2009 Bilateral Review of Nicaragua's Section 527 Process

UNCLAS MANAGUA 001052 SENSITIVE SIPDIS STATE FOR WHA/CEN, EB/IFD/OIA, AND L/CID STATE ALSO FOR WHA/EPSC E.O. 12958: N/A TAGS: ECON EINV NU SUBJECT: 2009 Bilateral Review of Nicaragua's Section 527 Process REF: SECSTATE 79312; 08 MANAGUA 1546; MANAGUA 465; MANAGUA 921 MANAGUA 877; MANAGUA 953; 08 MANAGUA 564; MANAGUA 975; MANAGUA 235 SUMMARY -------------- ¶1. (SBU) In the Secretary's letter to Foreign Minister Samuel Santos announcing a Section 527 waiver for 2008-2009, she proposed holding another bilateral review of the Government of Nicaragua's (GON) claims processes and procedures. The bilateral review is an opportunity to articulate USG views on issues that adversely affect the resolution of U.S. citizen claims, and also to press for better cooperation between the Embassy Property Office and the GON. Post proposes that the delegation composed of WHA, EEB, and L that conducted the 2008 bilateral review lead this year's consultations in Nicaragua in December 2009 or December 2010. 2009 BILATERAL REVIEW -------------- ¶2. (SBU) The Secretary's July 29 letter to Foreign Minister Santos granted a Section 527 waiver to Nicaragua for the 2008-09 waiver period, but also proposed another bilateral review of property issues (Ref A). Her letter specifically mentioned over 130 U.S. citizen property claims dismissed under Decrees 3/1979 and 38/1979 and for administrative reasons. We also see the bilateral review as an opportunity to articulate USG views on claims for property that are under GON control, claims that languish in the courts, new confiscations of U.S. citizen property, issues related to the transparency of compensating U.S. claims, and the importance of addressing all U.S. citizen claims, even those not covered by the waiver. ¶3. (SBU) Post proposes that the WHA, EEB, and L officials who conducted the 2008 bilateral review lead this year's consultations in Nicaragua (Ref B). This team is familiar with the obstacles to resolving U.S. claims in Nicaragua and knows Attorney General Hernan Estrada and other GON officials. Post recommends that the bilateral review occur in December 2009 or January 2010 to allow us to 1) emphasize the importance that we place on meeting the Secretary's benchmarks, 2) address new issues that have arisen during this waiver year, and 3) establish the framework for cooperation with the GON during the rest of the waiver year. BILATERAL REVIEW ISSUES -------------- ¶4. (SBU) We recommend that this bilateral review include the �A;following agenda items: --Provide a clear explanation of how Section 527 applies to U.S. citizen claims against the GON; --Receive updates on 70 claims dismissed under Decrees 3 (1979) and 38 (1979); --Review the 52 claims dismissed by the Attorney General for lack of documentation; --Discuss new confiscations of U.S. citizen property; --Evaluate progress on resolving U.S. claims for property controlled by the government, including the Nicaraguan Army; --Urge fairness and transparency in determining compensation; --Seek the repeal of new regulations affecting due process; --Advocate for U.S. claims that languish in Nicaraguan courts; and --Press for the resolution of all U.S. citizen claims regardless of whether they fall under Section 527. MISINTERPRETATION OF SECTION 527 -------------- ¶5. (SBU) In July, Attorney General Estrada met with members of the U.S. Congress to complain that the USG was not properly applying paragraph (h) of Section 527 of the Foreign Relations Authorization Act of Fiscal Years 1994 and 1995. Paragraph (h) defines a United States person as a U.S. citizen, corporation, partnership, or association at least 50 percent beneficially owned by United States citizens. In August, GON officials stated that they were reviewing 26 U.S. citizen claims to determine whether they met the definition provided in paragraph (h). The Embassy has told GON officials repeatedly that at this time, the only operable paragraph of Section 527 is (g),which authorizes the USG to grant a waiver to Nicaragua based on national interest. In addition, the criteria applicable in evaluating Nicaragua's progress in resolving U.S. citizen claims during this waiver year are the benchmarks laid out in the Secretary's letter to Foreign Minister Samuel Santos. DECREE 38 AND 38 DISMISSALS -------------- ¶6. (SBU) Since 2007, the GON has dismissed a total of 98 claims through the application of Decrees 3 (1979) and 38 (1979),which authorized the GON to confiscate property belonging to the Somoza family, former members of the National Guard, and their "allies." On March 12, Estrada told the Ambassador that he would review 70 of the claims dismissed under the decrees. Estrada kept his word, and during the 2008-2009 waiver year, the GON resolved 16 claims previously dismissed under Decrees 3 and 38 and six more during this waiver period. Despite this progress, there remain a total of 76 claims dismissed under Decrees 3 and 38. In addition, on October 19, we received information that the National Confiscations Review Commission (CNRC) dismissed one non-waiver claim belonging to a U.S. citizen under Decree 38. ADMINISTRATIVE DISMISSALS -------------- ¶7. (SBU) Since 2007, Attorney General Estrada has notified us on several different occasions that the GON had dismissed waiver claims for administrative reasons -- for example, because claimants could not demonstrate proof of ownership or confiscation and/or because they never filed a claim with the CNRC. Estrada sent the latest list in May to notify us that the GON would dismiss 52 claims. After the Embassy Property Office contacted claimants to ask them to provide the necessary paperwork to the Attorney General's Office to defend their claims, Estrada revised this list in August and alleged that 24 claimants never filed claims with the CNRC. So far, one claimant representing one claim has acknowledged that he did not file with the CNRC. He has subsequently withdrawn his claim from the Property Office's registry. We are working with the Attorney General's Office to provide the remainder of our claimants with sufficient time to provide the necessary paperwork to defend their claims. NEW PROPERTY CONFISCATIONS -------------- ¶8. (SBU) In 2009, the GON confiscated three properties belonging to three separate U.S. citizens and their families. The Embassy has warned GON officials that any confiscation of U.S. citizen property weakens Nicaragua's chances of receiving a Section 527 waiver. One of the properties belonged to U.S. citizen claimant Leonidas Guadamuz. He filed a claim with the Property Office in April 2003 because the GON had taken possession of his property in July 1979, but the government never went through the process of transferring ownership of the land to the beneficiary. The legal representative of Mr. Guadamuz informed us that the GON formally confiscated the property under Decree 3 in April 2009 (Ref C). In March 2009, U.S. citizen Lydia Mayorga received information that the GON had confiscated her property and offered indemnification bonds (BPIs) as compensation (Ref D). Mrs. Mayorga has refused the government's offer but she is willing to negotiate a settlement, including the return of her property. In July 2009, the Attorney General's Office published a resolution in the Official Gazette expropriating the land on which an open-air landfill known as "La Chureca" is located in Managua (Ref E). The GON transferred title to the City of Managua. Three U.S. citizens of the same family claim to own 41.66 percent of the property. The government offered BPIs with a face value of about $2 million, worth half that on the secondary market and far below the $5 million in cash compensation agreed upon in 2008. CLAIMS UNDER GON CONTROL -------------- ¶9. (SBU) During the 2008-2009 waiver period, the GON resolved two U.S. citizen claims under the control of the Nicaraguan National Police. One claimant received bonds as compensation while the other agreed to lease his property in Jalapa to the police. With regard to U.S. citizen claims under the control of the Nicaraguan Army, the municipal court in Masaya evicted a former Army officer from property owned by a U.S. citizen. During the 2009-2010 waiver period, the GON has not resolved any claims under the control of the government or the Army. On September 24, GON officials said that the case of U.S. citizen Juan Barreto, whose 28 properties are under control of the Nicaraguan Army, was close to resolution pending the submission of his family's corporate charter (Ref F). There are 51 claims under GON control, 36 of them are under control of the Army. LACK OF TRANSPARENCY FOR SETTLEMENT OFFERS -------------- ¶10. (SBU) The Office of Assessment and Indemnification (OCI) settles claims through a process that lacks transparency. The Attorney General's Office has published the procedures for determining compensation, but OCI refuses to provide claimants a clear explanation of how it calculates settlement offers. Specifically, OCI provides no information on how it determines property values or, in some instances, why it reduces settlement offers made by previous governments. Attorney General Estrada has asserted that the law does not require him to negotiate compensation. Instead, he makes a "take it or leave it" offer. In addition, claimants are not allowed to review their files or retrieve information on property values from the National Cadastral Registry Office or its regional offices to assess government offers. RESOLUTION OF CLAIMS THROUGH OFFICIAL PUBLICATION -------------- -------------- ¶11. (SBU) For those claimants who do not accept the government's offer, OCI deposits the bonds in an escrow account and publishes notice of the compensation in the Official Gazette. The government has used this approach since June 2008, arguing that claimants had exhausted recourse through the administrative process and should file their cases with local courts if they disagree with the compensation offered. Thirty U.S. citizen claimants, including one claimant whose case was being decided in court, have been affected by this measure (Ref G). The Ambassador has told Attorney General Estrada that the USG does not consider these cases resolved. CLAIMS IN COURT AWAITING A DECISION -------------- ¶12. (SBU) There are 82 U.S. citizen claims in Nicaraguan courts awaiting a decision. All of the claimants seek the return of their property. Under Nicaraguan law (Law 278/1997),the Attorney General is required to support claimants who seek the return of property that was not confiscated under statutes 85/1990 and 88/1990, also known as the "pinata" laws. In August 2008, Attorney General Estrada announced that his office would no longer provide that support (Ref H). On three occasions, the Attorney General's Office withdrew a petition filed with a local court in support of a U.S. claimant and instead filed a petition on behalf of the illegal occupants. NEW REGULATIONS FOR ADMINISTRATIVE PROCESS -------------- ¶13. (SBU) On September 9, 2009, the GON issued a regulation that gives property claimants 45 days, or until October 26, to provide their mailing addresses to the Attorney General's Office. The GON claims that this regulation was necessary because the Attorney General's Office has been unable to notify claimants regarding the status of their claims. If a claimant does not provide the Attorney General's Office with the correct address within that period, any future administrative resolution will be posted at the Attorney General's Office. Absent an appeal during the allotted timeframe, the GON will consider the claim settled. Claimants still have the right to go to court to contest administrative decisions, but the GON will argue that claimants were already afforded due process according to Nicaraguan law. We are concerned that the Attorney General's Office will abuse this regulation to finalize claims (Ref I). As of October 1, 2009, 272 U.S. citizens await the resolution of 563 Embassy-registered claims. We have been able to contact 93 percent of our claimants, which represents 524 U.S. citizen claims. DEFENDING ALL U.S. CITIZEN PROPERTY CLAIMS -------------- ¶14. (SBU) The GON wants to focus only on waiver claims, but we have reminded government officials that the Embassy advocates on behalf of all U.S. citizen property claims regardless of whether their cases fall under Section 527. The Embassy maintains a separate database listing 22 property claims that 16 U.S. citizens registered 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]. ¶15. (SBU) Since the beginning of 2009, more than 16 U.S. citizens have sought Embassy assistance to deal with legal and extra-legal disputes. In addition, several U.S. landowners report that GON officials and local politicians are systemically infringing on and rescinding the property rights of foreign and local investors. Weak enforcement of property rights property rights and protracted court cases increasingly worry U.S. property owners and frighten potential investors (Ref J). CALLAHAN