Titling Scams and Suspicious Canal Bids: Panamanian Corruption Spreads to Land Holdings and Prominent Politicians

• Endemic corruption in Panama’s government threatens to jeopardize the recently enacted free trade agreement with the United States and Panama’s economic strength.
• Highly publicized land titling scandals in Juan Hombrón, Paitilla, Costa del Este, and Chilibre, Panama, have raised questions about the alleged involvement of the administration of President Ricardo Martinelli and other government officials.
• Suspicions have arisen that the bidding process for the strategically important Panama Canal expansion program may have involved a tainted competition process among firms around the world.

Introduction
After the approval of the Panamanian free trade agreement (FTA) with the United States on October 12, 2011, President Ricardo Martinelli praised members of the United States Congress who had supported the pact, stating that “through their hard work and supportive pro-growth policies, Panamanians are building one of the strongest, most competitive economies in Latin America.”[1] With the lucrative Panama Canal expansion project and the recently passed FTA, in the next five years Panama is projected to have the highest rate of economic growth in Latin America.[2] Despite such growth, however, Panama’s economic and social development will most likely be crippled by the revelation of persistent government corruption, including major land titling and construction scandals. These concerns come at a crucial time, as relatively vast investments are being attracted from around the world and the U.S. is strengthening ties with its long-linked trade and security partner.

Land Scams: Widespread Government Involvement
Recent news articles have brought to light a new series of scandals, as investigative journalists level accusations against Panamanian government authorities for illegally granting land titles to anonymous companies and close friends. Panama’s officials, known for their cronyism and skullduggery, have been awarding the transfer of extremely expensive parcels of land to such companies as Segura Ventura, S.A. The real owners of these companies, in accordance with their anonymous status, are usually kept secret.[3] Intimate friends of the Martinelli administration have also become possessors of illegal land titles. Allegedly, the administration is deeply involved in these land scams in the areas of Juan Hombrón, Paitilla, Costa del Este, and Chilibre. Due to increasingly discernible government corruption, these land titling scandals, once fully disclosed, will most likely hinder Panama’s economic and social development.

On September 16, 2011, Annabelle Villamonte, Director of Certification and Regulation at the National Land Authority (La Autoridad Nacional de Tierras – ANATI) resigned from her post amidst boiling speculations regarding several instances of illegal land titling. She was denounced by Balbina Herrera—a member of the Revolutionary Democratic Party (Partido Revolucionario Democrático – PRD)—for illicitly awarding fifty-four hectares of beachfront property to twelve anonymous corporations.[4] The properties, which were mostly mangrove swamps, are not legally subject to private ownership. However, the land, located on the coastal region of Juan Hombrón, was sold for pennies on the dollar to exceedingly well-connected purchasers. Speculations have arisen regarding the link between Villamonte and the Minister of Presidency, Jimmy Papadimtriu, since Villamonte was discovered to have worked for a law firm that contracted with Deli Fish, a company owned by the Papadimitriu family. Under the company’s corporate flag, Villamonte was given the job of processing titles pertaining to the parcels in question and creating counterfeit applications that would in effect transfer the title of the territory. After Villamonte was appointed as director of ANATI, she approved the bogus applications in less than six months, an exceedingly accelerated period of time compared to the fifteen years most Panamanians usually wait to obtain land titles.[5] Furthermore, several lawyers from Papadimitriu’s family were part of the network of companies that participated in obtaining the land.[6]

No wonder, then, that the PRD solicited Panama’s Attorney General, José Ayú Prado, to conduct an investigation into the Juan Hombrón land transfer scandal in order to identify who was involved in the crime. The PRD also requested that the Supreme Court of Justice ask Papadimitriu to resign from his position as the Minister of Presidency, to allow the Attorney General to conduct a series of investigations into several purported land grabs. Papadimtriu denies claims that the properties are in any manner connected to him or to members of his family, going so far as to say that he had no idea where the coastal lands were even located: “No sé dónde queda Juan Hombrón” he insisted.[7]

Villamonte is also undergoing strong criticism for giving away property located at the mouth of the Matasnillo River in Punta Paitilla  to Segura Ventura. This parcel of land measures 11,370 square meters and is valued at approximately USD twelve million. The property was initially awarded to a florist named César Segura, who later transferred it to the Segura Ventura company.[8] Suspiciously enough, César Segura had claimed property rights to the Paitilla parcel after he had lied about having effective control over the land since 1987, providing a twenty-four-year window that allowed the florist’s land claims to be expedited on the grounds of squatters’ rights. In reality, Segura had occupied the land no earlier than 1999, thus falsifying his claim of a twenty-four–year–long ownership. Nonetheless, Segura obtained the effective title over Punta Paitilla on fabricated grounds.

This scenario appears to be a ruse for the true beneficiary of the property, Gabriel Btesh, a real estate mogul and President Martinelli’s personal financial advisor.[9] Btesh is known to not only have close connections with the current Panamanian president, but also to have maintained strong ties with the past three administrations. According to Newsroom Panama‘s translation of a La Estrella article, Btesh’s “dossier of business,contracts and benefits with the last four governments ranges from hydroelectric concessions to renting office space and high rises … Benefits began in the government of former president Mireya Moscoso, and increased large-scale under the management of Martin Torrijos and have been further expanded under the administration of Ricardo Martinelli.”[10] Despite the spirited controversy that the President had faced over the land scandal, Martinelli personally defended Segura’s unverified claims, stating that the government had merely sanctioned the granting of land to a long-time occupant. However, the awarding of land to Btesh, a close friend of Martinelli, demonstrates both the corrupt ties between the administration and ANATI and Martinelli’s penchant for nepotism.

In an even more impudent gesture, Martinelli made a donation of thirty-four hectares of land to his friend, lawyer, and banker, Ricardo Chanis Correa in the area of Costa del Este.[11] The land, estimated to be worth USD 66 million, was not the only parcel of the Costa that Martinelli had donated to close friends: Minister of Work and Labor Development Alma Cortes, Minister of Education Lucinda Molinar, and Minister of Health Frank Vergara all successfully acquired land through the same process. Although the Ministers had made claims for their lands prior to Martinelli’s presidency, their claims were expedited when Martinelli stepped into power. In addition to Juan Hombrón, Paitilla, and Costa del Este, yet another land scandal took place in the town of Chilibre, which has been the subject of heavy media speculation in recent months. On April 25, 2011, the Panamanian government used Taiwanese funds to purchase three parcels of land intended for the construction of a hospital. The value of the parcels was inflated from USD 230,000 to the extraordinary price of USD 1.8 million. The press has speculated about the involvement of Panamanian Vice President Juan Carlos Varela, who collaborated with Tito Rodríguez, a deputy of the Panameñista political party, to promote the tainted transaction.[12] Papadimitriu declared that Varela should be under criminal investigation. Additionally, President Martinelli expressed the conviction that Varela should be paying explanations to the prosecutor,”[13] pointing to the Vice President’s interests in the inflated Chilibre land scandal. However, both Martinelli and Papadimitriu are aggressively highlighting Vice President Varela’s charges in Chilibre in order to divert the attention from their own controversial involvement in Juan Hombrón and Paitilla.

Despite a significant battering from the Panamanian press, Varela still denies overseeing the Chilibre land swindle; President Martinelli’s participation in the Paitilla and Costa del Este titling scandals also remains a serious problem for the government. In addition, Martinelli recently has begun to question Papadimitriu’s involvement in the land scandals and has now called for investigations against Papadimitriu. Analysis of this alleged scale of corruption, which bodes poorly for Panama’s future economic development, has remained conspicuously absent from the U.S. press since the Panamanian FTA was passed on  October 12, 2011.

A Shadow Over What Could Have Been The Greatest Contemporary Engineering Feat In The World
The frenzied interest in land purchases by national and international swindlers has skyrocketed due in part to the pending expansion of the Panama Canal. The canal represents one of the most important strategic waterways of the hemisphere from both a commercial and military perspective. Five percent of goods traded throughout the world pass through the Panama Canal, and twenty percent of Chinese trade enters it.[14] The canal, which for a century has been called the greatest engineering feat in the world, is now in the early stages of its expansion with a new third lane expected to double its capacity. The program consists of the construction of two new sets of locks: one on the Pacific and one on the Atlantic side of the canal. Each lock will have three chambers, each of which will contain three water reutilization basins. Conflicting reports state that total investment could be anywhere from USD 5.5 billion to twice as large.[15]

Although the project undoubtedly will increase trade, major criticisms of the canal have arisen since 2006. The calculation of the return on investment has not adequately considered the repercussions of the current global financial crisis, and additionally, the structure may not survive a strong earthquake.[16] The main criticism, however, concerned the competition for the award of the construction contract.

If the most impressive project is to be built at the lowest price, the Panamanian government must ensure that its procurement agreements are transparent and that a number of companies are allowed to compete. Creating oversight commissions and procedures similar to the Director General for Competition in the European Union., the Federal Trade Commission and the Department of Justice in the U.S., the Office of Fair Trading and the Competition Commission in the U.K., and the Competition Bureau in Canada is an effective way to ensure that fair competition provisions are being followed. Attorneys, who work for competition authorities and perform such routine tasks as ensuring liberalization, the opening up of markets to competition, and investigating the behavior of national companies, can be relied upon to determine if any competition laws are being violated.

Ensuring fair competition among rival enterprises will help to resist economic distortions that could lead to a monopolistic market. Laws that are applicable in other countries such as Directives 2009/81/EC, Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), and the U.S. Uniform Commercial Code and the Clayton Antitrust Act, exist in order to fulfill these functions and to stimulate the development of small and medium-sized businesses in their respective countries by creating a level playing field.

The United for the Canal construction consortium, which won the multi-billion-dollar bid to build the new set of locks, presented the lowest bidding price, at USD 3.12 billion. The cost for such construction was earlier estimated at USD 3.35 billion.[17] The United for the Canal group includes Spain’s Sacyr Vallehermoso, S.A., Impregilo S.p.A. of Italy, Jan de Nul N.V. of Belgium, and Panama’s Grupo Constructora Urbana, S.A. (CUSA). The group beat out bids by a consortium comprising of the U.S.-based Bechtel Corporation and the Japanese Taisei Corporation and Mitsubishi Group, which bid USD 4.19 billion, and a bid by the C.A.N.A.L. consortium, headed by Spanish companies ACS Servicios, Comunicaciones y Energía, S.L. and ACCIONA Infraestructuras, which asked for USD 5.98 billion.[18]

Panama Canal Authority Official Adriano Espino said that the winning bid offered the best technical evaluation and was the most affordable. The significant difference between the offers, however, has cast doubts on the transparency of the competition. For this reason, in the week before the award was to be announced, U.S. Secretary of State Hillary Clinton ordered State Department personnel at the U.S. Embassies in Spain, Belgium, and Italy to approach the local government authorities that oversee the functioning of export credit agencies in order to investigate whether they were illicitly supporting the United for the Canal consortium. According to one highly respected journalist, Eric Jackson of the Panama News, one should also consider that “both Spain and Italy look to have new parties in control this time next year and that might affect prior subsidy promises and the availability of records of what the previous governments did”. [19]

The Panamanian government, as demonstrated by a 2009 Wikileaks cable, also has shared these concerns about the present legitimacy of the competition among investor companies. On January 3, 2010, Vice President Varela told Congressional Delegation member U.S. Representative Pedro Pierluisi of Puerto Rico that the consortium was “very weak” and that he had “real doubts” about its ability to perform according to specifications. Separately, Varela said to the Deputy Chief of Mission, “You don’t mess around with something as important as the Canal. When one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong. Of course I hope for the best, but I’m afraid that Alberto [Canal administrator Alberto Alemán] has made a big mistake.” [20]

According to the same cable, President Martinelli expressed similar doubts in a conversation with U.S. Ambassador to Panama Barbara J. Stephenson on the margins of a GOP presentation to a congressional delegation on January 4, 2010. When the Ambassador asked how he thought the canal expansion project was going, Martinelli grimaced and indicated that he was a bit worried. He said that he feared that Canal Administrator Alemán might have favored the consortium that included CUSA, which is run by his cousin Rogelio Alemán.

These widely discussed concerns did not appear to prevent members of the Panamanian government from awarding the contract to their personal associates; in fact, local investigative journalists recently have discovered that Panama Canal Authority Administrator Alberto Alemán Zubieta had formerly served as General Manager of CUSA.[21] Additionally, in the mid-1990s, Alemán’s cousin Rogelio Alemán succeeded him as the General Manager, with Alberto reportedly selling his shares in the firm. Another cousin, Jaime Alemán, currently provides legal representation to the winning consortium; he was also appointed by Martinelli as the new Panamanian Ambassador to Washington. Alberto’s sister, Vicky, is also the wife of a founding partner of Alemán’s law firm.[22] This suspicious bidding process calls Panama’s ability to provide equal opportunities for foreign businesses into serious question. It remains to be seen whether the free trade agreement with the U.S. can significantly alter this pattern.

Walking On A Tightrope: Panama And Italy  
Suspicious details are now beginning to emerge regarding questionable connections between Italy and Panama after the publication of telephone intercepts in the Valter Lavitola case.[23] The last named is currently being sought by the Italian Police on charges of extortion against Italian Prime Minister Silvio Berlusconi. The Prime Minister, however, has been energetically asking prosecutors to quash their warrants. Lavitola’s presence on the government flight during Berlusconi’s official visit to Panama on June 29, 2011, demonstrated his position as a key contact between the Panamanian and Italian governments.[24] Thanks to Lavitola, corrupt trade relations between the two countries have been strengthened.

The two nations entered into a military trade agreement on June 29, 2011, through which Italy will donate six coast guard vessels to Panama at a cost of EUR 35 million to Italian taxpayers. This contract is a corollary of another agreement in which Finmeccanica, the large Italian security corporation whose conduct has been called into question by prosecutors in Naples and Bari, agreed to sell electronics to Panamanian police for use in patrolling their coast.[25] This contract was valued at EUR 165 million, eight million of which went to Lavitola in exchange for procuring the contract.[26]

On August 24, 2011, one day after Martinelli had returned from an official visit to Italy, an Italian prosecutor intercepted a discussion in which the Prime Minister suggested that Lavitola not return to Italy due to a warrant for his arrest, and instead flee to Panama.[27] The Central American nation, which is known in Europe as a tax haven and was blacklisted by the Organization for Economic Co-operation and Development, as having been long involved in a non-stop series of misadventures with Italian authorities.[28] While there is no clear evidence linking Martinelli and the Panamanian government to any illegal acts, the series of coincidences has raised nagging suspicions.

Prospects For Panama
Despite the successes that have been attributed to the Panamanian economy and the projected boom that is almost certain to come, as well as the dominant role the country is likely to play once the canal expansion is concluded, both the country’s economy and its prospects for democracy will be threatened. If Panama’s manipulated political system does not demonstrably change, these potential problems will become a reality. If the country’s penchant for corruption does not abate, overseas nations could become loath to invest in Panama, especially if the public becomes increasingly aware of the government’s suspicious land title and construction dealings. These instances of corruption could induce various commercial enterprises to stay away from investing in Panama if they were to conclude that there is no fair competition and appropriate monitoring mechanisms implemented by the Panamanian government. Panama needs to eradicate corruption so that the recently implemented free trade agreement effectively put to work to serve both nations in the long run.