MONEY LAUNDERING & PANAMA'S REAL ESTATE INDUSTRY

S E C R E T PANAMA 000255 SIPDIS SIPDIS E.O. 12958: DECL: 01/05/2017 TAGS: ECON EFIN EINV ETRD KCRM SUBJECT: MONEY LAUNDERING & PANAMA'S REAL ESTATE INDUSTRY REF: A. 2006 PANAMA 1793 ¶B. 2006 PANAMA 1820 ¶C. 2006 PANAMA 2106 Classified By: DCM L. Arreaga for reasons 1.4 (b) and (d) ¶1. (SBU) SUMMARY. Panama's construction boom, prevalence of offshore corporations, and status as a regional financial center provide a conducive environment for money laundering. Amid speculation as to the source of financing and demand for Panama's real estate boom, a review of information available at post indicates that several current developers have a history of criminal activity or criminal associations. Similarly, periodic arrests of high profile drug traffickers ultimately reveal substantial real estate holdings by criminal organizations. Panama's Ministry of Industry and Commerce and members of the real estate industry profess an inability to effectively monitor real estate construction or sales for the incidence of money laundering although once identified, Panamanian law enforcement can effectively seize assets acquired through criminal activity. Ultimately, real estate projects financed by the proceeds of criminal activity distort the market for legitimate developers and create excess supply which may be why 20,000 luxury apartments are projected to be available in Panama City between now and 2010. -------------- SUPPLY DOESN'T EQUAL DEMAND -------------- ¶2. (U) According to Panama's Tourism Ministry (IPAT),there are 161 buildings under construction in Panama City with another 55 approved waiting to start construction. In the interior of Panama, over 30 multi unit housing developments are in progress. Real estate marketing company, Prima Panama, published a survey identifying 177 Panama City buildings in construction with an estimated total value of $5 billion. They estimate $7 to $10 billion in real estate projects in the interior. The projected value of the real estate development market in Panama currently exceeds that of the Canal Expansion. Real estate industry representatives who are members of the American Chamber of Commerce stated the current demand for luxury apartments in Panama is being fueled by speculation and they cannot substantiate the source of occupants for the projected 20,000 or more units currently scheduled to be available by 2010 (Ref C). -------------- SOME OF THE DEVELOPERS -------------- �0A;¶3. (SBU) Ministry of Industry and Commerce National Director Henry Acevedo and Real Estate Director Lizbeth de Hornas told Econoff they had no budget to properly regulate the Real Estate industry. Acevedo said, if he did, his first priority would be investigating who are behind Panama's new high rise buildings. Econoff was able to identify approximately 23 developers who account for 122 of 177 Panama City high rise projects. A review of information available at post indicates that several of them have a history of criminal activity or criminal associations: (S/NF) BTESH & VIRZI (15 buildings) officer Felipe Alejandro Virzi Lopez is a former second Vice-President of Panama during the Perez Balladares administration and associated with the security agency owned by recently arrested Colombian narcotics trafficker Pablo Rayo Montano. In 2000, Virzi was reportedly a partner in the drug trafficking network of Mario Villanueva, the former governor of Quintana Roo, Mexico who reportedly stayed at Virzi's house in Panama while evading pursuit of criminal charges. Media reports allege Virzi raised money for former Panamanian President Ernesto Perez Balladares' 1994 presidential campaign from Colombian narcotics trafficker Jose Castrellon Henao. Henao was subsequently arrested in 1996 and transferred to the US for trial. (S/NF) MAJOR RESORT DEVELOPER (5 buildings) A well-known property company in Panama with holdings that include the several major hotels as well as other commercial and residential sites. The owner is alleged to utilize sources of capital other than recognized financial institutions for his real estate projects. (S/NF) GRUPO F (Panama Canal Village - major development of hotels, restaurants and shops at the Amador Causeway/entrance to the Panama Canal). Grupo F owner, Jean Ibrahim Feghali Waked (Jean Figali) is an established money launderer. Reliable information indicates a long history of money laundering in Panama and Colombia since the early 1990's as a lieutenant of now deceased Colombian druglord Pablo Escobar. (S/NF) INMOBILIARIA PACIFIC HILLS (5 buildings). In the mid-1990's, Inmobiliaria Pacific Hills officer Edmundo Esses also worked for Condominio Los Delfines S.A., a company partially owned by Castrellon Henao. When Castrellon Henao was arrested in Panama in 1996, he was found with documents showing the purchase of apartments from Inmobiliaria Pacifica Hills, which was represented by current company president Jose Edmund Esses in the transaction. (S/NF) PROVIVIENDAS (2 buildings). All three company officers are employees of a leading Panamanian law firm which routinely provides resident agents and/or nominee directors for hundreds of S.A. companies (Anonymous Societies). In multiple instances of Panamanian S.A. companies investigated for narcotics trafficking and terrorist financing, employees of this law firm are listed as the resident agent or nominee director(s) on the Public Registry. -------------- SOME OF THE BUYERS -------------- ¶4. (U) The October 2006 dismantling of the drug trafficking organization allegedly led by David Viteri and his attorney, Juan Messina, resulted in the identification of Maria de los Angeles Hernandez Castro, 74 and her husband, 88 who allegedly laundered $10 million over the last 5 years through real estate loans and purchases. Their son, Emir Castro, is currently in custody as an alleged member of the drug gang. At the time of her arrest, she was allegedly in possession of up to $2 million in cash and assets, including a bank account belonging to Juan Messina registered in her name. Among the alleged transactions were payments to the owner of Panama's Ice Tower, Saul Fashka. The Ice Tower development is planned to be the world's largest residential tower. ¶5. (U) "Narcograndma" as the press dubbed her, maintains her innocence, stating the money and assets in her name (and that of her husband),are the result of 50 years of work. The Prosecutor in charge of the investigation, Jose Abel Almengor, refutes these statements, saying the transactions and balances indicate the accumulation of cash and assets all in the last five years and not consistent with the level of business activity by the senior citizens. Comment: It is unlikely the Hernandez's will be prosecuted as the Panamanian judicial code prohibits the detention of persons over the age of 65. ¶6. (U) Panama's La Prensa front page on December 22 reported the arrest of Isaac Btesh (no relation to Btesh of Btesh & Virzi) for alleged drug trafficking. Although Mr. Btesh had no bank accounts, credit cards or reported income, he was in legal possession of 3 luxury apartments, 5 commercial units, a ranch in Panama's interior, two Lexus SUV's and a jewelry store with an inventory estimated at $1.65 million USD. One of the apartments allegedly owned by Btesh and pictured prominently in the report is in a building where Embassy personnel currently reside. Btesh reportedly served 40 months during the mid-1990's in U.S. custody for drug offenses in Louisiana. -------------- LEAKY REGULATION -------------- ¶7. (U) Real estate brokers in Panama City told Econasst that 90% of residential property is purchased in the name of a company. Because of Panama's corporation law (Refs A & B),the real estate broker is unlikely to know the ultimate owner. Real Estate Industry Association (ACOBIR) President Elda Sanson acknowledged that the industry did not have a rigorous "know your client" process but that those property purchases involving a local mortgage were heavily scrutinized by the mortgaging bank. 8.(SBU) Sanson told Econasst that the majority of down payments are made by cash or credit card and real estate agents are aware of the requirement to report cash payments over $10,000 to the Financial Analysis Unit and on a monthly basis to the Ministry of Industry and Commerce (MICI). However, Acevedo told Econoff that in reviewing the available monthly reports, he was unable to locate a single report of a cash payment of $10,000 reported to MICI by the industry. ¶9. (U) Inquiries with a developer/architect contact revealed that there is no requirement during the construction permit process to disclose whether a construction project is financed and if so, by whom and for how much. To obtain the necessary permits, the cost of the project and the open/closed areas are submitted, followed by the original plans. The permit is ultimately issued to the construction company and not the developer. Further, buyers and/or the amounts paid for land and/or single apartments/homes in Panama are not publicly available from any government agency. ¶10. (U) Executive Decree 39 (November 2006) stipulates that the real estate company, not the sales agent, is required to report cash transactions of $10,000 or more. Sanson told Econasst that they are proposing legislation containing standard guidelines and a form for use by Real Estate agents in performing due diligence on their customer. She stated this proposal includes the requirement that individual agents must report cash transactions above $10,000. Sanson further stated that ACOBIR conducted training and requested assistance from the Financial Analysis Unit (UAF) to improve the reporting of cash transactions but claims ACOBIR did not receive any substantive support. -------------- ASSET SEIZURE -------------- 11.(U) Once located, assets acquired in relation to drug trafficking or other criminal offenses can be seized by the applicable authority. For drug related offenses, the prosecutor's office retains possession of the assets for the duration of the trial. Assets which can be used or leased, such as vehicles and property, can be, under the supervision of the prosecutor's office who is responsible for the proper maintenance and care of the items. If the accused is found innocent, the assets are returned or the equivalent market value. If the accused is found guilty, the assets are turned over the National Commission for the Prevention of Drug Crimes (CONAPRED). CONAPRED is authorized to use or liquidate the assets to support drug prevention, rehabilitation and enforcement programs. According to a former drug prosecutor, CONAPRED received $4.6 million in cash and assets in 2006 and the total assets in custody related to cases currently in trial, is $29 million. ¶12. (U) Assets seized in relation to other criminal offenses are under the custody of the judge(s) assigned to the cases for the duration of the trial. The assets can be used or leased during the trial but the proper maintenance and care of the items is required. If the accused is found guilty, the assets can be used or liquidated by the state and the proceeds go to the general treasury. -------------- COMMENT -------------- ¶13. (SBU) The regulatory environment in Panama inhibits the detection of money laundering in either the construction or the purchase of real estate. The apprehension of the criminal leads to the identification of ill-gotten gain and not the other way around. The current numbers indicate that the real estate market in Panama should experience a significant correction and indeed, the first major project to be canceled was announced the first week in January, Palacio la Bahia on Panama City's main thoroughfare, Balboa Avenue. Additional canceled projects as well as incomplete occupancy and decreasing prices are anticipated. However, the full impact may be softened, depending on the proportion of the real estate development and sales sustained by money laundering and therefore impervious to the need to demonstrate profitability. Eaton