How Miami companies are secretly fueling the dramatic growth of Cuba’s private businesses

The money that families have sent to their relatives in Cuba for decades is now fueling an explosion of capitalism on the communist island. Businesses that facilitate that flow of cash have created a clever but complex system that is helping Cuban private entrepreneurs sidestep U.S. financial sanctions and buy abroad the supplies they need for their businesses on the island.

Newly emerging agencies abroad, most of them in Miami, are using the cash paid by Cuban Americans to send to their families to buy and ship supplies ordered by Cuba’s entrepreneurs. The business owners in Cuba then reimburse the agencies, which then use that cash already on the island to deliver the remittances.

It is a work-around made necessary by one key obstacle Cuba’s private entrepreneurs face: the U.S. embargo, which bans the American banking system — and basically any international bank that does business in the United States — from providing financial services to people on the island.

The embargo was intended put pressure on the Cuban government. But in practice, it means that Cuba’s private entrepreneurs can’t do what business owners elsewhere do all the time: Borrow money from banks to pay for supplies, shipping, salaries and other expenses.

The Miami Herald spoke to entrepreneurs in Cuba, a consultant in Miami, and Cuban Americans close to the private business community on the island, who described for the first time this informal system that is financing the rapid private sector growth outside the purview of the Cuban state. Two entrepreneurs who are using this method to finance their own import operations described the system in detail, but asked not to be named out of fear of government retaliation.

“The biggest problem we have is how to move money internationally,” said one, an entrepreneur in Havana who recently started importing goods. The banking system worldwide is so intertwined with U.S. banking, he said, that the embargo might as well be “for the entire world. I cannot transfer money between banks in Cuba and the rest of the world.”

There is no single answer to this problem, Cuban entrepreneurs and Cuba experts interviewed for this story said.

Some business owners with dual nationality, those married to foreign nationals or those who have lived abroad for a while, may have bank accounts in foreign countries. They can use those accounts to receive online payments for goods and services provided on the island and pay for supplies bought abroad.

But having a bank account in a foreign country is not a magic solution for Cuban entrepreneurs: because of the embargo restrictions on banking services to Cuba, moving money in and out of the country is still a challenge. And the government limits the amount of foreign currency Cubans can take out of their bank accounts.

The ‘círculo cerrado’

The creative solution entrepreneurs on the island have come up with, which they call the “círculo cerrado” — the closed loop — taps into the large amounts of cash that remittance companies collect abroad.

Here is how a typical transaction works:

Say a private-business owner in Cuba wants to buy a cargo container of chicken from a U.S. supplier. The business owner contacts a remittance company in Miami and puts in the order. The remittance company buys the supplies and pays to ship them to the island. Once the shipment arrives in Cuba, the Cuban entrepreneur repays the remittance agency’s representatives on the island, in dollars or in Cuban currency. The agency takes a cut for providing this service while securing cash already on the island to make good on the delivery of remittances— money it can’t simply transfer from the U.S. through normal banking systems because of the embargo.

“There is this whole alternative market because there are no financial or banking solutions,” said a second Cuban entrepreneur who uses remittance agencies to import goods into Cuba. “It is not adequate, but there is no other way.”

Since Cuba’s Central Bank lacks foreign currency and cannot issue international payments on behalf of the private sector, he said, the money generated by these businesses flows outside the government’s financial system through informal channels. That means the government can’t benefit by imposing fees and other charges.

“From a bank’s compliance perspective, it is not appropriate at all,” the private business owner said. “We are talking about the first time in recent history that the Cuban government does not have access to these dollars or any of the funds from these operations.”

Trump crackdown opened the door

The former Trump administration may have unintentionally created the conditions for the creation of the closed-loop model when it shut down official remittances in late 2020 because the money was being handled in Cuba by enterprises run by the Cuban military.

Before the sanctions, Western Union and other large remittance agencies had been legally allowed to transfer money directly to those military-run entities in Cuba. After Western Union closed its offices in Cuba following the sanctions, “the remittance business fragmented, and in this gray area, new small agencies handling a few thousand dollars a month started to appear,” one of the entrepreneurs interviewed said.

They first got around the crackdown by sending the money to Cuba through “mulas” – mules, people who travel to the island carrying large sums of cash, which is not illegal but carries its own risks and limitations. When the Cuban government authorized the creation of private businesses two years ago, the new entrepreneurs needed to find a way to import supplies. They turned to small remittance agencies, and the closed-loop system was born.

U.S. policies to support Cuban entrepreneurs

A U.S. State Department official said Biden administration officials are aware of remittances’ role in the private sector’s dramatic growth in Cuba., which has already overtaken the government in the number of workers it employs and the amount of supplies it imports from abroad—estimated at one billion dollars by the end of year.

The official told the Herald the administration was currently “taking a very close look” at what it can do to give Cuban business owners access to the financial system in the United States “in a way that maximizes the benefit to the Cuban people and to Cuban small business owners while minimizing any benefit to the government.”

“This is one of the top things, if not the top, that Cuban small business owners and entrepreneurs who want to do everything by the book and be respected as first-class business operations have raised with us,” the official said. “It is definitely on our radar screen.”

Cuban Americans have proposed the administration consider allowing Cuban entrepreneurs to open bank accounts in the United States. During the Obama administration, Cubans with permanent residency on the island visiting the United States could do so.

“That continues, but what is not legal is for that person who returns to the island to access it from there. So what has been requested of the Biden administration is that it allow just that: Let entrepreneurs operate the accounts from Cuba,” said Joe García, a former congressman from Miami who has been traveling to the island to promote greater engagement between Cuban entrepreneurs and the Cuban-American business community.

Among other ideas being currently considered by U.S. government agencies: Increasing access to online payment systems for Cuban entrepreneurs and authorizing U.S. companies to invest in private businesses in Cuba.

This is especially important because the Cuban government provides private businesses little access to credit or other sources of investment money.

“There are no financial support mechanisms available for a Cuban man or woman who wants to start a private business,” said Oniel Díaz Castellanos, founder of Auge, a private business in Havana that offers accounting, design and other corporate services to private companies. He pointed out that Cuban legislation doesn’t allow Cubans on the island or abroad to create investment funds to finance the operations of private companies.

In May 2022, the U.S. Treasury Department issued for the first time a license authorizing a U.S. company created by John Kavulich, president of the U.S.-Cuba Trade and Economic Council, to invest in and lend money to a small private business in Cuba. But Cuban authorities have yet to respond to the move, in another signal of the ongoing debate within the Cuban government about the future of the new private companies.

Kavulich said the ideas proposed to the administration would not be enough to convince U.S. companies who fear violating the embargo to invest in the Cuban private sector. He would like to see bolder action: reestablishing a direct banking relationship between the two countries, known as correspondent banking.

“Unless the Biden-Harris administration unclogs the movement of money,” he said, “all of this becomes window dressing.”