Thursday, April 27, 2017

Trump, Trade, José Abreu, and a Heineken: Trafficking in Cuban Baseball Players

Since it’s April, I thought it was worth a time out to look at some major legal developments on an international trade issue that’s probably been on your mind lately, even if you don’t realize it: the rules governing the market for prospective Major League Baseball players from Cuba.

Donald Trump’s statements on Cuba have shifted over the past year. During the Republican primaries, Trump expressed approval of some form of diplomatic relations with Cuba, although he wanted “better deals.” During the campaign, he talked tougher on Cuba, saying he would roll back the Obama Administration’s policies unless the Castro government “meets our demands.” Since taking office, the Trump Administration has only said that the White House is studying the issue, leaving some concerned, and some hopeful, about a possible rollback of the more open policies initiated by Obama.

MLB would probably say that the future of the next generation of Cuban athletes depends on what the White House decides. This is not entirely true. Regardless of U.S. policy on Cuba, MLB could substantially reduce the exploitation of another generation of Cuban ballplayers by changing its rules, which currently have Cuban players caught in the crossfire of U.S.-Cuba relations. Having just renegotiated its collective bargaining agreement without fixing the problem, however, MLB will undoubtedly wait for the Administration’s move.

MLB has hidden its greed behind U.S. policy for years. Although sports journalists have reported suspicious circumstances around the defection and signing of Cuban players since the baseball-related defection from Cuba by Rene Arocha in 1991, those circumstances mostly remained shrouded in mystery. Baseball fans thrilled by the heroics of José Abreu, Yoenis Céspedes, or Aroldis Chapman may have, in the lesser angels of our nature, preferred it that way.

But the truth about Cuban baseball players’ journeys to MLB stardom has come out, as the truth tends to do sooner or later. The recent trial and conviction of a baseball players agent and an athletic trainer for smuggling ballplayers from Cuba has produced testimony sensational for both its glamorous celebrity and its underworld horror. Baseball fans who are paying attention should not be able to watch their Cuban heroes without feeling serious qualms that someone, somewhere, ought to do something. And those who are not paying attention should start.

United States v. Hernandez

On March 15, a federal jury in Miami convicted two baseball professionals, a players’ agent named Bartolo Hernandez and an athletic trainer named Julio Estrada, of conspiring to smuggle Cuban ballplayers illegally into the United States for private financial gain. The government alleged a scheme of coercing players, falsifying documents, and carrying out illegal border crossings in order to collect large percentages of the contracts that Cuban players eventually signed with MLB clubs. Hernandez was also convicted of one count of smuggling in connection with the entry of Seattle Mariners outfielder Leonys Martín. Estrada was convicted of conspiracy and three counts of smuggling in connection with the entry of Chicago White Sox first baseman José Abreu, Philadelphia Phillies pitcher Dalier Hinojosa, and former New York Yankees minor leaguer Omar Luis. Neither any players nor the MLB were charged in the case.

Several MLB players testified at trial, describing a dangerous and expensive path to their baseball careers in the U.S. Leonys Martín testified that he was originally smuggled from Cuba to Cancún by other smugglers connected to the defendants, who then increased their demand for payment from the usual $10,000 to upwards of $2.5 million. He testified that the smugglers later moved him to Monterrey and took his family across the Mexican border to one of the smuggler’s homes in Miami. Martín said he was afraid to flee because his family remained with the smugglers, and because he feared being picked up by the Mexican police and returned to Cuba.

In Monterrey, Martín said, he met Hernandez and agreed to pay him five percent and the Monterrey baseball group thirty-five percent of his first contract. Martín ultimately signed with the Texas Rangers for $15.5 million. Martín testified that after the contract had been negotiated, one of his keepers in Monterrey was kidnapped and Martín decided to enter the U.S. illegally out of fear for his own safety. The Mexican group later sued Martín for breach of contract in Broward Country Circuit Court in Florida, and Martín countersued, claiming the contract was the product of coercion.

In the case against Hernandez and Estrada, the government claimed that the defendants employed agents with a history of violent and coercive human smuggling in order to coerce the ballplayers and ensure that they never met or had the chance to sign with other sports agents. If a defector’s family in Cuba or the U.S. refused to pay the smugglers’ fee, according to the government, smugglers called the family and demanded money as their loved one screamed under torture. Baseball players received special treatment because they were worth more money, the government said, but after one player fled, smugglers called his wife and threatened to kill him if he did not return.

White Sox star José Abreu testified that the defendants helped him enter Haiti and to obtain residency papers within days of his arrival there. He said he signed a contract agreeing to pay five percent of his first contract for representation and negotiations, and twenty percent for training and personal needs. Abreu testified that he didn’t realize at that time the amount of money that the contracts represented. Abreu eventually signed with the White Sox for $68 million. At trial, Abreu described a close relationship with Estrada, who was best man in his wedding. Abreu also said he paid Estrada $25,000 a month under their contract after Estrada’s assets were frozen because of the indictment.

One of the most curious incidents described in the trial was Abreu’s testimony that he entered the U.S. illegally in October 2013. He said he had failed to obtain a copy of his Cuban passport and feared that failure to appear for a physical and contract signing would jeopardize his pending contract with the White Sox. With the help of a Haitian agent who was also named in the indictment, Abreu said, he obtained a Haitian passport with his photo but a false name. He testified that the Haitian smuggler had told him to destroy the passport before arrival in the U.S., so he attempted to tear up the document in the lavatory but was interrupted by a flight attendant’s knock. Abreu testified that he ripped out the identification page, returned with it to his seat, and swallowed the document in pieces, washed down by a Heineken. When asked by an investigator what the passport tasted like, Abreu reportedly answered, “Freedom.”

At trial, lawyers for Hernandez and Estrada attempted to separate their clients from the fraudulent, coercive, or violent actions of other smugglers, describing both defendants as strictly baseball professionals who helped the Cuban ballplayers achieve their dreams of playing professional baseball in the U.S. Both Hernandez and Estrada, through their lawyers, have said they will appeal their convictions.

 Law and Baseball

The details of the player-smuggling scheme described at trial make more sense in the context of MLB Official Professional Baseball Rules Book (the business rules, not the baseball rules, which are here and a lot more fun but not really relevant). Rule 3(a)(1) treats signing U.S. and Canadian residents differently from signing residents of other countries. Here’s Rule 3, in relevant part:


(a) General Rules. … A Major or Minor League Club may contract with a player under the conditions and restrictions set forth in this Rule 3 …

  1. A player who has not previously contracted with a Major or Minor League Club, and who is a resident of the United States [defined to include Puerto Rico] or Canada, may be signed to a contract only after having been eligible for selection in the Rule 4 draft. A player shall be considered a “resident of the United States” if the player enrolls in a United States high school or college or establishes a legal residence in the United States on the date of the player’s contract or within one year prior to that date.
  2. A player who has not previously contracted with a Major or Minor League Club, who is not a resident of the United States or Canada … may be signed to a contract if the player:  

A. Is at least 17 years old at the time of signing, or

B. Is 16 at the time of signing, but will attain age 17 prior to the end of the effective season for which the player has signed or September 1 of such effective season, whichever is later.

So U.S. and Canada residents have to go through the Rule 4 draft (better known as “the draft”), but residents of other countries can be signed as free agents. That’s great for Dominicans and Venezuelans and Japanese but not so great for Cubans because of the Cuban Liberty and Solidarity Act (better known as the Helms-Burton Act). The Helms-Burton Act instructed the Secretary of the Treasury and the Attorney General to enforce the Cuban Assets Control Regulations and created a $50,000 civil penalty for violating the regulations. Those Regulations prohibit all transactions with Cuba or Cuban nationals in terms so sweeping as to be almost incomprehensible on first reading. Cuban baseball players would be treated as international free agents under MLB Professional Rule 3(a)(1)(B), except that the Cuban Assets Control Regulations prohibit MLB clubs from transacting with Cuban nationals, let alone paying any fees that the Cuban authorities might demand in order to release them from their contract with Cuban national teams.

So what are the options for an aspiring Cuban player? Option 1: Defect to the United States to avoid the embargo – but then be subject to the draft and sign for pennies on the dollar, in some cases. Or option 2: Take the Joe Cubas loophole. Cubas was a Miami-based sports agent known for helping Cuban ballplayers defect not to Miami but to the Dominican Republic, where they could negotiate as free agents under Rule 3(a)(1)(B) if they could establish residence. Many of Cubas’ clients signed multimillion-dollar deals with MLB clubs, creating in the process a tantalizingly lucrative career for sports agents in human trafficking of Cuban ballplayers.

A History Lesson on Rule 3(a)(1): Viera v. MLB

Rule 3(a)(1) has been subject to legal challenge as national origin discrimination, but the lawsuit was ultimately unsuccessful. In 2001, Rolando Viera, a Cuban pitcher who had defected to the U.S., sued the MLB over the rule in federal court, claiming that it discriminated against Cuban players by placing them in the draft. On June 4 of that year, the district court denied Viera’s request for a preliminary injunction. The same week, Viera was drafted in the seventh round by the Boston Red Sox, at 27 the oldest player taken in the draft that year.

In July 2002, the court denied Viera’s motion for summary judgment on his claims under Title VII and the Florida Civil Rights Act. In its ruling, the court repeatedly emphasized that Cuban players were not subject to discrimination because they could defect to other countries and sign as free agents from there. In its July 19, 2002 Order on Plaintiff’s Motion for Summary Judgment, the court stated:

Defendant [MLB] has submitted evidence demonstrating that Cuban players who relocate from Cuba to countries including the Dominican Republic, Venezuela, Panama and Australia have contracted as free agents with franchises without being required to participate in a Rule 4 draft. … Thus, Cuban players may avoid participating in Defendant’s Rule 4 draft by residing in a location other than the United States or Canada. If they choose to establish residency in the United [S]tates, however, they are required to participate in the Rule 4 amateur draft. This evidence does not support Plaintiff’s contentions that Defendant discriminated against him on the basis of his national origin or that Rules 3 and 4 have the effect of unlawful national origin discrimination.

The court’s order denying relief to Viera, then, turned on the presumption that Cuban ballplayers could simply go to the Dominican Republic or Haiti or Mexico first – a presumption that effectively ushered Cuban baseball players into the smuggling ring detailed at the Hernandez/Estrada trial.

The Future of Cuban Prospects in MLB

Although only open trade with Cuba could entirely end the risk currently run by Cuban ballplayers, MLB could remove much of the pressure on Cuban prospects by changing its professional rules.

The Obama Administration took a step toward putting the human traffickers out of business. On March 15, 2016, Treasury issued regulations that permit businesses in the U.S. to negotiate with and hire Cuban nationals, as long as no funds are paid to the Cuban government in connection with the hire. The new regulations take advantage of a Treasury-controlled ejector button in the Cuban Assets Control Regulations. Those sweeping regulations contain an equally sweeping administrative exception that says the prohibitions of the regulations apply “except as specifically authorized by the Secretary of the Treasury by means of regulations, rulings, instructions, licenses, or otherwise.”

This change cleared the way for two MLB clubs in 2016 to sign the most recent high-profile Cuban baseball defectors, the brothers Yulieski Gourriel and Lourdes Gourriel Jr. Although the Gourriel brothers defected while playing at a tournament in the Dominican Republic, they did not have to establish residency there to be eligible to negotiate contracts with the MLB clubs. The newly-authorized negotiations brought big paydays for the Gourriels: the Houston Astros signed Yulieski to a five-year, $47.5 million deal in July 2016. Lourdes signed a seven-year, $22 million deal with the Toronto Blue Jays, possibly with the right to arbitrate for a higher salary in future years.

For players still in Cuba, however, the future remains uncertain. Even if Trump retains or further loosens the right of U.S. businesses to negotiate with and pay salaries to Cuban nationals, it remains unclear whether the Cuban government would demand a portion of any payments made to the players, a demand that would violate the current regulations. Just before the Treasury regulations were announced last year, MLB submitted a proposal to Treasury that would allow the clubs to negotiate contracts directly with Cuban players and pay into a fund that would be directed toward improvements in baseball programs for Cuban youth. It’s unclear whether either government would accept that arrangement, however. Unless and until both countries agree to a deal, young Cuban ballplayers may remain tempted to try to establish residency in a third country by whatever means necessary.

A Partial Fix: Amend Rule 3

For now, the problem is not pressing for MLB or for a large number of Cuban ballplayers. The Gourriel defections followed about 100 others by Cuban players in the past generation, leaving no top MLB prospects currently in the Cuban league. For vulnerable Cuban ballplayers, however – lesser talents still hoping for a shot, or very young players just now coming up through the Cuban system – the smuggling circuit may still prove attractive in the face of great uncertainty or in the event of chilling in U.S.-Cuba relations.

And MLB cannot simply hide behind claims of tough U.S. policies or unreasonable Cuban demands. The danger to Cuban players could be greatly reduced by amending Rule 3(a)(1) of the professional baseball rules to say that Cuban players who enter the United States can seek lawful immigration status and then sign as free agents without going through the draft. While smugglers might still attempt to extort deals from Cuban players that they help to cross the Strait of Florida, the players would be in a far less vulnerable position if they were not being effectively held captive in a foreign country, and if they were not dependent on fixers in those countries to secure their identification and residency documents. Once a top prospect arrived in the U.S., he would be free to meet with the many sports agents who would undoubtedly compete to represent him, without coercion and for more reasonable fees, in negotiations with MLB clubs.

The MLB had an opportunity to change the rule in December, but didn’t. The MLB professional rules state that, where the rules are inconsistent with the collective bargaining agreement between MLB and the MLB Players Association, the agreement will control. But the treatment of Cuban players remains largely unchanged after renegotiation of the agreement during the 2016 Winter Meetings. The owners sought an international draft for all foreign players to cap spending by larger-market teams, but the MLBPA objected. Instead, they agreed on a hard cap for international amateur signings (the old cap could be exceeded, with penalties, and routinely was), and raised the minimum age for a player to be signed as a professional from 23 to 25. 

Under these new rules, Cuban ballplayers under 25 will be less lucrative for smugglers – the new hard cap on amateur signings is $4.75 million to $5.75 million per club, depending on market size. But those numbers may still look extremely attractive to young prospects and to smugglers. And any players who don't decide to defect until age 25 will still offer big potential paydays to those who would exploit them.

It’s true that Cuban players can theoretically choose to come directly to the United States instead of to a third country, seek lawful immigration status (if available), and submit to the draft. They are going to third countries to make more money. But young Cuban ballplayers, who can’t talk to any U.S. clubs or sports agents directly, have little business sophistication or bargaining power. Under the new collective bargaining agreement, it remains likely that sports agents motivated by large payouts from free agent contracts will coerce Cuban players to travel to third countries under dangerous circumstances. Young ballplayers who look like dollar signs to sports agents and smugglers may have few realistic alternatives.

In the Viera litigation, MLB defended its Rule 3/Rule 4 policy for Cuban defectors on the grounds that MLB clubs were not allowed to do business in Cuba and therefore could not scout Cuban players as they could players from other countries. The court quoted from a letter from the Office of the Commissioner to Viera’s agent, stating that

Our guidelines are informed by our desire to maintain an equitable basis for all Clubs to scout player talent. According to our policy, Clubs may not negotiate with or sign a native player from a country where any Major League Club is prohibited from entry or doing business unless the player’s residence and employment status would permit such signing, all Clubs are notified of the player’s availability and all applicable draft and signing rules are observed. Thus, it would not be permissible for a Cuban defector who becomes a United States resident to ‘quietly’ remain in the United States through the Rule 4 draft and then sign as a passed-over player, as you suggest. All Clubs would need to be notified of the player’s eligibility.

This defense doesn’t hold water in the real world of scouting for Cuban players. MLB clubs routinely send scouts to international tournaments to identify Cuban prospects of interest. One convicted smuggler told reporters that the MLB club representatives will observe players at these tournaments and inquire obliquely when a certain player might be available to sign, setting the gears of smuggling and defection in motion. For MLB to claim that the clubs are unable to scout Cuban players until they take up residence in third countries under dangerous circumstances is disingenuous.

Baseball isn’t the only business waiting to see what Trump will do on Cuba. Airlines and other transportation and tourism businesses with routes to Cuba are also continuing business while poised for changes. But MLB is one business that could solve a significant part of its own problem, and eliminate massive amounts of human suffering by the young men that the clubs seek to hire, by changing its own rules.

Revisiting a Title VII Claim post-Hernandez

It is possible that the Trump Administration will further loosen the embargo, granting MLB clubs the right to contract with Cuban players and pay into a fund in Cuba for baseball development. It is possible that the Castro government will agree to that deal. If not, MLB and the MLBPA should amend Rule 3(a)(1), allowing Cuban ballplayers to defect to the U.S. and sign as free agents, before another generation of Cuban players is exploited and endangered for our entertainment.

If the embargo is tightened and Rule 3 doesn’t change, the Hernandez case might lend support to a new Viera-type lawsuit against MLB for national origin discrimination. Hernandez suggests that the district court’s assumption in the Viera case was false: Cuban ballplayers are not similarly situated to ballplayers from other countries just because they can sign as free agents from third countries. When Cuban players – but players of no other nationality – have to risk their lives to sign as free agents and pay extortionate portions of their contracts to unethical agents and human traffickers, the rule may well violate Title VII.

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