Allan A. Burton to William H. Seward, July 1, 1866

Mr. Burton to Mr. Seward

Sir: Besides the unauthorized agreements entered into in London by the late Colombian minister in Great Britain, General Mosquera, now President of this republic, treated of in my Nos. 249, 251, 252, and 253, he contracted a loan on behalf of Colombia of £1,500,000. This contract has been ratified by the congress with some modifications.

It is believed that these modifications are in effect an annulment of the contract, unless the object of those making the loan be to secure control of the Panama railroad, which is very probable. In case Colombia receive the loan, it requires no great foresight to predict that the consequences to the country must be sadly unfortunate. The American interests on the isthmus will be jeopardized in such event and for this reason I beg to call the serious attention of the department to the matter.

The Panama Railroad Company may find it to its interest to advance the net amount of the loan—about five million of dollars—and by this means secure what it has for years sought to achieve by other means. If the present opportunity should be neglected, the road is pretty sure to pass into English hands.

The thirty-five per cent. of the customs pledged by this contract puts eighty-five per cent. of this, the principal branch of the national revenue, in pledge to English creditors and beyond the control of the government, which seems to render it impossible for the latter to sustain itself The nation will be virtually bound hand and foot and delivered over to Englishmen. The whole of the other revenues of the government will not pay a third of its indispensable running expenses.

I enclose a copy of the contract, letter B of attachment A; the modifications of congress in Diario Oficial No. 682, XXVI; a translation of the modifications, B; a translation of the original contract, C; a synopsis of the contract, I; with other papers numbered from I to XXVI. These latter are of no interest to the department at present, but may become so, in view of events likely to grow out of the loan.

I have the honor to be, sir, your obedient servant,

Loan lately contracted with Robinson & Fleming of London by President Mosquera, then Colombian minister to Great Britain.

The minister not having authority from his government to contract the loan, as President of the republic, he has submitted it to the congress for its approval. The terms of the loan are as follows:

1. Amount of the loan, $7,500,000.

2. At fifteen per cent. discount.

3. At six per cent. per annum interest, to commence running three months before the emission of the loan. The interest for these three months, $112,500. Interest payable semiannually in London.

4. The first year’s interest is to be deducted from the loan, deposited in a London bank, and the interest produced by the deposit to be applied as a payment on the principal of the loan.

5. The loan to be advanced as follows: Five per cent. when the loan is subscribed for; five per cent. when the certificates of subscription shall be distributed: ten per cent. monthly for each of the six months next thereafter; and fifteen per cent. at the end of seven months next after the delivery of the certificates of subscription.

6. The product of the loan, i. e., eighty-five per cent. of the seven millions and a half, minus the first year’s interest and commission to Robinson & Fleming, to be deposited in a London bank, (subject to the draft of the Colombian government, it is to be supposed,) and the interest arising from the deposit to be applied to the extinguishment of the loan.

7. The loan to be paid off within twenty years by the payment of interest and five per cent. of the principal annually.

8. The Colombian government to issue bonds for the seven millions and a half, which bonds Robinson & Fleming are to indorse.

9. The government will remit, at its expense, to London, in sterling money, six months before each semi-annual payment of interest falls due, a sum sufficient for the payment of the same, and the commission to the agent for making the payment.

10. The government pledges or hypothecates thirty-five per cent. of the custom-house duties of the republic: fifty-two and a half per cent. is already held in pledge by English creditors; fifteen per cent. of the revenues arising from the salt mines, and the national remainder in the Panama railroad.

11. The remainder in the railroad and part of the income from the salt mines having been heretofore hypothecated for a million loan obtained in London in 1864, known as the Buenaventura road loan, the government agrees to pay off that loan out of the present loan, so as to leave the salt mines revenue and remainder in the railroad free from the lien given to secure the road loan of 1864.

12. The loan, (seven and a half million loan,) i. e., its proceeds, to be applied to the internal improvements mentioned in a law of the republic of May 28, 1864, less a half million of dollars to be appropriated to the Buenaventura road. This law undertakes to create a general system of improvements which would ruin the country if attempted to be carried out. The law will be found in El Diario Oficial, No. 28, of June 1, 1864, heretofore sent to the department.

13. Robinson & Fleming have the right to appoint agents in the custom-houses to collect the thirty-five per cent pledged as aforesaid, and also to appoint agents to see that the product of the loan be applied to the internal improvements for which it is destined. These agents to be paid by the government.

14. Robinson & Fleming to receive six per cent. on the nominal amount of the loan for their trouble in securing it. This commission to be deducted from the principal.

15. Robinson & Fleming, who are to receive and pay out the sums necessary to extinguish the loan and the interest thereon, are to have one-half of one per cent. on the amounts thus received and disbursed for this service.

Synopsis.

See despatch to the department No. 217, for some observations on the finances and want of financial talent in this country, and compare them with the foregoing.

[Translation.]

Agreement entered into between his Excellency the Great General T. C. de Mosquera and Messrs. Robinson & Fleming of London.

An agreement made this October 27, 1865, between his excellency, the great general of Colombia, Señor Don Tomas Cipriano de Mosquera, envoy extraordinary and minister plenipotentiary of the United States of Colombia near her Britannic Majesty, who will hereafter be called in this writing his excellency of the one part, and William K. Robinson, John Fleming, and George Fleming, merchants and traders, of No. 21 Austin Friars, in the city of London, under the firm name of Robinson & Fleming, who will henceforth be called contractors of the other part. For that whereas his excellency above named applied to the said contractors to undertake to procure the issue in London of a loan of £1,500,000, in accordance with a law of said States approved May 28, 1864, which the said contractors have agreed to do on the terms and conditions hereinafter set forth, it has therefore been mutually agreed between his excellency and the said contractors as follows:

1. The nominal value of the loan is a million and a half of pounds sterling.

2. The issue will be at eighty-five pounds per cent.

3. The rate of interest on the said loan six pounds per cent. per annum, to be computed from three months before the date of its issue.

4. The interest to be paid semi-annually in money sterling, in London, the first payment to be made at the end of three months after the issue of the loan.

5. The contractors will deduct the first year’s interest from the proceeds of the loan, and deposit it in a London bank, to be named by the contractors, and approved by his excellency, in order that it may gain interest on the most favorable terms, on account of and for the benefit of said government, and the interest that may accrue on the deposit shall be applied as a sinking fund for the first year.

6. The payments of the loan shall be made as follows: Five pounds at the subscription; five pounds on the issue of the certificates of subscription; ten pounds one month next thereafter; ten pounds two, three, four, five, and six months after the issue of said certificates; and fifteen pounds at the end of seven months of the said issue.

7. The proceeds of the loans, minus one year’s interest and the commission, as herein expressed, are to be deposited in a bank or banks in London, to be named by the contractors, and approved by his excellency, that the same may gain interest on the most favorable terms possible, and which will be subject to the conditions of this contract. That which may accrue on this deposit shall be applied to increase the sinking fund and the payment of the principal.

8. Said loan must be reduced to par within twenty years, by a sinking fund of five pounds per cent. per annum. The manner of paying said loan shall be by annual warrants, before a notary public in London. The said government nevertheless reserves to itself the right to redeem or pay said loan through the contractors at any time within twenty years.

9. The said loan is to be represented by the bonds of said States, to be prepared by the contractors and his excellency, and for the amounts which said contractors may deem convenient. Said bonds are to be signed by his excellency, and countersigned by said contractors, in their characters as such.

10. The sum necessary to pay the interest each half year, and that for the annual payment on the principal, together with the half per cent. upon them to be paid to the contractors, as hereinafter set forth, must be from time to time remitted to the said contractors, and be in their hands in London at least six weeks before the payments are due, as herein expressed, free of expense to the contractors, and in money sterling or its equivalent.

11. The security for said loan is thirty-five pounds per cent. of the impost duties of the United States of Colombia, which his excellency in the name of said States and their government specially hypothecates for the due payment of said loan and the interest thereon.

12. Said contractors shall have the right to appoint special agents in the various parts of said States where said duties may be paid, who shall receive and collect said thirty-five per cent., the expenses of said agents to be paid by the government of said States.

13. As an additional security for the payment of said loan, his excellency offers in the name of said government, subject to ratification by the congress of said States, to obtain which ratification at its next session his excellency binds himself to use his whole influence, the hypothecation of the reserves or remainder of said government in the Panama railroad, according to the existing agreement between the government and the Panama Railroad Company; and, besides, his excellency binds himself likewise to procure the hypothecation of fifteen per cent. of the proceeds of the salt mines, which remainder and fifteen per cent. are at present pledged as security for the existing loan of £200,000, contracted by said government or States through the London and County bank.

14. His excellency agrees and binds himself further, that the said government shall consent that the balance of said loan of £200,000, after it shall have been provided for and secured, shall be paid, to the satisfaction of said contractors, out of the proceeds of the present loan, in order that the said reserves in the railroad, and fifteen per cent. of the revenues of the salt mines, shall be held as securities for this loan, they being now in hypothecation for said loan of £200,000.

15. It is expressly agreed that the present loan shall be applied only to the objects specified in a law of said congress approved May 28, 1864, and to insure which, the product of said loan, minus the said sum to be paid to said contractors, as hereinafter stated, and minus £100,000 to be placed subject to the order of the government, as hereinafter expressed, is to be deposited in bank as already declared, that it may be employed according to the provisions of this contract.

16. The said sum of £100,000 is to be held subject to the order of the government, and will consist of the first proceeds of this loan, for payment by the government to the Buenaventura Road Company, in conformity to the law of May 28, 1864.

17. Said contractors shall have the right to appoint, at the cost of the government, special agents, who shall have the power to see that the products of this loan be applied exclusively to the objects of internal improvements or public works specified in said law of May 28, 1864, or any other law to the same end which the congress of said States may enact. The proceeds of this loan, subject to the dispositions of other parts of this contract, can only be withdrawn for the objects mentioned.

18. Said contractors offer to procure subscriptions for said loan, on at least for half the nominal value thereof, before offering it to the public. which subscriptions, nevertheless, shall not be obligatory until the contractors shall declare that the total amount of the loan is satisfactorily arranged by subscriptions.

19. The said contractors shall receive a commission of siz pounds per cent. on the nominal value of said loan, and which commission is payable and shall be retained by the contractors out of the first products of said loan. Said commission shall be in full of all expenses incident to said loan, whether it be subscribed for or not.

20. The interest and principal of this loan shall be paid through the said contractors, who will receive one-half of one per cent. upon the amount thus paid by them.

In testimony whereof the parties hereto sign their names.