paid for with taxpayer money. Instead, the agency says, travelers foot the bill every time they pay for parking, concessions, airline tickets and rental cars.

Businessman Dan Shea disagrees. “Well, what is it if it’s not taxpayer money? It's not private money,” he said. “So they can try to say it’s anything other than taxpayer money but that’s where it all starts is with the taxpayer," said the San Diego entrepreneur.

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– Channel 8 Report

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COV E R STO RY

Environmentalists Dive Deep for Conservation

By Brittany Hook

Amber Jackson and Emily Callahan reimagine the future of California’s oil and gas rigs with their organization Blue Latitudes

The California coast is lined with 27 offshore oil and gas rigs that can be seen jutting out across the horizon—a reminder of humans’ dependence on fossil fuels. Below the surface, however, these platforms are home to some of the most dynamic ecosystems in the world, harboring everything from mussels and scallops to garibaldi and rockfish.

As many of these enormous rigs are approaching the end of their viable production lives, scientists, environmental agencies, and oil companies are left begging the question: should the rigs stay or should they go?

Emily Callahan and Amber Jackson, two alumnae of Scripps Institution of Oceanography at the University of California San Diego, have made it their mission to dive below the surface of these oil and gas platforms to determine the best possible “afterlife” scenario for these complex structures.

The two women met in 2013 while taking a scientific diving course at Scripps Oceanography, where both were pursuing Master of Advanced Studies degrees in Marine Biodiversity and Conservation. A conversation soon emerged about Rigs-to-Reefs, which is the name of a state

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law and associated program that essentially converts decommissioned oil and gas rigs into artificial reefs.

“What you’re focusing on with Rigs-toReefs is everything below the surface, like the tip of the iceberg. That’s where all the life is,” said Callahan, a marine biologist and PADI certified divemaster with expertise in environmental consulting.

When she first came to Scripps, Callahan had only recently learned about the success of the Rigs-to-Reefs program in the Gulf of Mexico, where 500-600 decommissioned oil platforms now serve as artificial reefs and provide abundant fishing opportunities, world-class diving and recreational activities, and an ecological hotbed of underwater activity. She was stunned to learn that none of California’s rigs had been approved for a similar Rigs-to-Reefs conversion. Callahan shared her interest in the program with Jackson, who was equally enthralled.

“We really made it our mission in grad school and we’re still working on it — to combine science with powerful imagery and a meaningful message to change the tide of public perception around this program,” said

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Jackson, a fiery-haired oceanographer with a passion for science communication. “It’s been the cornerstone of what we do and it fuels our exploration and educational initiatives.”

Inspired by the possibilities of Rigs-toReefs implementation in California, Callahan and Jackson focused their joint thesis on the topic. Their innovative research led them up and down the coast of California where they dived numerous platforms, conducted ROV surveys, studied the biodiversity of marine life on and around the structures, and analyzed the legislation surrounding Rigs-to-Reefs. They also documented their findings through video, photography, and social media — engaging visual mediums that have enabled them to show the public the beauty and importance of these thriving underwater regions.

Rigs-to-Reefs is a controversial law and An awe-inspiring view a sunrise from program in which an oil of company chooses the International Space Station revealed to modify a platform so it can continue to in the new IMAX film, ‘A Beautiful Planet. support the valuable and fragile ecosystems that have formed on and around the structures. The decommissioning process still holds platform operators responsible for re-

COV E R STO RY moving drilling infrastructure and capping and sealing the well — and they remain permanently liable for any damages coming from the well — but the upper portion of the rig (at least 85 feet for ship clearance) is cut and towed to an alternate location or the structure is toppled on its side.

Some environmental groups oppose the Rigs-to-Reefs program because it transfers liability of the structure from the oil companies to the state or the Department of Fish and Wildlife, which then manage it as an artificial reef. The program also saves the oil companies money, upwards of millions of dollars, but any savings are split 50/50 between the company’s stakeholders and the state, which is required to use that money for marine conservation and education — a silver lining according to Callahan and Jackson.

The women also argue that the removal and disposal of such enormous structures — some as tall as the Empire State Building — is costly and comes with a massive carbon footprint. California doesn’t have the infrastructure on land to recycle these structures, so the only viable option for complete removal is to cut the structures down, load them onto gigantic barges, and tow them to Southeast Asia where they can then be broken down and recycled. According to Jackson, the bunker fuel used by barges outside of state waters “makes gasoline look like champagne.”

After examining the Rigs-to-Reefs program from all angles, Callahan and Jackson determined that it would be a beneficial program for the state of California, providing an ecologically and environmentally friendly alternative to complete rig removal.

“The future of conservation is that you’re going to have to work with the government, you have to work with oil companies, you have to work with the ‘bad guys’ if you want to change what they’re doing and make a positive impact for the environment,” said Jackson. “Emily and I are not pro oil and gas development; we’re working on decommissioning the end life stage of these platforms.

But I just love the challenge of trying to communicate that there is an ecological, economic, and social benefit to repurposing these structures as reefs — not only in California but around the world.”

A garibaldi, the California State Fish, swims near an offshore oil structure in California.

(Photo: Kyle McBurnie)

Marine life covers the underwater structure of an offshore oil rig in California. (Photo: Caine Delacy)

Upon graduation from Scripps in 2014, Callahan and Jackson decided to continue working together and co-founded Blue Latitudes, an organization that uses scientific research to form a comprehensive study of the ecological, socio-economic, and advocacy issues surrounding California's Rigs-

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to-Reefs law and program. Blue Latitudes provides neutral and scientifically based consulting services to various clients, including gas and oil companies and environmental groups, to assess structures and determine whether they are good candidates for Rigs-to-Reefs.

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COV E R STO RY Blue Latitudes also operates as a nonprofit organization through a fiscal partnership with Mission Blue, a global initiative to protect the world’s oceans led by famed oceanographer Sylvia Earle. This wing of the company allows Callahan and Jackson to focus on education and outreach, and the two are currently forging relationships with teachers and schools across San Diego and Los Angeles and developing unique classroom curriculum about marine science for middle and high school students.

The duo continues to spread the word about their research through speaking engagements at aquariums, libraries, classrooms, and more. And they are digitally savvy — constantly updating their social media accounts with stunning images from their latest diving adventures and information about their latest projects. They also educate audiences through a YouTube channel called ScienceSea TV, through their website, and as guest bloggers on National Geographic.

The women credit their Scripps education with providing them the expertise needed to succeed as scientists, explorers, and entrepreneurs.

“Scripps has really given us the right tools to be successful with our business, so that’s been really exciting,” said Callahan, noting that she frequently emails former advisors and Scripps researchers Peter Franks and Jules Jaffe, among others, with questions.

“We have such great resources at Scripps to talk to about everything from imaging these platforms, to understanding the biodiversity,

Scripps alumnae Amber Jackson and Emily Callahan beneath Scripps Pier.

(Photo: Theresa Stafford / Black Hand Gallery)

to running the ROVs. I’m really grateful to have that support.”

“One thing I think we really took away from our master’s program at Scripps and at the Center for Marine Biodiversity and Conservation was not only understanding the science, but also understanding how to communicate it effectively,” said Jackson.

“Amber and Emily embody a sense of bold environmental activism that seeks to find solutions to environmental problems that are mutually beneficial to industrial goals and those of the environmentalists,” said Jaffe, who served as co-chair on Callahan and Jackson’s thesis advisory panel. “The Rigs-to-Reefs program’s goal is to save industry money, while at the same time having

Jack mackerel swarm around Platform Eureka's invertebrate-covered legs.

(Photo: Caine Delacy)

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them share the savings with environmental groups. It’s a win-win for the two factions, but an even bigger win for the organisms that have made these underwater offshore oil platforms their homes, as they will, hopefully maintain the deeper parts of these structures.”

The future looks bright for the ladies of Blue Latitudes, and they already have plans to expand their expertise to international waters. They have an expedition planned in March 2017 to Malaysia, where they will explore and assess the country’s platforms.

Their long-term goals include researching the oil and gas platforms of Southeast Asia and Australia, all the while following their overarching goal of thinking creatively about the resources that we have and how to preserve the ecosystems thriving quietly below the surface.

“Our general message of Blue Latitudes is to dig a little deeper,” said Callahan. “Rigsto-Reefs is definitely not save the whales. It’s not as easy. It’s not as digestible. But if you dig a little deeper, there’s a lot of really interesting science there, and a lot of interesting pathways to go down.”

Brittany Hook is communications coordinator at Scripps Institution of Oceanography. This article originally appeared on the Scripps Institution of Oceanography website: www.scripps.ucsd.edu

I N T E R N AT I O N A L T R A D E

Doing Business in Cuba: An Opportunity? Key factors to consider

By John I. Forry & Katrina Wu For San Diego businesses open to new markets and challenges, Cuba has recently emerged as an intriguing possibility.

President Obama and President Raul Castro of Cuba marked a turning point in U.S.-Cuba relations with the December 2014 announcement of an initiative to restore diplomatic relations between the two countries. Subsequently the U.S. has issued several categories of general licenses to facilitate travel to and from Cuba, removed Cuba from the U.S. Department of State list of State Sponsors of Terrorism, and reopened its Embassy in Havana.

A number of U.S. industries are jumping at opportunities to do business in Cuba, including for example, hotels ( Starwood and Marriott), airlines (United, American, Southwest and JetBlue), telecommunications (AT&T), and consumer goods (Tyson and Cargill).

What does this mean for San Diego businesses — is it time to start thinking about Cuba? There are three key factors to consider when making that decision: the ongoing embargo, compliance with trade regulations, and the state of the Cuban economy.

Embargo and Outstanding Unsettled Claims The U.S. embargo against Cuba, first imposed in 1960, remains in effect despite recent strides towards normalization. Although the executive branch has traditionally been given broad powers to engage in foreign relations — such as the imposition of the Cuban embargo by President Kennedy through Executive Order — the lifting of this embargo requires Congressional approval. Given the transition to a new U.S. administration in January 2017, the embargo will likely not be lifted in 2016. This means most business transactions between the U.S. and Cuba will continue to face restrictions enforced by the Office of Foreign Assets Control (OFAC) under the U.S. Treasury.

Lifting of the embargo must also meet special requirements in the

Helms-Burton Act, passed in 1996 to strengthen the embargo.

These provide that the embargo may not be lifted until — among other steps — Cuba releases all political prisoners, establishes an independent judiciary, and transitions into a government that does not include Fidel and Raul Castro.

In addition, the “satisfactory resolution of property claims by a Cuban Government…remains an essential condition for the full resumption of economic and diplomatic relations between the United States and Cuba.” The issue of unsettled claims arose from the mass nationalization of American assets during the Cuban Revolution in the late 1950s, with an estimated $8 billion in unsettled claims against the Cuban government (roughly $1.9 billion awarded to American businesses and individuals; by incorporating six percent annual simple interest, the $1.9 billion award now amounts to roughly $8 billion). Scholars and economists express doubts as to how the Cuban government could satisfy such claims given the current Cuban economy, and this compensation will likely require outside help from other countries or international organizations. The resolution of these unsettled claims remains an essential hurdle for the U.S. and Cuba to overcome before embarking on full rapprochement.

A freighter ship anchored in Havana Harbor in Havana, Cuba. These ships handle the bulk of international trade.

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I N T E R N AT I O N A L T R A D E Legal Issues Recent sanctions in the last year for two international companies — Halliburton and CGG Services — demonstrate two important legal issues to consider when dealing with Cuba: compliance with U.S. trade regulations and potential conflict of laws.

When Halliburton affiliates exported goods and services to an Angola-based oil and gas production consortium, the U.S. Treasury claimed violation of the U.S. embargo because Cuba Petroleo (a Cuba state-owned oil company) owned a five percent interest in the Angola-based consortium. Under the Cuban Assets Control Regulation, any person subject to U.S. jurisdiction is prohibited from engaging in transactions where there is a “Cuban interest” involved, no matter how slight. Halliburton agreed to pay approximately $300,000 in settlement. Businesses subject to U.S. jurisdiction must therefore be wary of their business partners and entity ownerships.

French company CGG was penalized under U.S. sanctions for its prohibited use of U.S.-origin goods and parts on its vessels that operated in Cuban waters. Complicating matters, as a French company, CGG is governed by the EU Sanction Blocking Regulation prohibiting anyone subject to the EU’s jurisdiction from complying with U.S. sanctions against Cuba. Because U.S. sanctions against Cuba have extraterritorial application, the EU adopted its blocking regulation to protect its economic interests in trade. As CGG does business in the U.S. and is subject to U.S. jurisdiction, CGG agreed to pay approximately $600,000 in settlement — but refrained from removing the U.S.-origin products from its vessels in deference to the EU blocking regulation. While conflicting sanctions and sanction-blocking laws present serious challenges for compliance, careful drafting of business contracts may help reduce such risks.

trating? Several scholars point to Cuba’s internal market — primarily its purchasing power — and note the improbability of its citizens affording foreign goods and services when the average salary is $22 (USD) per month.

Since most large U.S. companies now have business models tied to the Internet (including e-commerce and peer-to-peer online marketplace platforms such as that of Airbnb), an even bigger challenge to U.S. businesses may be the fact that only an estimated five percent of Cubans currently have access to the Internet. U.S. businesses entering the Cuban market also will need to compete with existing businesses established by European, Asian, and Latin American companies which have operated largely outside the U.S. embargo.

Our advice for businesses considering expanding into Cuba: conduct a thorough market analysis, develop a strong business plan, monitor evolving regulations, and check carefully on U.S., Cuban and other legal, financial and tax rules.

John Forry leads the International Finance, Investment & Tax Practice at the San Diego law firm Seltzer Caplan McMahon Vitek and has advised on investments into and out of the U.S. with over 45 other countries.

Katrina Wu is a tax and private client attorney with SCMV and has graduate degrees in both business and law.

Local Economy and Market Analysis Perhaps the single most important question for any business deciding on new market entries is the profitability of that market segment —i s the market worth pene-

El Capitolio, or National Capitol Building in Havana, Cuba, was the seat of government in Cuba until after the Cuban Revolution in 1959.

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