VZCZCXYZ0006
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DE RUEHZP #1836/01 2622015
ZNY CCCCC ZZH
R 192015Z SEP 06
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 8975
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHMD/AMEMBASSY MADRID 0291
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC

C O N F I D E N T I A L PANAMA 001836

SIPDIS

SIPDIS

DEPT FOR WHA/CEN ELIA TELLO

E.O. 12958: DECL: 08/04/2016
TAGS: ECON EFIN EINV KCOR PM
SUBJECT: GOP SLEIGHT OF HAND DEALING IN GAMING INDUSTRY

REF: A. PANAMA 676

     ¶B. PANAMA 973

Classified By: CDA L. Arreaga for reasons 1.4 (b) & (d)

 ¶1. (C) SUMMARY.  Despite overcoming two key bureaucratic
hurdles, U.S.-based Merit Management continues to encounter
what they believe to be high-level GOP obfuscation and delays
in securing the license for its $8 million casino in Colon.
Merit attributes its delay to financial incentives from the
existing gaming industry to GOP officials.  Senior GOP
officials reiterated President Torrijos is personally opposed
to the proliferation of casinos (reftels A & B).  In separate
incidents, the Embassy received documentary and verbal
evidence supporting allegations of President Torrijos'
thwarting the 2005 licensing application by the Panamanian
company Royal Games under pressure from former President
Ernesto Perez Balladares.  Perez Balladares is reportedly a
major shareholder in a competing gaming company and aspires
to the Presidency of the ruling PRD party.  The cartel-like
dominance of existing industry operators with the apparent
support of the GOP, and the public debate over the social
effects of gambling in a country with a 40% poverty level
combine to inhibit competition in the gaming industry. END
SUMMARY

--------------------------------------------- ------
MERIT LICENSE APPLICATION DELAYED BY THE PRESIDENCY
--------------------------------------------- ------

¶2. (C) After almost a year in limbo, the gaming license
application of U.S. investor Merit Management proceeded from
the Gaming Board to the Pleno on July 19 where it was
approved.  (The Pleno consists of the Minister of Economy and
Finance (MEF), Vallarino, the Controller Dani Kuzniecky and
Legislator Juan Hernandez).  Post attributes this forward
movement to two factors.  First, the replacement of Council
for Public Security and National Defense (CONSEJO) Director,
Leonel Solis, who had been accused of seeking bribes to
complete the processing of CONSEJO background checks
purportedly required by Merit's licensing application (Ref
A).  Secondly, inquiries by Embassy to Controller Dani
Kuzniecky alerted the Pleno to the length of time the
application had been pending and began a series of inquiries
as to why the Gaming Board had not scheduled a Pleno meeting
in several months.

¶3. (SBU) Despite difficulty getting timely submissions from
Gaming Board Director Raul Cortizo for each step in the
approval process, Merit's contract with the MEF was signed
August 21 and approved by the National Economic Council
(CENA) on September 5.  (The CENA consists of Minister
Vallarino, Controller Kuzniecky, Minister of Commerce Ferrer,
Banco Nacional Manager Juan de Dianous and a rotating member
of the Assembly.)  After CENA approval, the application was
scheduled for Executive Cabinet review on September 6.

¶4. (SBU) On September 6, VP/FM Lewis reportedly informed
Merit executive and their local legal representation (Jimmy
Arias, close friend and advisor to Torrijos) that Merit's
license was not on the Cabinet agenda for that day.  Later
that week, Merit reported they were advised they would be on
the agenda the following week.  Merit had already received
written approval from the Gaming Board to install its gaming
machines and planned a "soft opening" (unadvertised) the week
of September 11 with a grand opening October 12.

¶5. (SBU) The September 13 Cabinet meeting also failed to act
on Merit's application, preventing its "soft" opening that
week.  Merit executive told Econoff that Vallarino did not
show at the meeting purportedly due to an unrelated fall out
between Vallarino and Torrijos.  According to Merit's
attorney and close friend of Torrijos, Jimmy Arias, Torrijos
claims he needs to make up to Vallarino but is not yet ready
to do so and doesn't want to exacerbate the alleged conflict
by ruling on Merit's application in Vallarino's absence.
With Torrijos scheduled to be out of the country at the UN
General Assembly opening, the earliest this application can
be reconsidered is September 27th.  (Note:  Torrijos is
scheduled to meet with various USG officials on the margins
of UNGA. End Note.)

---------------------------------------------
ROYAL GAMES ALLEGES HIGH LEVEL GOP CORRUPTION
---------------------------------------------

¶6.  (C) Representatives from Panamanian company Royal Games,
Jose Ventura, Sr. and Jr., told Econoffs they had an
application for a bingo establishment before the Pleno in
April 2005.  The evening of the Pleno meeting (April 18),
they received a phone call from Cortizo advising them that
their application had been approved.  When no resolution was
received, they contacted an attorney at the Gaming Board and
recorded this conversation.  This attorney at the Gaming
Board reportedly stated Director Cortizo received an irate
phone call from President Torrijos on Tuesday April 19 who
demanded this license be "unapproved" and said he didn't want
any more such establishments approved for 5 years.

¶7. (C) Royal Games' source at the Gaming Board further
alleged former Panamanian President Ernesto Perez Balladares
expected Torrijos to preserve the existing oligopoly in
Panama's gaming industry comprised of Thunderbird (Canada),
Codere (Spain), and Cirsa (Spain).  The gaming industry in
Panama was privatized during the Perez Balladares
administration and the source stated Perez Balladares is a
major shareholder in Cirsa.  Royal Games was directed to
approach the incumbent gaming companies and not the GOP to
move their license forward.

¶8. (C) Instead, Royal Games sought and received a directive
from the Supreme Court that the Pleno publish its resolution
from the April 18th meeting.  On May 30, 2006 (one year
later), they received an official denial signed by Controller
Dani Kuzniecky, Minister Vallarino (who was not present at
the April 2005 meeting) and Assembly president Elias Castillo.

---------------
WHAT'S AT STAKE
---------------

¶9. (U)  Press accounts of Gaming Board statistics report
Panama has officially licensed 13 full casinos and 26 gaming
rooms.  Between slot machines and table games, $238 million
USD was wagered in 2005, up 10% from 2004. Citing the social
impact of gambling on Panama's poor families, National
Assembly Deputy Jorge Hernan Rubio (Partido Popular) proposed
modifications to Panama's Gaming Law 22 to limit casino
entrance to non-resident foreigners and "certified"
Panamanians/Panamanian residents with a monthly income of
$1000 USD or more.  The legislation faced opposition from the
Gaming Industry and appeared to have died in committee.

¶10. (U) NOTE:  According to media accounts, Thunderbird's
tribal gaming operations in California ceased operations in
1998 amid scandal and litigation.  Leading Codere
shareholder, Joaquin Franco (grandson of Spanish dictator
Francisco Franco) was arrested in Arizona in 2004 for
allegedly skimming gambling proceeds, falsifying records and
attempting to bribe a gaming official. END NOTE.

-------
COMMENT
-------

¶11. (SBU) The explanations of the continued delay of Merit's
license application raise questions about transparency.  In
conjunction with Royal Games' allegations, Merit's experience
suggests that powerful GOP and gaming industry interests may
be actively preventing other, perhaps more reputable players,
into their lucrative games.
ARREAGA