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### Viewing cable 06PANAMA1629, SCENESETTER FOR FINCEN DIRECTOR WERNER VISIT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06PANAMA1629 | 2006-08-18 21:07 | 2011-05-31 00:00 | CONFIDENTIAL | Embassy Panama

`

    VZCZCXYZ0019
    RR RUEHWEB

    DE RUEHZP #1629/01 2302107
    ZNY CCCCC ZZH
    R 182107Z AUG 06
    FM AMEMBASSY PANAMA
    TO RUEHC/SECSTATE WASHDC 8786
    RUEANQT/FINCEN VIENNA VA
    INFO RUEATRS/DEPT OF TREASURY WASH DC
    RHMFISS/DEPT OF JUSTICE WASHINGTON DC

` `

    C O N F I D E N T I A L PANAMA 001629

    SIPDIS

    SIPDIS

    TREASURY FOR TFI (U/S STUART LEVEY, A/S PATRICK O'BRIEN)

    E.O. 12958: DECL: 08/14/2016
    TAGS: EFIN PREL PTER SNAR PINR KCOR KCRM PM
    SUBJECT: SCENESETTER FOR FINCEN DIRECTOR WERNER VISIT

    Classified By: Ambassador W.A.Eaton for reasons 1.4 (b) and (d)

    ¶1. (U) This message is confidential.  Please protect
    accordingly.

    ¶2. (SBU) On behalf of Embassy Panama, I would like to extend
    our warmest welcome on your upcoming visit to Panama.  Your
    visit provides support for our Mission's anti-money
    laundering programs.  Your dialogue with key anti-money
    laundering officials reinforces the USG commitment to their
    efforts.  In a broader context, your visit signals our
    continued interest in strengthening our excellent relations
    with Panama.

    ---------------
    A Brief History
    ---------------

    ¶3. (U) From its founding in 1903 until 1968, the Republic of
    Panama was a constitutional democracy dominated by a
    commercially-oriented oligarchy focused on Panama as a
    hub for international trade.  In October 1968, Dr.
    Arnulfo Arias Madrid, the deceased husband of former
    Panamanian President Mireya Moscoso, was deposed from the
    presidency by the Panamanian military.  General Omar
    Torrijos (d. 1981), the deceased father of current
    Panamanian President Martin Torrijos, became dictator
    and was succeeded by General Manuel Noriega.  On
    December 20, 1989, President George H.W. Bush ordered
    the U.S. military into Panama to restore democracy,
    protect Amcits and their property, fulfill U.S. treaty
    responsibilities to operate and defend the Canal, and
    bring Noriega to justice.  Noriega is still serving a
    30-year sentence in Miami for drug trafficking.  Panama
    has held free and fair elections three times since 1989,
    transferring power from/to opposition parties.

    ---------------------------------------
    President Torrijos and a New Generation
    ---------------------------------------

    ¶4. (SBU) Martin Torrijos Espino won the presidency on May 2,
    2004, in general elections that amounted to a local
    "landslide" (47% of the popular vote), which propelled his
    Democratic Revolutionary Party (PRD) into control of the
    Legislative Assembly (42 out of 78 legislative seats).
    Torrijos initially surrounded himself with young, primarily
    U.S. educated professionals like himself, and marginalized
    "old guard" supporters of former President Ernesto Perez
    Balladares (1994-99).  Torrijos and those closest to him
    indicated that they intended to work closely with U.S.
    officials, especially on security, law enforcement, trade
    and investment.

    ¶5. (SBU) In his September 1, 2004, inaugural address,
    Torrijos clearly identified his government's principal
    priorities as sustainable economic development and poverty
    alleviation, investment, fiscal reform, increased government
    transparency, and job creation.  The new president and his
    Democratic Revolutionary Party (PRD) -- largely purged of
    its former anti-democratic, anti-U.S. tendencies and
    holding an absolute majority in the Legislative Assembly
    -- have faced large challenges from the outset: a serious
    budget shortfall and tide of red ink left by the outgoing
    government; nationwide demonstrations against legislation
    to reform the nation's foundering retirement and medical
    system (the Social Security Fund); restoring public
    confidence in government institutions and the rule of law;
    completing the Free Trade Agreement negotiations with the
    United States; launching a more activist and "coherent"
    foreign policy (including closer relations with Western
    Europe and a review of Panama's relations with Taiwan and
    China); and a decision on how to proceed with Canal
    expansion, leading to an October 22, 2006 national referendum.
    The GOP has responded to the deficit with belt-tightening
    measures, including passing an unpopular fiscal reform
    package in late January 2005.  Legislation for the reform
    of the social security system was also approved in
    December 2005.

    ¶6. (SBU)  Anticipated pressures from a
    well-entrenched oligarchy have thwarted the Torrijos
    administration's reform plans.  Since taking office
    in 2004, President Torrijos has done many favors for
    Noriega-era PRD "dinosaurs" and has placed many of
    them -- including Noriega's immediate family -- in
    positions of power and influence in his government.
    In June, President Torrijos nominated three new
    vice ministers to his cabinet.  This latest
    cabinet change was the third round of personnel
    changes in two years for the Torrijos
    administration, coming two months after the April
    2006 reshuffle.  The changes appear to be aimed
    at pleasing hard-line members of the PRD.
    More disturbing than changes within the Cabinet,
    has been the Torrijos administration's push to
    remove leaders of independent regulatory
    bodies such as the Civil Aviation Authority
    and the Banking Superintendency.

    ¶7. (SBU) After campaigning on a "zero-corruption" platform,
    Torrijos launched a number of anti-corruption investigations
    and initiatives in the opening weeks of his administration.
    His most controversial action was the October 2004 removal
    and replacement of Supreme Court President Cesar Pereira
    Burgos, who had passed retirement age, in a bid to clean up
    Panama's politicized Supreme Court.

    8.(C) In a move contrary to his anti-corruption pledges,
    however, President Torrijos recently signed a law
    restoring some of the legislative immunities taken away
    by Panama's 2005 constitutional reforms.  Senior GOP
    officials maintain privately that the Assembly extracted
    this decision from Torrijos in exchange for unanimous
    passage of the bill establishing the October 22 Canal
    Referendum.  Nonetheless, the law deals a blow to Torrijos'
    anti-corruption bona fides and raises serious questions
    about the future of Panama's anti-corruption efforts.

    ¶9. (SBU) The Embassy currently supports good governance
    activities directed toward judicial reform, civic
    education, business ethics, and strengthening the
    anti-corruption prosecutors' institutional capacity.
    An important element of the Embassy's Good Governance
    initiative is its visa revocation program against corrupt
    public officials.  Based on Embassy recommendations, the
    State Department in November 2005 revoked the visa of
    Supreme Court Justice Winston Spadafora for soliciting
    and accepting bribes related to cases before his court.
    Earlier, in March 2005, the State Department revoked
    the visa of former Maritime Authority Director Bertilda
    Garcia for selling Panamanian seafarer's licenses at
    inflated prices to unqualified individuals.

    -----------------------------------
    Security and Law Enforcement Policy
    -----------------------------------

    ¶10. (SBU) A centerpiece of U.S.-Panamanian relations in
    recent years has been a steadily improving law enforcement
    and security relationship.  Close bilateral cooperation with
    our Panamanian counterparts has yielded many successes
    including, but not limited to, steadily increasing narcotics
    seizures, more sophisticated investigations, an active
    maritime law enforcement relationship, the development of
    specialized units, and an enhanced ability to combat money
    laundering and other illicit financial flows.

    ¶11. (SBU) On May 16, DEA and several Latin American
    authorities knocked out a sophisticated multi-national
    drug cartel that smuggled tons of cocaine monthly
    to the U.S. Named Operation Twin Oceans, this
    multi-jurisdictional investigation targeted and
    effectively dismantled the Pablo Rayo-Montano drug
    trafficking organization. Rayo Montano,
    a Colombian citizen, ran a cocaine ring that smuggled
    more that 15 tons of cocaine per month from
    Colombia to the U.S. and Europe.  Authorities arrested
    over 100 of his collaborators, seized almost 52 tons
    of cocaine and nearly US$70 million in assets in six
    countries.  In Panama, a long list of cartel assets is
    now under Public Ministry control. Using his real name,
    Rayo Montano became a legal resident in Panama.  What
    he could get away with and how local authorities
    continually turned a blind eye to his suspicious
    activities is a cautionary take for law enforcement
    in Panama.

    ¶12. (SBU)  While the USG's relationship with the Torrijos
    Administration has been positive, there remains work to be
    done to solidify these gains and enhance the effectiveness
    of joint operations. Panama's law enforcement institutions
    remain weak and all suffer from a paucity of resources and
    limited professional capacity. The Embassy's Illicit
    Finance Task Force coordinates the anti-money laundering
    activity, training and reporting between the multiple
    agencies and sections involved in this area.

    --------------------
    Security Cooperation
    --------------------

    ¶13. (SBU) Panama's former sovereignty sensitivities are
    slowly receding with recognition that the challenge of
    securing the Canal and Panama's borders requires a more
    mature and collaborative bilateral relationship.  Panama
    early on gave political support to the Coalition of the
    Willing.  It signed and, on October 8, 2003, ratified a
    bilateral Article 98 Agreement.  Related to Canal and border
    security, Panamanians have become much more willing to
    accept mil-to-mil security training, equipment, and other
    assistance, as was shown during the August 2005 sixteen
    nation Panamax naval exercise that centered on Canal
    defense.  The GOP has welcomed Embassy initiatives to
    increase the number of Medical Readiness Exercises and
    other DOD humanitarian programs that provide much-needed
    assistance to rural Panamanians.  During the 2005 New
    Horizons exercise, both the GOP and local press praised
    U.S. military for constructing schools and clinics.
    Together, these programs highlight the humanitarian
    side of the U.S. military and foster positive public
    perceptions of the USG.

    ¶14.  (C) Despite these positive efforts at security
    cooperation with the U.S., Panama has undertaken efforts to
    strengthen relations with Cuba. Torrijos has visited
    Havana twice since taking office.  The GOP has eagerly
    backed the Cuban-Venezuelan Operacion Milagro and
    dropped visa restrictions on Cuban diplomats.
    President Martin Torrijos, VP/FM Samuel Lewis Navarro, and
    other cabinet members also appear to be eager
    proponents of further cooperation with Venezuela
    on energy.

    ----------------
    Our Third Border
    ----------------

    ¶15. (SBU) Panamanian planning, layered defenses and security
    resources are generally well-regarded, as the Canal remains
    an attractive and vulnerable threat to terrorists. Continued
    U.S. training, equipment and other assistance reduce GOP
    vulnerabilities to any potential terrorist attack.  To
    protect water resources, the Panama Canal Authority (ACP)
    has committed to match dollar-for-dollar AID's three-year
    $2.5 million integrated watershed management program.
    Panama committed to a robust maritime security agenda,
    which led to its timely adoption of the new International
    Maritime Organization (IMO) International Shipping and Port
    Security (ISPS) Code, which entered into force
    July 1, 2004.  In May 2004, Panama signed a shipboarding
    agreement with the United States to support the
    Proliferation Security Initiative (PSI).  Despite
    significant progress, Panama continues to be an important
    transit point for drug smugglers, money launderers,
    illicit arms merchants, and undocumented immigrants
    heading north.

    -----------------
    Maritime Security
    -----------------

    ¶16. (SBU) The GOP has sent strong signals that it intends to
    clamp down on what it calls abuses countenanced by previous
    governments in administering Panama's open ship registry and
    mariner identification documents.  Panama's ship registry
    now is the world's largest and comprises around one-quarter
    of the world's ocean-going fleet (5,525 large commercial
    vessels).  About 13% of the U.S. merchandise trade transits
    the Canal each year.  Panama's seafarer registry currently
    licenses over 264,000 crew members.  In response to our
    homeland security concerns, the new GOP has announced
    intentions to greatly improve security and transparency in
    documenting ships and the crews that work on them.  Panama
    has privatized and developed some former U.S. military
    ports and other related facilities.  Port services grew
    dramatically from about 200,000 containers per year in the
    early 1990s to 2 million by 2003.  Panama now boasts the
    leading complex of port facilities in Latin America.  We
    are actively discussing with GOP counterparts ways in which
    we can enhance maritime security through more robust
    information sharing.

    -----------------
    Canal Stewardship
    -----------------
    ¶17. (SBU) During the past six years, the Panama Canal
    Authority (ACP) has proven itself an able administrator,
    turning the Panama Canal into an efficient and profitable
    business.  Since the 1999 handover, the ACP has reduced
    average Canal transit times by one-third (from 36 hours
    to 24 hours), has reduced accidents in Canal waters
    significantly, and has overseen large-scale upgrade
    and maintenance projects, such as widening the Gaillard
    Cut to allow simultaneous two-way transits.  During
    this time, the ACP also has nearly doubled Canal revenues,
    which in FY 2004, exceeded $1 billion for the first time.
    The Government of Panama received $350 million from the
    Canal in FY 2005 (payments for government services, tolls,
    and profits).

    ---------------
    Canal Expansion
    ---------------

    ¶18. (SBU) Canal expansion is a top priority for the Torrijos
    administration.  The proposed $5.25 billion Canal expansion
    project to construct a wider third set of locks is expected
    to take 8-10 years to complete.  The GOP expects the
    project to be a transforming event for Panama that will
    provide jobs and set the tone economically for years to
    come.  Given the driving forces of international shipping
    -- containerization, construction of "post-Panamax"
    mega-ships currently unable to traverse the Canal, and
    growing trade between East Asia and the U.S. eastern
    seaboard -- the expansion is central to maintaining the
    Canal's future viability.  The expansion is expected to
    be financed through a combination of Canal revenues,
    new user fees, and bridge loans.  However, Panama's
    constitution requires a national referendum first be
    submitted to the Panamanian people for their approval.
    The referendum is scheduled for October 22, 2006.  Public
    opinion polls have consistently shown that a majority
    of Panamanians favor the proposal but a "yes" vote is
    not a sure thing.

    ¶19.  (C) Torrijos has tried to sell Canal expansion
    as a non-political "matter of state," but despite the
    lofty rhetoric the referendum in fact is an irreplaceable
    political vehicle for Torrijos to ensure the victory of
    the ruling Democratic Revolutionary Party (PRD) in the
    2009 election and to guarantee, if possible, the
    presidential aspirations of VP/Foreign Minister Samuel
    Lewis Navarro, his widely presumed choice to be his
    successor. Winning the referendum will position Torrijos
    to do both.

    -------------------------------
    International Trade and Investment
    ----------------------------------

    ¶20. (U) Panama's approximately $14 billion economy is based
    primarily on a well-developed services sector that accounts
    for roughly 80% of GDP.  Services include the Panama Canal,
    banking and financial services, legal services, container
    ports, the Colon Free Zone (CFZ), and flagship registry.
    Panama also maintains one of the most liberalized trade
    regimes in the hemisphere.  U.S. bilateral trade with Panama
    came to approximately $2.5 billion in 2005.  U.S. exports
    were about $2.2 billion and imports were $327 million in
    ¶2005. The stock of U.S. Foreign Direct Investment (FDI) in
    2002 was $20 billion.  U.S. FDI is primarily concentrated in
    the financial and energy sectors.  Per capita GDP is
    around $4,500, relatively high by regional standards.
    However, fifteen straight years of economic growth have yet
    to result in meaningful changes in poverty (still at 40%
    overall) and vast income disparities.

    --------------------
    Free Trade Agreement
    --------------------

    ¶21. (SBU) Former President Moscoso pushed to move forward
    quickly on a bilateral Free Trade Agreement (FTA).
    Negotiations began in April 2004; to date, the U.S. and
    Panama have held nine negotiating rounds.  The last round,
    held January 10-13, 2006 in Washington, failed to close the
    agreement because of Panamanian agricultural sensitivities
    surrounding sanitary and phytosanitary (SPS) issues.  Panama
    also has a strong desire to increase its existing sugar
    quota.  Pending further progress on SPS issues, a tenth (and
    final) negotiating round has not been scheduled.  The
    Torrijos administration views a bilateral FTA as imperative
    to attract investment, increase exports, and make Panama
    competitive with the CAFTA countries.  Jerry Wilson, a
    member of Panama's Legislative Assembly and its former
    President, has commented to Embassy officials that,
    once negotiated and signed, the FTA agreement "will pass."

    ------------------------------------
    Damage Control with Panama's Muslims
    ------------------------------------

    ¶22. (C) Panama's Muslim Community of approximately 8,000
    persons, is divided in two main national and ethnic groups -
    the Gujarati Indians and Lebanese Arabs.  The 2500 Gujaratis
    mainly live in Panama City and generally work in retail and
    used car businesses.  The more prosperous Lebanese Arabs
    mainly live 50 miles from Panama City in the Caribbean port
    city of Colon.  The Lebanese group overwhelmingly works in
    the export-import trade at the Colon Free Zone.  Starting in
    2003-2004, many Panamanian Muslims -- often well-heeled,
    middle-aged businessmen who had traveled to the United
    States for many years -- began to experience problems at
    U.S. airports with visa cancellations.  The Ambassador
    launched the Embassy's reconciliation effort to Panama's
    Muslims following public allegations -- including newspaper
    articles -- of abusive treatment at the hands of U.S.
    port-of-entry officials.  Ambassador Eaton hosted dinners
    at his residence for both communities to mark important
    Muslim religious holidays in late 2005 and early 2006.
    Both events were mostly social in nature but recently
    the Colon Muslims have met with EmbOffs for frank discussions
    of the negative experiences they - and some of their
    family members - encountered while traveling through U.S.
    airports.
    EATON

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