Message to the Congress Reporting on the Transfer of Panamanian Governmen Assets Held By the United States

To the Congress of the United States:

1. I hereby report to the Congress on developments since the last Presidential report of October 19, 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. On December 20, 1989, I ordered U.S. military forces to Panama to protect the lives of American citizens in Panama, to exercise the right and obligation under the Panama Canal Treaty to protect and defend the Canal, to assist the democratically elected government in Panama to return to power, and to bring General Noriega to justice in the United States. Since that date, civil order and civilian rule have been restored to Panama, and General Noriega awaits trial in the United States. On December 20, 1989, I directed the Secretary of the Treasury and the Secretary of State to lift the economic sanctions with respect to the democratically elected Government of Panama, headed by President Endara, and, in cooperation with that government, to effect an orderly unblocking of Panamanian government assets in the United States. 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, were amended accordingly to clarify that all obligations owed the Government of Panama first falling due on or after December 20, 1989, may be paid, and that property in the United States in which the Government of Panama obtains an interest on or after that date is not blocked, with the exception of payments made into certain blocked accounts for pre-December 20, 1989, obligations. The Regulations were also amended to authorize any person holding a blocked reserve account pursuant to section 565.509 ("509 Account") (1) to transfer the unadjusted gross balance of such account, with applicable interest, to the Government of Panama, or (2) to apply for a specific license to transfer an amount other than the gross balance upon concurrence of the Government of Panama.

I am enclosing a copy of the amendment to the Regulations, 55 Fed. Reg. 3560 (Feb. 1, 1990). This was the only amendment to the Regulations since my last report of October 19, 1989.

3. Over the past 6 months the licensing section of FAC issued fifteen (15) specific licenses authorizing U.S. companies to establish 509 accounts on their books. Since the imposition of the sanctions, a total of fifty-three (53) U.S. companies have been authorized to establish 509 accounts.

FAC is currently engaged in effecting the orderly transfer of funds to the new Government of Panama. The Panamanian Embassy and consular space in the United States have been reopened, and bank accounts have been unblocked on a case-by-case basis as requested by the new government. Upon issuance of the regulatory amendment of February 1, 1990, a mechanism was also provided to unblock amounts held in 509 accounts by general or specific license, depending on the circumstances.

Each licensed transfer of blocked funds has stringent reporting requirements, and the reports are being tracked and closely monitored. FAC has initiated a review process to examine outstanding 509 Account licenses, scrutinize open enforcement files, and identify companies that may have failed to comply with the requirements of the Regulations to either pay into Account No. 2 or establish a 509 Account.

Additional Panama compliance activities included frequent FAC staff phone contact with affected U.S. parties, numerous speeches to trade groups, such as the Council of the Americas, and publication of a Panama fact sheet entitled "What You Need to Know About U.S. Economic Sanctions."

As of March 12, 1990, FAC had released $256 million of the total $426 million blocked to the control of the Government of Panama in the manner described above. This $256 million was comprised of $82 million from escrow accounts at the Federal Reserve Bank of New York, $31 million from blocked accounts at commercial banks, and $142.8 million from 509 accounts. I am attaching a fact sheet to the end of this report outlining these transfers of blocked funds.

The $82 million released from the Federal Reserve Bank of New York consisted of the entire balance ($10.2 million) of Account No. 2, which contained payments by U.S. companies to the Government of Panama, and a portion ($72 million) of Account No. 3, which contained escrowed United States Government payments to the Government of Panama. (Account No. 1 originally contained $10.5 million of Government of Panama funds that were located in the United States prior to the sanctions. These funds were used to fund operations of the Embassy in Washington of then-President Delvalle and were completely expended before September 1, 1989.)

The $169.7 million remaining blocked consists of $122.6 million in the Federal Reserve Bank of New York that has been set aside by the Government of Panama to fund payment of Panama's arrears to international financial institutions, $1.5 million in commercial banks for which the Government of Panama has not requested unblocking, and $45.4 million in 509 accounts. The remaining 509 Account balances are subject to bilateral negotiations between the Government of Panama and U.S. firms that have both debts to and obligations owed from the Government of Panama.

4. During the most recent reporting period, FAC continued to take actions to promote compliance with the Regulations and to tighten measures to deny the illegal Noriega regime funds belonging to the Panamanian people. Despite the economic hardships sometimes involved for U.S. persons in Panama, FAC stressed the importance of complete compliance with the Regulations by all persons in the United States and all U.S. persons and their controlled Panamanian entities in Panama. Several significant enforcement actions have taken place since the last report.

In September 1989, following written notification by FAC to over 150 U.S. entities with interests in Panama and specific orders to a number of U.S. companies and their Panamanian subsidiaries to cease and desist from making indirect payments of employee income and educational taxes to the Noriega regime, all recipients of such instructions certified that they had brought themselves into full compliance with the Regulations. This initiative had the immediate effect of denying tax revenues to the Noriega regime as well as promoting full compliance with the Regulations.

As the result of this enforcement effort, several U.S. firms also presented voluntary disclosures to FAC of prior actions taken in violation of the Regulations. Other indications of willful or inadvertent noncompliance with the Regulations are being systematically investigated by FAC. The circumstances of voluntary disclosures and measures taken to ensure full compliance with the Regulations may be considered mitigating factors in seeking criminal indictments or applying FAC civil penalties under the Regulations.

In compliance with instructions from FAC, a major U.S. oil company notified the Noriega regime in late September 1989 that the Government of Panama was required to pay on a cash basis for any future fuel oil deliveries. After considerable protest, regime officials agreed to this procedure, which placed further financial pressure on the Noriega regime.

Also in September 1989, FAC initiated civil penalty actions against the Panamanian Directorate of Consular and Maritime Affairs in New York and its two principal officers, in whose bank accounts the Government of Panama had an interest. Since all Government of Panama accounts in the United States were blocked effective April 8, 1988, each unlicensed transaction involving such accounts was determined to be in violation of the Regulations.

On October 31, 1989, FAC published a notice in the Federal Register adding the names of Panamanian dictator General Noriega, his wife, and 32 companies to the existing list of 134 firms and individuals in Panama who act for or on behalf of Cuba. The listing of Noriega and the other entities as Specially Designated Nationals of Cuba in Panama had the effect of applying the full force of the U.S. trade and financial embargo against Cuba to Noriega and the other designated persons and firms operating in Panama. The action taken was another step to halt the channeling of funds to the illegal Noriega regime and to undermine the extensive network of commercial and financial collusion between the Noriega and Castro regimes.

On November 27, 1989, following coordination with FAC, the U.S. Customs Service at Dallas-Fort Worth International Airport seized a helicopter part that had been imported for repair by a U.S. company. Inspection of documents revealed that the owner of the aircraft part was the Panamanian Air Force. The merchandise was seized for violation of the Regulations as an attempted unlicensed transfer of property in which the Government of Panama had an interest.

On November 30, 1989, I directed that Panamanian flag vessels not be permitted to enter U.S. ports after January 31, 1990. This measure was intended to deny the Noriega regime revenue from vessel registrations as well as illegal income in the form of bribes and kickbacks. I wanted to make it very clear that there would be no accommodation with the illegal Panamanian regime. This directive was rescinded by my directive of December 20, 1989, upon the fall of the Noriega regime, to lift the economic sanctions with respect to the new democratically elected Government of Panama and to take steps to effect an orderly unblocking of Panamanian government assets in the United States.

On January 24, 1990, FAC issued a blocking order freezing a wire transfer of $300,000 being made by a Specially Designated National of Cuba in Panama who was attempting to transfer funds from its account in a London bank to a Bahamian bank, through a bank in Miami. The FAC blocking order required that the Miami bank not complete the transfer and place the $300,000 in a blocked account. This action constituted the first FAC blocking of major funds tied directly to the Noriega regime and was the first case in which an international wire transfer by a Specially Designated National of Cuba was blocked in midstream.

5. On December 20, 1989, I ordered U.S. troops into Panama to safeguard American lives, protect the integrity of the Panama Canal Treaties, assist Panama to restore democracy, and bring General Noriega to justice. I undertook this action after all peaceful means to resolve the crisis had been exhausted. Our action reflected the unique circumstances in Panama that evolved from our Treaty commitments and obligations and achieved all our objectives. The new government in Panama is a dejure government, freely elected by the Panamanian people on May 7, 1989, and certified by the Noriega-appointed Electoral Tribunal on December 27, 1989. The new government moved quickly to restore normal government functions; it has named a full Cabinet, Supreme Court, and regional and municipal authorities. The Legislative Assembly held its first session, as required by the constitution, on March 1, 1990. The Government of Panama's top priorities are economic recovery and the organizing of a civilian-controlled Public Force. Internationally, the new government has been recognized by 45 states, including Japan and major European and Latin American states. The United States is committed to assisting the democratic transition in Panama.

6. The expenses incurred by the Federal Government in the 6-month period from September 20, 1989, through March 20, 1990, which are directly attributable to the exercise of powers and authorities conferred by the declaration of the Panamanian national emergency, are estimated at $737,088, 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, the Office of the General Counsel, and the Customs Service), the Department of State, the Federal Reserve Board, the National Security Council, and the Department of Defense.

7. On April 5, 1990, I issued Executive Order No. 12710, terminating the national emergency declared on April 8, 1988, with respect to Panama. While this order terminated the sanctions, the blocking of Panamanian government assets in the United States was continued to permit completion of the orderly unblocking and transfer of funds I directed on December 20, 1989, and to foster the resolution of claims of U.S. creditors involving Panama, pursuant to 50 U.S.C. 1706(a). The termination of the national emergency will not affect the continuation of compliance audits and enforcement actions with respect to activities taking place during the sanctions period, pursuant to 50 U.S.C. 1622(a). I will continue to report periodically to the Congress on significant developments, pursuant to 50 U.S.C. 1706(d).

George Bush

The White House,

April 30, 1990.