VZCZCXYZ0027
RR RUEHWEB

DE RUEHMU #0426/01 0461729
ZNR UUUUU ZZH
R 151729Z FEB 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 9109
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

UNCLAS MANAGUA 000426 
 
SIPDIS 
 
STATE FOR WHA/CEN GSCHIFFER, EB/IFD/OIA, L/CID AND WHA/EPSC 
TREASURY FOR INL MDONOVAN AND GCHRISTOPOLUS, OWH/JHOEK 
STATE PASS TO USTR 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ECON USTR KIDE NU
SUBJECT: NICARAGUA: BACKGROUND ON AMCIT PROPERTY CLAIMS 
 
¶1. (U) Summary: Current Nicaraguan property law affords U.S. claimants three administrative avenues to resolve their cases; claimants may also file in court. Since 1990, more than 1,130 U.S. citizens registered 3,193 claims with the Embassy in Managua. As of February 14, 2007, 298 U.S. citizens with 684 claims remained. These property disputes still figure prominently in our bilateral relations. Section 527 of the Foreign Relations Authorization Act prohibits U.S. economic assistance to or support in international financial institutions for any country where U.S. citizens do not receive adequate compensation for outstanding claims of confiscated property. Section 527 also authorizes an annual waiver if the Secretary of State determines that it is in the U.S. national interest to do so. End Summary.
 
Introduction 
------------ 
 
¶2. (U) Property disputes stemming from the 1980s Sandinista-era 
confiscations figure prominently in our bilateral relations.  U.S. 
citizens still regularly seek assistance from the U.S Embassy in 
recovering confiscated properties.  The following cable outlines the 
historical background of property cases and ties it to the situation 
we find today. 
 
Property Confiscations 
---------------------- 
 
¶3. (U) Between 1979 and 1982, the revolutionary Sandinista 
government issued a series of decrees to create the legal basis for 
the confiscation of private property.  The GON seized nearly 20,000 
properties (from cars and houses to bank accounts and farms) 
including about 12% of total land available in the country.  To 
achieve its political goals, the revolutionary government first 
targeted certain classes of owners, i.e., the Somoza family and 
close political supporters, former government officials, members of 
the armed forces, and then later private enterprises accused of 
working against Sandinista economic policy and individuals 
(including U.S. citizens) absent from the country for more than six 
months.  The Sandinista government also nationalized private banks, 
insurance companies, and mines, often utilizing formal expropriation 
decrees. 
 
¶4. (U) In what devolved into a measure of revolutionary zeal and 
chaos, the Office of the Attorney General, government ministries, 
Sandinista Army, municipalities, individual Sandinista officials, 
and even squatters simply assumed physical control of property 
without going through a process to arrange for legal title.  The 
central government eventually registered titles on behalf of the 
state for most of these properties, though many lacked any legal 
justification for their transfer.  The government rarely paid 
compensation at the time of confiscation. 
 
Legalities 
---------- 
 
¶5. (U) After the Sandinistas lost the February 1990 elections, they 
hastily attempted to legitimize the confiscations before departing 
office by transferring properties to private hands.  Central to this 
effort were three laws.  "Pinata" Law 85 transferred 
state-controlled urban houses to civic organizations and individuals 
who owned no other house before February 25, 1990.  "Pinata" Law 86 
did the same for urban land lots.  "Pinata" Law 88 granted legal 
title to beneficiaries of Sandinista agrarian reform who held 
provisional titles to rural property.  Issuing permanent title to 
the new owners allowed them to sell, transfer, and will such 
properties to others, further complicating future property claims by 
the original owners in the years that would follow. 
 
¶6. (U) The government, Sandinista officials, and squatters also 
confiscated and/or distributed land outside the legal framework of 
the Pinata Laws.  In later years, whether a confiscation "conformed" 
with the Pinata laws would become the legal test for determining who 
owned the property. 
 
Attempts to Establish Resolution Procedures 
------------------------------------------- 
 
¶7. (U) In 1992, the Chamorro government issued a series of decrees 
to remedy Sandinista-era title and ownership problems via a hodge 
podge of solutions, including compensation, return, and swap. 
Subsequent decrees and regulations only further complicated the 
resolution process.  In 1997, the Aleman government passed Law 278 
to correct many of the defects in the early compensation system. 
This law reaffirmed the rights of those who received property under 
Laws 85, 86, and 88, but required beneficiaries of larger properties 
to pay all the taxes they owed. 
 
Compensation 
------------ 
 
¶8. (U) Current property law affords original owners three 
administrative avenues to resolve their claims:  1) the outright 
return of their property, 2) a land swap, or 3) compensation through 
low-interest 15-year term indemnification bonds issued by the 
Government of Nicaragua.  Claimants generally prefer to receive 
land, but this solution is often difficult to achieve.  Of 3,193 
total claims registered with the U.S. Embassy since 1995, 443 
properties, or about 14%, have been returned to their rightful 
owners.  Only six property claims have been resolved through land 
swaps. 
 
¶9. (U) Claimants usually settle for compensation via government 
issued indemnification bonds.  To initiate a property claim with 
this goal in mind, a claimant must file a request with the National 
Confiscations Review Commission (CNRC).  The CNRC determines whether 
the claim is valid.  If valid, the claimant must request that the 
Office of Indemnification Quantification (OCI) determine the value 
of the property in question.  The claimant may appeal this 
determination twice.  Once the value is determined, the government 
issues indemnification bonds to compensate the claimant. 
 
¶10. (U) Claimants also have the option to take their case to court, 
if they believe that current occupants cannot prove the legal basis 
for having assumed ownership.  A successful lawsuit can result in 
the return of property, but this is very rare.  If the quest for 
property is denied, claimants receive BPIs. 
 
Indemnification Bonds 
--------------------- 

¶11. (U) Property indemnification bonds, also called compensation 
bonds, reimburse former owners of confiscated properties through 
payments funded out of future national budgets.  The local currency 
15-year bonds pay interest at the rate of 3% for the first two 
years, 4.5% for the next five years, and 5% for the remaining eight 
years.  This interest rate is considerably below the average rate of 
inflation in recent years (9% during 2004-2006).  Principal is paid 
only during the last four years. 

¶12. (U) Many claimants are reluctant to accept bonds because 
compensation is based on the taxable value of property -- a figure 
considerably below market value -- and because the present value of 
the bonds is a fraction of their face value.  Additionally, bonds do 
not compensate the original owner for damage to the property, or the 
loss of income related to the property.  On February 8, 2007, such 
indemnification bonds sold for about 40% of face value. 

¶13. (U) Since 1990, thousands of Nicaraguans and other nationals 
filed property claims with the Nicaraguan government.  Of these, 
more than 1,130 U.S. citizens registered 3,193 claims with the 
Embassy in Managua.  As of February 14, 2007, 298 U.S. citizens with 
684 claims remained. 
 
Waiver 
------ 
 
¶14. (U) Section 527 of the Foreign Relations Authorization Act 
(Fiscal Years 1994 and 1995) prohibits U.S. economic assistance to 
or support in international financial institutions for any country 
where U.S. citizens have not received adequate or effective 
compensation for outstanding claims against the government for 
confiscated property.  Section 527 also authorizes the issuance of a 
waiver of the prohibition, on an annual basis, if the Secretary of 
State determines that it is in the U.S. national interest to do so. 
In July 2006, the Secretary of State decided to renew the waiver for 
Nicaragua for the 13th year in a row based on the government's 
overall progress in resolving U.S. citizen claims.  The government 
resolved 86 claims during the August 2005 to July 2006 waiver 
period. 
 
¶15. (U) In December 2004, the Nicaraguan legislature passed Law 512, 
shifting responsibility for property claims from the Executive 
(Ministry of Finance) to the new National Property Institute 
(INPRUR).  However, the legislature then decided to delay the launch 
of INPRUR until January 2008.  The Embassy expressed concern over 
the potential effects of partisan interference and lack of executive 
branch responsibility/accountability with the implementation of Law 
512, emphasizing the importance of fair and transparent resolutions 
to claims.  The Embassy continues to work to expeditiously resolve 
all outstanding claims. 
 
TRIVELLI