Message to the Congress Reporting on the Economic Sanctions Against Panama

To the Congress of the United States:

1. I hereby report to the Congress on developments since the last Presidential report of April 6, 1989, concerning the national emergency with respect to Panama that was declared in Executive Order No. 12635 of April 8, 1988. This report is submitted pursuant to section 401(c) of the National Emergencies Act, 50 U.S.C. 1641(c), and section 204(c) of the International Emergency Economic Powers Act, 50 U.S.C. 1703(c).

2. Since the last report of April 6, 1989, there has been one amendment to the Panamanian Transactions Regulations, 31 C.F.R. Part 565 (the "Regulations"), administered by the Office of Foreign Assets Control ("FAC") of the Department of the Treasury. On August 31, 1989, FAC added Appendix B to the Regulations, which comprises a list of persons identified with and acting on behalf of the Noriega regime in Panama. No funds or other assets or credits may be transferred to the Noriega regime from the United States or from U.S. persons and their controlled Panamanian entities in Panama. The Panamanian officials named in Appendix B are also subject to this prohibition.

With this report, I am enclosing a copy of the amendment to the Regulations, 54 Fed. Reg. 36272 (Aug. 31, 1989).

3. FAC has issued 34 licenses pursuant to section 565.509 of the Regulations, enabling U.S. persons and Panamanian juridical entities controlled by U.S. persons that owe funds to the Government of Panama to credit the funds (with appropriate interest) to a blocked reserve account on their books, or to deposit the funds in a blocked account with a commercial bank. This procedure serves as an alternative to payment of the amounts owed into a blocked account at the Federal Reserve Bank of New York. As of September 20, 1989, the licensed reserve accounts had been credited with $126.3 million in funds denied to the Noriega regime.

4. FAC continues to monitor compliance with the Regulations and to advise affected parties of their obligations under the program. Denial of cash to the Noriega regime and its supporters through strict compliance with the sanctions program by all U.S. persons is the primary objective of the FAC enforcement effort. Several significant enforcement actions have taken place since the last report:

On March 27, 1989, FAC issued a blocking order instructing a U.S. bank to freeze the account of an organization in Houston that had performed unauthorized inspections of Panamanian-flag vessels in the United States and other consular transactions on behalf of the Noriega regime. All fees generated by these activities were determined to contain an interest of the Government of Panama ("GOP"). The Regulations block all property or interests in property of the GOP located in the United States and prohibit all transfers with respect to that property.

In June 1989, an FAC audit of the lock-box arrangement handled for the GOP by a U.S. bank revealed that a number of foreign U.S. dollar items deposited with the bank remained uncollected despite due presentment of the obligations to the correspondent banks in Panama. These intended payments by U.S. companies had never reached GOP Account No. 2 at the Federal Reserve Bank of New York. By August 1989, as the result of FAC compliance efforts, one U.S. firm and its Panamanian affiliate had made replacement payments of $303,000 into Account No. 2; a second U.S. firm and its Panamanian subsidiaries requested and received a Treasury license to open a blocked reserve account for amounts owing; and a third U.S. company agreed to transfer fresh funds to Account No. 2 to cover its outstanding obligations to the GOP.

On June 28, 1989, the U.S. Customs Service in Miami seized a U.S.-origin helicopter blade valued at $30,000 for an attempted exportation to a consignee in Panama who intended to provide the equipment to the Panamanian Defense Forces. The merchandise was seized for a violation of the Regulations as an attempted unlicensed transfer of property in which a GOP interest existed.

In August 1989, an FAC investigation revealed that the New York office of the Directorate of Consular and Maritime Affairs of Panama had engaged in vessel inspections and other unauthorized consular functions on behalf of the Noriega regime. On August 10, 1989, FAC took action that resulted in the blocking of $373,915 held in three accounts of the Directorate at a U.S. bank as property in which there was a GOP interest.

On August 29, 1989, following further investigation, FAC issued another blocking order to a second U.S. bank and initiated other measures resulting in the freezing of seven organizational accounts of the Directorate of Consular and Maritime Affairs of Panama and several individual accounts containing over $140,000 in which a GOP interest existed. Additionally, FAC notified the Directorate that all tangible assets of the office were considered blocked under the Regulations. Further actions were taken to close the Directorate's office in New York.

On August 31, 1989, FAC published a notice in the Federal Register that listed the names and agencies of 26 ministry-level officials, 17 members of the Strategic Military Council, and 114 senior officials of autonomous agencies of the Noriega regime. Review of these names in consultation with the Department of State had resulted in a determination that the listed individuals act or purport to act on behalf of the regime. Financial transfers to these regime officials from the United States and from U.S. persons and their controlled Panamanian entities in Panama are prohibited.

On September 1, 1989, I announced that, as a consequence of General Noriega's actions to prevent the candidates chosen by the Panamanian people to take office, Panama was as of that date without any legitimate government, and the United States would not recognize any government installed by Noriega. Our Ambassador will not return, and we will not have any diplomatic contact with the Noriega regime. The United States will continue to take other steps, including the tightening of measures to deprive the illegal regime of funds that belong to the Panamanian people, in support of self-determination and democracy, and to counter the threat posed by General Noriega's support for drug trafficking and other forms of subversion.

On September 11, 1989, FAC sent out over 150 letters notifying U.S. businesses in Panama of my September 1 statement announcing the decision to enforce more strictly the prohibitions of the Regulations against the flow of hard currency to the Noriega regime. The letter restated certain requirements of the Regulations, emphasized that U.S. businesses must cease all prohibited payment practices, and warned of potential enforcement actions for violations.

On September 20, 1989, FAC published a notice in the Federal Register listing the names of a prominent Panamanian politician and 13 commercial firms located in Panama that the Noriega regime allows to conduct transactions for or on behalf of Cuba. These 14 names were added to a list of 117 names of Cuban front companies known to be operating in Panama. Any person subject to the jurisdiction of the United States is prohibited from engaging, directly or indirectly, in any transactions involving any property in which there exists an interest of Cuba. The listing of these names as Specially Designated Nationals of Cuba in Panama has the effect of transferring the full force of the U.S. trade embargo against Cuba to the designated persons and firms, and underscores U.S. resolve to counter Cuban commercial activities in Panama that channel funds to the Noriega regime.

On September 22, 1989, FAC sent letters to U.S. companies believed to be in violation of the Regulations, ordering them to cease and desist from the proscribed activities and to bring themselves into full compliance with the sanctions program. U.S. persons who violate the prohibitions on payments to the Noriega regime and its officials are subject to corporate criminal fines of up to $500,000 per count, individual criminal fines of up to $250,000 per count, and imprisonment of willful individual violators for up to 12 years. In addition, FAC may impose administrative civil penalties of up to $10,000 per violation.

To date, FAC enforcement and compliance efforts have denied over $325.8 million to the Noriega regime. As of September 19, 1989, the Federal Reserve Bank of New York held $8.6 million in GOP Account No. 2 and $161.4 million in GOP Account No. 3. The funds contained in GOP Account No. 1, consisting of blocked Panamanian government assets located in the United States on April 8, 1988, have been exhausted to pay expenses of the Panamanian embassy and consulates in the United States until their closure on August 31, 1989, when President Delvalle's term expired. Blocked GOP deposits at 11 domestic banks accounted for $29.2 million denied to Noriega. Blocked tangible property of the GOP on August 28, 1989, totaled $213,000.00. A total of $54.7 million had been paid into blocked reserve accounts, while blocked reserve account licenses issued by FAC to 34 U.S. firms accounted for another $71.7 million in blocked liabilities to the GOP.

5. The objective of Administration policy remains support for a return to civilian constitutional rule and the development of an apolitical military establishment in Panama. In furtherance of our policy, the Administration has imposed economic sanctions against the Noriega regime. Our judgment remains that the root cause of the current crisis is the fact that the Panamanian people have lost confidence in a political system widely perceived as corrupt, repressive, and inept. A genuine Panamanian resolution of the political crisis is necessary to restore confidence in the Panamanian economy, a precondition to the return of economic stability and growth in Panama. Accordingly, our efforts have been directed at supporting Panamanian efforts to resolve the underlying political crisis as rapidly as possible.

6. The expenses incurred by the Federal Government in the 6-month period from April 6, 1989, through September 20, 1989, which are directly attributable to the exercise of powers and authorities conferred by the declaration of the Panamanian national emergency are estimated at $374,500, most of which represents wage and salary costs for Federal personnel. Personnel costs were largely centered in the Department of the Treasury (particularly in the Office of Foreign Assets Control, the Office of the Assistant Secretary for Enforcement, the Office of the Assistant Secretary for International Affairs, and the Office of the General Counsel), the Department of State, the Federal Reserve Board, the National Security Council, and the Department of Defense.

7. The policies and actions of the Noriega regime in Panama continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. I shall continue to exercise the powers at my disposal to apply economic sanctions against Panama as long as these measures are appropriate, and will continue to report periodically to the Congress on significant developments, pursuant to 50 U.S.C. 1703(c).

George Bush

The White House,

October 19, 1989.