PANAMA CITY — PANAMA CITY, Panama -- A proposed treaty that would indirectly allow the United States access to secret Panamanian banking records is threatening to sour relations between the two countries.
While on the surface both governments favor such a treaty, they are far apart on the banking issue, with the Panamanians growing increasingly resentful over what they see as American arm-twisting.
Treaty talks resume Tuesday, but the issue has become so explosive that the U.S. ambassador recently engaged in a shouting match withPanama's foreign minister before stomping out of a diplomatic reception, witnesses say.
Last Friday, the easygoing president of Panama became visibly angry when discussing "U.S. pressures" for signing the treaty.
"The situation has become extremely ugly," said a senior executive in the National Bank of Panama. "The gringos are simply demanding the impossible."
The "impossible" is the signing of a mutual legal assistance treaty that Panamanians fear would end the country's lucrative banking business.
The United States has similar treaties with about a dozen countries, including the Cayman Islands, the Bahamas, Switzerland and Canada.
While the popular belief is that the treaties are aimed at money-laundering and other drug-related offenses, their real effect is against people evading U.S. tax and securities laws.
Panama permits the formation of dummy corporations and secret bank accounts that are believed to shield thousands of tax evaders and drug dealers.
PD The United States has conditioned $84 million in aid on progress
toward signing such an agreement. But senior aides on the Senate Foreign Relations Committee warn that Panama could stand to lose millions more if a treaty is not signed by spring.
Congress could refuse to certify Panama as a country seriously engaged in the drug fight, a move that would bar it from U.S. aid programs,said a top adviser to a senior Republican committee member.
"It's time for our Panamanian friends to realize that we [the United States] did not remove [Gen. Manuel Antonio] Noriega so that the same conditions could prevail," she said.
During the general's rule, as many as 22 of Panama's 110 banks became money-laundering centers for the Colombian cocaine cartels. More than $200 million in drug-linked accounts has been frozen, including $12 million at a bank partly owned by President Guillermo Endara.
"Look, the U.S. destroyed our economy with two years of sanctions, invaded the country and now wants to effectively ruin the banking sector," said Julio E. Barrios, director of treaty affairs in the Panamanian Foreign Ministry.
Bankers say the sector may account for as much as 25 percent of the economy and about 8,000 jobs.
U.S. Ambassador Dean Hinton said in an earlier interview that Panama had given every indication it would sign the treaty, while noting that many of the violations the treaty addresses, such as money-laundering, are currently crimes under Panamanian law.
"I would think that Panama should have no problems with the treaty since it embodies what already exists. I foresee no problems with a signing," he said.
However, the person who must sign it -- President Endara -- was not as optimistic.
"I will tell you this," he said. "As president of Panama, I will never bow to these pressures. I will never sign an agreement that is thrust down our throats."
Endara said that the treaty in effect would permit investigations in Panama of U.S. offenses that were not crimes in Panama.
"In a big sophisticated capitalist country like the U.S., you have insider trading and other securities law violations that are not crimes in a small country like Panama," he said.
Ambassador Hinton denied that the treaty squabble had delayed $400 million in promised U.S. aid. He said many of the bottlenecks were caused by Panamanian officials' not knowing how to fill out the aid forms.
"Many times the forms are not available," responded Ricardo Arias Calderon, Panama's first vice president.
Mr. Hinton said the treaty was proposed by the Panamanians themselves, a fact that could not be confirmed by the most senior government officials.
Panama has signed agreements with the United States to control chemicals used in the drug-making process and to allow U.S. naval vessels to patrol Panamanian waters.
According to a Senate Foreign Relations Committee treaty expert, mutual legal assistance treaties permit one country to ask another for investigations into criminal wrongdoing.
The treaties invariably contain language that allows a country to reject a request on national security grounds.
Moreover, he said, the most recent treaties contain two conditions sought by Sen. Jesse Helms, R-N.C. One condition requires the U.S. government to certify that the foreign investigators are not themselves involved in drugs.
The second condition says that the United States must deny foreign government requests for information if it would violate the U.S. Constitution.
In the case of Panama, such a treaty would cause a massive capital flight from a banking system that only now is beginning to show signs of recovering, say bankers.
Between 1987 and the Dec. 20 invasion, Panama suffered the largest capital flight in all of Latin America, losing about $30 billion.
The system now has about $14.1 billion in deposits, with an increase of about $2.1 billion since the invasion, said Edgardo Lasso Valdes, president of the national banking association.
"But the prospect of signing this treaty is creating a great deal of uncertainty. Many people won't deposit funds here for fear the treaty will be signed," he said.
Mr. Lasso Valdes said the banking system has adopted stricter controls over cash deposits that make it "extremely difficult" to launder money. Among the controls is a requirement that all cash deposits over $10,000 be registered with the government.