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Cablegate: Nicaragua: Section 527 Waiver Observations

VZCZCXYZ0021
RR RUEHWEB

DE RUEHMU #0883/01 1922345
ZNR UUUUU ZZH
R 102345Z JUL 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2873
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

UNCLAS MANAGUA 000883

STATE FOR WHA/CEN, EB/IFD/OIA AND L/CID
STATE FOR WHA/EPSC
STATE PLEASE PASS TO USTR
TREASURY FOR INL AND OWH

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EINV ECON USTR KIDE NU
SUBJECT: NICARAGUA: SECTION 527 WAIVER OBSERVATIONS

REF: A) 07 MANAGUA 2324, B) 07 MANAGUA 2442, C) 07 07 MANAGUA 2581,
D) MANAGUA 0002, E) MANAGUA 173, F) MANAGUA 274, G) MANAGUA 287, H)
MANAGUA 424, I) 07 MANAGUA 564, J) MANAGUA 633, K) MANAGUA 387, L)
MANAGUA 698

1. This cable contains an action request in Paragraphs 21 and 22.

SUMMARY
-------

2. (SBU) Post recommends that the Secretary issue an annual waiver
to Section 527 of the Foreign Relations Authorization Act of FY
1994/1995 for the Government of Nicaragua (GON). Between August 1,
2007, and June 30, 2008, the GON resolved 38 Embassy-registered
claims for 21 U.S. citizens. While this number is well below the
historical average, it does slightly exceed last year's total and
reflects an improved attitude and effort on the part of the GON
during the second half of the year. Moreover, the Embassy has
maintained working relations with the GON across the broad spectrum
of bilateral cooperation, including trade and investment under
CAFTA-DR, productive relations with military and police forces, and
progress on the war on drugs and combating terrorism.

3. (SBU) We make no excuse for GON performance during the first half
of the waiver year. Cooperation with the Embassy was poor. Only
after an extraordinary effort on our part, including the day-to-day
involvement of the Ambassador in matters that normally stay at the
working level, did the situation improve. To prevent a rollback of
these gains in the coming year, we recommend adding an additional
benchmark in the Secretary's letter to Foreign Minister Samuel
Santos this year [See Paragraph 20] and request greater Washington
engagement.

4. (SBU) Tied to the new benchmark we urge that WHA, EEB, and L
undertake a legal review of the waiver process to address issues
raised by the GON during the past waiver year, and to provide
guidelines to the Embassy as to how we should handle remaining U.S.
claims, some of which have proven difficult to resolve. We propose
that a delegation of department officials visit Nicaragua in October
2008 to 1) better understand GON perspectives, 2) voice Washington
views on changes that the GON has recently tried to introduce, and
3) begin charting a path toward the final resolution of all
outstanding claims. [See action request in Paragraphs 21 and 22].

2007-2008 WAIVER YEAR BENCHMARKS
--------------------------------

5. (SBU) In her July 31, 2007, letter to Foreign Minister Santos,
the Secretary enumerated three benchmarks for granting a waiver in
2008: 1) successful resolution of a substantial number of
Embassy-registered claims; 2) resolution of property claims
controlled by the Nicaraguan government, including the "Corporacion
Nacional del Sector Publico" (i.e., CORNAP, the government's asset
holding company); and 3) resolution of property claims by the
Nicaraguan Army. The GON achieved some progress toward the first
benchmark and resolved one U.S. citizen claim via property bonds
under the second, a 900 square foot lot under the control of the
Ministry of Education. There were no claims resolved under the
control of the Nicaraguan Army. Indeed, 37 properties claimed by
U.S. citizens continue to fall under the control of the Army or the
Army Social Security Institute (IPSM). High-ranking military
officers continue to occupy some of these residences.

GON RESOLVES 38 U.S. CITIZEN CLAIMS
-----------------------------------

6. (U) Between August 1, 2007, and June 30, 2008, the GON resolved
38 U.S. citizen claims belonging to 21 U.S. citizens registered with
the Embassy. Because they felt that they could not provide
sufficient evidence to support their claims, 4 U.S. claimants
withdrew a total of 11 claims registered with the Embassy during the
course of the year. As of June 30, 2008, 301 U.S. citizens await
the resolution of 630 Embassy-registered claims.

PROPERTY INDEMNIFICATION BONDS (BPIS)
-------------------------------------

7. (SBU) The GON typically compensates U.S. citizens for confiscated
or expropriated property via low-interest, long-term property
indemnification bonds (BPIs). While rare, the GON may also return
property, make cash payments, or swap properties for others of
comparable value. Between August 1, 2007, and June 30, 2008, the
GON compensated 36 U.S. citizen claims belonging to 19 U.S. citizens
via bonds issued with a face value of 101,126,310 cordobas,
approximately $5,215,277. A thin secondary market exists for the
sale of these bonds, the current price for which ranges between 49
and 53 cents on the dollar. In addition, courts ruled during the
course of the year that property be returned to 2 U.S. claimants.

GON RESISTENCE
--------------

8. (SBU) In September 2007, Attorney General Hernan Estrada
summarily replaced Property Superintendent Mireya Molina Torres with
Yara Perez Calero, formerly an Assistant Attorney General, and he
assumed direct responsibility for all property claims. From
September 2007 to January 2008, Superintendent Perez chaired monthly
working group meetings with Embassy staff. In case after case, she
refused to cooperate, preferring instead to rehash broad accusations
of claimants' wrongdoing as justification for a lack of progress on
resolution of property claims. She repeatedly alleged, without
offering specific examples or proof, that some U.S. claimants had
manipulated the previous Chamorro, Aleman, and Bolanos
administrations to obtain more compensation than they deserved,
either by overvaluing their assets or accepting BPIs after they had
recovered their property (Refs A, B, C). Despite our strenuous
objections, she attempted to prioritize the resolution of claims
belonging to U.S.-born over naturalized citizens, and of individuals
who were U.S. citizens at the time of confiscation over persons who
became naturalized U.S. citizens after confiscation. She refused to
allow Embassy staff to attend GON meetings with U.S. claimants (Ref
C), or to provide copies of documents showing final resolution.

9. (SBU) In an ominous development last November, Attorney General
Estrada initiated an administrative process whereby he could dismiss
claims for lack of proof of ownership and/or confiscation of the
property in question. [Note: Such proof is often difficult for
claimants to produce because original papers were lost or stolen
during the revolution, the actual confiscation of the property
involved, and/or the ensuing civil war. By definition, however, all
claims registered by the government have been deemed legitimate.]
The Embassy pressed Estrada and Perez for more working level
meetings to review the merits of dismissed claims and expedite the
resolution of other claims, but they refused. From August 2007
through January 2008, we gave GON officials every opportunity to
work more closely with us, to no avail. The result speaks for
itself: just 6 resolved claims in six months.

AMBASSADOR PRESSES FOR COOPERATION
----------------------------------

10. (SBU) In a December 21, 2007, meeting, the Ambassador pressed
Attorney General Estrada for better communication with Embassy staff
and more information about administrative processes recently
initiated, especially those involving dismissed claims for lack of
ownership documents and because claimants fell under Decrees 3
(1979) and 38 (1979), which legalized the confiscation of property
belonging to the Somoza family and its "close allies (Ref E)." The
Ambassador argued that all administrative processes should be fair
and transparent and incorporate sufficient time for notification and
appeal.

11. (SBU) In this meeting, Estrada told the Ambassador that the
GON's goal was to "resolve" all U.S. claims by 2011; this meant
closing an average of 163 Embassy-registered cases per year.
[Comment: Estrada considers dismissed cases as resolved claims. One
presumes that the average 163 Embassy-registered claims per year
would include several dismissed cases. End Comment.] Estrada
assured the Ambassador that he and his staff would work closely with
the Embassy to achieve this goal (Ref D). But during the January 31
working group meeting, Perez announced that Estrada had dismissed 34
more claims for administrative reasons, many under Decrees 3 (1979)
and 38 (1979). With the 18 claims that Estrada had dismissed in
November, the number of dismissed claims totaled 52. The number of
dismissed claims now totals 146 [See Paragraph 14].

IMPROVEMENT AFTER OUR UNOFFICIAL MID-YEAR REVIEW
--------------------------------------------- ---

12. (SBU) After a year of pressing for greater cooperation, the
Ambassador's mid-year review of the Section 527 waiver process with
Attorney General Estrada on February 26 resulted in measurable
improvement in the GON's attitude and effort (Ref F). Ruth Zapata,
Chief of the Office of Assessment and Indemnification (OCI), took
over the chair of monthly working-level meetings with Embassy staff,
and Superintendent Perez assumed a low profile when it comes to U.S.
claims. Zapata managed to focus monthly meetings on achieving
results. She encouraged government officials from the National
Confiscations Review Commission (CNRC), the Property
Superintendent's Office, and OCI to work constructively with us to
resolve claims. At times, these officials demonstrated flexibility
as, for example, when they allowed some U.S. citizens whose claims
the Attorney General had administratively dismissed to defend
themselves (Refs G, H, I). Occasionally, since March, GON officials
have sought Embassy assistance to contact U.S. claimants about
settlement offers and provided the Embassy with lists of cases that
were close to resolution (e.g., pending additional paperwork or
claimant signatures). In May, Estrada finally agreed to allow
Embassy staff to attend meetings between GON officials and U.S.
claimants (J). As a result of this change in attitude and effort,
the GON resolved 32 claims after the mid-year review.

SELECTED CASE HIGHLIGHTS
------------------------

13. (SBU) We continue to encourage the GON to settle claims during
the remainder of July 2008. A few high profile claims are close to
resolution. Cases listed below represent a sample of resolutions
achieved between August 1, 2007, and June 30, 2008. Their full
documentation confirms eligibility for Section 527 waiver
consideration for waiver year August 1, 2007, to July 31, 2008. All
dollar figures have been calculated using the official exchange rate
at the time of settlement.

A) Willey Family: Claimant received cash payment of $107, 590.84 for
the expropriation of their electric company located in the city of
Matagalpa in 1979.

B) Garcia, Ruben: Claimant received property bonds with a face value
of $1,722 for a 900 square foot lot in Managua that is under the
control of the Ministry of Education.

C) Becklin/Gonzalez Family: Claimant received property bonds with a
face value of $54,560 for a house located in a residential compound
in Managua known as "Colonia Becklin." [Note: Occupant Alejandro
Bosco Arguello Guzman was deemed ineligible for a visa under Section
2225 of the Foreign Affairs Reform and Restructuring Act of 1998.
On April 3, the Embassy requested that Arguello's visa eligibility
be restored (Ref K). End note.]

D) Molina, Arturo: Claimant received property bonds with a face
value of $2,600,000 for a rural farm outside of Managua.

E) Ortega, Aida: Claimant accomplished the rare recovery of his
property (undeveloped land in Managua) through the local courts.

F) Quiros, Roberto: Claimant accomplished the rare recovery of
property (a house in Managua) through local courts.

G) Hasbani, Maria: Claimant received property bonds with a face
value of $994,394 for her property (undeveloped land) in Managua.

DISMISSED CLAIMS REMAIN PROBLEMATIC
------------------------------------

14. (SBU) As of June 30, 2008, Attorney General Estrada had
dismissed 146 Embassy-registered claims, 48 for administrative
reasons and 98 based on Decrees 3 and 38. On May 9, Estrada told
the Ambassador that he would personally meet with claimants to
discuss and review Decree 3 and 38 dismissals. To date he has met
with just a handful of claimants and overturned two dismissed cases
(Ref J). (In April, Estrada declared that any claims dismissed
under Decrees 3 and 38 were ineligible for any and all
compensation.)

TURNING BACK THE CLOCK
----------------------

15. (SBU) Elements of the GON and local land trafficking mafia are
systematically infringing on and rescinding the property rights of
foreign and local investors in the real estate and tourism sectors.
The situation has attracted national attention in the media as
problems reach epic proportions. Since the beginning of 2007, more
than a dozen U.S. citizens have sought Embassy assistance to deal
with insidious legal and extra-legal disputes. Weak enforcement of
property rights and protracted court cases increasingly worry U.S.
property owners and frighten potential investors. From their
perspective, GON officials believe they are "righting the wrongs" of
past, corrupt administrations (Ref L). Many officials date their
affiliation with the ruling party (FSLN) to the 1979 revolution and
the 1980s, when the FSLN drove Somoza and his family out of the
country, confiscated 28,000 properties, and implemented a hastily
conceived, large scale agrarian reform program.

SECTION 527
-----------

16. (SBU) Section 527 of the Foreign Relations Authorization Act of
Fiscal Years 1994 and 1995 prohibits U.S. economic assistance or
support in international financial institutions to any government
which has not provided U.S. citizens adequate and effective
compensation for confiscated property. In the case of Nicaragua,
the prohibition would likely affect government-to-government
assistance related to military training and equipment, drug
interdiction, and electoral and judicial reform, economic
development, CAFTA-DR implementation, as well as our votes at the
IMF, the World Bank, and the Inter-American Development Bank.
Section 527 authorizes the Secretary of State, as delegated by the
President, to waive this prohibition on an annual basis provided
that it is in the U.S. national interest.

17. (SBU) Section 527 was amended on December 8, 2004, to base the
waiver decision on claims registered with the Embassy before August
1, 2005. No new claims can be considered in determining waiver
eligibility. The Embassy maintains a separate database listing 22
property claims from 16 U.S. citizens that were registered at the
Embassy after August 1, 2005. [Note: According to Nicaraguan law
and as announced by the GON in 1998, claimants of any nationality
had to have filed new claims before December 23, 2000, to be
considered for compensation. End note.]

WAIVER RECOMMENDATION
---------------------

18. (SBU) The primary consideration in deciding to issue a waiver
each year is whether a waiver would be in the U.S. national
interest. In the case of Nicaragua, an important factor in this
regard is that we have been able to maintain working relations with
the Ortega Administration across a spectrum of areas important to
us, including growing trade and investment under CAFTA-DR, our
economic and social development assistance programs aimed at
improving the lives of the Nicaraguan people, productive relations
with professional military and police forces, and progress on the
war on drugs and combating terrorism. Should Section 527
prohibitions come into effect, our ongoing strategy of U.S.
engagement in Nicaragua would be severely compromised.

19. (SBU) Another important factor is the effort put forth by the
GON to resolve outstanding claims. While the number of claims
resolved this year (38) does not meet expectations, the Ortega
Administration has managed to exceed last year's performance of 34
resolved claims. [Note: The Bolanos Administration resolved 29
claims during the first half of the 2006-2007 waiver year. End
note.] Moreover, GON cooperation improved during the latter half of
the waiver year. This leads us to believe that the GON has gained
some appreciation for the value of working cooperatively with us on
property issues. We reason that results would improve further if
the GON would allow us to have more frequent and unfettered
communication with working-level officials. To prevent a rollback
of these gains in the coming year and register our concern about the
growing number of dismissed claims, we recommend adding one
benchmark to the Secretary's letter to Foreign Minister Santos this
year [See Paragraph 20].

SUGGESTED POINTS FOR THE 2008-09 WAIVER LETTER
--------------------------------------------- -

20. (SBU) We recommend maintaining the three benchmarks that we
have. Those three are as follows: 1) successful resolution of a
substantial number of Embassy-registered claims, with particular
attention to longstanding, complex cases; 2) resolution of property
claims held or controlled by the GON, including CORNAP, government
ministries, and the police; and 3) resolution of property claims
controlled by the Army. The one benchmark that we would add is 4) a
formal bilateral review of claims processes and procedures which
U.S. claims have been dismissed in the current waiver year, with a
view to ensuring fairness, transparency, and sufficient time for
appeal. As ancillary points in the letter's narrative portion, we
suggest that the Secretary encourage the GON to urge the judicial
branch to make progress on 86 court cases dealing with U.S. citizen
property claims that languish in the courts, and we require the GON
to continue to improve its cooperation with the Embassy to ensure
more frequent and unfettered communication.

WASHINGTON ENGAGEMENT REQUESTED
-------------------------------

21. (SBU) Action Request: Post recommends that WHA, EEB, and L
undertake a legal review of the waiver process to address issues
raised by the GON and post during the course of this waiver year,
and to provide guidelines to the Embassy as the clock runs out on
remaining U.S. claims. Issues raised by the difficulties that we
have had working with Attorney General Estrada and his staff this
year, the need to respond to the growing number of Decree 3 and 38
and administrative dismissals, and questions that we have about how
to bring the claims process to an eventual close lead us to request
greater Washington engagement at this time. (Questions for the
group's analysis could include: do we accept the GON's contention
that a whole category of claimants (Decree 3 and 38 cases) may be
excluded from the claims process, do we accept the notion of some
minimum burden of proof borne by claimants, what to do about GON
offers of bonds not accepted by claimants, and how to handle claims
from U.S. citizens who have been out of touch with us for years.)

22. (SBU) Post proposes that those participating in the legal review
also compose a delegation of U.S. officials that visits Nicaragua in
October 2008 to 1) better understand GON perspectives and legal
basis for decisions, 2) voice Washington views on changes that the
GON has recently tried to introduce, and 3) begin charting a path
toward the final resolution of outstanding claims. We recommend
that a Deputy Assistant Secretary from WHA lead the delegation, and
that the delegation meet with Attorney General Estrada and relevant
GON officials. Such a bilateral meeting would provide us with the
opportunity to clearly articulate our expectations regarding a fair
and transparent resolution process for dismissed claims, the need to
make progress on U.S. properties under GON and army control, fair
compensation to all claimants, and the value of working-level
cooperation with Embassy staff.

TRIVELLI

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