THE TRANSFER OF THE PANAMA CANAL AND RENEWED THREATS TO PANAMA´S NATIONAL SECURITY.

By Dr. Tomas A. Cabal

INTRODUCTION-

As mandated by the Torrijos-Carter treaties, the United States of America will transfer the control and administration of the Panama Canal and all its military bases on the isthmus to the panamanian government at noon on december 31, 1999. The transfer closes out a historic chapter in the political and diplomatic relations between both countries. The United States played a key role in helping Panama secure its independence from Colombia in 1903. Anxious to negotiate a treaty with the newly independent republic that would allow the U.S. the right to build a canal, president Theodore Roosevelt sent american warships to the isthmus to deter a military intervention by colombian military forces. Initiated in 1904, the construction of the Panama Canal showed yankee engineering and yankee ingenuity at its best. A tremendous feat of construction and design, the canal stands as a classical example of man´s desire to subjugate and control the forces of nature. The path between the seas allowed the United States to operate a two ocean navy and to project its power through-out the region. With the construction of several military instalations, the canal, its ports and the lands adjacent to the waterway functioned as a huge aircraft carrier, augmenting the geopolitical and military influence of the United States in Latin America and the caribbean. The military importance of the Panama Canal Zone was ratified during two world wars and the korean and vietnam conflicts.

As Panama prepares to assume the control and administration of the canal and the canal zone, the departure of all american military forces from the isthmus poses new threats and new challenges. In the overall geopolitical sense, american troops in Panama have been instrumental in projecting american military might and influence in the Americas. They have served as a pyschological support for foreign investors from Europe and Asia that always believed that Uncle Sam would take care of their ventures in Panama. As the United States closes out its military presence in Panama, asian and european investors had expressed their hopes that the two countries could somehow negotiate an extension of american military bases on the isthmus. Political realities and constraints in Panama did not allow a continued US military presence in the country. With their departure, Panama must now face renewed threats and challenges that will affect the country´s national security and will affect the way the world judges Panama´s ability to operate the international waterway. The threats to Panama´s security are multiple and they 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 may also affect the United States. Due to time constraints, I will concentrate on two areas that have a direct link to geopolitical realities in Panama and the Americas. The first is money laundering and the second is a result of heavy investments by chinese corporations aligned with the Peoples Republic of China.

MONEY LAUNDERING- Panama´s vecinity to the mayor drug producing nations in South America have transformed the country into a key transhipment 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. General Manuel Noriega, who governed Panama with an iron fist from 1983 to 1989 is serving a 30 year sentence in the US for drug smuggling and money laundering. Noriega´s reckless behavoir and his close relationship with the Medellin drug cartel was one of the reasons used by president George Bush to order Operation Just Cause in december of 1989 to remove General Noriega from power. The return of democracy to Panama did not remove the threat of international drug smuggling and money laundering. 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 ( the largest in the world) and strict bank secrecy laws, have allowed dug 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 US 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. International drug dealers take advantage of the more than $11 billion dollars in purchases made in the Free Zone to hide their illegal drug profits. 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 dollars 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 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 dollars in gold ingots or gold jewelery 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 metal, 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 a $1 million dollar transaction is doubled, allowing drug dealers to launder an extra million. The money is then wired to banks in the United States and the money is cleaned. In its november 29^th 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 and $3 billion dollars per year. Panama´s dynamic construction industry also facilitates money laundering. A key indicator that narcodollars have infiltrated a local ecomony is the level of excess liquidity in the banking systme. In Panama, according to figures provided by the National Bank, more than $2 billion dollars of excess funds was transferred to the Federal Reserve Bank of New York. Figures provided by Panama´s construction association note that in the last 5 years, construction proyects have totaled some $2.5 billion dollars. Of this total, about 50% have been built without the use of banks or other financial institutions. Real estate is a good investment for money launderers, since it is very difficult to document the true cost of a building. Money launderers also invest in hotels, discotechs, 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.

THE PRESENCE OF RED CHINA- The arrival in Panama of powerful chinese companies has added a complex ingredient to the transfer of the Panama Canal.

Hutchinson 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 entrance to the Panama Canal. The United States operated both ports until 1977 at which time as mandated by the canal treaties turned over both facilities to Panama. The panamanian government held bids and after a questionable process that favored Hutchinson Whampoa, awarded the contract to the chinese company, allowing them to upgrade the ports and operate them for the next 50 years. Experts disagree on the level of influence the chinese will have in Panama, but they note that the contract allows Hutchinson Whampoa abundant leeway in their operation of the port facilities. Hutchinson operates worldwide and they control 50% of all stevedoring services in Hong Kong, a situation that lets them set the price por container transport and may allow them to undercut the two competitors that manage similar port facilities in Panama. Hutchinson´s chairman, Li Ka-shing, is a key advisor to the chinese leadership in Beijing. Mr. Li Ka-shing is a controversial figure who also serves on the board of China International Trust and Investment Corp., CITIC, which is a principal arm of the Chinese government and a technology-acquiring source for China´s military according to congressional sources. Li is also a director of the giant communist Chinese shipping firm COSCO, which in addition to commercial transport, is the merchant marine for the Chinese military. Again according to congressional sources, COSCO has shipped Chinese missil technology and biological warfare components to North Korea, Pakistan, Iraq and Iran. According to congressional sources, Li has also engaged in numerous business partnerships with China Resources Co., a firm that has been identified by U.S. congressional investigators as a front for Beijing´s intelligence agencies. The chairman of Hutchinson 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 faciliting 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 Hutchinson will be able to affect canal operations and that their 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 Hutchinson Whampoa, the truth of the matter is that the Peoples 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 in Cuba that allow their military forces to monitor U.S. communications. Chinese companies are investing in the 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.

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 guerrillas in Colombia. Panama currently maintains diplomatic relations with Taiwan, but continued expansion and investments by the Peoples 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 exports from the mainland and Hong Kong account for 20% of all goods purchased by the Colon Free Zone. The Peoples Republic is the 5^th 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 communties are targets for the chinese mafia. Known as triads, these criminal gangs prey on chinese citizens. They foster illegal gambling, prostitution, loan sharking and strong arm 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 inflitrate.