CREATIVE PROPERTY FRAUD IN NICARAGUA

UNCLAS MANAGUA 001192 SIPDIS SIPDIS FOR EB/OIA E.O. 12958: N/A TAGS: EINV KIDE ECON CVIS NU SUBJECT: CREATIVE PROPERTY FRAUD IN NICARAGUA ¶1. (SBU) Summary: Nicaragua's long history of uncertain land tenure and a corrupt judicial system continues to undermine real property rights and perpetuate the instability of land tenure. Recent cases (amounting to extremely creative fraud) demonstrate how deceptive real estate manipulation practices persist in 2006, many years after the Sandinista (Frente Sandinista de Liberacion Nacional or FSLN) regime was voted out of office in 1990. End Summary. ¶2. (SBU) The FSLN, both collectively and individually, has profited from manipulating the Nicaraguan judicial system as a means to inappropriately extract dominion over property. Parties now falling victim include, among others, outright owners, a defunct Nicaraguan bank (BANIC),mortgage-holding corporate entities such as the Nicaraguan Institute for Social Security (INSS),and the National Grain Trade Dealer (ENABAS). The modus operandi is evident: the FSLN identifies receptive judges, enlists their services, and creates false labor suits benefitting cronies or fronts -- frequently out of the judges' relevant jurisdictions. Widely documented by the national press and even acknowledged by the Nicaraguan Supreme Court, this legal malfeasance has been under investigation for some time, although the pace of establishing responsibility has been glacial. A few exemplary cases provide a snapshot of innovative practices used to deceive rightful owners of their landholdings: ¶3. (SBU) American citizen Uri Kollnesher is a resident of New York. A registered claimant in the U.S. Embassy's Property Office database, he is the majority shareholder and legal representative of the Inter-American Chemical Corporation, Almacenes Generales de Deposito (ICADESA). In 1979, the principal ICADESA property was taken over by the FSLN-controlled government. Until 2005, ICADESA retained legal registry under its name, although physical possession of the property was in the hands of the FSLN. At that time, FSLN Legal Department employee M.L. Chavarria Rivas sued the company, alleging that in 1995 owner Kollnesher hired her to take care of the property. Claiming he neglected to pay the US$1,000 per month promised, she sued for US$30,000 in a lawsuit introduced and accepted by the Catarina, Department of Masaya, municipal court. (The property is located in Managua and neither party resides in Catarina: a jurisdiction violation.) Nevertheless, Judge A. Berroteran Acevedo proceeded expeditiously, naming a legal guardian for ICADESA without notifying the company. ¶4. (SBU) Upon acceptance of the resolution by the legal guardian, the property was seized and promptly auctioned off to a sole bidder in the person of the FSLN's local representative and current treasurer, F. Lopez Centeno. Ignoring Nicaraguan law that identifies mortgages as priority securities (first in line for payment after a legal auction), the FSLN thus strengthened its physical hold on the property. ICADESA's mortgage belonged to the National Grain Trade Dealer, ENABAS. Although ENABAS was notified less than 24 hours before the auction, its representatives showed up an hour before it was scheduled to take place, only to be informed that the auction had been cancelled. (In legal terms and on paper, the auction did take place; however, a physical auction never occurred.) After the property was "sold" to the FSLN, both owner Kollnesher and ENABAS submitted complaints to the Nicaraguan Supreme Court, claiming corruption on the part of the judge. ¶5. (SBU) Far from being limited to the Catarina Court, judicial malfeasance on property issues is a nationwide phenomenon. In a February 23, 2006 article, Nicaraguan daily newspaper "La Prensa" described how a Spanish-owned coffee plantation valued at US$1,500,000 was victimized in much the same manner as in the ICADESA/Kollnesher case. Similarly, two attempts to appropriate corporate holdings (land belonging to defunct Nicaraguan bank BANIC and the Nicaraguan Cement Company) were thrown out by a judge from the city of Tisma in Masaya Department. The acting lawyer seeking to finalize the illegal transaction was J. del Socorro Caceres Zuniga, reportedly a colleague of FSLN lawyer N. Turcios. In most instances, there is FSLN involvement following the accusation of failure to pay wages to a property caretaker. The accuser states that no promised salary was received; a lawsuit follows. Legal jurisdiction over the geographical entity or parties typically is fraudulent. Outright document tampering to alter cadastre numbers also occurs, making it appear as though a given property is involved, while in reality another is being bought and sold. (The nominal notary public in one such transaction had been dead for more than forty years.) ¶6. (SBU) Property owners in Nicaragua continue to be threatened with loss or violence, thus exacerbating land instability and threatening economic development in affected areas. An ambiguous panorama of possible judicial malfeasance, combined with old-fashioned greed, is compounded by slick magazine ads inviting naive would-be landowners to buy low and watch their tropical paradise appreciate. Questionable funding and/or inexact border measurements in some areas can incite less creative, but commonplace, peasant invasions. Further, indigenous-rights groups also seek legal redress for lands they claim were illegally taken from them in the southern areas of San Juan and Tola, near the northernmost border of Costa Rica. ¶7. (SBU) Many Nicaraguans remember the confiscations of the 1980's that marked the ominous beginning of large-scale land swindling on a government-wide basis. The 1990 "Pinata Laws" legally confirmed the previous confiscation of thousands of properties. With the Pinata as a backdrop, land tenure issues still generate fierce social and political debates in mid-2006. Unrest in the real estate arena fuels anxiety among recent international investors regarding the outcome of upcoming November national elections and the long-term viability of investments in Nicaragua, though there has been no noticeable downturn in what remains a highly speculative market. TRIVELLI