Heated U.S.-Panama Banking Feud May Further Confound Relations : Diplomacy: Envoys from both countries can’t seem to bridge the cultural chasm when it comes to money.

The two aging men stood in the center of a large room crowded with stunned diplomats and shouted at each other. One was the American ambassador, the other Panama’s foreign minister. It seems that every time they meet these days they end up yelling.

“It’s embarrassing, on one hand,” said a European diplomat who witnessed the confrontation between Ambassador Deane R. Hinton and Panamanian Foreign Minister Julio Linares at a reception at the Vatican Embassy this year. “But it’s also funny, maybe the best show in town. It’s like unexpectedly walking in on a married couple in the middle of a fight over sex: You know it’s rude to stay but you just can’t leave.”

That’s not a bad analogy, the image of two nations presumed to have almost identical interests bitterly arguing over one of the oldest of conflicts--only in this case, it is money.

At the center of the disagreement are American attempts to make millions of dollars of aid conditional on being given access to secret bank accounts in Panama.

Hinton said the heat generated by the dispute reflects “the chemistry of the two people involved. . . . We do seem to set each other off.”

Yet officials of both countries, diplomats and other experts say that it’s not just a clash of personalities and conflict over one policy question. It also involves different, often opposing perspectives about each nation’s political, economic and cultural systems.

These differences are so deep that if not reconciled they promise to further confound Panamanian-American relations at a crucial time. Panama is trying to overcome the devastation of more than 20 years of dictatorship and the U.S. invasion a year ago, while the United States seeks to use this tiny Central American country as a bulwark against the tidal wave of international drug trafficking.

The specific cause of the dispute goes by the awkward acronym MLAT, for Mutual Legal Assistance Agreement. This is a congressionally mandated condition for U.S. foreign aid, usually aimed at gaining access into the recipient nation’s banking records. Such pacts already exist to one degree or another with the Bahamas, Mexico, Switzerland and the Cayman Islands.

The United States says that it will withhold $84 million of the $420 million in direct aid voted this year unless Panama signs an MLAT permitting American officials to inspect Panamanian banking records in pursuit not only of launderers of drug money but also tax evaders and others engaging in such activities as insider stock trading.

Hinton indicated that the lack of an agreement could endanger the entire aid package if Congress retaliates by withdrawing those parts due to be implemented in 1991.

“No problem,” said Guillermo (Billy) Ford, Panama’s second vice president and its minister of economy and planning. “My personal point of view is that Panama needs an MLAT. . . . We should sign because we are clean and have nothing to hide.”

Exactly, said Hinton and negotiators sent from Washington. If Panama has nothing to hide, an agreement should be easy. In fact, one U.S. official said, signing would benefit the country by removing any lingering doubts that the current government is tainted by the corruption of former dictator Manuel A. Noriega.

Unspoken is an American attitude that since the United States liberated Panama from Noriega’s tyranny, Panama should be willing to agree to Washington’s proposals, particularly since that would help in the war on drugs. And, indeed, the two nations did initial an agreement last August. Although the details have never been made public, it reputedly allowed U.S. officials access to bank records in search of people charged with violating a variety of so-called “fiscal crimes” in the United States.

It didn’t hold up. Claiming that the pact was an unacceptable infringement of Panamanian sovereignty and that National Assembly approval was thus precluded, Linares persuaded President Guillermo Endara to repudiate it. That decision wasn’t unaffected by an extensive, well-organized effort by the nation’s 130 banks and their retainers in the legal trade. American access to records of the billions of dollars deposited here, much of it with the acknowledged aim of evading taxes, would be a threat to their business.

“Panama isn’t called a tax haven for nothing,” said one banker. “That’s why people come here.”

Foreigners’ deposits totaled as much as $40 billion before Noriega so angered the United States with his involvement in drug trafficking and money laundering that it tried to oust him by applying economic sanctions against Panama. Even now, bank deposits stand at $14 billion and growing.

Linares, an international lawyer and longtime critic of what he sees as one-sided Panamanian concessions in past negotiations over the Panama Canal, has said he supports an agreement restricted to drug trafficking and money laundering, but that the Americans want to go way beyond that.

“They want us to go beyond matters that are crimes in both countries to include acts that are crimes in the United States but not here,” said Ruben Carles, a former head of Chase Manhattan Bank’s Panama operations and now the country’s controller general.

It is here that the disagreement reflects more than a difference over policy and a way of life and doing business that is alien to American legal and ethical concepts.

Carles and Ford both point to tax shelters and insider stock trading as examples.

“Neither is illegal here,” Carles said in an interview in his skyscraper office overlooking the Pacific end of the canal. “Why should the United States care about money in Panama banks that is deposited from Bogota or Buenos Aires or London, even if that money is U.S. dollars from companies ultimately owned by Americans?”

No taxes are paid on that money in Panama so the banks themselves can make more money from it. Accordingly, they can afford to offer higher interest rates, which in turn are not taxed. It is a combination that attracts even more deposits.

Insider trading is a “way of doing business here,” said Ford, whose animated manner and American-tinged English nearly overwhelm visitors. “When a company is going to declare a dividend, we call friends to tell them to buy stock.”

Or, as Carles described insider trading: “If you don’t do it, you don’t get along.”

He added, “Anyway, the other issues are not serious problems. We have stopped the drug-connected money laundering . . . (but) the United States believes everything is connected to cocaine, and this treaty says that the United States sees Panama as it was during the Noriega regime.”

Another factor that gives the Panamanians “bile,” as Endara put it, is that Panama’s corporation and tax laws are based on U.S. statutes and, in the case of tax shelters, were written by Americans.

“Our corporation laws are a spinoff of the Delaware tax laws of 1827 or ‘28,” Carles said. “Our laws (on tax havens) were designed in 1925 by John Foster Dulles to evade U.S. restrictions on American businesses operating overseas.”

(Dulles was a prominent American lawyer who served as secretary of state under President Dwight D. Eisenhower.)

Now, the Americans want to change all that for domestic political reasons--the drug war--”in a way that will put us at a competitive disadvantage and seriously damage our economy,” Carles said.

It’s an important point for Panama. Banking here employs 10,000 people directly and benefits the rest of the country in a major way by providing financing for local growth.

“The American aid is valuable and we need it, but it is a one-shot deal, so we won’t be pressured into signing” an agreement, Carles said. Or, as Ford put it: “Panama can’t give itself away.”

Hinton, who favors stockinged feet and cigars during the interviews given in his hilltop residence overlooking the Bay of Panama, dismissed such concerns.

“I don’t think there will be any adverse effects on the banking industry from this agreement,” he said. The real problem is “a number of interest groups (bankers) who don’t want any agreement and have blown it out of proportion.”

It is this sort of attitude that drives Linares to distraction and loud public attacks on Hinton.

The atmosphere was so bad here recently that Panamanian officials and insiders spread the word that the U.S. Embassy was plotting to embarrass and weaken the Endara government. One account held that the United States had leaked information that the president was financially linked to a bank with drug connections. Another blamed the Americans for spreading word of a budding sex scandal involving Endara’s wife to put him under pressure.

Hinton denied all such charges, and even that the United States is applying pressure. “One guy’s pressure is another guy’s persuasion,” he said.

And in spite of his tough words and abrasive manner, Hinton indicated that the Americans will modify their bargaining position.

“As a political fact of life, we have to make some changes,” he said. “We have to show some flexibility.”