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In 2001, Panama was removed from the Financial Action Task Force (FATF) blacklist of noncooperative jurisdictions in the fight against money laundering. However, following the September 11 terrorist attacks in the United States, Panama's international banking center was singled out in press reports both in the United States and Europe as a likely haven for some of Osama bin Laden's financial resources. Within weeks of the attacks, Panama's banking superintendent appeared to put to rest at least some of the allegations, following an investigation. Armed violence has increased significantly in Panama in the past several years, with weekend police checkpoints now commonplace both in Panama City and in crime-ridden Colon, although the country remains relatively safe when compared to many of its regional neighbors.
Panama was part of Colombia until 1903, when a U.S.-supported revolt resulted in the proclamation of an independent Republic of Panama. A period of weak civilian rule ended with a 1968 military coup that brought General Omar Torrijos to power.
After the signing of the 1977 canal treaties with the United States, Torrijos promised democratization. The 1972 constitution had been revised to provide for the direct election of a president and a legislative assembly for five years. After Torrijos's death in 1981, General Manuel Noriega emerged as Panamanian Defense Force (PDF) chief; he subsequently rigged the 1984 election that brought to power the Revolutionary Democratic Party (PRD), then the political arm of the PDF.
The Democratic Alliance of Civic Opposition (ADOC) won the 1989 election, but Noriega annulled the vote and declared himself head of state. He was removed during a U.S. military invasion, and ADOC's Guillermo Endara became president.
In 1994, the PRD capitalized on the Endara government's record of ineptness, and Ernesto Perez Balladares, a 47-year-old millionaire and former banker, won the presidency with 33.3 percent of the vote. The PRD won 32 of 71 seats in the legislative assembly and, with the support of allied parties that won 6 seats, achieved an effective majority.
Perez Balladares kept a campaign promise by choosing for his cabinet technocrats and politicians from across the ideological spectrum. However, his orthodox free market economic policies led to widespread protests in 1995 by labor unions and students. The president's popularity declined when the government met protests with harsh crackdowns.
During the 1994 campaign, Perez Balladares pledged to rid the country of drug influence. However, the PRD was accused of involvement in drug trafficking in the aftermath of the collapse of the Agro-Industrial and Commercial Bank of Panama (BANAICO) in January 1996. An investigation by the Banking Commission found accounts empty and $50 million unaccounted for, as well as evidence that the bank was a central money laundering facility. BANAICO was named in several U.S. drug investigations, including one involving Jose Castrillon Henao, a Colombian who was arrested in April 1996 as the reputed organizer of the Cali cartel's seagoing cocaine shipments to the United States. Alfredo Aleman, a board member of BANAICO, was a friend and top advisor to Perez Balladares and a major contributor to the party's 1994 campaign. Perez Balladares himself was forced to admit that his campaign unknowingly accepted a contribution from Castrillon Henao, who was in May 1998 extradited to Florida to stand trial for money laundering. The Perez Balladares administration further damaged its popularity when it restored government jobs and awarded a reported $35 million in back pay to former members of the Dignity Battalions, who had been Noriega's paramilitary enforcers.
In 1997, the son of a prominent PRD politician and two other Panamanians were found innocent of killing an unarmed U.S. soldier in 1992 in a trial plagued by political pressure and other irregularities. In August 1998, voters rejected by an almost two to one margin a referendum on a proposed constitutional amendment that would have enabled Perez Balladares, whose government was mired in censorship, corruption, and an increasingly tenuous claim to fidelity to the rule of law, to stand for reelection.
In May 1999, Mireya Moscoso, the widow of three-time president Arnulfo Arias and herself an unsuccessful presidential candidate in 1994, won 44.8 percent of the vote, more than 7 percent above the amount garnered by her rival and son of the late strongman, Martin Torrijos, as the head of a PRD-led coalition. Moscoso's coalition, the Union for Panama, won just 24 congressional seats as compared to the PRD's 38. However, she was able to forge a deal with a group of small parties to give her coalition a working majority. The Moscoso government moved quickly to overturn an attempt by Perez Balladares to pack the judiciary before he left office. It also sought to increase joint antinarcotics efforts with the United States, a partnership that had faltered under Perez Balladares.
Moscoso's government lost its razor-thin majority in congress at the end of her first year in office, after long-time opposition foes--the (PRD) and the Christian Democratic Party--signed a pact they said was designed to provide Panama with a strong congressional opposition. The newly invigorated opposition said that it was willing to cooperate with the government on economic reactivation, but that the government's lackluster performance proved the need for the opposition to head off the emergence of leaders such as former Peruvian President Alberto Fujimori or Venezuela's Hugo Chavez by offering a viable alternative. In October 2000, the legislature strengthened laws against money laundering. In the year following the U.S. handover in 1999, the Panama Canal continued to operate smoothly, although the departure of the remaining U.S. troops and the closure of military bases meant the loss to Panama of some $250 million in revenues.
Repeated incursions into Panamanian territory by Colombian guerrillas continued to spark concerns in the region about the spillover effects of Colombia's civil war. Since being invaded by the United States in 1989, Panama has had no military. It relies on the police to provide both internal security and defense of its borders. Dozens of confrontations between armed Colombian groups and the Panamanian police, who suffered several injuries as a result of the fighting, raised questions about whether the latter are up to the challenge provided by the seasoned Colombians. Three months after Panama was placed on a Group of 7 blacklist of "noncooperative" banking havens, the congress approved a 21-point legislative amendment designed to combat hot-money transactions.
Following the discovery of four sets of human remains in exhumations at a former military base, in 2001 Moscoso created a truth commission to investigate the whereabouts of dozens of political dissidents who disappeared during the more than two decades of military rule. In March, the seven-member panel said that some 132 people had either disappeared or been murdered during that period. In August the port city of Colon was rocked by two days of rioting by a coalition of unemployed workers organizations, which accused the government of failing to live up to a promise to finance 46 public works projects there.
Panama's citizens can change their government democratically. The 1999 national elections were considered free and fair by international observers. The constitution guarantees freedom of political and civic organization. In early 1999, Panama's largest political parties agreed to ban anonymous campaign contributions in an effort to stem the infiltration of drug money into the political process. Following the May 1999 elections, 5 of the 12 political parties that had taken part were dissolved after they failed to win the five percent minimum required by electoral law.
The judicial system, headed by a supreme court, was revamped in 1990. It remains overworked, however, and its administration is inefficient, politicized, and prone to the corruption that appears to be endemic in broad sectors of public life. An unwieldy criminal code and a surge in cases, many against former soldiers and officials of the military period, complicate the judicial process. In February 1998 the supreme court declared unconstitutional the provisions that authorize the ombudsman's office to investigate the administration of justice, claiming that the watchdog agency's role violates the principle of judicial independence. In the final days of Ernesto Perez Balladares's presidency, a new three-person section of the supreme court was created. Perez Balladares said the new branch was needed to speed up the judicial process; opponents accused him of trying to pack the court so as to shield himself from corruption investigations.
The Panamanian Defense Force (PDF) was dismantled after 1989, and the military was formally abolished in 1994. However, the civilian-run Public Force (national police) that replaced the PDF, although accountable to civilian authorities through a publicly disclosed budget, is poorly disciplined and corrupt. Like the country's prison guards, officers frequently use "excessive force." In addition, the police have been ineffectual against the drug trade, as Panama remains a major transshipment point for both cocaine and illicit arms--drug seizures rose 70 percent in 2000--as well as a money laundering hub.
Panama's banking sector is composed of 87 banks with a total of $37 billion in assets. The legislation approved in October 2000 extended money laundering laws already on the books to cover revenues gained from arms trafficking, extortion, kidnapping, corruption, and auto theft. Prison sentences for money laundering were increased to a maximum of 12 years. The legislation also tightened know-your-client requirements and placed stricter reporting requirements on deposits of more than $10,000 in banking and financial institutions.
The penal system is marked by violent disturbances in decrepit facilities packed with up to eight times their intended capacity. About two-thirds of prisoners face delays of about 18 months in having their cases heard. Panama also continues to be a major transshipment point for illegal aliens seeking to enter the United States, including large numbers from Ecuador.
Panama's media are a raucous assortment of radio and television stations, daily newspapers, and weekly publications. Restrictive media laws dating back to the regime of General Manuel Noriega remain on the books, however. The law permits officials to jail without trial anyone who defames the government. Legal codes establish government control of work permits for journalists, strict defamation and libel rules, and a clause that permits reporters to be punished for "damaging the nation's economy" or national security. Public officials have recourse to a law that specifically allows them to file criminal charges against journalists who have published exposes or unflattering commentaries, and in 2001 some 70 such criminal cases were pending. The Organization of American States says it receives more complaints about the criminal prosecution of journalists from Panama than from any other government in the hemisphere.
Labor unions are well organized. However, labor rights were diluted in 1995 when Perez Balladares pushed labor code revisions through congress. When 49 unions initiated peaceful protests, the government cracked down in a series of violent clashes that resulted in four deaths and hundreds of arrests.
Since 1993, indigenous groups have protested the encroachment of illegal settlers on Indian lands and delays by the government in formally demarcating the boundaries of those lands. Indian communities do enjoy, however, a large degree of autonomy and self-government.