NICARAGUA: SECTION 527 WAIVER OBSERVATIONS

UNCLAS MANAGUA 000883 STATE FOR WHA/CEN, EB/IFD/OIA AND L/CID STATE FOR WHA/EPSC STATE PLEASE PASS TO USTR TREASURY FOR INL AND OWH SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EINV ECON USTR KIDE NU SUBJECT: NICARAGUA: SECTION 527 WAIVER OBSERVATIONS REF: A) 07 MANAGUA 2324, B) 07 MANAGUA 2442, C) 07 07 MANAGUA 2581, D) MANAGUA 0002, E) MANAGUA 173, F) MANAGUA 274, G) MANAGUA 287, H) MANAGUA 424, I) 07 MANAGUA 564, J) MANAGUA 633, K) MANAGUA 387, L) MANAGUA 698 ¶1. This cable contains an action request in Paragraphs 21 and 22. SUMMARY -------------- ¶2. (SBU) Post recommends that the Secretary issue an annual waiver to Section 527 of the Foreign Relations Authorization Act of FY 1994/1995 for the Government of Nicaragua (GON). Between August 1, 2007, and June 30, 2008, the GON resolved 38 Embassy-registered claims for 21 U.S. citizens. While this number is well below the historical average, it does slightly exceed last year's total and reflects an improved attitude and effort on the part of the GON during the second half of the year. Moreover, the Embassy has maintained working relations with the GON across the broad spectrum of bilateral cooperation, including trade and investment under CAFTA-DR, productive relations with military and police forces, and progress on the war on drugs and combating terrorism. ¶3. (SBU) We make no excuse for GON performance during the first half of the waiver year. Cooperation with the Embassy was poor. Only after an extraordinary effort on our part, including the day-to-day involvement of the Ambassador in matters that normally stay at the working level, did the situation improve. To prevent a rollback of these gains in the coming year, we recommend adding an additional benchmark in the Secretary's letter to Foreign Minister Samuel Santos this year [See Paragraph 20] and request greater Washington engagement. ¶4. (SBU) Tied to the new benchmark we urge that WHA, EEB, and L undertake a legal review of the waiver process to address issues raised by the GON during the past waiver year, and to provide guidelines to the Embassy as to how we should handle remaining U.S. claims, some of which have proven difficult to resolve. We propose that a delegation of department officials visit Nicaragua in October 2008 to 1) better understand GON perspectives, 2) voice Washington views on changes that the GON has recently tried to introduce, and 3) begin charting a path toward the final resolution of all outstanding claims. [See action request in Paragraphs 21 and 22]. 2007-2008 WAIVER YEAR BENCHMARKS -------------- ¶5. (SBU) In her July 31, 2007, letter to Foreign Minister Santos, the Secretary enumerated three benchmarks for granting a waiver in 2008: 1) successful resolution of a substantial number of Embassy-registered claims; 2) resolution of property claims controlled by the Nicaraguan government, including the "Corporacion Nacional del Sector Publico" (i.e., CORNAP, the government's asset holding company); and 3) resolution of property claims by the Nicaraguan Army. The GON achieved some progress toward the first benchmark and resolved one U.S. citizen claim via property bonds under the second, a 900 square foot lot under the control of the Ministry of Education. There were no claims resolved under the control of the Nicaraguan Army. Indeed, 37 properties claimed by U.S. citizens continue to fall under the control of the Army or the Army Social Security Institute (IPSM). High-ranking military officers continue to occupy some of these residences. GON RESOLVES 38 U.S. CITIZEN CLAIMS -------------- ¶6. (U) Between August 1, 2007, and June 30, 2008, the GON resolved 38 U.S. citizen claims belonging to 21 U.S. citizens registered with the Embassy. Because they felt that they could not provide sufficient evidence to support their claims, 4 U.S. claimants withdrew a total of 11 claims registered with the Embassy during the course of the year. As of June 30, 2008, 301 U.S. citizens await the resolution of 630 Embassy-registered claims. PROPERTY INDEMNIFICATION BONDS (BPIS) -------------- ¶7. (SBU) The GON typically compensates U.S. citizens for confiscated or expropriated property via low-interest, long-term property indemnification bonds (BPIs). While rare, the GON may also return property, make cash payments, or swap properties for others of comparable value. Between August 1, 2007, and June 30, 2008, the GON compensated 36 U.S. citizen claims belonging to 19 U.S. citizens via bonds issued with a face value of 101,126,310 cordobas, approximately $5,215,277. A thin secondary market exists for the sale of these bonds, the current price for which ranges between 49 and 53 cents on the dollar. In addition, courts ruled during the course of the year that property be returned to 2 U.S. claimants. GON RESISTENCE -------------- ¶8. (SBU) In September 2007, Attorney General Hernan Estrada summarily replaced Property Superintendent Mireya Molina Torres with Yara Perez Calero, formerly an Assistant Attorney General, and he assumed direct responsibility for all property claims. From September 2007 to January 2008, Superintendent Perez chaired monthly working group meetings with Embassy staff. In case after case, she refused to cooperate, preferring instead to rehash broad accusations of claimants' wrongdoing as justification for a lack of progress on resolution of property claims. She repeatedly alleged, without offering specific examples or proof, that some U.S. claimants had manipulated the previous Chamorro, Aleman, and Bolanos administrations to obtain more compensation than they deserved, either by overvaluing their assets or accepting BPIs after they had recovered their property (Refs A, B, C). Despite our strenuous objections, she attempted to prioritize the resolution of claims belonging to U.S.-born over naturalized citizens, and of individuals who were U.S. citizens at the time of confiscation over persons who became naturalized U.S. citizens after confiscation. She refused to allow Embassy staff to attend GON meetings with U.S. claimants (Ref C),or to provide copies of documents showing final resolution. ¶9. (SBU) In an ominous development last November, Attorney General Estrada initiated an administrative process whereby he could dismiss claims for lack of proof of ownership and/or confiscation of the property in question. [Note: Such proof is often difficult for claimants to produce because original papers were lost or stolen during the revolution, the actual confiscation of the property involved, and/or the ensuing civil war. By definition, however, all claims registered by the government have been deemed legitimate.] The Embassy pressed Estrada and Perez for more working level meetings to review the merits of dismissed claims and expedite the resolution of other claims, but they refused. From August 2007 through January 2008, we gave GON officials every opportunity to work more closely with us, to no avail. The result speaks for itself: just 6 resolved claims in six months. AMBASSADOR PRESSES FOR COOPERATION -------------- ¶10. (SBU) In a December 21, 2007, meeting, the Ambassador pressed Attorney General Estrada for better communication with Embassy staff and more information about administrative processes recently initiated, especially those involving dismissed claims for lack of ownership documents and because claimants fell under Decrees 3 (1979) and 38 (1979),which legalized the confiscation of property belonging to the Somoza family and its "close allies (Ref E)." The Ambassador argued that all administrative processes should be fair and transparent and incorporate sufficient time for notification and appeal. ¶11. (SBU) In this meeting, Estrada told the Ambassador that the GON's goal was to "resolve" all U.S. claims by 2011; this meant closing an average of 163 Embassy-registered cases per year. [Comment: Estrada considers dismissed cases as resolved claims. One presumes that the average 163 Embassy-registered claims per year would include several dismissed cases. End Comment.] Estrada assured the Ambassador that he and his staff would work closely with the Embassy to achieve this goal (Ref D). But during the January 31 working group meeting, Perez announced that Estrada had dismissed 34 more claims for administrative reasons, many under Decrees 3 (1979) and 38 (1979). With the 18 claims that Estrada had dismissed in November, the number of dismissed claims totaled 52. The number of dismissed claims now totals 146 [See Paragraph 14]. IMPROVEMENT AFTER OUR UNOFFICIAL MID-YEAR REVIEW -------------- --- ¶12. (SBU) After a year of pressing for greater cooperation, the Ambassador's mid-year review of the Section 527 waiver process with Attorney General Estrada on February 26 resulted in measurable improvement in the GON's attitude and effort (Ref F). Ruth Zapata, Chief of the Office of Assessment and Indemnification (OCI),took over the chair of monthly working-level meetings with Embassy staff, and Superintendent Perez assumed a low profile when it comes to U.S. claims. Zapata managed to focus monthly meetings on achieving results. She encouraged government officials from the National Confiscations Review Commission (CNRC),the Property Superintendent's Office, and OCI to work constructively with us to resolve claims. At times, these officials demonstrated flexibility as, for example, when they allowed some U.S. citizens whose claims the Attorney General had administratively dismissed to defend themselves (Refs G, H, I). Occasionally, since March, GON officials have sought Embassy assistance to contact U.S. claimants about settlement offers and provided the Embassy with lists of cases that were close to resolution (e.g., pending additional paperwork or claimant signatures). In May, Estrada finally agreed to allow Embassy staff to attend meetings between GON officials and U.S. claimants (J). As a result of this change in attitude and effort, the GON resolved 32 claims after the mid-year review. SELECTED CASE HIGHLIGHTS -------------- ¶13. (SBU) We continue to encourage the GON to settle claims during the remainder of July 2008. A few high profile claims are close to resolution. Cases listed below represent a sample of resolutions achieved between August 1, 2007, and June 30, 2008. Their full documentation confirms eligibility for Section 527 waiver consideration for waiver year August 1, 2007, to July 31, 2008. All dollar figures have been calculated using the official exchange rate at the time of settlement. A) Willey Family: Claimant received cash payment of $107, 590.84 for the expropriation of their electric company located in the city of Matagalpa in 1979. B) Garcia, Ruben: Claimant received property bonds with a face value of $1,722 for a 900 square foot lot in Managua that is under the control of the Ministry of Education. C) Becklin/Gonzalez Family: Claimant received property bonds with a face value of $54,560 for a house located in a residential compound in Managua known as "Colonia Becklin." [Note: Occupant Alejandro Bosco Arguello Guzman was deemed ineligible for a visa under Section 2225 of the Foreign Affairs Reform and Restructuring Act of 1998. On April 3, the Embassy requested that Arguello's visa eligibility be restored (Ref K). End note.] D) Molina, Arturo: Claimant received property bonds with a face value of $2,600,000 for a rural farm outside of Managua. E) Ortega, Aida: Claimant accomplished the rare recovery of his property (undeveloped land in Managua) through the local courts. F) Quiros, Roberto: Claimant accomplished the rare recovery of property (a house in Managua) through local courts. G) Hasbani, Maria: Claimant received property bonds with a face value of $994,394 for her property (undeveloped land) in Managua. DISMISSED CLAIMS REMAIN PROBLEMATIC -------------- ¶14. (SBU) As of June 30, 2008, Attorney General Estrada had dismissed 146 Embassy-registered claims, 48 for administrative reasons and 98 based on Decrees 3 and 38. On May 9, Estrada told the Ambassador that he would personally meet with claimants to discuss and review Decree 3 and 38 dismissals. To date he has met with just a handful of claimants and overturned two dismissed cases (Ref J). (In April, Estrada declared that any claims dismissed under Decrees 3 and 38 were ineligible for any and all compensation.) TURNING BACK THE CLOCK -------------- ¶15. (SBU) Elements of the GON and local land trafficking mafia are systematically infringing on and rescinding the property rights of foreign and local investors in the real estate and tourism sectors. The situation has attracted national attention in the media as problems reach epic proportions. Since the beginning of 2007, more than a dozen U.S. citizens have sought Embassy assistance to deal with insidious legal and extra-legal disputes. Weak enforcement of property rights and protracted court cases increasingly worry U.S. property owners and frighten potential investors. From their perspective, GON officials believe they are "righting the wrongs" of past, corrupt administrations (Ref L). Many officials date their affiliation with the ruling party (FSLN) to the 1979 revolution and the 1980s, when the FSLN drove Somoza and his family out of the country, confiscated 28,000 properties, and implemented a hastily conceived, large scale agrarian reform program. SECTION 527 -------------- ¶16. (SBU) Section 527 of the Foreign Relations Authorization Act of Fiscal Years 1994 and 1995 prohibits U.S. economic assistance or support in international financial institutions to any government which has not provided U.S. citizens adequate and effective compensation for confiscated property. In the case of Nicaragua, the prohibition would likely affect government-to-government assistance related to military training and equipment, drug interdiction, and electoral and judicial reform, economic development, CAFTA-DR implementation, as well as our votes at the IMF, the World Bank, and the Inter-American Development Bank. Section 527 authorizes the Secretary of State, as delegated by the President, to waive this prohibition on an annual basis provided that it is in the U.S. national interest. ¶17. (SBU) Section 527 was amended on December 8, 2004, to base the waiver decision on claims registered with the Embassy before August 1, 2005. No new claims can be considered in determining waiver eligibility. The Embassy maintains a separate database listing 22 property claims from 16 U.S. citizens that were registered at the Embassy after August 1, 2005. [Note: According to Nicaraguan law and as announced by the GON in 1998, claimants of any nationality had to have filed new claims before December 23, 2000, to be considered for compensation. End note.] WAIVER RECOMMENDATION -------------- ¶18. (SBU) The primary consideration in deciding to issue a waiver each year is whether a waiver would be in the U.S. national interest. In the case of Nicaragua, an important factor in this regard is that we have been able to maintain working relations with the Ortega Administration across a spectrum of areas important to us, including growing trade and investment under CAFTA-DR, our economic and social development assistance programs aimed at improving the lives of the Nicaraguan people, productive relations with professional military and police forces, and progress on the war on drugs and combating terrorism. Should Section 527 prohibitions come into effect, our ongoing strategy of U.S. engagement in Nicaragua would be severely compromised. ¶19. (SBU) Another important factor is the effort put forth by the GON to resolve outstanding claims. While the number of claims resolved this year (38) does not meet expectations, the Ortega Administration has managed to exceed last year's performance of 34 resolved claims. [Note: The Bolanos Administration resolved 29 claims during the first half of the 2006-2007 waiver year. End note.] Moreover, GON cooperation improved during the latter half of the waiver year. This leads us to believe that the GON has gained some appreciation for the value of working cooperatively with us on property issues. We reason that results would improve further if the GON would allow us to have more frequent and unfettered communication with working-level officials. To prevent a rollback of these gains in the coming year and register our concern about the growing number of dismissed claims, we recommend adding one benchmark to the Secretary's letter to Foreign Minister Santos this year [See Paragraph 20]. SUGGESTED POINTS FOR THE 2008-09 WAIVER LETTER -------------- - ¶20. (SBU) We recommend maintaining the three benchmarks that we have. Those three are as follows: 1) successful resolution of a substantial number of Embassy-registered claims, with particular attention to longstanding, complex cases; 2) resolution of property claims held or controlled by the GON, including CORNAP, government ministries, and the police; and 3) resolution of property claims controlled by the Army. The one benchmark that we would add is 4) a formal bilateral review of claims processes and procedures which U.S. claims have been dismissed in the current waiver year, with a view to ensuring fairness, transparency, and sufficient time for appeal. As ancillary points in the letter's narrative portion, we suggest that the Secretary encourage the GON to urge the judicial branch to make progress on 86 court cases dealing with U.S. citizen property claims that languish in the courts, and we require the GON to continue to improve its cooperation with the Embassy to ensure more frequent and unfettered communication. WASHINGTON ENGAGEMENT REQUESTED -------------- ¶21. (SBU) Action Request: Post recommends that WHA, EEB, and L undertake a legal review of the waiver process to address issues raised by the GON and post during the course of this waiver year, and to provide guidelines to the Embassy as the clock runs out on remaining U.S. claims. Issues raised by the difficulties that we have had working with Attorney General Estrada and his staff this year, the need to respond to the growing number of Decree 3 and 38 and administrative dismissals, and questions that we have about how to bring the claims process to an eventual close lead us to request greater Washington engagement at this time. (Questions for the group's analysis could include: do we accept the GON's contention that a whole category of claimants (Decree 3 and 38 cases) may be excluded from the claims process, do we accept the notion of some minimum burden of proof borne by claimants, what to do about GON offers of bonds not accepted by claimants, and how to handle claims from U.S. citizens who have been out of touch with us for years.) ¶22. (SBU) Post proposes that those participating in the legal review also compose a delegation of U.S. officials that visits Nicaragua in October 2008 to 1) better understand GON perspectives and legal basis for decisions, 2) voice Washington views on changes that the GON has recently tried to introduce, and 3) begin charting a path toward the final resolution of outstanding claims. We recommend that a Deputy Assistant Secretary from WHA lead the delegation, and that the delegation meet with Attorney General Estrada and relevant GON officials. Such a bilateral meeting would provide us with the opportunity to clearly articulate our expectations regarding a fair and transparent resolution process for dismissed claims, the need to make progress on U.S. properties under GON and army control, fair compensation to all claimants, and the value of working-level cooperation with Embassy staff. TRIVELLI