819.51/952: Telegram
The Chargé in Panama (Flexer) to the Secretary of State
[Received 2 p.m.]
108. Referring to the Legation’s despatch no. 529, October 15,6 National Assembly yesterday passed bill referred to in second reading with following amendments and additions recommended by committee:
Article 9. Investment of public utility enterprise in guarantee bonds to be 2% of invested capital and 2% of annual sales.
New article immediately following defines enterprises as “commercial, industrial or manufacturing entities extending services to public [Page 812] the suspension of which would be prejudicial to national economy or to the social community where they operate.”
Article 11. Rephrased to impose stamp tax on checks and drafts drawn by residents in Panamanian jurisdiction upon institutions established in the country outside of Panamanian jurisdiction. Obviously this provision is specifically aimed at the Chase National Bank at Cristobal and would constitute a tax in violation of treaty upon Canal Zone employees residing in Panamanian jurisdiction at new Cristobal. Tax would be 50 centavos plus 1% of value of check when over 5 balboas.
A new article, after imposing fines for first offenses of institutions violating law, provides penalty of retirement from business for recurrence.
A new article provides that entities subject to the law which may be forced to suspend activities shall give a year’s prior notification to the Government, failing which the right of redemption of their guarantee bonds shall be lost.
A new article provides that for the purposes of the law the capital of entities operating also outside the Republic shall be considered to be the part of the capital engaged in operations in the territory of the Republic (the omission of the expression “borders of the Republic” may be significant in respect to investments in the Canal Zone). It further provides that the sales referred to in article 9 shall be considered thoroughly reliable made in territory under the jurisdiction of Panamanian authority.
Upon passage the bill was referred to the drafting committee with allowance of three days for report.
Yesterday the three foreign banks affected—the Chase National Bank, the National City Bank and the Royal Bank of Canada—sent identical telegrams to their principals recommending that official representations be deferred until the Assembly had completed action, inasmuch as their objections are to the provisions of the bill as a whole and it was considered desirable to avoid “horse trading” with the Assembly. I am now informed, however, that representatives of the two American banks will call upon the Department to request formal and immediate diplomatic representations.
It is said that enforcement of the law will compel withdrawal from general banking business in Panama. Further, it is questioned whether under section 16 of the Glass-Steagall Banking Act of 19337 and the Comptroller’s regulations thereunder purchase of guarantee bonds in such amount would be lawful; it is also questioned whether the exchange of guarantee bonds for external loan bonds already in default would be permitted.