VZCZCXYZ0021
RR RUEHWEB

DE RUEHMU #0883/01 1922345
ZNR UUUUU ZZH
R 102345Z JUL 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2873
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

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