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Cablegate: Scenesetter for Fincen Director Werner Visit

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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