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THE FINANCIAL AND COMMERCIAL IMPACT OF THE PANAMA CANAL TREATY
TUESDAY, DECEMBER 7, 1999
U.S. House of Representatives,
Subcommittee on Domestic and International Monetary Policy,
Committee on Banking and Financial Services,
The subcommittee met, pursuant to call, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Spencer Bachus, [chairman of the subcommittee], presiding.
Present: Chairman Bachus; Representative Biggert.
Also present: Representative Baker.
Chairman BACHUS. Good morning. We convene the Subcommittee on Domestic and International Monetary Policy of the U.S. House of Representatives. Today we are going to be focusing on Panama and the return of control of the Panama Canal to Panama.
Panama has long been the key financial center for Latin America; banking, commercial activity, and all things similarly related.
We are here today to listen to testimony from experts on the region and on factors involved in today's reality in that region. December 31, the Panama Canal will revert to Panamanian control. Panama has no standing army with which to protect the Canal and its assets. At the same time, this turnover comes at a time in which political instability is impacting the region. Colombia is in turmoil as leftist guerrillas struggle against the drug cartels for control. Venezuela is in the midst of economic crisis, as is the case with Ecuador. Into this mix come the Chinese with a Hong Kong based company that will assume management of the Canal at both the Atlantic and Pacific ports. What economic impact will this have on the national interests of the United States? It seems clear the military implications are potentially great.
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We are here today to look beyond those concerns and to examine the economic, banking, and commercial considerations. Just last week, President Clinton conceded Chinese control of the Canal will accompany the December surrender of American dominance and control. In this admission, he also revealed that our confidence that this Chinese control will pose no direct threat lies in his anticipation of a demonstration of good intentions on the part of the Chinese and their government. Such confidence seems shaky at best. This morning, newspapers report China is building a submarine capable of carrying missiles that can hit any American city. The Chinese intentions and the ''see-no-evil, hear-no-evil'' approach of the Administration can be demonstrated by viewing what they have contended about these submarines in the past, and that is that the Chinese navy poses a threat only to West Coast cities. Do these experts not understand that even the old naval missiles can be fired at East Coast targets from ships that can enter the Atlantic? Perhaps this transit might even be available with the Panama Canal under Chinese control.
The economic questions that we raise here today and tomorrow are intertwined with military considerations. We need to hear honest testimony from people who know the truth. It is no accident that this subcommittee chose today, December 7, on which to hold these hearings and to examine these facts.
I have a longer prepared statement, and I will introduce that for the record.
Let me simply say this about the Canal. Two-thirds of the ships moving through the Canal are either destined for the United States or have originated in the United States. One out of every seven products shipped to the United States or shipped from the United States must go through the Panama Canal. This has tremendous commercial and financial consequences. Control of the Canal and our being able to rely on that Canal for uninterrupted commerce is absolutely essential to our commercial and financial well being. The President, as I said, last week conceded Chinese control of the operation of the Panama Canal. That recent development, I think, has staggering consequences for us as a country. It is something that Congressman Rohrabacher, who is here today, and I and twenty-four others have written to the President about on more than one occasion.
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Appearing at these hearings today and tomorrow will be many experts. Who will not be appearing is also telling. We have invited both the State Department and the Treasury Department and the administrative representatives of the Administration to appear before Congress today to talk about the commercial and financial implications of the transfer of the Canal, but they have declined to appear. They have not accepted our invitation to be here. I am sorry for that. I would have loved to have heard from the Administration. The President and the Vice President will not be at the ceremonies transferring control of the Canal. They will not be testifying before Congress today on the implications.
With that, we will hear from the panel. And Mrs. Biggert, we have a statement from the gentlelady from Illinois.
Mrs. BIGGERT. Thank you, Mr. Chairman. I would like to thank you for holding these hearings on the financial and commercial impact of the Panama Canal Treaty. It is estimated that one-third of the world's shipping passes through the Canal's waters. In a single year the waterway handles about 140 million tons of cargo, including automobiles, grain, and oil. But the Canal is also important militarily. It allows naval vessels to pass easily from one ocean to another. It vastly increases the flexibility of U.S. naval operations in extending their reach far beyond American shores.
While much has been made of economic and military implications of the transfer, and rightly so, little has been said about the negative impact the Treaty might have on our ability to combat the production and distribution of illegal drugs. Panama has served as a base for the U.S. military forces assisting such countries as Colombia, Bolivia, Peru, in combatting the drug cartels that supply much of the world's illicit drugs. On a drug interdiction fact-finding mission to these nations earlier this year, I learned firsthand the importance of our assets in Panama. Sharing its border with Panama is Colombia, which alone produces 80 percent of the world's cocaine and 70 percent of the heroin that eventually reaches the United States. As a direct outgrowth of this illicit drug production, guerrillas in Colombia have already taken control of about 40 percent of their territory and appear to be growing even stronger.
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To reverse this situation, the United States is preparing a sharp increase in aid to Colombia with much of the money going to train and equip the Colombian Army's new 950-man counternarcotic battalion. But until recently, much of the plan and training for Colombia operations was conducted in Panama. But with all U.S. military bases shut down because of the Panama Treaty, our U.S. forces have been forced to locate elsewhere. Sadly, these new sites lack the proper infrastructure and proximity to adequately replace the elaborate facilities in Panama, potentially affecting U.S. counternarcotics activities in the region.
So while the focus this morning of the hearing is solely on the financial and commercial impacts of the Canal Treaty, I hope that my colleagues will bear in mind the negative impact the Treaty might have on our Nation's war on drugs.
Thank you, Mr. Chairman. I yield back.
Chairman BACHUS. Thank you. Let me introduce the first panel, if I could.
Dana, I am sure you need no introduction, but Dana Rohrabacher is serving his sixth term in Congress, a Member of the California delegation, and serves on the House Science Committee where he is Chairman of the Space and Aeronautics Subcommittee. He has been a leading advocate that the United States should maintain some military presence in the Canal, should not totally walk away from the Canal. He is an expert on not only the Carter-Torrijos Treaty, butthe neutrality Treaty? Is that the right word?
Page 5 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. ROHRABACHER. Carter-Torrijos Treaty.
Chairman BACHUS. And he is also a Member of the International Relations Committee. We welcome you to today's hearing.
Dr. Tomas Cabal is Professor of Business at the University of Panama, which is a national university. He has extensive journalism and media experience. He serves as a freelance producer and correspondent for both radio and television in Panama and for ABC news. He hosts a daily news commentary in Panama, and received a Bachelor of Science degree from Louisiana State University and a Master's from Florida Atlantic University. We welcome you to the hearing.
Mr. Robert Mazur is President of Chase & Associates, Tampa, Florida. He served for eight years as a special agent for the U.S. Drug Enforcement Administration. He received numerous performance awards from DEA, U.S. Customs and the IRS. He has given numerous lectures on issues relative to drug money laundering and trafficking, of fraud and corruption and their effect on commerce and finance within Colombia.
Our next witness is Mr. Patrick Hall. He is Senior Vice President of Operations and Marketing for Cooper T. Smith Stevedoring. I think your testimony may be as relevant as anyone's testimony, Mr. Hall, in thatand I think some of the testimony that I have read in your opening statement has not been published before. And that is simply that the bidding process for the two ports is very much in question and appears to have been corrupted, appears to be certainly a question of bid rigging. And because American concerns, including yours, bid on operating these two ports, at one time you were the successful bidder on them; and then the Panamanian government, without any comment, rejected your bid and took the bid of another company which has raised considerable concerns here in the United States and in Panama. So I think your testimony is going to raise even more alarms. We rely on the good faith of both this company and of the Panamanians in operating a clean show down there.
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With that, Mr. Rohrabacher.
STATEMENT OF HON. DANA ROHRABACHER, A MEMBER OF CONGRESS FROM THE STATE OF CALIFORNIA
Mr. ROHRABACHER. Thank you, Mr. Chairman, and I want to thank you for taking the initiative to conduct this hearing on the turnover of the Panama Canal to the government of Panama one week before the ceremony will take place in the Canal Zone.
Today we commemorate the 1941 surprise attack on Pearl Harbor, and it is critical that we focus attention on the potential threat posed by the growing presence of Communist China at this key geostrategic chokepoint in this hemisphere. Also alarming with the withdrawal of American security forces, as is called for by the Carter-Torrijos Treaty, this has empowered a broad array of international criminal organizations operating in Panama which we just heard reference to. These global gangsters are involved in high-level money laundering, drugs and weapons smuggling, trafficking in illegal aliens, and the counterfeiting and distribution of American intellectual and entertainment products.
In short, as America is withdrawing from Panamaand America's withdrawal from Panama is indeed leaving a vacuumsome of the worst elements in the world, including the Communist Chinese, are moving in to fill the void. The question is, are we going to sit back and passively watch it happen? That seems to be the policy of the Clinton Administration. In mid-1996 the Clinton Administration accepted the results of a corrupt bidding process for Panama's premier ports even though the deal was defined by State Department officials as: ''lacking transparency'' and, ''highly unusual.'' This corrupt maneuvering enabled the Hutchison Whampoa Company, whose chairman, Li Ka-Shing, is a close associate of the inner circle of Beijing's ruling elite, to be awarded the ports on both ends of the Canal and the adjacent strategic properties.
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With your permission, Mr. Chairman, I will submit for the record of this hearing a copy of the June 17, 1996, Panamanian government listings of the bids by the different consortium at the auction for the Panama Canal ports.
Chairman BACHUS. Hearing no objection, so ordered.
Mr. ROHRABACHER. This was supposed to be the defining transparent action in terms of how ports would be leased in the future and just an example of a transparent auction. You will see by the documents that we have submitted for the record that while the Chinese Hutchison International Terminals bid $10 million, as did Cooper T. Smith, Kawasaki consortium, you will also see that U.S. Bechtel Corporation bid $11 million and the Manzanillo/Stevedoring Services American consortium bid $11.6 million, but who ended up getting the selection was Hutchison Whampoa. As is clear by this documentation, they of course were far from the top bidder. One must wonder why the Panamanian government under former President Perez-Belladares threw out the high bids by American companies. This apparent favoritism ultimately enabled the Chinese company to gain possession not only of the ports which were originally listed, but of other key strategic properties in the Panama Canal Zone.
With the exit of American security forces, the situation in Panama is deteriorating. I recently visited Panama and it was very evident. The mainland Chinese criminal triad gangs, some of whom have ties to Chinese intelligence agencies, are active throughout Panama, are in partnership with the Russian mafia and with Cuban intelligence services and South American cartels. This coalition of evil is conducting drug and weapons smuggling and many other endeavors that are profit-making in the criminal arena and a threat to the people of the United States of both our safety and other avenues in terms of our national security.
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While the United States military and other security forces have been withdrawing from the Canal Zone, Marxist narco-terrorist forces are expanding their power in neighboring Colombia and are developing a presence in Panama itself, in the far reaches of Panama, but still within striking distance of the Canal Zone.
Panama does not have an army. It does not have an air force, and it does not have adequate naval assets to credibly protect its sovereign territory, much less to defend a strategic asset like the Panama Canal. Panama's national police units are known for their lack of professional competence and certainly no match for a determined adversary. Official corruption is rampant throughout the country.
It is essential to look at the Chinese role in Panama not only in terms of economic competition, but as part of a larger strategic picture. During the past two years I have traveled around the Pacific Rim, recognizing what is certainly a long-term strategy on the part of Beijing to gain control of the world's key strategic chokepoints. A ''vacuum filling'' pattern is evident. Everywhere in the Pacific when the U.S. withdraws or is negligent militarily, politically, the Communist Chinese move in.
A Beijing front company controlling ports at both ends of the Panama Canal increases the security risks to the United States of America. That would seem evident. In addition, their control of the ports and cargo stevedoring, the loading and unloading of millions of container boxes of ships departing from and traveling to the United States, this also intensifies the U.S. Customs concern regarding the two-way flow of sensitive weapons-related technologies as well as drugs and other contraband. The expanding numbers of Chinese personnel entering the Canal Zone enhances the potential for sabotage, especially in the event of a conflict with China over Taiwan or the South China Sea, should such a conflict occur.
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Li Ka-Shing and his Hong Kong-based Hutchison Whampoa Company and their subsidiaries are closely associated with the Beijing regime and have a history of acting as a source of funding or acting as intermediaries in deals with the People's Liberation Army. Unclassified documents by U.S. intelligence agencies and the U.S. Bureau of Export Affairs and the U.S. Embassy in Beijing and the Rand Corporation identify Li Ka-Shing and Hutchison Whampoa as financing or serving as a conduit for Communist China's military acquisition of sensitive technologies and military equipment.
U.S. intelligence agencies have identified Li as a member of the board of the China International Trust and Investment Corporation, that is CITIC, which is a principal funding arm of the Chinese and a technology-acquiring source for China's military. In fact, in 1979 Li was the founding member of CITIC. In 1997 Rand Corporation stated, ''CITIC does enter into business partnerships with and provide logistical assistance to the People's Liberation Army.''
Li is also a business partner of the giant Communist Chinese shipping firm COSCO, which in addition to commercial transport, acts as the merchant marine for the Chinese military. COSCO has been involved in shipping Chinese missile technology and biological warfare components to North Korea, Pakistan, Iraq, and Iran. A November 1999 Hong Kong report, which I request be admitted as evidence in this hearing, cites COSCO's merchant ships as being fitted by the People's Liberation Army to conduct military operations, including mine-laying and anti-submarine warfare.
Li Ka-Shing has also engaged in numerous business partnerships with the Red Chinese Resources Company, a firm that has been identified by U.S. congressional investigators as a front for Beijing's intelligence agencies.
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By using Hong Kong-based firms with close ties to the regime, the thin line between the People's Republic of China's government and private companies is blurred, and as the Canadian government's Operation Sidewinder determined, there are significant ties between the Chinese military, the Triads, and certain Chinese tycoons.
If we do nothing, Mr. Chairman, within a decade the Communist Chinese regime, a regime that hates democracy and sees America as its primary enemy, in partnership with the Triads and cartels, will dominate the tiny country of Panama and will control the Panama Canal. We cannot afford that to happen. This is not in the interests of the United States, and it would be a severe compromise of our national security.
I thank you again for taking the initiative of holding this hearing, and I hope we can draw America's attention to this potential threat.
Chairman BACHUS. Thank you, Congressman Rohrabacher.
Before I move to the other witnesses, let me read to you a statement that the President made in a press conference last week. He said, ''I would be surprised if any adverse consequences flow from the Chinese running the Canal. I think the Chinese will in fact be bending over backward to make sure that they run it in a competent and able and fair manner.''
Do you agree or disagree with that statement?
Mr. ROHRABACHER. I think that statement on the part of the President is very telling. Some people say it was a Freudian slip. The fact is I don't think that the President meant to disclose the information that he disclosed in that statement. That statement would indicate that the President of the United States has already had discussions with Chinese leaders about their control and their operation of the Panama Canal. Up until this time the White House has been denying over and over again that there was any possibility of the Communist Chinese coming to dominate and control the Panama Canal; that instead it was just some company, some private company, Hutchison Whampoa, that was going to control the ports on both ends of the Canal. Obviously, the President has had conversations with the Chinese about this, and the President understands that there is every possibility in fact that the Chinese probably have an intent on eventually controlling the Panama Canal. In fact, every bit of evidence that we have of their activities suggest that.
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But for the President of the United States to suggest that this is not a national security concern to the United States of America, it stretches his credibility to the breaking point. Furthermore, of course, the President suggests that Communist China is our strategic partner. Communist China, which has armed themselves to the teeth based on American technology that they have bought or stolen as they move forward to get control of strategic chokepoints around the world, as they continue in their genocide in Tibet and the destruction of the rights of their own people with no liberalization of democratic rights in China whatsoever, anyone with any sense at all can see that Communist China poses the greatest threat to America's national security of any country in the world, and we must be cautious in our dealing with them. For the President just to say that he is confident that they are going to run the Panama Canal in an efficient and fair manner, it is just beyond me that anyone in a position of authority could say something as ridiculous as that.
Chairman BACHUS. His trustthe President and the Administration's trust of the good intentions of the Chinese Communist government, do you think that today's developments where it has been announced that the Julang2 submarine-launched missile will be deployed on their new submarines and that will be the first example where strategic systems have been developed and deployed using military secrets stolen from Los Alamos?
Mr. ROHRABACHER. Mr. Chairman, the President of the United States has to be aware that the Chinese have been involved in developing these weapons of mass destruction. There is no doubt that the President has been aware through our intelligence sources of this submarine that you just made mention of, or the development of the missiles that you are talking about. After all, those missiles were the beneficiaries and the development of those missilesthe beneficiary, as you say, of technology that American taxpayers spent billions of dollars developing supposedly for our own national defense. For him during this time period to treat the Communist Chinese as America's strategic partners, again, the American people better pay attention to the security needs of our country, because it is clear that the President of the United States is not.
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Chairman BACHUS. The Administration has repeatedly advised the Congressuntil last week's admissionthat there was no reason or no validity whatsoever in believing that the Chinese were influencing or exerting or capable of exerting any control whatsoever over the Panama Canal or its operation. Do you believe that the President and the Administration have simply been naive, uninformed or misinformed or, in fact, that there is misrepresentationI mean, it would have to be one or the other, would it not?
Mr. ROHRABACHER. What we see from this Administration and its relations with the Chinese growing presence in Panama is consistent with what this Administration has been doing with the Chinese for the last six or seven years. This Administration has been bending over backward to ignore any belligerent act and potential threatening act on the part of Communist China to the United States, while on the other hand they have been trying to do their best to magnify any possible positive interpretation of Chinese statements or Chinese policy actions. This type of wishful thinking does not serve the interests of our country well.
In terms of Panama, what they are doing is totally consistent with the fact that this Administration shut its eyes to the transfer of military technology to the Communist Chinese, which is a great threat to our national security. Now they are trying to shut their eyes to this power play. And it is an evolutionary power play, but it is still a power play on the part of the regime in Beijing to make sure that its buddies, the Hutchison Whampoa Company, which is controlled by a man who is in the inner circle of the Chinese leadership, Li Ka-Shingthat by closing our eyes to this type of evolutionary power play, this Administration is putting our country in great jeopardy, and, as I say, ignoring the things that we should be watching out for.
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Chairman BACHUS. Thank you very much. We will come back and ask questions at a later time.
First, Professor Tomas Cabal. Obviously, in your statement you will advise us whether or not the people of Panama are also concerned about the developments within Panama in the way that the Treaty has been carried out.
STATEMENT OF DR. TOMAS A. CABAL, PROFESSOR, UNIVERSIDAD NACIONAL DePANAMA
Mr. CABAL. Thank you, Mr. Chairman, Mrs. Biggert. With the departure of American military forces from the isthmus, the threats to Panama's security are multiple and originate from the country's strategic location astride the narrow waist of the Americas. Drug trafficking, arms smuggling, illegal aliens, money laundering, and large investments by Chinese companies pose potential threats to Panama's national security, threats that also affect the United States. Due to the time constraints, I will concentrate on two areas that have a direct link to geopolitical realities in Panama and in the Americas.
Panama's vicinity to the major drug-producing nations in South America has transformed the country into a key transshipment point for large quantities of illegal drugs. Colombian drug barons take advantage of the country's proximity to ship some 300 tons of cocaine and large amounts of heroin through Panama, drugs that are in constant demand in the United States and Europe. The military dictatorship that seized power in 1968 opened the gates to Colombian drug traffickers. The return of democracy to Panama in 1989 did not remove the threat of international drug smuggling and money laundering.
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Panama's international banking center, the Colon Free Zone, the largest of its kind in the Americas, the Panama Canal, the country's merchant marine, also the largest in the world, and strict bank secrecy laws have allowed drug traffickers to use the country as a money laundering haven. Panama's liberal tax laws, a commercial code that simplifies the creation of shell corporations and the purchase of bearer shares, also explain the country's attraction to Colombian and Mexican drug cartels. During the Noriega years, drug barons used Panama as a depository for huge amounts of illegal drug profits. Since Panama uses the U.S. dollar as its currency and since the country has very liberal banking laws, organized crime has exploited the benefits that the government offers international investors. In spite of efforts by several administrations, large amounts of illegal drug funds pass through the Colon Free Zone and are deposited in the more than 100 banks that operate in the country. Colombian authorities note that the drug lords launder their money in Colombia by selling discounted dollars in exchange for Colombian pesos needed by local businessmen doing business in Panama. The goods purchased and paid for in discounted dollars are then smuggled into Colombia without paying Colombian taxes.
Of the more than $1.5 billion of Panamanian goods purchased, Colombian businessmen only pay taxes on $500 million. Other activities in the Free Zone also facilitate money laundering. One of the preferred methods involves the purchase of gold or gold jewelry. U.S. Customs is currently investigating a company, Speed Joyeros, a company in the Free Zone that has become the largest exporter of gold in the Americas. According to the investigators, $25 million in gold ingots or gold jewelry is shipped out of Panama every month. The two gold mining companies that operate in Panama are closed due to the low price of the precious metals, so authorities suspect that the large amounts of gold being exported are the result of money laundering. As part of the scheme, crooked businessmen inflate the price of the gold to hide the illegal funds delivered by drug traffickers. The invoice, for example, of a $1 million transaction is doubled, allowing drug dealers to launder an extra million.
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In its November 29 issue, U.S. News and World Report has an interesting article on the activities of Speed Joyeros that highlights how drug traffickers launder their money in the international gold market. Experts estimate that the Colon Free Zone allows drug traffickers to launder between $2 billion and $3 billion a year.
A key indicator that narco-dollars have infiltrated a local economy is the level of excess liquidity in the banking system. In Panama, according to figures provided by the National Bank, more than $2 billion of excess funds was transferred last year to the Federal Reserve Bank in New York.
Panama's dynamic construction industry also facilitates money laundering. Figures provided by Panama's construction association note that in the last five years construction projects have totaled some $2.5 billion. Of this total, about 50 percent have been built without the use of banks or other financial institutions. Real estate is a good investment for money launderers since it is really difficult to document the true cost of a building. The money launderers also invest in hotels, discotheques, casinos, and other businesses that handle large amounts of cash. One of Panama's largest hotel chains is owned by Spanish investors that have been investigated by Spanish authorities for money laundering.
The Panamanian government is well aware of the potential threat generated by drug dealers and money launderers. Panama has created a special financial unit to investigate suspicious financial transactions, but a lack of resources and specialists has limited the government's ability to combat money laundering. Only one case has resulted in arrests, and recently the Panamanian Supreme Court overturned the convictions.
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The arrival in Panama of powerful Chinese companies has added a complex ingredient to the transfer of the Panama Canal. Hutchison Whampoa, a Hong Kong-based company that operates maritime facilities worldwide, won the right in 1997 to operate the ports of Balboa and Cristobal, ports that service the Pacific and Atlantic entrances to the Panama Canal. The United States operated both ports until 1977 at which time, as mandated by the Canal treaties, it turned over both facilities to Panama. The Panamanian government held bids and, after a questionable process that favored Hutchison Whampoa, awarded the contract to the Chinese company, allowing them to upgrade the ports and operate them for the next fifty years.
Experts disagree on the level of influence that the Chinese will have in Panama, but they note that the contract allows Hutchison Whampoa abundant leeway in their operation of the port facilities. Hutchison operates worldwide and they control 50 percent of all stevedoring services in Hong Kong, a situation that lets them set the price for container transport and may allow them to undercut the two competitors that manage similar port facilities in Panama. According to the National Security Center, Hutchison's chairman, Li Ka-Shing, is a key advisor to the Chinese leadership in Beijing. Mr. Ka-Shing is a controversial figure who also serves on the board of China International Trust and Investment Corporation which is a principal arm of the Chinese government and a technology-acquiring source for the Chinese military, according to Congressional sources. Li is also director of the Communist Chinese shipping firm COSCO, which in addition to commercial transport, is the merchant marine for the Chinese military. Again, according to congressional sources, Li has also engaged in numerous business partnerships with Chinese Resources, a firm that has been identified by U.S. congressional investigators as a front for Beijing's intelligence agencies.
Page 17 PREV PAGE TOP OF DOC Segment 1 Of 2 The chairman of Hutchison Whampoa is the subject of a parliamentary investigation in Canada, according to reports published by Canadian newspapers. The investigation, code named Operation Sidewinder, targeted powerful Chinese businessmen to determine if they were facilitating the purchase of Canadian companies with funds provided by the Chinese mafia. In its latest report, Transparency International ranked China as one of the most corrupt countries and classified Chinese corporations as willing to pay bribes.
These allegations are extremely serious since some experts believe that Hutchison will be able to affect Canal operations and that the ship pilots could impede the normal flow of vessels through the waterway. This theory is disputed by the Panama Canal Commission who explain that only they can determine the level of expediency in Canal traffic, a fundamental concern for the United States, since the U.S. Navy has the right to head-of-the-line privileges for its vessels.
Whatever the outcome from the presence of Hutchison Whampoa, the truth of the matter is that the People's Republic of China is rapidly filling the vacuum created by the departure of American military forces from the isthmus. Other Chinese companies such as the Great Wall of China, mentioned in the Cox Report, and COSCO are investing in Panama. Their presence adds to the danger of using the Colon Free Zone to purchase restricted technology with dual civilian-military use.
As reported by the Miami Herald, the Chinese are now operating two electronic eavesdropping stations that allow their military forces to monitor U.S. communications. The Chinese companies are investing in modernization of the Panama Railroad and are actively seeking a contract to operate Howard Air Force Base. The closing of this facility has hampered the efforts by the United States to monitor the activities and suspicious flights of international drug traffickers.
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The Chinese presence adds a new dimension to the geopolitical struggle between two political systems that are antagonistic. Many experts in the United States feel that America's preeminence in the Pacific Rim will be tested by the Chinese in the near future. Disagreements over trade or other political disputes could spill over into Panama. A large and influential Chinese presence in Panama could alter the political equilibrium in the region if Beijing were, as an example, to support leftist guerillas in Colombia. Panama clearly maintains diplomatic relations with Taiwan, but continued expansion of investment by the People's Republic of China could signify an end to that relationship.
Panama is Taiwan's most important diplomatic ally in the region. Chinese investments in port facilities in the Bahamas convinced the Bahamian government last year to switch its diplomatic allegiance from Taiwan to Beijing. If Chinese companies secure control of Howard Air Force Base, Rodman Naval Station on the Pacific entrance to the Canal, and the Panama Railroad, the ability of the United States to influence events in Panama could be greatly diminished. Chinese experts from the mainland and Hong Kong account for 20 percent of all goods purchased by the Colon Free Zone. The People's Republic of China is the fifth most important user of the Canal, and COSCO is one of the principal clients of the international waterway.
As Chinese investment grows in Panama, their ability to influence the local Chinese community will also increase. Overseas Chinese communities are targets for the Chinese mafia. Known as ''triads,'' these criminal gangs prey on Chinese citizens. They foster illegal gambling, prostitution, loan sharking, strongarm methods, drug trafficking, illegal aliens, kidnapping, and murder. Activities in Panama and in Central America of Chinese triads are on the rise, a situation that worries law enforcement agencies since the business of these criminal gangs is very difficult to detect and to infiltrate.
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Chairman BACHUS. Thank you very much.
Mr. Mazur, I appreciate you testifying. I understand that you were a DEA agent in Panama; is that correct?
Mr. MAZUR. I worked, Mr. Chairman, in Panama in an undercover capacity when I worked for the Drug Enforcement Administration as a Special Agent.
Chairman BACHUS. Thank you.
STATEMENT OF ROBERT MAZUR, PRESIDENT, CHASE & ASSOCIATES
Mr. MAZUR. I am currently the President of Chase & Associates, a company that provides consulting, training, and expert witness services in several fields, including money laundering and international drug trafficking. I started my firm in August of 1998, shortly after I retired from Government service and concluded a 27-year career as a Federal agent. My company presently serves a number of private law firms, Government agencies, and public companies. I continue to frequently interact with the law enforcement community on a number of levels. I conduct advanced training to Federal agents at the national law enforcement academies and I am a consultant to the Office of Independent Counsel, David Barrett, here in Washington, DC. I serve as an anti-money-laundering compliance consultant to a public company that deals frequently with the U.S. Customs Service.
Page 20 PREV PAGE TOP OF DOC Segment 1 Of 2 During my law enforcement career, I was a Special Agent with three agencies: The IRS Criminal Investigation Division, the U.S. Customs Service Enforcement Division, and the Drug Enforcement Administration. While working for each of these agencies, I was primarily responsible for conducting long-term investigations of international drug trafficking organizations. I directed dozens of lengthy investigations in various capacities. I functioned as a Project Manager and Case Agent and, in this instance, most importantly as a Long-Term Undercover Agent. I have been qualified in U.S. District Court and the Superior Court in Canada as an expert in international money laundering as well as an expert in international drug trafficking.
During the late 1980's through 1994, I assumed several long-term undercover roles and infiltrated various international drug trafficking organizations including both the Medellin and Cali drug cartels of Colombia. My primary role with these cartels involved the coordination of laundering drug proceeds with various corrupt financial institutions, businessmen, bankers, and financial planners. My undercover roles in these three investigations led to the prosecution of several hundred traffickers and money launderers and the collection of more than $600 million in forfeitures and fines and the development of critical evidence that was used in the conviction of Panamanian General Manuel Noriega.
I was the primary undercover agent that infiltrated the Bank of Credit and Commerce, and my reporting of hundreds of conversations with BCCI officers was the cornerstone of the prosecutions that led to the dismantling of the bank.
I have been honored to serve in the difficult task of attempting to thwart the international drug and money laundering investigations that poison our citizens, murder witnesses, corrupt governments and institutions, and create an unfair economic advantage for those who invest billions of drug dollars earned each year. My achievements in the investigation of the world's largest drug cartels and money laundering organizations occurredand I really want to stress this quite a bitI worked shoulder to shoulder with members of a team, a team comprised of hundreds of law enforcement officers, prosecutors, analysts, agency administrative staff, and their devoted families who sacrificed many hours of their lives for a cause. Had it not been for the devotion and professionalism of that team, I would not be testifying before you today. I could not have succeeded without the unfailing support of that family.
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Although I have viewed the drug trafficking and money laundering world as a traditional investigator of historical facts, I was also given a unique opportunity to experience that world from the inside. As a Long-Term Undercover Agent over a collective period of five years, I interacted as a member of the drug and money laundering world on a 24-hour basis. My undercover roles enabled me to interact closely with dozens of significant members of the world's most notorious drug and money laundering groups.
Although it would be impractical for me to mention each of the significant criminals with whom I dealt closely, I would like to mention a few of these individuals so you can better understand why I was in a position to gain a unique picture of the effect that high-level traffickers and money launderers have on Panama and other nations.
With respect to the Medellin Cartel, I dealt closely with one of Pablo Escobar'sthe former head of the Medellin Cartelattorneys and closest advisors, a gentleman by the name of Santiago Uribe, who was responsible for the laundering of a significant portion of Escobar's fortune. Mr. Uribe was a professor at a university in Medellin. In addition, Uribe assisted in the orchestration of the assassination of law enforcement officers in Colombia. He was the author of Colombia's non-extradition treaty which has been rescinded as a result of the courage of the present administration in Colombia.
I also worked very closely with one of Fabio Ochoa's cocaine transportation and distribution specialists, Roberto Alcaino, Fabio Ochoa being one of the members of the Medellin Cartel. While working in an undercover capacity, Alcaino and I became partners in the laundering of drug proceeds for the Medellin Cartel members. Our apparent friendship led to his disclosure to me of an entire clandestine lab operation that produced cocaine that was transshipped through Argentina to the United States and Europe. Information disclosed to me by Alcaino led to his arrest at the site of a 2,500-pound cocaine seizure; and after his arrest, still not realizing that I was an undercover agent, Alcaino put me in charge of his organization to collect drug debts and deal with suppliers.
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I also dealt directly with one of Gerardo Moncada's primary assistants. Mr. Moncado was Mr. Pablo Escobar's replacement to the Medellin Cartel. I dealt with a gentleman by the name of Rudolph Armbrecht. Mr. Armbrecht was a former commercial pilot who acquired a small air force for the Medellin Cartel that was used to transport tons of cocaine throughout North and South America.
With respect to the Cali Cartel, I worked closely with corrupt bankers and businessmen, and through the Black Market Peso Exchange and dozens of fictitious export companies these corrupt professionals laundered tens of millions of dollars in drug proceeds for members of the cartel, including Miguel Rodriguez Orejuela.
With regard to the Bank of Credit and Commerce, I routinely met with officers of the bank throughout the world and received a firsthand education from them about various methods to effectively launder drug proceeds. Among other officers, I dealt on a daily basis with a gentleman by the name of Amjad Awan, the former manager of the Panama branch of BCCI. At the same time that I dealt with Mr. Awan, he maintained a close relationship with Manuel Noriega and functioned as Noriega's financial advisor.
With regard to Panama, I shared office space with Gilbert Straub, a convicted drug money launderer who was formerly a lieutenant of Robert Vesco. In the early 1970's, Straub ran Vesco's operations in New Jersey. He is the individual that personally delivered $50,000 in U.S. currency that was initially used to buy the silence of the Watergate burglars. After Straub, Vesco, and others were indicted for SEC violations in the early 1970's, he fled to Panama, established Panamanian citizenship, and embarked on a career of laundering illegal proceeds for U.S.-based organized crime figures. Straub informed me of innumerable facts relative to the illegal activities he and others staged from Panama.
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While in Panama, I dealt with a host of drug traffickers and money launderers. The individuals were involved in the Colombian cartels, the Russian mafia, the Italian Mafia, U.S.-based organized crime, illegal arms dealers, and money managers in control of fortunes stolen by corrupt world leaders. Virtually all of these individuals looked with great optimism toward the day when the U.S. forces would be withdrawing from Panama and the U.S. presence in Panama would be minimized.
I would like to highlight my undercover conversations with one particular individual that has a major influence in Panama, Jorge Krupnik. Although Mr. Krupnik's account of his integrating criminal conduct and legitimate business activities is astounding, it isn't that dissimilar to the activities of the majority of the contacts I made while working undercover in Panama. Despite his indictment in the U.S. for drug money laundering offenses in 1994, Mr. Krupnik continues to be a very influential businessman in Panama. He is associated with political figures in Panama, government officials in Russia, government officials in Cuba, Colombian drug traffickers as well as organized crime groups in the United States. Because Mr. Krupnik is a Panamanian citizen, Panamanian law does not permit his extradition to the United States for offenses stemming from his laundering of drug proceeds. Like many individuals involved in significant criminal activities, he uses Panama as a safe haven from which he injects illegal proceeds into legitimate businesses throughout the world.
I was introduced to Mr. Krupnik in 1993 when I visited him at his office in the Banco Exterior building in Panama. At the time, Mr. Krupnik was already well known to law enforcement agencies. By his own account, he was formerly a close associate of General Manuel Noriega. During the Noriega regime, Krupnik was in charge of the procurement of arms for the country of Panama and maintained exclusive rights to deal with certain arms dealers. A few days before Noriega was captured by U.S. troops, Noriega and his bodyguards used Krupnik's home as a place of refuge.
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Mr. Krupnik was born in Russia. He previously resided in many countries including the United States. Since establishing residence in Panama, he has become a significant member of the business and political community. When I knew him, he owned a construction company and a marine terminal with charter ships and tankers. He sold commodities including food goods, cigarettes, emeralds, petroleum, and automobiles throughout the world. Basically, Mr. Krupnik finances investments worldwide. When I dealt with Mr. Krupnik, he maintained close business ties with individuals in Russia, Italy, Cuba, Switzerland, Colombia, Panama, the United States, and other countries.
Like most of the criminal element in Panama with whom I dealt, Mr. Krupnik anxiously awaited the diminished influence of the U.S. in Panama. Mr. Krupnik viewed the U.S. withdrawal as an opportunity to assist interests in other parts of the world to increase their economic influence in Panama. In particular, Mr. Krupnik worked closely with unidentified ''businessmen'' in the Far East with whom he hoped to build a Special Economic Zone in Panama. The construction cost of this zone was estimated at $3 billion. Among other features, this zone was supposed to include a commercial district, international finance center, hotels, marina, housing; warehouses, industrial districts for light, heavy and high-tech industries, and the redevelopment of Port Balboa.
Aside from future projects such as the Special Economic Zone, Mr. Krupnik spoke of his extensive involvement in the present-day infrastructure of Panama. After gaining an understanding that I was involved in the laundering of tens of millions of dollars in drug proceeds for the Cali Cartel, Mr. Krupnik offered me unlimited access to aircraft, shipping facilities, and other equipment that operated in the ports and airports of Panama.
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Among other proposals, Mr. Krupnik offered the following: the exchange of U.S. currency generated from drug trafficking for Colombian pesos, commercial goods, real estate, or gold bars; the use of a money laundering scheme that involved fictitious sales of emeralds; the laundering of drug money through contacts in the New York City diamond district; the illegal transportation of U.S. currency aboard commercial aircraft maintained in Panama; the laundering of drug money through contacts in Las Vegas; the laundering of drug proceeds to bank accounts in the Bahamas and Switzerland; the exchange of U.S. currency in Panama for currencies stockpiled in Colombia, and, in this case, the investment of drug proceeds and business ventures in which Mr. Krupnik participated, including the automation of the port of Cristobal, and improvements to Panama's rail system. According to Krupnik, in exchange for investments in these projects he would ensure that these facilities could be used by Colombian traffickers to transport drugs and money.
The facts outlined above are only a small sample of the type of criminal activity I regularly witnessed in Panama. The majority of my conversations with money launderers and drug traffickers in Panama were recorded, including my conversations with Mr. Krupnik. The Drug Enforcement Administration has maintained control of these recordings.
In light of the eminent withdrawal of U.S. troops from Panama and the likely reaction to this event by major organized crime groups throughout the world, I recommend that the U.S. attempt to assist the Panamanian government with the likely increased criminal activity that will plague their country. An enhanced understanding and partnership between the U.S. and Panamanian authorities offers a strategic defense against the exploitation of Panama by outside criminals.
Page 26 PREV PAGE TOP OF DOC Segment 1 Of 2 In my opinion, consideration should be given to increasing the budget and resources of the Drug Enforcement Administration and the other U.S. law enforcement authorities that are hosted by the Panamanian government. Asking these agencies to find funding in their existing budgets to react to this threat would be a disservice to the many other priorities that they must address and the importance of this issue. If the U.S. Government is serious about helping our allies confront new threats imposed by the never-ending resources of organized criminal groups, their actions relative to Panama will serve as a primary example of whether their heart is in this fight.
I believe that when the Panamanian people recognize that the U.S. respects the sovereignty of their nation and offers enhanced bilateral cooperation to address the threats posed by the increased insurgence of sophisticated criminal organizations, they will certainly respond favorably. The increased threats posed to Panama are not only important to the U.S. and Panama, but the entire world. The exploitation of Panama's banking community by organized criminal groups can extend a financial lifeline to terrorism anywhere in the world.
In view of the increased threat imposed by sophisticated criminal groups to Panama and the international banking community, I would also consider the merits of initiating several long-term undercover operations like those in which I was authorized to function in an undercover capacity. These special operations, which require Attorney General Exemptions and were initiated during 1986 and 1991, appear to have occurred with less frequency since the early 1990's.
While the granting of Attorney General Exemptions addressing global money laundering organizations may have diminished during the recent past, an unusual number of regulations have been contemplated and imposed upon the world banking community during the same period in an effort to monitor transactions that might involve illegal proceeds. Although well intended, these regulations do not affect the more sophisticated money launderers. Providing resources to the relevant law enforcement agencies and empowering those resources through the issuance of Attorney General Exemptions, addressing global money laundering organizations is the most effective deterrent to the Jorge Krupniks of the world.
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The views expressed herein are mine and not necessarily those of any of the agencies that I worked with. I am here as a U.S. citizen.
Chairman BACHUS. Thank you.
Our fourth witness is Mr. Patrick Hall; and Mr. Hall, in introducing you in my opening statement, I mentioned that approximately two-thirds of the cargo transiting the Panama Canal has either departed from or is destined for United States ports. In fact, there are 13,000 ships using the Canal each year, and two-thirds of the cargo on those ships is either bound for the United States or has departed the United States.
If you look at grain from the Dakotas and Nebraska, that grain relies solely on the Panama Canal. So our farmers in that region exporting their product rely totally on the Panama Canal as a cost-effective transit. Because it is of such commercial importance to the United States, it is no surprise, I think to any of us, that there are tremendous financial banking and commercial interaction between the United States and the government of Panama, and there are tremendous commercial and financial banking interests which we have in the country of Panama.
Your company dealt with the Panamanian government in the bidding process for the operation of these two ports, is my understanding.
Mr. HALL. Yes, Mr. Chairman, that is true.
Page 28 PREV PAGE TOP OF DOC Segment 1 Of 2 Chairman BACHUS. There have been legitimate questions that have been raised over the financial banking and commercial implications of potential control or operation of the Canal by Hutchison Whampoa. I think your testimony is going to be particularly important, because they were a competing bidder to you in operating in the Panama Canal.
So we welcome your testimony. And I think the way that the Panamanian government dealt with you as an American company and with Hutchison Whampoa could be quite relevant to how they might deal with American companies in the future when we compete with companies like Hutchison Whampoa. Thank you.
STATEMENT OF PATRICK C. HALL, SENIOR VICE PRESIDENT, COOPER/T. SMITH
Mr. HALL. Mr. Chairman, on behalf of my company, Cooper/T. Smith Stevedoring, I want to thank you for giving me the venue to relay the facts relating to the bidding process we experienced bidding for the port concessions in the Republic of Panama.
In the early 1990's, Cooper/T. Smith was involved in negotiations with individuals and entities regarding the eventual Manzanillo International Terminal located on the Atlantic side of the Panama Canal. Although these relationships never materialized, Cooper/T. Smith did develop a strong interest in Panama, and specifically in the Port of Cristobal.
As a result of our interest, we began discussions with the government of Panama on the possibility of obtaining a concession for the Port of Cristobal. These discussions took place during 1994 and 1995. Our interests were well received and we established a strong relationship with Dr. Hugo Torrejios, Director of Ports, as well as numerous other government officials.
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In the summer of 1995, we were informed that the American company, Bechtel Enterprises, had been retained by the government of Panama to conduct a study on the possibility of concessions for the Ports of Cristobal and Balboa on the Pacific, as well as the railroad crossing the isthmus. We were further informed that at the conclusion of this study a public bid would be held with respect to the ports, and that we would be one of the prequalified companies who would be allowed to bid.
As we awaited the completion of the study and the official announcement of the public bid, we were informed that Bechtel had been allowed to make a private bid encompassing both ports and the railroad. This was in the spring of 1996. Shortly thereafter, we were informed by our local attorney in Panama that the government of Panama was again interested in receiving our proposal. We were informed that the Bechtel proposal had presented such a low bid that the government was insulted and the local labor unions were furious.
In April of 1996, the government hired an independent consulting group, ICF Kaiser, to assist them in reestablishing the bidding process. In the meantime, we had begun discussions with International Transportation Services IncorporatedITSregarding the possibility of joining forces on our bid proposal; thus, collectively bidding on both ports. ITS had been working together with a local Panamanian company, Pancanal Shipping InvestmentPSIin negotiating with the government of Panama on a private concession for the Port of Balboa. In fact, ITS and PSI had executed a Memorandum of Understanding with the government with regard to the Port of Balboa.
In June of 1996, with ICF Kaiser's work complete, the government called for an open bid. The bid was to encompass only the two ports, as the railroad concession had already been awarded. Our new consortium, Cooper/T. Smith/ITS/PSI, presented our bid on time and in the proper form as requested by the government. Our bid was for both ports, Cristobal and Balboa, as requested. With respect to the other bid packages received, there was a great deal of confusion, as they were delivered at varying times and contained bids on specific areas within the two ports. Due to the ''inconsistency'' in the bids, the government decided to rebid the concession. This ''new second bid'' was due on June 18, 1996. In an attempt to resolve the previous ''inconsistencies,'' the government made clear the criteria and the deadline for the ''new'' bid that was due. Again, our consortium presented its bids in a timely fashion and consistent with the criteria requested by the government.
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We are uncertain as to who actually bid on time; however, we were informed that HutchisonHITpresented their bid approximately two hours after the deadline. Further, once opened, the Hutchison bid was also determined to be less favorable than the Cooper/T. Smith/ITS/PSI bid.
Soon thereafter, June 20, 1996, we were informed by our local attorney in Panama that the publication El Panama America, in that day's edition, ran an article stating the following: ''Note: ITS is an American subsidiary of Kawasaki Corporation.'' This is translated: ''The government determined last night in principal two projects, and in addition, awarded to the Japanese-North American group Kawasaki Cooper/T. Smith the operation of the Ports of Cristobal and Balboa.
''The minister, Francisco Sanches Cardenas, revealed that Ernesto Perez Balladares announced before members of the Democratic Revolutionary Party, the concession of the Ports of Cristobal and Balboa to the group Kawasaki Cooper/T. Smith.
''Kawasaki offered the payment of an annual rent of $10 million, 9 percent of the gross earning of container cargo, 7.5 percent of the bulk cargo, a participation share for the state of 10 percent without manifest compromise of acquiring the equipment of the National Port Authority, without a concrete monetary offer for indemnification of the public employees that participated in the service to be privatized and without establishing the amount of the immediate investment nor the total for the project.
''The president preferred the offer of Kawasaki-Cooper to that presented by Bechtel, which proposed to operate integrally both ports and the railroad, Ferrocarrd de Panama, while promising to implement an initial investment of $11 million, 7.5 percent of the total gross earnings of the entire project, promising to pay $10 million for the equipment of APN, obligating themselves to $30 million in order to indemnify the public employees and promised to make an immediate investment of $110 million, $155 million in five years and with a grand total investment in the project of $560 million.''
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We were then contacted and requested by the government of Panama, through the office of Dr. Hugo Torrejios, to travel to Panama for the official announcement. Within a few days, Mr. Angus Cooper, II, the Chief Executive Officer and Chairman of the Board of Cooper/T. Smith; Mr. Patrick Hall, Senior Vice President of Cooper/T. Smith; and Mr. Jeff Weston, In-house Counsel for Cooper/T. Smith, traveled to Panama City.
We were accepted in the office of Dr. Torrejios, along with the employees of our partner, ITS, and were officially congratulated by Dr. Torrejios of our award for the concession. During the meeting, Dr. Torrejios received a telephone call requesting his presence at another meeting. He asked that we please wait for him in his office in order for us to continue our celebration. Upon his return, approximately one-and-a-half-hours later, we were informed that he would have to recant his previous congratulations. He explained due to some ''lack of transparency'' there would have to be another bid. He further explained that all bidders would receive a new set of criteria for the now third bid.
Under extreme confusion as to the government's actions, ITS submitted a ''letter of protest'' on behalf of the consortium clearly stating our discontent and concerns concerning the process in which the bidding took place. This letter was never answered. Further, we never received any new bid material and eventually resubmitted our June 18, 1996, bid package. The bid was delivered and opened on July 29, 1996.
Eventually, HIT was awarded the concession. We were later informed that HIT merely doubled our June 18, 1996, bid as their offer on July 29, 1996. Further, we were informed that HIT was the only company to actually receive the promised new criteria for the third bid.
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We have had little or no contact with Panama since that time.
Chairman BACHUS. Let me just ask for one clarification. What was the date that you traveled to Panama and were advised that the concession to operate both ports had been awarded to the Japanese-American consortium?
Mr. HALL. I believe it was June 20, 1996.
Chairman BACHUS. June 20, 1996. And some hour-and-a-half after being told that you had been awarded the concession, that your company
Mr. HALL. We were in Mr. Torrejios' office and were told that a letter was being drawn up to confirm that we would start negotiations on the contract. His secretary came in and said he had a call. And he came in, said he would be back in a few minutes, he had to meet with the president. He came back an hour-and-a-half later and gave us the bad news.
Chairman BACHUS. So, actually, he had to meet with the president of Panama?
Mr. HALL. That is what he told us.
Chairman BACHUS. All right. Thank you very much.
At this time I am going to ask if any Members of the subcommittee have any questions. I will reserve my questions until both Members have asked theirs.
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Mrs. Biggert, Mr. Baker has a commitment at about 12 o'clock. Would it be all right for him to proceed? I appreciate that.
Mr. BAKER. Thank you, Mr. Chairman, and Mrs. Biggert for your courtesy.
Mr. Chairman, I will be brief. I wish I had time to go more in depth into the concerns that the panel has raised this morning. I think your leadership in calling this hearing is most appreciated; and the testimony of these witnesses, if it could be presented to the full Membership of the Congress, I think would give great cause to rethink the potential of this ultimate transfer.
With having expended over $3 trillion in the region over a period of years since the Canal was constructed, the loss of life that occurred during the construction phase itself, the fact that we have acted as a world leader with definite capacity in that region of the world, I cannot understand how there have not been greater repercussions within the Congress about the manner in which the transfer will be conveyed.
Specifically, the bid processes were, I think, alarming. The treatment of American interests, which have invested enormous capital in this region of the country; the fact that significant amount of trade, particularly from the southern agricultural States, that must go through the Canal for world access; the fact that Panama has no established military to maintain and preserve the security of the Canal; on top of all the financial commitments made to date; the fact that the deal now calls for the United States Government and this Congress to forward another $160 million to convey the Canal debt free, I find absolutely astounding.
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I have filed legislation, Mr. Chairman, which would at least do two things. It would say as a condition of forwarding the residual $160 million, which I understand are fees and tariffs gathered by the operation of the Canal, that the United States Government would preserve a right to continue occupancy of the Howard Air Force Base in some fashion for a continued military presence in the region. And, second, that if we do in fact convey the $160 million, that the funds be used only for the maintenance of the Canal. As it is, there is no obligation that the $160 million be used in any way in relation to the operation of the Canal.
And I understand that the maintenance requirements and the lack of qualified personnel to operate that Canal are of extreme concern. And given the financial difficulties the country now faces, it would not be unrealistic to expect that $160 million to find other creative ways of being used as opposed to the continued preservation of the Canal.
Mr. Chairman, I stand fully supportive of whatever direction the subcommittee chooses to take in this matter. I think it is of grave national significance, militarily and economically, and I am very grateful that you took the leadership to call this hearing.
And thank you, Mrs. Biggert, for your courtesy. I regret that I cannot stay.
Chairman BACHUS. Thank you. And now I will yield to the gentlewoman from Illinois.
Page 35 PREV PAGE TOP OF DOC Segment 1 Of 2 Mrs. BIGGERT. Thank you, Mr. Chairman. Maybe somebody could just review very briefly. There were really two parts of the Treaty that were signed in 1997 about turning over the Canal, but also the provision for maintaining the neutrality of the Canal so that even though it is turned over we would still have a way to go back. Is that correct?
Mr. CABAL. I think for all practical purposes this Canal transfer is a done deal. There are other considerations, for example, whether the text of both treaties, the English version and the Spanish version, do they match. I know that there is a resolution. One of the Congresswomen has introduced legislation in the Congress to try to straighten it out, but for all practical purposes, Mrs. Biggert, I really believe in the Panamanians that that is a done deal.
However, there are other measures currently on the negotiating table that can allow the United States to maintain a presence and to help Panama enhance its security preparations in the administration and the control of the Canal. The Clinton Administration has just presented a new security agreement which would provide considerable technology and economic aid that would allow Panama to begin to fulfill, completely fulfill, its security commitments to the Canal.
Now, why do I say a done deal? Because for the Panamanian people the Canal is a major asset. It is run by Panamanians. I have no doubt in my mind that Panamanians can and will run the Canal the way it should be. But we do have other concerns, for example, the continued presence of the Chinese. Now, there is nothing wrong with Chinese investments per se. But a small country like Panama, with the type of investment we are talking about and the geopolitical fallout from such investments, is certainly something to worry about.
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We have other security concerns, such as what is going on with the narco-guerillas on the Colombian border. We need helicopters and fixed-wing aircraft, and we need to bring up the Panamanian police and security organizations to a level in which these threats can be contained. And the United States can play, I believe, a significant role in a partnership with the Republic of Panama to make sure these things happen. But it will take a substantial push from Congress to wake up the people here in Washington as to what we are talking about.
I am most grateful for the subcommittee in inviting us to share our thoughts with you, because all of a sudden the eighth marvel of the world, a tribute to Yankee engineering and Yankee ingenuity suddenly just disappeared from the political radar screens here in Washington, and we have major concerns and we have major worries, and we have major situations that need to be addressed. But we need to do them jointly in a new partnership, in a situation which the United States and Panama can continue to work together to enhance the operation of the Canal and to secure and protect both countries from these threats that you have heard so many details about in this hearing today.
Mrs. BIGGERT. What do you think about the attitude of the Panamanian public versus those that are in the political elite? Do you think there is a difference in what they perceive as the American influence remaining in Panama?
Mr. CABAL. Eighty percent of the Panamanian people want the United States to remain. Unfortunately, the Clinton Administration and the Perez Balladares administration could not get together for a continued operation at Howard Air Force Base.
Page 37 PREV PAGE TOP OF DOC Segment 1 Of 2 The United States now has a major problem in patrolling the Pacific area, of controlling drug flights, the flow of drugs. We are talking about 300 tons of cocaine, substantial amounts of heroin flowing through Panama on the way to the streets of Washington, New York, the streets of America. And the Panamanian people would be delighted to have a continued military presence of the United States in Panama if some type of a fair economic arrangement could have been worked out.
We are talking some 20,000 Panamanians have lost their jobs. Well-trained people, professionals, individuals that were earning wages substantially higher than what they do in Panama, and all of a sudden these people have been left out in the cold. Now, in recent polls, 76 percent of the Panamanian people welcome a continued presence of the United States. We have grown up as a nation. We do not fear an American military presence, if it is done on an equal footing or equal basis. However, the Clinton Administration got lost. They offered no economic compensation. They said, as a matter of fact, you should pay us to remain in Panama. And under those considerations, simply, the negotiations fell through.
But certainly if this Administration or the next administration were to offer some type of economic package that would allow some type of American presence, you can be certain that the Panamanian people in a plebiscite would support it overwhelmingly.
Mrs. BIGGERT. Were most of these 20,000 jobs from working at Fort Howard, or the air force base?
Mr. CABAL. Between the Canal Commission and the American military presence, we are talking about $350 million a year pumped into the local economy and about 20,000 Panamanians have lost their jobs. We are talking about 100,000 citizens of Panama on the dole these days because they cannot work.
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Certainly with the continued operation of Howard Air Force Base, we are only talking about 2,000 jobs, but there is a multiplier effect and an economic fallout in a positive sense. These people could have kept their jobs and could have continued to earn decent salaries.
Again, any time you bring up the issue of a continued American presence in Panama, if it is done in the right economic form, it will receive overwhelming support by the Panamanian people.
Mrs. BIGGERT. There have been some stories about setting up like a trade center in the port area, not a Disney World, but something to make it more of an international trade area. Do you foresee that happening and would that need the influx of American dollars?
Mr. CABAL. Yes, ma'am. Certainly there is a complex plan to integrate the ports, the maritime facilities, the railroad and new expressways into what they call a multimodal transportation hub, in which vessels arriving from the Pacific and the Atlantic, their cargo would be stored, sorted out, redistributed and reexported.
One of the things that happens is that the Panama Canal has a certain limitation as to the size of the vessels. Post Panamax vessels, vessels larger than the width of the Canal, cannot transit. So you have to unload some of this cargo on one of the two extremes and ship it across piggyback on the railroad. So certainly Panama maintains a potential to become the Singapore of the Americas.
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We welcome American investment, and hopefully we can clear away these negative results of not so clear a transparent bid process, but, more than anything else, Mrs. Biggert, we need to remind the American people and the American business community that we welcome their investments in Panama. Cellular telephones, for example, Bell South, is in Panama. There are many international corporations, many American companies that can benefit and can jointly develop the strategic advantages that Panama offers the world. We are one of the few countries that uses the U.S. dollar as its legal tender, as its currency.
So certainly there are many opportunities for American businessmen and American corporations to come down to Panama and to work with the Panamanians in developing the country.
Mrs. BIGGERT. What guarantees would American companies have that they would not be treated like Mr. Hall's company has been?
Mr. CABAL. Well, again, as a Panamanian, I have to admit our judicial system is many times at fault. We need to work on improving our judicial capacity and independence of the judicial branch of government. But, again, that is something that can be worked out with both governments.
And, again, one of the manners in which this can be addressed is by situations such as this. As the information is given out, if the media takes interest in what is going on, if irregularities are reported and denounced, pretty soon we will get rid of the bad guys; and we can go ahead and do business the way it should be done.
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We have laws on the books that certainly protect American investors, and I believe if Uncle Sam takes an interest, if Uncle Sam reminds Panama of its judicial obligations, legal obligations, and if the American business community participates fully in investment opportunities, yes, these things, like what the gentleman today expressed, I think these things will go away and they will be the exception rather than the rule.
Mrs. BIGGERT. Thank you. I have a couple more questions.
Chairman BACHUS. Go ahead.
Mrs. BIGGERT. Thank you. I have a question for Mr. Mazur, if I might.
You said that you recommended that the U.S. attempt to assist the Panamanian government with likely increased criminal activity. If we are not really welcome there, how do you suggest that we do that?
Mr. MAZUR. Well, my experience in talking with my colleagues, which I continue to maintain contact with, gives me the impression that the relationship between the law enforcement authorities there has continually improved and that they are optimistic about continuing to improve them.
I think that the removal of U.S. troops and an appearance of a lesser U.S. influence will act as a catalyst in the minds of the traffickers who already have a presence; and, therefore, the threat I think will be increased. Some of that, I think, has been anticipated. I know that because of several of my former colleagues in different parts of the country who are now going to be working in Panama. But to what degree that has happened because of my being out of the agency for the last year-and-a-half, I could not say exactly.
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But I think an increased number of individuals and an increased number of resources is, at a minimum, going to be something that would be a tremendous asset to minimize a snowballing effect of the threat, which I think is going to happen without doing that.
Mrs. BIGGERT. Thank you.
And then, Congressman Rohrabacher, you said that if we do nothing that the Chinese regime will dominate the country of Panama and the Panama Canal. I think that probably we disagree on the trade issue, but I think right now China is seeking accession to the World Trade Organization; and to me, I see some effect of our principles. If we open up the country of China with lowering the trade barriers, which the bilateral agreement which has just been worked out will do, and with their accession into the World Trade Organization, do you see that as an effect on what happens?
Mr. ROHRABACHER. I do not see that lowering the barriers and letting evil people into your midst has ever changed evil people into benevolent people. I have never seen this ''hug a Nazi, make a liberal'' theory ever come true. No matter how you hug them and you caress them and you try to give them responsibilities and authorities inside whatever organization that you are talking about, it just seems that those evil people do not change their stripes. They still will turn around and just maul you at any chance they get.
The fact is that the Chinese regime has not at all liberalized in the last ten years. We have had huge increases in trades. In fact, the deficit that we have now with the Communist Chinese alone is like $50 to $70 billion a year. And supposedly that is more economic interaction. Supposedly that will make them better. But what are they spending their money on? Building missiles; weapons of mass destruction. As we just heard from the Chairman today, submarines that carry missiles that can hit any city in the United States. They go out and they participate in underhanded maneuvers, bribing people in Third World countries in order to get control of strategic points.
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This is a serious threat that has been, number one, ignored by the Administration. And too many people in our own business community have been victims of wishful thinking that, well, if we just deal with these people, they are going to change. I don't see any evidence of that.
Mrs. BIGGERT. Well, as I said before, we do not agree on that issue, but your comment was if we do nothing. What shall we do, then?
Mr. ROHRABACHER. First of all, we must recognize that China is our adversary and a potential enemy and not a strategic partner. That is the most important thing for us to operate. Change that operating premise.
Number two, in Panama specifically, and as Tomas was saying, who is our greatest ally in Panama? The Panamanian people. Seventy-six percent of them want to see the United States continue to have a security presence in Panama and to be somewhat in a partnership with them for the benefit of both of our countries.
So the most important action that we take concerning this long-term threat that we are discussing today or even medium-term threat is that we should do nothing that alienates the people of Panama. And all of this talk about canceling the Panama Canal Treaty and taking back the Canal for us is very counterproductive. Number one, it will not happen; and, number two, it will alienate the people of Panama.
But there are certain things we can do with the people of Panama. They want honest government. They do not want their government dominated by the Communist Chinese or any of these criminal elements that we are taking about. So we must work together with them. They have a new president down there since this dirty rotten maneuver we have just heard about today. They have a new president, and that new president may be very different than Balladares. But we have to work with President Moscoso to make sure that she is successful.
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I have a resolution, called H. Con. Resolution 186, that is a sense of the Congress. And I believe this would go a long way in asking the new president of Panama to, number one, cancel the lease agreement with Hutchison Whampoa and have a new bidding process that is transparent and fair. And if we manage to do that, that will turn around this trend that we are talking about today. And, number two, it calls on the new government of Panama to negotiate with the United States a security arrangement that will be to both of our benefits.
There is no reason why we cannot have a military air base down there. The Panamanians would like us to do that with some of our military forces, and just so long as the Panamanians know that we are respecting the agreements that we have already made. And with that, we will find that our interests and the interests of the Panamanian people are absolutely parallel. And, again, I think this is the direction we have to go, reinforce that good-will and that spirit that we have developed over the decades with the people of Panama and turn around this evolution toward dominance of Panama by the Communist Chinese.
Mrs. BIGGERT. Thank you.
Thank you, Mr. Chairman.
Chairman BACHUS. Thank you.
Congressman Rohrabacher, my first question was going to be about your resolution. I think it is important that we do highlight the three things that you requested in this.
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The first, as you say, is to request that the new government of Panama nullify the lease agreements for the Balboa and Cristobal port facilities on each end of the Panama Canal and initiate a new bidding process that is both transparent and fair.
In that regard, Mr. Hall, I will ask you this question: Your company was involved in, I guess, the bidding process on a number of occasions; is that correct?
Mr. HALL. That is correct, Mr. Chairman.
Chairman BACHUS. And you have participated in fair, open, and honest bidding processes before, have you not?
Mr. HALL. That is correct, Mr. Chairman.
Chairman BACHUS. Would you describe the bidding process in Panama as fair, open, and honest?
Mr. HALL. Not in the past, it has not been.
Chairman BACHUS. And the bidding for port concessions at Balboa and Cristobal, do you consider that you all were dealt with fairly and honestly?
Mr. HALL. I did not feel that we were treated by the rules that they laid down themselves.
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Chairman BACHUS. I see. Well, let me again say that the Congressman in his resolution asked for a new bidding process that is both transparent and fair. Was the bidding process that you participated in transparent and fair?
Mr. HALL. We did not feel that the bidding process was transparent or fair in any one of the bidding processes that we went through.
Chairman BACHUS. At no time was it fair or transparent?
Mr. HALL. The rules that the Panamanian government laid down for everybody to follow, we felt, were fair. But they themselves did not abide by the rules that they presented to us as bidders.
Chairman BACHUS. I see. All right. Fine. So the bidding process was corrupted at some point, or appeared to be.
Mr. HALL. Just say it looked suspicious.
Chairman BACHUS. All right. Thank you.
Mr. Rohrabacher, you have traveled extensively in the Pacific Rim. Do you see a pattern of China having a strategic strategy of increasing their influence? And, if so, do you see that influence as one of a strategic partner or a strategic competitor to the United States?
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Mr. ROHRABACHER. I would go beyond strategic competitor. I would say it is not just a strategic competitor, that Communist China today, with its being the world's worst human rights abuser, a regime that continues genocide against the people of Tibet; and the believers in God in their own country are suffering great repression, that this, is a country that is in fact not even a strategic competitor, but a potential adversary and perhaps a potential enemy of the United States that we have to be aware of.
The Communist Chinese do not have a large navy. The United States has a large Navy, although our Navy is shrinking, dramatically shrinking in the last ten years. But even so, the Chinese Communist navy is small, and we can see a pattern on the part of the Chinese to make up for that small navy. The fact is they are trying to gain control of strategic points that will permit them then to dominate or control strategic waterways.
About a year ago, after several years of being thwarted by our own State Department from being able to go to this area, I visited the Spratly Islands, which are actually islands at low tide; at high tide they are below the surface, and they are more like lagoons with reefs. And these are very close to the coast of the Philippines. They are about 100 miles from the Philippines, but they are 800 miles from China; and the Communist Chinese we discovered had three warships, which of course reflects a large portion of their naval military might, inside the lagoon of a place called Mischief Reef. And they were building fortifications there.
Since we have left, since I visited there, they have finished their fortifications. These can land and take off helicopters; missiles can be launched from those fortifications. So we have a bracketing there of an important waterway by the Communist Chinese that will give them leverage against Japan. Because 51 percent of all of Japan's commerce and almost all of its energy resources goes straight through that area that the Chinese Communists would be bracketing with this new fortification.
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So at the same exact time they are involved in this maneuver, we see them try to get themselves into a position of dominating the Panama Canal and eventually controlling the Panama Canal. One cannot help but see that there is a pattern to what they are doing. There is a purpose to their behavior. And, again, if the United States acts weak in the face of a tyrant, we are going to pay the price. We are going to pay the penalty.
We can in Panama now turn around this situation with a determined effort that this Administration has not been willing to take. And that is what my resolution calls for, is that this new partnership between the government of Panama, the new government, and the United States Government.
Chairman BACHUS. You know, we heard the announcement this morning that they are starting to construct their latest Chinese submarines which will be capable of hitting every major city in the United States. And the intelligence reports are purported to say that they will use it as a strategic deterrent to the United States. Are you aware of anything as a U.S. Congressman that we are doing illegally or which would pose a threat to them as far as a deterrent?
Mr. ROHRABACHER. We have not only not been a threat to the Communist Chinese. In this last six years this Administration has just gone way to the extreme of trying to prove our friendship and benevolence toward the Communist Chinese regime.
We, after all, set the ground rules of trade between our two countries. We have permitted the Communist Chinese to flood our markets at 2 or 3 percent tariffs against their goods while they charge 30 and 40 percent tariffs against American goods being sold in China; and that might be in a highly regulated market at that in terms of what we are permitted to ship into Communist China and sell.
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But what has that resulted in? We have given them $70 billion in hard currency by agreeing to this unfair trade relationship. That is what their trade surplus with us is. Well, how can they think of us as being their enemy if we are giving them the ability to buy tens of billions of dollars of weapons with their hard currency that they earned from an unfair trading relationship that we permit to exist with them?
No. What we have here is a classic example of a despotic regime, of tyrants who are trying to deal with an open and free society, and the free society mistakenly trying to change the tyrant's psychology by dealing with them in a fair and honest way and let us be nice to the bad guys. It does not work. It did not work with Adolf Hitler; it did not work with the Japanese militarists, who just fifty years ago were defeated in the Pacific.
But leading up to that great war in the Pacific, in the 1920's and 1930's, we were trading with the Japanese. American businessmen thought they were going to change the Japanese militarists' approach to the United States by making them dependent on us, by giving them oil and scrap metal, which of course came back in the form of bombs and naval capabilities on the part of the Japanese.
We have the same challenge today, Mr. Chairman, with the Chinese. The Communist Chinese believe that, number one, they are racially superior, same as the Japanese militarists did in the 1920's; the Communist Chinese believe they have a historic right to dominate all of Asia, or all of that part of Asia into central Asia as well, as well as a large chunk of the Pacific basin. And, number three, like the Japanese militarists, the Communist Chinese know that it is only the United States of America and our courage and our determination that stands between them and this historic domination of that part of the world that they believe they have a right to.
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This is a formula for disaster if we try to treat militaristic tyrants as if they are good guys that can be persuaded by psychologically dealing with them in a positive way and giving them trade benefits to our country.
Chairman BACHUS. All right. Thank you.
Professor Cabal, you have described the Panamanian public as very much committed to a continued U.S. security presence in Panama. There seems to be a real disconnect between the Panamanian people and the political elite in Panama as far as what they want.
In this regard, because there is such a difference of opinion, political leaders normally try to follow the will of the people that they represent. What evidence do you have about corruption or influence peddling close to the president of Panama? Do you have any reason to believe that such exists?
Mr. CABAL. Yes, I do, Mr. Chairman. Again, it is interesting to note Mr. Mazur's intervention, because I too, as a journalist, am quite aware of Mr. Krupnik's activity in Panama. He continues to do business. Nobody seems to investigate him. He was indicted in a criminal investigation, but could not be extradited because he is now a Panamanian citizen. And then you wonder what Uncle Sam is really doing. How come they did not implement the Mutual Legal Assistance Treaty that would compel the Panamanian authorities to come forward and at least investigate Mr. Krupnik?
Recently, he was a key player in obtaining a concession. Mobile and an Arab group took over petroleum facilities that service vessels that transit the Panama Canal. So here you have an individual who has been indicted in a criminal court in the United States doing business as usual.
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One of Panama's largest hotel chains is owned by Spanish brothers, the Fernandez Espinas brothers, who are under criminal investigation in Spain for money laundering. The Spanish government requested, through diplomatic channels, support from a previous administration to investigate these individuals, because there is clear evidence that they were working side by side with a Colombian drug cartel. Well, not only did nothing happen, but the Fernandez Espinas brothers continue to do business as usual in Panama and run a string of hotels in Panama, Colombia, and Spain.
So when you add those elements together, Mr. Chairman, you wonder really what is going on on both sides of the equation. How come the United States, the Drug Enforcement Administration, Customs, Treasury, other agencies do not come forward and request aid from the Panamanian government through the Mutual Legal Assistance Treaty, when you put that together with other individuals?
Panama is a small country, and one would say that part of its idiosyncrasy is a mindframe in which money is thicker than blood. Commerce and cutting deals is part of the Panamanian way of doing things. However, that should not extend or transcend into the political arena and certainly not into the legislative or judicial branch of government. So my belief in this, Mr. Chairman, is if the United States, through its specialized agencies, continues to put pressure and continues to forward information and to request the same type of information that they legally do, you are going to get results. You will get some of these criminals in jail where they belong.
Notice, for example, what is happening in Mexico where Mexican authorities have requested the support of the American FBI and other agencies to investigate the criminal activities of their drug cartels. I think something like this can be done, but there has to be a distinct interest from the United States Government and its agencies to the Panamanian government that, no, we will not allow the Mr. Krupniks of the world to go on about their business; that we cannot allow the Fernandez Espinas brothers to expand their operations in Panama like nothing is happening; and, no, we cannot allow these criminal elements to move in and out of the country without any reaction.
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Notice, for example, Panama played a key role, along with the Mexican government, the Ecuadorian and the Colombian governments, in a recent operation called Operation Millennium. Drug dealers, money launderers, criminal elements, organized crimeit is a multinational syndicate that needs multinational cooperation.
So we do have our problems in Panama, but we do not have the resources, we lack trained personnel, and we certainly need to rely on the United States to provide the intelligence, the knowledge, the information, the criminal indictments so we can put these people away and get them out of influential situations.
Again, as a Panamanian, Mr. Chairman, it is offensive to realize that Robert Mazur spent years trying to put Mr. Krupnik away; and, because this man is a Panamanian citizen, he cannot be transferred to face trial in the United States. This is very offensive to me as a Panamanian. And, hopefully, one will find that the United States Government, that this Administration and the new administration for next year, will take a more distinct interest in helping the Panamanian authorities put these people away.
If Uncle Sam, if the Congress requestswe have mentioned all types of information here that is already in the hands of the DEA, in the hands of the Customs Departmentthere is information there, there are files, there is all type of intelligence, that I believe if the Congress takes the time and makes the effort to contact these agencies, these officials, I think something will move and it will move in the direction of Panama, and the Panamanian people will react.
Page 52 PREV PAGE TOP OF DOC Segment 1 Of 2 I honestly believe that we have an honest president that is willing to clean up her administration if evidence is given, specific evidence is provided that allows them to take legal measures against these criminals.
Mr. ROHRABACHER. Mr. Chairman, if I could add just one note to what Tomas has just said. There is a relationship between this criminal activity and the Communist Chinese maneuvers that are going on that are the subject of the hearing today.
Chairman BACHUS. I have a follow-up question on that that we might want to let him answer, and then.
Mr. ROHRABACHER. Go right ahead. Yes, sir.
Chairman BACHUS. Let me ask you a follow-up question and then we will get into the growing Chinese influence.
But before I get to that, you have polls in Panama saying that the Panamanian people support a U.S. security presence.
Mr. CABAL. Yes, sir.
Chairman BACHUS. You are strongly of the opinion and your testimony is that the United States should maintain a security presence in the Panama Canal Zone. How do we do that at this late date?
Page 53 PREV PAGE TOP OF DOC Segment 1 Of 2 Specifically, Congressman Rohrabacher is here; and he has introduced a resolution in the U.S. Congress, and let me read the three parts of that resolution. And as I read each part, I would like you to respond as to how that would be greeted in Panama; what would be the reaction of the Panamanian people. What do you think would be the reaction of the Panamanian government? Are these things practical requests?
The first: The United States Government should request that the new government of Panama nullify the lease agreements for the Balboa and Cristobal port facilities on each end of the Canal and initiate a new bidding process that is both fair and transparent.
How would that be greeted?
Mr. CABAL. Well, certainly the American ambassador at the time went public and created a major scandal, a political scandal in Panama when the diplomatic representative of the United States Government was in the papers and on TV denouncing the irregularities, the severe irregularities. We now have Mr. Hall here who has come forward and given testimony and evidence that there were irregularities.
Under Panamanian law, something still can be done, I believe, particularly if the new president takes an interest in reviewing the procedure and again in calling out for something to be done as a fallout or as a consequence of these irregularities. It seems thatit appeared that the same property, the same land, was awarded to three different concessionaires. And in the end the Panamanian government had to absorb a $60 million loss because some of the land allocated to the railroad, to the area near Albrook Air Force station and to Hutchison was the same property. So they have now had to basically eat $60 million, or absorb $60 million as part of the contract.
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So I honestly believe there are legal possibilities in which this bid and this bid award can be revised. Certainly coming from the United States, from the Congress, from the Government, I think something could be done. And certainly public opinion would support an investigation into something that was denounced by the U.S. State Department and by its representative in Panama that it was irregular. It did not happen the way it should have been.
And I see no reason why the Panamanian people will take offense if one of these bid proposals was reviewed and if a new bid was called and everybody had a level playing field.
Chairman BACHUS. And in this regard, Congressman, we made our request that the United States Government investigate this bidding process. Mr. Hall, has anyone from the United States Government approached you prior to us inviting you to this hearing inquiring as to the legitimacy or the fairness of the bidding process?
Mr. HALL. Nobody has approached me and asked what happened.
Chairman BACHUS. Fine. No one from the United States?
Mr. HALL. Nobody from the United States Government has approached me and asked me what happened during the process, no, sir.
Chairman BACHUS. All right. I find that incredible.
Page 55 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. ROHRABACHER. That is enough to take the wind right out of your lungs to hear that. This is an Administration that is supposedly watching out for our national interests, and they have not even looked into these very serious charges to this degree? It is incredible.
Chairman BACHUS. The second part of the Rohrabacher resolution is the United States should request that the new government of Panama investigate charges of corruption relating to the granting of the Panama Canal port leases by the previous administration. How would such a request be greeted by the Panamanian people?
Mr. CABAL. I would say, Mr. Chairman, with 100 percent support. The Panamanian people want the best deal.
There are substantial doubts as to what went on in the former administration. The new government has rolled back certain laws; certain concessions have been suspended because there was not complete transparency. So in the minds of the Panamanian people and public opinion, I am sure they would welcome a blue ribbon commission or blue ribbon committee, some type of investigation by either the legislative or the executive in which these things were brought forward. But they are only going to move forward, Mr. Chairman, if there is interest, and the interested party is the United States, if the United States, its Congress or any of its agencies come forward and say, look, we need to look at this.
What happened? The State Department has a complete file on what happened during the bid process. Their representative was out there complaining they were getting a raw deal. So the information is there. I am sure that President Moscoso would have no qualms in at least looking into what went on. And certainly the Panamanian people would not think it is Big Brother looking over your shoulder. On the contrary, let us see what went on, and if there is some type of legal remedy, I am sure some type of legal remedy could be found.
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Chairman BACHUS. The third part of the resolution was the United States Government should negotiate security agreements with the government of Panama that protect the Canal and ensure the territorial integrity of the Republic of Panama. Would that be welcomed by the Panamanians?
Mr. CABAL. Yes, sir.
Chairman BACHUS. And is it too late?
Mr. CABAL. No. We have on the tablejust last week Panama's minister of government revealed or announced that there is an ongoing negotiation with the Clinton Administration pertaining to a new security agreement with the Republic of Panama. As part of this negotiation, the Panamanian government has separated, has put aside a certain area of the Howard Air Force Base, Rodman Naval Station, a communication center at Curacao, other facilities at Fort Davis on the Atlantic side, and parts of the general training facility at Fort Sherman. All of these elements, according to the document released by the Panamanian government, fit into an overall strategy which would allow, among other things, to monitor electronically and via satellite all vessels transiting the Canal, the most important port facilities in the country; and it would also allow American intelligence agencies to monitor the areas, the land and the border near Colombia.
So the mechanics are there. It is just a matter of implementation. I find it ironic, to say the least, that the U.S. Government has gone out and spent $100 million in Ecuador to build up a facility that has one-tenth the capacity of Howard Air Force Base. I find they are in negotiationsthe Pentagon is in negotiations with the governments of Aruba and Curacao, Peru, and Ecuador to try to make up the lack of air coverage provided by Howard Air Force Base. And here we have a facilityyou have excellent runways; it is the largest facility of its kind south of the border that could very well be integrated into an overall security agreement, at least, for example, forward observation landing rights.
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All of these things are still on the table and can very well be negotiated between both governments if there is, in my mind and in the Panamanian public opinion, some type of economic compensation. I have no clear figure of what it is going to cost the American taxpayer to pay for the increased fuel cost of having American AWACS fly out of Key West or these other locations when they could very well be flying out of Howard Air Force Base.
So in response, Mr. Chairman, there is a security agreement right now on the table between the Clinton Administration and the Moscoso government that would allow for some type of continued American presence within an overall security agreement in which the U.S. and other countries, such as Canada, that have already expressed interest in participating, which they could very well participate.
And I add one additional element, Mr. Chairman. There is one sore spot that is still left between Panama and the United States, and that has to do with the firing ranges, the cleanup of the firing ranges used by the American military. The current Administration's position is they have done what they can do, that they do not want to damage the environment, and that is it. That is the end of the line as far as the cleanup of the ranges is concerned.
Panama has hired American specialists to go in there and look, and they have determined that more can be done, and that it is unfair that the United States simply on December 31 forgets about the firing ranges and simply walks away, in spite of the fact that over the last ten years, 23 Panamanians have died and dozens have been injured, because the U.S. military did not clean up the ranges. I think that it is an ongoing situation that can be addressed beneficially by both governments. And if the United States takes an interest and takes the initiative in helping Panama clean up the ranges at an estimated cost of $100 million, I think we are going to get somewhere.
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The security agreement has a price tag of about $150 million, which includes the hardware, the helicopters, the vessels to enhance the security of the Canal and of the country. And I am sure both countries, at this late stage of the game, right down to the ninth inning, that there is still time and a legal vehicle, a legal mechanism in which these issues can be addressed and resolved to the mutual satisfaction of both countries and both governments.
Chairman BACHUS. Thank you. Now I want to move to the next question.
Have you seen or been informed of the increased presence and influence of China in Panama during the past twelve months?
Mr. CABAL. Yes, sir. I can certainly agree with Congressman Rohrabacher's view. The Chinese take a long-range view of the world. You just heard methe Miami Herald has reported increased Chinese activities in Cuba. They are operating electronic eavesdropping stations that permit them to monitor U.S. communications.
Hutchison Whampoa walked into the Bahamas last year, invested $40 million in port facilities in the Bahamas. The Bahamian government decided that was enough to sever relations with Taiwan. They certainly changed allegiance from Taipei to Beijing after Hutchison Whampoa walked in there.
One of the main investors in Panama is a company called Evergreen, which is a Taiwanese-based corporation. Evergreen is the largest container transport company in the world, again owned by Taiwanese investors. They do substantial amounts of business in the People's Republic. So Evergreen simply cannot operate in Panama without some type of a combination with the Beijing government. Why? Because they have all types of facilities in the People's Republic.
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So when you put this togetherfor example, as I was reading the Cox Report, I was surprised to note that a Chinese corporation identified with negative activities in the United States, the Great Wall of China, is now active in Panama. They are trying to set up a Silicon Valley-type investment, high-tech, in the City of Knowledge. They are already operating in the Colon Free Zone. So you wonder, what is the Great Wall of China doing in Panama and what is their ultimate intention?
Then when you add all of these thingsfor example, I am very disturbed to notice that the chairman of Hutchison Whampoa, Mr. Li Ka-Shing, is now the subject of a parliamentary investigation into organized crime by the Canadian government. So when you put all of this together you wonder, would Panama have the full capacity to deal with these corporations, with the multinationals and whatever geo-political agenda the Chinese decide to implement into the Canal or the region? I am very disturbed, and I think the United States Government should also be disturbed about what is going on.
Chairman BACHUS. Let me ask you this. What is the role of Hutchison Whampoa at the Rodman Naval Port?
Mr. CABAL. Well, the information that I have received is Hutchison, as part of their bid process, they have the right of first refusal to operate Rodman Naval Station. That is a maritime facility located in the Pacific entrance of the Panama Canal. We have watched recently and seen there have been surveyors. They have been out there surveying the property. Hutchison has said they are not interested, but again they have been out there surveying the facilities, and they may very well make a bid for the Rodman Naval Station.
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I am also been informed by knowledgeable sources in Panama that Hutchison, through one of its subsidiaries, is also interested in bidding for control of Howard Air Force Base. It is a $3.5 million project. That again would give Hutchison a dominant position in the Panama Canal and the whole maritime facility in Panama. They seem to be taking their investments and their opportunities in Panama very, very seriously.
Chairman BACHUS. Thank you.
You mentionedlet me try to find thishere we go. You mentioned the City of Knowledge high-tech export zone that is being planned?
Mr. CABAL. Yes.
Chairman BACHUS. Is that at the Fort Clayton location?
Mr. CABAL. The City of Knowledge will be located at Fort Clayton, which was just recently turned over to the Panamanian government. It is the former headquarters of the U.S. Army South.
The Panamanian government has plans to develop a high-tech industrial park and export processing zone at Fort Clayton. So they have received requests from universities and think tanks and other organizations, but also from Chinese corporations such as Great Wall of China that has offices in the Colon Free Zone, and they are interested in working with and developing and operating within the City of Knowledge.
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So, again, you wonder about the situations such as dual-purpose technology, patents, rights, and so forth, intellectual property and these types of things, and you wander what it is they are up to and what their potential mischief is in such a position as this.
Chairman BACHUS. So they are interested in being active investors?
Mr. CABAL. They have forwarded and received a permit to operate within the City of Knowledge, the Great Wall of China Corporation, yes.
Chairman BACHUS. That is near the port of Balboa; is that right?
Mr. CABAL. Yes. Clayton military base overlooks the locks. It is very close to both Rodman and the Pacific entrance. Clayton overlooks the first set of locks in the Pacific entrance which is called Miaflores.
Chairman BACHUS. Again, what is your concern about the Great Wall Corporation?
Mr. CABAL. My concern is it has a starring role in the Cox Report: espionage and industrial espionage, falsification and other nefarious activities related to their functioning elsewhere. I, as a Panamanian, am very nervous that a corporation that has been cited by a congressional report such as the Cox Report appears involved in any type of activity in Panama.
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At the same time, I am very concerned that the Canadian government is investigating Mr. Li Ka-Shing. You can't have this type of thing. The chairman of the company is being investigated, because the Canadians have something called Operation Sidewinder and have indications that organized crime, Chinese mafias, are commingling the funds with Chinese investors and buying up Canadian corporations. The result of this scandal in Canada has been they have set up a parliamentary investigation that is going to go all over the country for a year looking into organized crime in Canada.
One of the elements of organized crime again is the Chinese mafia, the so-called Chinese triads. The fact that the chairman of Hutchison Whampoa has been singled out or identified in a parliamentary investigation of this nature, I find it very, very troublesome.
Chairman BACHUS. That investigation was reported by the Vancouver newspaper that
Mr. CABAL. The Toronto Globe and Mail, the Vancouver Provincial. The Canadian media wholesale has reported in detail. It is not only Mr. Li Ka-Shing. Stanley Ho, the so-called Macao casino king, other important investors.
Mr. Chairman, Mr. Ka-Shing has invested over a billion dollars in real estate in Canada. He is a very powerful, influential individual in Canada and again will have to face parliamentary inquiries as to the nature of the funds they are investing in Canadian corporations.
Page 63 PREV PAGE TOP OF DOC Segment 1 Of 2 Chairman BACHUS. You have introduced, Congressman Rohrabacher, at least one report of this, of hundreds of thousands of dollars of contributions being investigated in Canada?
Mr. ROHRABACHER. It is called the Sidewinder report. It has been an investigation going on now in Canada. I would think that the subcommittee might be well served to request a copy of a preliminary copy of the report. It has not been issued yet.
Chairman BACHUS. Without objection, we will do so.
I supposedoes Panama have an open disclosure of campaign contributions? I guess those that are reported
Mr. CABAL. No, the law does not require that campaign contributions be revealed. The former Panamanian president claimed publicly that it wasn't a good idea, because if you supported a losing candidate then the people in the new government would make life difficult for you.
But, no, there is no legal obligation in Panama to reveal the source of the funds. As a matter of fact, it caused major embarrassment to the Perez-Balladares government when it was later found that at least $50,000 had come from a Colombian drug dealer. Mr. Balladares publicly explained that he had no knowledge that these were drug funds.
But, no, we do need to work on that in Panama. We don't have to reveal the origin of the funds of campaign contributions. It is an ongoing worry among Panamanians to find out where the political funds are coming from.
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Chairman BACHUS. Thank you.
And, Mr. Mazur, let me ask you this. Two weeks ago the FARC guerrillas stole two helicopters from a former U.S. military base. Is that Albrook? Were you aware of that?
Mr. MAZUR. Since my retirement in August of 1998, I have not been involved in those types of matters.
I did want to mention one thing with respect to political contributions that you might find interesting, Mr. Chairman; and that is that Mr. Krupnik and his associates with whom I dealt, a number of the people in that small world that not everyone sees in the everyday walk of life, made it quite clear to me that political contributions were an extremely important portion of their formula for success. Other than to say that those general things were said on a continuing basis, I can't be any more specific.
Chairman BACHUS. What were his activities? Would you again inform the subcommittee of who he is and what he does?
Mr. MAZUR. He is outwardly a very active legitimate businessman in Panama. When I had contact with him and as a result of that contact he was indicted for drug money laundering offenses here in the United States and has, by his own account, decades of association with major organized crime groups in many parts of the world.
Chairman BACHUS. I see.
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Mr. ROHRABACHER. Mr. Chairman, again just to note, the relationship between the government in Beijing and the Communist Chinese party that controls Beijing and some of these organized crime groups in different parts of the world is becoming very evident. There is sort of a blurring of the lines. This is very much their way of doing things, where you blur the lines between what is the government and what is not the government and what relationship actually exists between the triads and the mafia and the government in Beijing.
Right now, for example, Burma, as you know, produces a huge hunk of the world's opium. Well, who controls Burma? You have a regime in Burma called the Slorc regime that might as well be a vassal government to the Communist Chinese in Beijing.
How is that opium exported out of Burma? It goes right up the old Burma Road right into China and out the various distribution sources.
This is a totalitarian regime. They know what is going through their country. They know who is involved in this type of activities. If you put a country like this into a position to dominate us, a very small country like Panama, as we just heard, with a very little investment, they could corrupt the whole system. And we have already heard the result of them trying to corrupt the system perhaps has led to the loss of the port facilities on both ends of the Panama Canal for American companies and being put into the hands of an enemy of the United States.
When I visited Panamaagain, just another example of how the Communist Chinese influence is corrupting the situation and is connecting with various crime efforts that we have been hearing about todaythe head of the Panamanian intelligence service, their CIA, Samantha Smith, had gone into hiding when I went down there. I talked to our embassy, and our embassy said they couldn't find her. Well, within about ten hours my staff and I had found Samantha Smith; and being a former newsman myself and having a great writer that works with me, we were able to find Samantha Smith.
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Samantha Smith is head of the Panamanian CIA, but not our CIA, but their intelligence service, was in hiding because the president of that country, Balladares, the same president that oversaw this corrupt maneuver in terms of the issuing of this lease for the ports in the Panama Canal, well, this same man, his intelligence chief told us and has verified and talked to Members of Congress, we brought her up here, suggesting that the Communist Chinese were paying President Belladares $30,000 apiece for illegal Chinese immigrants to be brought from the mainland of China through a very special route through the international airport there, the upper level in Panama City, and then flown to the United States, some of whom, I might add, stayed in Panama, but many of them headed to the United States.
We must ask ourselves, if the Communist Chinese are paying $30,000 apiece to bring people in from China, who is worth $30,000 to bring in from mainland China? If they want day laborers to sort of work in very low salaries, they are not going to bring in people at $30,000. Every one of our major cities have illegal immigrants that can work for a pittance and be exploited by these people. Who are the 150 people that were brought into the United States through Panama at $30,000 apiece?
I would have to guess that they are people connected with criminal activities. Otherwise, they could have walked in the front door. I would expect they were people involved in criminal activities. Otherwise, they wouldn't be worth $30,000 apiece to bring into the United States.
This is the type of corruption that we look at that can change a country's government overnight. If we don't watch out, as I say, we are going to find this same type of element which are interlocking with these organized crime elements around the world, the Communist Chinese are going to end up dominating the strategic choke point in this hemisphere, that is the Panama Canal and the Republic of Panama.
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Chairman BACHUS. Thank you.
Mr. Mazur, let me ask you two questions; and then I will discharge the panel. Now that the United States is turning over the Canal and withdrawing all of its military, what effect do you think that will have on our efforts and the efforts of Panama and other countries to combat money laundering and corruption?
Mr. MAZUR. It is my opinion that it is going to heighten the challenge dramatically. Again, because I believe that, as I was told by the criminals that I dealt with, they viewed the withdrawal of U.S. troops as just one indicator of a lesser influence of the United States which they feared quite a bit because of the accountability they might otherwise be held to. In my opinion, it is incumbent upon us to recognize that whatever resources we have applied will not, in my opinion, continue to be able to stem the tide, because it is going to be double the challenge or more in the near future.
Chairman BACHUS. So the basis of the military presence in Panama was in fact a very positive force in combatting money laundering?
Mr. MAZUR. It had a trickle-down effect. In my opinion, the real ''where the rubber meets the road'' as far as the money laundering is concerned is primarily through the cooperation of the two nations' law enforcement communities. When I see it through the eyes of the criminals with whom I dealt, it was an indicator, again, of a lesser involvement, in their opinion, of U.S. activities.
Page 68 PREV PAGE TOP OF DOC Segment 1 Of 2 And although it might not technically be accurate to say that the withdrawal of U.S. troops was going to necessarily affect the work between the small number of agents working in that country with the Panamanian law enforcement authorities, their challenge is going to be dramatically increased because of it. And to a sense, yes, indirectly, it certainly does have an effect in the fashion I just described, in my opinion.
Chairman BACHUS. I will ask the professor, both you and Mr. Mazur, this question. Panama has been criticized for having very liberal banking laws and strong bank secrecy laws that have allowed Panama to be a haven for drug traffickers and money launderers. What can be done, if anything? What needs to be done to obtain Panama's cooperation in bolstering their banking laws and tightening them up and allowing more disclosure?
Mr. CABAL. Well, you have, first, the Mutual Legal Assistance Treaty which allows both countries to interact and react.
For example, there was a criminal family known as the Mordaks, M-O-R-D-A-K. These were businessmen operating out of the Free Zone, very much like what I had described, using gold bars and gold jewelry to launder money for the Medellin Cartel. I wrote in my daily column about the Mordaks in 1991, and it wasn't until 1997 that one of the Mordaks who did not have Panamanian citizenship was arrested by the Panamanians and expedited. He is now serving a forty-year sentence in a Federal prison for money laundering.
His brother, however, was captured in Costa Rica. He managed to bribe his way out of the Costa Rican jail, fled back to Panama, and because he is a Panamanian citizen, he cannot be extradited to the United States. He goes on his business as if nothing has happened.
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But the Mutual Legal Assistance Treatythen, of course, the exchange of timely information between law enforcement agencies is the proper vehicle in which these investigations can be carried out. Panama is one of the few countries in Latin America that is operating a financial investigative unit to look into money laundering. They have received assistance from FinCEN, the Financial Crimes Enforcement Network out of the Treasury Department, and they are looking into suspicious transactions.
I believe that bankers, people in the Free Zone, people in the construction industry, Panamanian businessmen are now fully aware of the continuing threat of money laundering and the dirty money in the local committee. But, again, it requires a substantial push from the U.S. and from its law enforcement agencies that have the intelligence, that have the resources, that have the information. If this information is produced in a timely manner and delivered in a logical and sequential manner to the Panamanian government, you can be certain that some of these criminals will end up behind bars.
If the United States were to take a similar attitude that it is taking with the Colombian government, joint operations, getting these people extradited, getting them to stand trial, you would stem the tide of money laundering; and then Panama's banking system, which is a good, solid, creative banking system, can be put to work on behalf of the Panamanian people and the international investors and we can put away this criminal element. But it requires substantial cooperation, and I think the push must come from the United States more so because you have the resources, you have the specialists, you have the agencies and the law enforcement capacity to get your hands to reach out the long arm of the law and help Panama put these criminals away.
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Chairman BACHUS. And you have not seen that?
Mr. CABAL. No, I have not seen that. On the contrary.
Chairman BACHUS. Mr. Mazur, what could be done to stop the Jorge Krupniks of the world? What needs to happen in Panama to make it possible to bring him to justice?
Mr. MAZUR. Extradition is all that is necessary. The evidence is being maintained here in the United States that would support the government's case against Mr. Krupnik. So with respect to him in particular, that is a key issue.
With regard to
Chairman BACHUS. Have we made any attempt tohave we requested that he be extradited?
Mr. MAZUR. I am not aware of the fact that he could, given the offenses that he is charged with.
Mr. CABAL. Under the Mutual Legal Assistance Treaty, a Panamanian citizen can be compelled to come forward and testify in the United States courts. He can also be arrested. The United States can request his arrest and his prosecution in Panama.
Page 71 PREV PAGE TOP OF DOC Segment 1 Of 2 A recent case involving some Arab businessmen in the Colon Free Zone in a joint operation with the Canadian Mounted Police, they determined these individuals were guilty of money laundering. They were arrested and tried and convicted in Panama with information provided by the Canadian authorities. So in the case of Mr. Krupnik, through the State Department and the Mutual Legal Assistance Treaty, specific information could be brought forward to have this man arrested in Panama and tried in Panama for money laundering even though that money laundering occurred mostly in the United States or the United States was the ultimate target.
Mr. MAZUR. That may be the case, but with respect to prosecution in the United States, at least as I have been told by the prosecutors personally handling the case, that their efforts would be futile to request the extradition of a Panamanian citizen for money laundering offenses in the United States. And so, therefore, it is for that reason that that has not occurred, it is my understanding from talking directly to them.
Chairman BACHUS. It would be interesting toI would hope that the Justice Department would follow through on that and at least make that request. Then we would know whether or not that request would be futile. I don't think that you know until you make the request.
Let me ask you this. Has there been any effort to have Panama voluntarily commit to the OECD anti-corruption unit that is combatting bribery and corruption in international business transactions?
Mr. MAZUR. I am not aware of the facts around that, sir. I am sorry. I can't comment on that.
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Chairman BACHUS. You are aware that
Mr. CABAL. President Moscoso has just appointed a new anti-corruption commission in Panama as a signatory to the international treaties that could end up in criminal indictments as a result of bribery.
I noticed, for example, in this latest report, Transparency International has Red China right there at the top of the most corrupt countries. This year they produced a list of nefarious business practices carried out by these corrupt societies. Again, China was right there in the top five.
So there are organizations, and Panama is the signatory to these international treaties. And, yes, I think these situations could be addressed through international treaties. And I do believe that the Panamanian government through this new anti-corruption commission would look into allegations of corrupt practices.
Maybe that is one of the ways of putting back on the table the Canal, the port facility bid, Cristobal and Balboa, simply that to provide information to the anti-corruption chief that severe irregularities occurred during the bidding process that need to be investigated, that the money may have changed hands, that things did occur that were not proper. He has the authority granted by the legislative branch to investigate all charges of corrupt practices such as bribing businessmen and bribing or intervening in corrupt bid procedures.
Chairman BACHUS. Professor, President Clinton has assured you that the Chinese will be bending over backward to run all of their commercial transactions in a fair and honest manner. You don't seem to
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Mr. CABAL. Well, as I see, Mr. Chairman, the way that the Chinese government has reacted to some of its people, this sect, Falun Gong sect, and as I have seen what they have done to the people in Tibet, I really do not believe that the government, the Communist government, a dictatorship such as the one carried on in Beijing that certainly has the prosperity and welfare of the Panamanian peoplethat it is one of their concerns. I think they have long-range plans. I think they have strategic interests that may or may not match our own.
But I find it ironic that, as we begin the new millennium, a country, a noble country such as the United States, simply wants to fade away into the night and surrender and let go a strategic waterway that has tremendous impact and interest to the world maritime community. I find it again ironic this country's last couple of days paying attention to some reports about an American president such as Theodore Roosevelt, and I wonder what the American people really think and what they consider as they simply let the Canal fade and most of its resources into the hands of a strategic rival.
I honestly don't think the Chinese are worried about Panama, and I am convinced that if they can take advantage and if they can exploit the situation on their behalf, they are going to do it whether the Panamanian people agree or disagree. That is not something that will enter into their equation.
Chairman BACHUS. Thank you. I think that we will end on that note. Thank you very much.
Page 74 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. ROHRABACHER. Thank you, Mr. Chairman.
[Whereupon, at 12:43 p.m., the hearing was adjourned.]
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