In late December, the United States invaded Panama and deposed Gen. Manuel Antonio Noriega -- a longtime U.S. ally and intelligence source, and one of the most powerful men in Central America. Noriega had become too expensive a friend to keep. After years of inaction despite mounting evidence of the general's involvement in drug and arms smuggling, the United States now insisted that Noriega stand trial on two indictments for drug trafficking, one in Tampa and the other, more extensive, in Miami. Both were issued on February 4, 1988.

The indictments were the culmination of years of investigations by the U.S. attorney's office in Miami, several key arrests by the Drug Enforcement Administration and considerable debate in Washington. Now that Noriega is in custody, a tense legal drama is anticipated.

The story behind the indictments offers a dramatic look at the secrets of Noriega's power and wealth and the extent of corruption during his reign in Panama. This is part of that story.

STEVEN MICHAEL KALISH HAD A PROBLEM. HE HAD STARTED selling grass at Bellaire High School in a Houston suburb in 1970. By 1983, he had a Ferrari, a BMW, a Chevy Blazer and more money than he could handle. That summer he and his partners organized the largest marijuana-smuggling operation of their careers. An oceangoing tug named the Bulldog pushed a refrigerated barge loaded with 280,000 pounds of marijuana from Colombia on a circuitous route that ended in Louisiana. That operation netted $15 million to $20 million; smaller deals that summer brought in an additional $15 million. The money began stacking up in Kalish's lakeside house on St. Charlotte Drive in Tampa.

"The currency filled entire rooms," Kalish testified four years later. "We used money-counting machines, but we could not keep up with the volume." Banks in the Cayman Islands that Kalish's organization had been using to launder cash had told them they had reached the limit.

Kalish needed another outlet to launder his money. He also needed a safer base of operations than Tampa because he was a fugitive from a smuggling conviction in Texas. Over drinks one day in Fort Lauderdale, the brother-in-law of his Colombian marijuana supplier introduced him to a Cuban American named George Martinez, who said he knew a guy in Panama named Cesar Rodriguez who was capable of handling large amounts of cash. Kalish and Martinez flew down to Panama in Kalish's Learjet.

Cesar Rodriguez leased three floors of the Bank of Boston building in Panama City. In the 20th-floor penthouse, he ran an exclusive restaurant, the Tower Club, and below it, a spa and members-only club for Panamanian Defense Force (PDF) officers and politicians.

Rodriguez offered Kalish a complete package of services: contacts with discreet bankers, shell corporations to hide his paper trail, investment opportunities, even an armored car to pick up his money at the airport and deliver it to the banks. Kalish had brought $2.4 million with him in cash. He said he was interested in bringing $100 million more to Panama. Rodriguez immediately arranged for Kalish to deposit his cash in two banks, Banaico and BCCI.

Kalish was impressed. At dinner that night, Rodriguez brought his partner, Enrique Pretelt, known to friends as Kiki. They told Kalish that they would take him to meet their silent partner, Gen. Tony Noriega, and gave Kalish a quick explanation of the power of the military in Panama.

"They run the country, they control everything," Rodriguez said. "This man is the boss. Anything we want to do in Panama we can do because we have his approval. He's our partner in the money-laundering operation you are currently involved in. And all our future business will involve him. You need to meet him, talk to him; you need to give him a feel for what kind of person you are. And you should give him a gift."

"What kind of gift?"

"You give him some money, and make it an amount that you feel reflects the seriousness of your intentions to do business in Panama."

The next day, Rodriguez picked up Kalish and Martinez at their hotel and drove to Noriega's home. Kiki Pretelt was already there. Noriega was sitting behind a large wooden desk in his office. Kalish noticed the display cases for Noriega's collections -- antique guns in one, some of them gold plated, and in another, dozens of figurines of frogs and toads.

Noriega asked Kalish, who was using the name "Frank Brown," what kind of business he had in mind while he was in Panama. Kalish answered in English, with Rodriguez translating. "I said I wanted to live in Panama. I wanted to bank and invest my monies in Panama. I wanted a place where I could feel comfortable without the U.S. authorities breathing down my neck. I wanted a place where I didn't have to worry about the communists seizing control. And it seemed to me that Panama presented me with all these opportunities," Kalish said in describing the conversation later. There was no mention of drugs, just money.

Noriega said he would be happy to have Kalish do business in Panama. He said his friends Kiki and Cesar would see to his needs, but if there were any problems to feel free to get in touch with him personally.

Kalish had brought his new silver Haliburton briefcase -- elegantly thin and virtually indestructible, made of light aircraft aluminum. Inside, Kalish had placed $300,000 in cash. As they talked, he moved the briefcase from his lap to the floor beside his chair. When he got up to shake hands, he left the briefcase.

"Brown!" Noriega called after him. "You're leaving your briefcase."

"No, it's para ti -- it's for you," Kalish said.

Noriega smiled.

A few hours later, Noriega sent word that Kalish and Martinez were invited to a party that night. When they got there, Noriega was already quite drunk and greeted them as if they were old friends.

"Brown," Noriega said, "anything you want in Panama, you just ask."

NOTHING ABOUT STEVEN Kalish's or Cesar Rodriguez's drug-related activities was known publicly at the time, but in 1983 Panama's increasingly feisty opposition press had begun to raise new questions about alleged National Guard complicity with drug trafficking and money laundering.

The charges lacked specifics, and none of them mentioned Noriega, but the U.S. ambassador to Panama at the time, Everett "Ted" Briggs, took the accounts seriously enough to look into them. "What do we really know about this man?" Briggs asked members of his embassy team soon after Noriega became commander of the National Guard in 1983. "I want every one of you to scour your files. I want specifics, not vague charges."

Meanwhile, it was decided that Noriega was someone to work with. The first step would be a red-carpet visit to the United States.

On Monday, November 14, 1983, Noriega's entourage took off for Washington. Noriega's U.S. escorts were military attache Jerry Walker and military group commander Charles "Chico" Stone. Jewelry store and nightclub owner Kiki Pretelt also came along.

In Washington, the Panamanians were taken to suites at the Watergate Hotel overlooking the Potomac -- all expenses paid by the U.S. government. At the State Department and the National Security Council, Noriega's meetings were intended not for the discussion of substantive policy programs but rather to raise Noriega's profile inside the Washington bureaucracy.

Almost two whole days, however, were set aside for the institutions that already had long-standing working relations with Noriega. At CIA headquarters in Langley, Noriega was swept off for a meeting with CIA Director William Casey. Back in Panama, Noriega would later boast about his four-hour lunch with Casey.

The three days in Washington were not all work. Every evening the Americans and Panamanians got together for drinks in one of the Watergate suites. Noriega was most often in the company of a tall, impressively beautiful Panamanian woman who had flown in. Kiki Pretelt attended none of the official meetings but always joined the group in the evening. On Tuesday, Cesar Rodriguez showed up in the Learjet belonging to marijuana smuggler Steven Kalish. The plane was for Noriega's use during his U.S. travels. Rodriguez and Pretelt were known to the Americans only as Noriega's friends and business associates.

High-spirited and confident, Noriega talked every day by phone with his wife, Felicidad, while lavishing attention on his mistress. He told military attache Walker and military group commander Stone he was traveling on to Las Vegas for a few days of fun and asked if they would like to come along as his guests. Walker had a commitment, but Chico Stone was eager to go -- Noriega said his wife would meet him in Las Vegas, and Stone's wife could come too. Stone cleared the junket with Ambassador Briggs, who saw it as an opportunity not to be missed for Stone to establish a useful friendship with Noriega.

Back in Panama, the U.S. Embassy was gearing up for another high-level meeting with Noriega. Vice President George Bush planned to visit Panama in early December after attending the inauguration of Argentina's new democratic president, Raul Alfonsin.

The priority item on Bush's agenda was not drugs, but rather America's proinsurgency campaign in Nicaragua and counterinsurgency efforts in El Salvador. However, Panama had, at that time, been in the spotlight as a money-laundering haven, and Ambassador Briggs had already asked his team to come up with its best intelligence on drug and corruption allegations against Noriega. He had their conclusions in the briefing papers when Bush arrived in Panama on December 11.

"We had a couple of meetings in which we tried to lay on the table everything we knew about Noriega -- the bad things," an embassy officer said. "At the meetings I attended -- and the ambassador met separately with the CIA people -- there was no information in the embassy or at U.S. Southern Command that could directly link Noriega to drugs. And that's what I presume the ambassador told Vice President Bush." On the contrary, Noriega and his antinarcotics units were seen as allies in the war on drugs. Noriega personally had met with the DEA officer in Panama, Jim Bramble, to facilitate U.S. Coast Guard boardings of Panamanian registry ships suspected of carrying drugs.

Bush, on Briggs's recommendation, directed his attention to President Ricardo de la Espriella during the visit rather than to Noriega, though he knew the general was the real power in Panama. Most of the talk was about Central America, but toward the end of the visit Bush introduced concern over reports of money laundering in Panama. According to several accounts, Noriega gave an impeccably understated performance -- sitting alertly on the edge of his chair but saying almost nothing, deferring to President de la Espriella.

Noriega's new contacts with his U.S. allies had given him just what he needed -- the image of a flexible team player. Yet, establishing trust was not as important as establishing usefulness. Over the next several years he would do enough to keep his North American friends happy -- and just a little more.

SINCE ARRIVING THE PREVIOUS SEPTEMBER, STEVEN Kalish had found a paradise in Panama. Cesar Rodriguez had arranged for him to obtain three Panamanian passports, one of them diplomatic, in the name of "Frank Brown." The price was $25,000 to $60,000 apiece. Kalish immediately began to ship cash from his Tampa home to Panama, $2 million or $3 million at a time. The money was deposited in BCCI, the bank that handled both Cesar Rodriguez's and Noriega's personal accounts.

Kalish took advantage of Panama's no-questions-asked laws to set up a front corporation he called Exclusive Services of Panama. He paid $400,000 for a 25 percent interest in Servicios Turisticos, S.A., a front company owned jointly by Pretelt, Rodriguez and Noriega. The company had no assets, so Kalish understood that his payment was a direct payoff to his three partners. But the arrangement also allowed him to use his money for lucrative "investments" to generate what amounted to kickbacks on purchases of equipment for the Panamanian Defense Force.

The system was complex and entirely dependent upon the connection with Noriega. Kalish would use one of his companies to buy aircraft parts, putting up the cash for the purchase. He would sell the items to Servicios Turisticos with a large markup. Servicios Turisticos would, in turn, sell the parts to the Panamanian Air Force for a still higher price and be paid by the National Bank of Panama, which handled the government treasury accounts. The profits on the transactions, which only took a few days to complete, usually amounted to about 30 percent. The profits to Servicios Turisticos were divided equally among the four partners, including Noriega.

One of the largest deals involved the purchase of a Boeing 727-100 for $2.2 million -- the plane Noriega outfitted as the government's Air Force One equivalent. Kalish made the $500,000 down payment and arranged the financing. In a second large deal, he paid $1,650,000 for a Bell executive helicopter for Noriega's use. He billed the PDF $1,950,000 and received an irrevocableletter of credit for that amount as guarantee of monthly payments with interest. Four years later, in jail, Kalish was still receiving checks of $36,000 from the PDF.

By Christmas 1983, Kalish had bought a $500,000 house two blocks from Noriega's and was throwing lavish parties. Kalish had a girlfriend in theUnited States, whom he would later marry, but he was always surrounded by women in Panama. Not only did he throw his money around, but he was young, tall and good-looking.Noriega, who was none of those things except rich, delighted in joking with Kalish and Rodriguez about their women. He wanted every detail. Everyone agreed that Rodriguez took the prize for having the most beautiful woman. She had just dropped out of the Indiana University, where she had majored in public relations. She had long blond hair, a perfect body and an unaffected smile that was as friendly as it was sensual. Rodriguez was so smitten with her that he was flying her back and forth from Indiana every other weekend.

But Rodriguez also knew who was boss. When Noriega went beyond lascivious jokes and said he wanted Rodriguez to fix him up with his girlfriend, Rodriguez grumbled but complied. He flew her down and got her a suite at the Caesar Park Marriott Hotel on the bay. Noriega spent the weekend with her. At the end, he left her a gift -- $10,000 in cash.

In the midst of his glittery life in Panama City, it was sometimes difficult for Cesar Rodriguez to remember that only a few years before, he and his partner, Floyd Carlton, had just been two bush pilots making an uneven living flying the Pipers and Cessnas owned by businessman and National Guard officers. Noriega had recruited them in 1978 to run guns to the Sandinistas -- and that had been the beginning of their prosperity. Under Noriega's aegis, they had started a successful airline charter company, Aviones de Panama, operating out of a large hangar at the military's Paitilla airport on the bay in Panama City.

Sometime early in 1982, a well-dressed Colombian named Francisco Chavez Hill began to charter planes from Rodriguez and Carlton to fly to Medellin, headquarters of a major Colombian drug cartel. He threw his money around, and he bragged to Carlton that he worked "for the most powerful people in Colombia." In June, Chavez offered to take Carlton to meet his people. He said he had noticed that Carlton and Rodriguez "enjoyed a certain type of immunity" in Panama.

Chavez and Carlton flew together to Medellin, and at the Intercontinental Hotel, against a magnificent mountain backdrop, Carlton was introduced to Pablo Escobar and Gustavo Gaviria, two members of the Medellin cartel. Chavez had given Carlton the impression the business proposalwould involve shipping money to be laundered in Panama, but Escobar said he needed Carlton to fly cocaine.

Carlton balked.

"Go ahead and ask Noriega," Escobar said.

Carlton had carefully avoided any reference to the source of his immunity in Panama. But Escobar made light of Carlton's discretion, saying he had dealt with Noriega before. When Carlton told Noriega about the cartel's proposal, Noriega was angry that Carlton had not consulted him before making the trip. "Find out what the deal really consists of, and then you can talk to me about it and see if we can go ahead with it," Noriega said. "But as usual, I don't know anything about it. Don't use Panamanianaircraft."

Carlton returned to Medellin with a mandate to do business. Escobar and Gaviria told Carlton what the payoff would be -- $30,000 per flight to Noriega, $400 per kilo to Carlton. The planned cargo was 400 kilos of pure cocaine.

"Do they think I am starving?" Noriega asked. "Tell them no less than $100,000 a trip. And in advance."

The first flight took off sometime in November 1982. Carlton landed at a strip known as Calzada Larga in Panama. But the cartel still didn't trust Noriega. Carlton discovered they had sent him with a dummy load -- just in case Noriega had set a trap.

There was no trap, and Escobar paid up -- although not in advance. A few days after the plane deposited its dummy cargo safely, a cartel bagman arrived at Carlton's office with $220,000. Carlton kept $120,000 and Noriega's aide, Capt. Luis del Cid, picked up Noriega's $100,000.

The next flight took place less than a month later. Carlton flew 400 kilos -- this time he was sure it was cocaine -- from Escobar's ranch, near Medellin, to Panama. Noriega's payment -- he had raised the price to $150,000 -- was delivered in advance to Explonsa, the company Noriega used in his arms deals. Carlton's pay remained the same.

By January 1984, Carlton had carried out three cocaine flights for Pablo Escobar and was making plans for the fourth. But when he met with Noriega for approval he was told things were changing. Noriega had returned two months before from his tour of Washington and, just the previous month, had had a meeting with Vice President Bush. There had been public complaints about trafficking through Panama, and Noriega told Carlton he felt he had to be more careful.

This would be Carlton's last cocaine flight, Noriega said, but that didn't mean he shouldn't take full advantage of this final opportunity. Noriega was raising his price for the last load to $200,000; he urged Carlton to do the same. "Don't be dumb. Make some money. But don't tell them this is going to be your last trip," Noriega said.

Carlton didn't ask for more money. When Noriega's $200,000 was delivered, Carlton packed it in a cardboard box and drove to meet del Cid at the rear entrance to the PDF headquarters. A few days later, he flew 400 kilos of cocaine to the Coronado Beach airstrip south of Panama City.

Carlton was secretly relieved that Noriega had ordered him to stop the trafficking. He'd never felt comfortable at his partners' chic parties in Panama City. He was a country boy from Chiriqui, near the Costa Rican border. He didn't think of himself as a criminal or a drug-trafficker; he was just a pilot, making a good living for his family. And there were too many things he didn't understand, things that made him no longer trust Noriega. The Colombians were increasingly irritated at Noriega's arrogance. Carlton had also picked up a number of indications that he wasn't the only one they were dealing with in Panama. Once, in Escobar's well-fortified offices in Medellin, Carlton had run into another Noriega intimate from his gun-running days, Ricardo Bilonick. Bilonick had since bought his own air cargo company, . If Bilonick was involved, Noriega had to have a piece as well.

Carlton returned to his spread in Chiriqui, thinking he was out of the drug business. But Noriega, despite his admonition to Carlton, was becoming immersed in even larger drug operations than those Carlton knew about.

Steven Kalish was preparing to ship two gigantic loads of marijuana totaling 1.4 million pounds from Colombia to the United States, one on a container ship via the Panama Canal to New York City. Noriega had agreed that his customs officials would provide phony seals on the containers to mask their Colombian embarkation. Noriega's fee for services was to be $1 million, toward which Kalish had advanced $500,000.

Kalish also sensed that things were changing in Panama. While at his beach house, Noriega pressed Kalish to be extremely cautious -- and he warned Kalish about getting too close to Kiki Pretelt and Cesar Rodriguez. It was one of the rare occasions when Noriega spoke English. "Deal directly with me on this," Noriega said. "Leave Kiki and Cesar completely out of it. When two people have a secret, there's nothing to worry about. When someone else knows, the whole world knows."

IT WOULD BE DIFFICULT TO IMAGINE TWO MEN MORE different than Hugo Spadafora and Manuel Noriega. There had been bad blood between them almost since they had met. Spadafora was more than 6 feet tall, light-skinned, light-haired and so good-looking he could have played himself in the movies he imagined being madeof his life.

Noriega maneuvered for power with neither ideals nor ideology. Spadafora chose sides with passion and abandon. He was a medical doctor and became close friends with Noriega's predecessor, populist dictator Omar Torrijos, after working in one of Torrijos's clinics in the countryside. Torrijos ordered Noriega and Spadafora to work together to set up an arms supply network to their mutual friend Eden Pastora and other Sandinistas during the Nicaraguan revolution. Spadafora even took a brigade to fight with the Sandinistas, earning him great respect and fame in Panama.

His disdain for Noriega had turned to disgust as he witnessed firsthand Noriega's attempts to turn a profit from the arms deals that Spadafora believed should be motivated by ideological support for the Sandinista cause. At some point, Spadafora began keeping a notebook on Noriega, collecting information about his corrupt activities and, later, charges of his involvement in drugs and money laundering.

In 1984, as Steven Kalish prepared to ship his 1.4 million pounds of marijuana, Hugo Spadafora returned to Panama for an extended visit after a two-year absence fighting in Nicaragua. Like Pastora, Spadafora by this time had become a contra and moved his permanent residence to Costa Rica. He renewed his friendship with Floyd Carlton, whom he had met when Carlton and Cesar Rodriguez were aiding the Sandinistas.

"I wanted to talk to you," Spadafora said to Carlton, paging through his notebook. "You have a beautiful family; you haven't lost all the ideals we had in the old days. I know all about you and Cesar, about your drug trafficking for Noriega."

Carlton was stunned and ashamed. Spadafora was one of the few people whose respect he craved. "It's not too late to get yourself off that road," Spadafora admonished him.

On an emotional level, Carlton may have wanted to heed Spadafora's advice. But Carlton had friends to whom it was difficult to say no. In the first days of May 1984, Carlton received a call from Ricardo Bilonick -- the INAIR owner whom Carlton had seen in Pablo Escobar's office in Medellin the previous year. He gave Carlton a telephone number and said, "Your father wants to see you urgently" -- a reference to Escobar.

"What are you doing here? You know how the situation is here," Carlton said when he reached Escobar.

"Just get here as soon as you can," Escobar said. He gave him an address -- an office building on 50th Street in the middle of the city.

When Carlton arrived at the address, he was awestruck by the scene. Besides Escobar, Carlton saw Gustavo Gaviria, and his brother, Jorge Ochoa, and dozens of second-level Colombians. They had set themselves up in a suite of offices that already had the bustling feel of a large corporation -- dozens of secretaries, aides and a contingent of bodyguards. "Don't worry about anything," Escobar said. "We've paid for protection, $5 million."

Carlton was not one to ask a lot of questions, but he gathered that the cartel was moving its operations into Panama and Nicaragua. Carlton's assignment was to fly a suitcase of money to make a payoff in Nicaragua, where the cartel was building a cocaine laboratory. He was asked to go to the United States to buy a C-130 transport plane to carry cocaine base from plantations in South America. One of Escobar's pilots told Carlton that another laboratory was being constructed in Panama, in Darien Province.

A couple of weeks later, James Bramble, the DEA's chief drug sleuth in Panama, got a telephone call from Inspector Luis Quiel, Bramble's main contact with Gen. Noriega and the PDF. Bramble liked and respected Quiel; he was bright and hard working -- a soldier's soldier. Quiel had been appointed by Noriega to head the special antinarcotics brigade of the PDF, and he was one of the trusted young officers who reported to no one but the general. Quiel had telephoned Bramble to say that the PDF had discovered a clandestine operation in the jungle in Darien. The next day Quiel called again, saying, "General Noriega wants us to fly you down there to look it over."

When Bramble explored the camp, he found it was, indeed, a cocaine factory with first-rate engineering, better than anything he'd seen in Latin America. Over the next two days, PDF soldiers searched the jungle and captured, in all, 23 Colombian residents of the camp.

News of the raid on the Darien factory shocked Kalish, Rodriguez and Pretelt. When the three men talked to Noriega about it several weeks after the raid, he was cryptic. He had ordered the seizure of the camp and implied that he was not involved personally in allowing the lab to exist. He said he had not condoned it nor accepted money for it.

Not long after, a cartel operative named Luis Guillermo Angel arrived at Kalish's house. He spoke flawless English, which he had learned as an exchange student in the United States. The organization had sent him to Panama to oversee the construction of the Darien factory. "We paid $5 million to protect the operations," he said, "and we're a little upset. Maybe you could do us a favor. How good is your channel to Noriega? Who are you paying?"

"Noriega himself is our contact," Kalish said. "We don't deal with intermediaries. But I think it's crazy to think Noriega was getting your money. If he took it, he wouldn't have had the lab busted."

They drove to Cesar Rodriguez's house, a pretentious, two-story salmon-colored Spanish colonial. Rodriguez assured Angel that the entire mess could be straightened out, and Kalish left.

The next day Angel came to Kalish's house and said, "We paid the money to Colonel {Julian} Melo. He was our contact with Noriega. We talked to Melo. He says Noriega double-crossed him and ordered the busts to impress the DEA." Now, Angel said, the PDF's Melo was trying to involve the cartel in a plot to kill Noriega.

Kalish could imagine no greater catastrophe -- Noriega and the cartel doing battle. Heads would roll, and one of them might be his. Matters worsened the next day when he learned that Angel and another high-level cartel operative had been arrested by G2, Noriega's intelligence unit. Kalish had to reach Noriega; he had Rodriguez call him in Paris, where he was on an official visit, to tell him that Angel wanted no part of Melo's plotting against Noriega but that the cartel was demanding satisfaction for the raided factory.

Within a day after Rodriguez's call to Noriega, Angel was released. He showed up at Kalish's house with a suitcase containing $2 million toward total restitution of the $5 million in protection money. The helicopter captured in the raid was also returned. Noriega had already released the 23 prisoners more than three weeks before.

Col. Melo was dismissed from the PDF on June 30, as Noriega took pains to transform the whole incident into an example of his zeal as an antinarcotics crusader, willing to purge the highest ranks of his military. (The settlement with the cartel, according to Kalish, a high-level PDF officer directly involved and other sources, was completed almost a week before Noriega arrived in Cuba on July 5 for a secret visit. It is unlikely, therefore, that Fidel Castro could have acted as the mediator in the dispute with the cartel, as alleged by former Noriega aide Jose Blandon, and as reported in several press accounts.)

After the incident was over, Angel paid Kalish and his two partners, Rodriguez and Pretelt, $500,000 for acting as mediators on his behalf. Angel and Kalish joked about how close the affair had come to being a total disaster for all involved. Then, Kalish gathered up Angel, his wife and two children and took them on a vacation to Aruba in his Learjet.

That would be among Kalish's last trips in his jet. On July 23, 1984, he flew it to Florida. Three days later he was arrested at the Tampa airport as he was about to return to Panama.

BY 1985, FLOYD CARLTON'S reservations about the cocaine business had disappeared in an eruption of profits from his deals with the Colombian cartel. Panama was no longer a transshipment point -- Noriega had made that clear -- but Carlton had shifted to airstrips in Costa Rica he had become familiar with during his transport of guns to the Sandinistas; some were still being being used to ship weapons to the contras. Carlton no longer flew the shipments himself; he had hired his own pilots and was now charging the cartel $3,000 a kilo to transport cocaine from Colombia all the way to southern Florida. In Florida, Carlton had his own distributors to market the cocaine wholesale -- and a money-laundering operation to deal with the profits.

By mid-1985, Carlton's operations had carried out half a dozen flights of 500 kilograms each, and Carlton had grown extremely rich. After paying his pilots, ground crews and bribes to Costa Rican officials, he netted about $1 million per load. Besides his Chiriqui ranch, La Ponderosa, he had acquired a home in David, two in Panama City, a beachside villa, two condominiums in Miami, planes, boats and a collection of sports cars. Then, in May, a routine cocaine flight went wrong.

One of Carlton's pilots, Teofilo Watson, took off from an airstrip in Costa Rica to fly to Colombia. He picked up a load of 538 kilos of cocaine and began the trip back to Costa Rica, where another Carlton pilot, Miguel Alemany Soto, was waiting to refuel and fly the plane to the United States.

Watson never arrived. The plane and drugs were never found. Carlton was left trying to explain to his Colombian suppliers how a $3 million cocaine shipment had vanished into thin air. Carlton and Alemany Soto investigated and concluded that the Costa Ricans they had hired to handle ground operations had lured Watson to land at another strip, then murdered him and stolen the cocaine. Carlton's source said the money from the drugs was used for the contras.

Carlton and several associates flew to Medellin to make things right with the owners of the cocaine, Luis Jose Ospina and Leopoldo Rodriguez, who operated out of the city of Pereira, south of Medellin. The Colombians accused Carlton of stealing the drugs, but Carlton was able to appeal to his old friend, Pablo Escobar, who intervened and allowed Carlton and his associates to leave Colombia safely.

Carlton fled the next day to Miami. The Pereira group, convinced of Carlton's guilt, hired a Panamanian named Alberto Audemar to shake down Carlton's people in Panama and set an ambush for Carlton himself. But Carlton's friends in the PDF arrested Audemar's gang and turned the case over to the courts. The whole sordid mess hit the Panamanian papers, with, as the Panamanians say, "a luxury of details."

As soon as Hugo Spadafora learned of the trouble his old friend was in, he began an intense effort to contact him. He reached Carlton in Miami at a vulnerable moment -- his trafficking operation was blown, and he was hiding out from what he feared might be a Colombian hit team. At first he refused to talk, but Spadafora was friendly and consoling, insisting Carlton should consider carefully what to do next and nudging him gently toward cooperation. Spadafora said he wanted to move against Noriega, that he had "something firsthand, {and} was going to take care of Noriega."

As Carlton recalled it when he spoke to congressional investigators, the conversation went along these lines:

"He only asked one favor of me, to please confirm for him the dates of the flights I had done.

"So I told him, 'Are you crazy? Hugo, why me? If you have some affection for me, why do you have to involve me in this thing?'

"So he tells me, 'Because I know you're not in agreement with certain things that are going on.'

"So I told him, 'Well, okay.' I spoke to him about some of the dates and he wrote them down."

Hugo Spadafora was moving his investigation of Noriega into high gear. American friends had set up a meeting for Spadafora with Robert Nieves, the DEA's new resident agent in Costa Rica.

"I'm a cop," Nieves told Spadafora. "You're not giving me any facts. I need a person who saw this stuff, documents, telephone receipts."

"Don't worry. I know what you need," Spadafora said.

"I'll get it for you." In a few days, he said, he would be traveling to Panama.

ON SATURDAY MORNING, SEPTEMBER 14, 1985, Franklin Vargas, a Costa Rican peasant, walked across a small wooden bridge near his home just a few hundred yards north of the Panamanian border. He was going after some chickens that had strayed. Glancing over the side of the bridge, Vargas saw two legs sticking out of the shallow water. The rest of the body was submerged and contained inside an olive green canvas bag.

The rural police arrived about an hour later and pulled out the body of a tall white man. The man's head had been hacked off. They slogged through the weeds and water and searched the road. Two freshly broken teeth were found, but no head. The bag tied around the body bore the legend "Domestic: U.S. Mail, J 460 1."

Hugo Spadafora should have arrived by bus in Panama City on Friday night, and when he didn't, his father began to look for him. Ari Spadafora, his wife, saidthat Hugo had left home at 8 a.m. Friday on his normal route to Panama -- commuter plane to a town near the border, taxi to the border, walk across the border to avoid Costa Rican authorities who might question him because he was a contra, catch a bus to David and then to Panama City. On Sunday, Ari got some chilling news. Three friends of Hugo's, Panamanian brigadistas who had fought with Spadafora against Anastasio Somoza, said they were in a bus going from Panama to Costa Rica and had seen Spadafora taken off a bus at a PDF border post several miles inside Panama on Friday just after noon.

On Monday, Spadafora's friend, Risa Morales, went to the San Jose morgue and identified the headless body found near the border as that of Hugo Spadafora. He recognized an old scar on Spadafora's leg. About the same time, Costa Rican police investigators received a copy of Spadafora's fingerprints from Panama and verified that the body was Spadafora's.

Noriega was out of the country in his villa in France when Spadafora's body was found, and the acting commander in chief was Col. Robert Diaz Herrera. His first thought when he heard the news reports about the discovery of Spadafora's body was that Noriega had left him holding the bag. Diaz Herrera immediately called Maj. Luis Cordoba, the commander of the military zone covering Chiriqui and the Costa Rican border.

"What's going on up there?" Diaz Herrera asked Cordoba. "When I'm in charge I want to be kept informed."

"No, my Colonel, here we don't know anything about that matter. As far as we know, it happened in Costa Rica," Cordoba said.

By the weekend, there was strong circumstantial evidence that Spadafora had died in Panama and was last seen alive in PDF custody. The Costa Rican Office of Judicial Investigations carried out some quick detective work and released its preliminary report based on interviews with eyewitnesses: The taxi driver who took Spadafora from the airplane said that he dropped Spadafora off a few yards from the Panamanian border; the three brigadistas gave their account and corroborated it with a detailed and accurate description of Spadafora's clothing; at Laurel, where the body was found, two peasants said that they were awakened about midnight by passing vehicles, described as olive green Suzuki four-wheel-drive jeeps such as those used by the PDF.

THE IDEA THAT HE MIGHT DEVELOP A drug-trafficking case against Manuel Antonio Noriega had been rolling around Dan Moritz's mind since he had talked to a young, scared informant named Edgar. Moritz was an agent in the DEA's frenetic Miami office, and Edgar managed money and property for Floyd Carlton. He knew that the money flowing through Carlton's condo in the Fontainebleau hotel was drug money. He knew that Carlton had a connection to Noriega, and he knew Cesar Rodriguez. Edgar told his story to Dan Moritz and agreed to cooperate with the DEA.

Noriega was a big fish, and in Moritz's mind the higher up you work a case the better. He mentioned the "Noriega connection" in his reports, and he discussed it with Richard Gregorie, the chief assistant U.S. attorney in Miami. It became a joke between them.

"When are you going to get me Noriega?" Gregorie would ask.

"It's going to happen. I think I can do it," Moritz would say.

The targets of the operation that grew out of Edgar's debriefing were Floyd Carlton and Alberto Caballero, an airplane broker. Moritz went undercover, and Edgar took him over to DIACSA, Caballero's business south of Miami International Airport. Moritz was introduced as "Daniel Martelli," someone able to turn cash into large-denomination cashier's checks and international wire transfers without filing any reports that would allow the U.S. government to detect the transactions.

As Martelli the money launderer, Moritz first met Floyd Carlton in March 1985; Caballero introduced them. For an hour they discussed the banks Martelli would use and how to avoid filing CPR's -- the Internal Revenue Service forms required for any cash transaction over $10,000. Moritz left the meeting with $200,000 to launder. Eventually, he handled $3.8 million for Caballero and Carlton.

But money wasn't the target. Moritz wanted to break the smuggling operation that was flying in the cocaine. In September 1985 he got the chance. Carlton had never let slip any details about the cocaine flights, but his chief pilot, Miguel Alemany Soto, told Edgar about a big flight coming up from Colombia through Mexico. Edgar was able to get the tail number of the plane and an approximate date of the flight; the pilot's name was Tony Aizprua.

On September 23 the chase was on. Aizprua's plane had crossed the border from Mexico and had landed at Brownsville airport, on the southern tip of Texas. Moritz ordered U.S. Air Force surveillance planes out of Homestead base south of Miami. Aizprua tried to shake the tail by faking landings at several airstrips in southern Florida, but by 8:30 a.m. he was running out of fuel.

Moritz's supervisor, Ken Kennedy, was listening to the chase on the police radio in his car as he drove to work on I-75 north of Miami. "He's coming down. He's landing on the highway, on I-75," he heard someone say. The radio described a stretch of I-75 that was closed off for construction. Kennedy slapped his red light on the roof of his car and sped up to 90 miles per hour.

When he reached the Cessna turboprop 441, its propellers were still turning and the cockpit door was open. The pilot had fled into a dense swamp that lay a few yards from the road. Kennedy, a round, red-faced former cop from New Jersey, waded in with his gun drawn and lost one of his shoes in the muck. He ran back, puffing, to inspect the plane, which was loaded with 12 suitcases and four duffel bags. The total take: more than 400 kilos of pure cocaine, worth at least $2 million wholesale and three or four times that had it reached its distributors. The airplane alone was worth $1 million.

For Floyd Carlton, the plane's capture was the third major disaster in the last few months. He had been hiding out in Miami since July because of the disappearance of the 538 kilos of cocaine in May. Only a week before, his friend Hugo Spadafora had been found murdered in Panama. Now his operation had lost a second plane and another multimillion-dollar cocaine load. From the capture of Aizprua's plane, he had to assume that his operation had been detected by U.S. authorities. It was no longer safe for him to remain in the United States.

In October, Carlton returned to Panama, and a few days later was picked up by DENI, the investigative police. The detention was to protect both Carlton and Noriega: Carlton was out of reach of the Colombians who might still be looking for him, and his interrogation at the prison allowed Noriega's people to clean up traces of Carlton's connection to the general.

In January 1986 Carlton was released for lack of evidence -- the Panamanian investigating judge said that no cocaine was found to substantiate the suspicions that Carlton was dealing in drugs. But Carlton felt trapped and decided to try the course recommended to him in his last conversation with Hugo Spadafora. He called the DEA's resident agent in Panama, Thomas Telles, and set up a meeting. Carlton said he wanted to cooperate with U.S. authorities in exchange for protection for himself and his family. Later, he would give this account of that conversation:

"When they talked to me they asked me exactly what I wanted to speak about to them. And I asked, 'Have you not heard my name?' And they said, 'Yes, we have.'

"And so I said, 'I can go before the American judicial system and speak of a lot of things that are happening in this country, and I can even prove them.'

"So they asked, 'Such as what?' So, I said, 'Money laundering, drugs, weapons, corruption, assassinations.' When I mentioned the name of General Noriega, they immediately became upset. And of course I became nervous at that point. They did not try to contact me again."

The meeting seriously spooked Carlton, who was well aware of the close relations between Noriega and the DEA. He had already been told by a PDF officer in Chiriqui that Noriega's investigative unit considered him a problem and that "they were apparently looking for a way to do away with me."

In Miami, the DEA and the U.S. attorney's office decided it was time to "take down" Moritz's undercover operation. On January 23 -- only a few days after Carlton approached the DEA's Panama office -- a Miami federal grand jury returned a secret indictment against Carlton; Caballero; Caballero's son, Luis; pilot Tony Aizprua; and three other Carlton associates. They were charged with smuggling the 400 kilos of cocaine on the Aizprua flight and with 12 counts of conspiracy and money laundering.

Soon after the arrests of his entire circle of associates, Carlton had some more bad news: Cesar Rodriguez was missing.

Rodriguez had tried to interest Carlton in one last cocaine deal -- a 300-plus-kilo shipment he was putting together with the two sons of a Noriega rival. They had bought a boat, the Krill, and had arranged two pickup points in Colombia.

"Don't do anything without Noriega's permission," Carlton had warned Rodriguez.

On March 11, 1986, Rodriguez and his associate flew to Medellin. They were seen with a Colombian woman, Nubia Pino de Bravo, the widow of a cocaine trafficker. On March 13 they went out of their hotel and never came back. One week later, Colombian police boarded the Krill while it was anchored at the port of San Andres, a Colombian island in the Caribbean. They found 305 kilos of cocaine.

Cesar Rodriguez's body was discovered in the small village of Itagui, near Medellin. He had been bound and gagged and shot once in the head. It was presumed that Rodriguez and his friend had a bad debt with one of the cartel groups and had paid with their lives.

Floyd Carlton had no proof, but he also had no doubt who had set the trap for Rodriguez. To his mind, Gen. Noriega had finally gotten rid of his most embarrassing former partner. Carlton didn't need much imagination to guess who might be next.

THE INFORMATION THAT DAN MORITZ gleaned from his new prisoners convinced him that Floyd Carlton might become a witness against Noriega -- if he could be lured out of Panama to a country where he could be arrested and extradited.

The opportunity came in June. Carlton was worried about the Miami indictment and wanted to talk to Alberto Caballero, the airplane broker, who was out on bail. Carlton had been unable to get any reliable information about what kind of evidence the U.S. authorities had against him. Caballero told Carlton he was going to Costa Rica on business and would be willing to bring copies of the indictment and other documents. Caballero didn't relish the thought of acting as bait to trap a friend, but he was facing a decade or more in prison. He called Dan Moritz and offered Floyd Carlton.

Moritz and Caballero flew to Costa Rica in late July and registered at the Cariari Hotel in San Jose. Carlton and several associates arrived at the hotel on July 30 and went up to Caballero's room. Within minutes, Moritz, Robert Nieves, the DEA's resident agent who had once talked with Hugo Spadafora, and a team of Costa Rican police swarmed into Caballero's room. Carlton didn't resist.

IN THE SPRING OF 1986, STEVEN KALISH learned that he was about to be indicted in three states on drug smuggling and criminal conspiracy counts. He had already been in jail for two years, and he realized that he would most likely spend the rest of his life there. He hired a new, savvy Washington lawyer and instructed him to get a plea bargain. Kalish's part of the bargain: He would provide information on his lucrative partnerships with and payments to Manuel Noriega.

Attorney Sam Buffone outlined what Kalish had to say about Noriega in a letter to Stephen Trott, an associate attorney general. Trott was also in charge of the administration's interagency task force on money laundering. On Friday, September 19, 1986, Kalish was brought to a remote and heavily guarded compound at Camp LeJeune, a Marine base in North Carolina. He spent three hours being questioned by agents of the DEA, the FBI and Customs and by an assistant U.S. attorney from a district where Kalish faced charges.

The following Tuesday, Kalish was brought to Washington to meet with Trott himself. After spending the day across the street from the main Justice Department building, he was finally told that there would be no meeting and no deal in exchange for his cooperation on Noriega. "Sorry, we're your friends; others in the government are not. We want to go forward on this, but you'll have to let us work it out," one of the U.S. attorneys said apologetically.

Kalish finally persuaded the U.S. attorney's office in Tampa to allow him to plead guilty to lesser charges in exchange for his testimony on Noriega. It wasn't a good deal -- Kalish's maximum sentence still stood at 20 years -- and he didn't understand why the prosecutors had made the deal and then had done nothing about it. He had records and documents, but no one had asked to see them.

Suddenly, in late June 1987, two assistant U.S. attorneys from Tampa and three other federal agents from the FBI and Customs showed up to talk to Kalish at the Gilchrist County jail. It was the most intense questioning he had undergone since he had first offered to talk about Noriega almost a year before. Kalish had to be ready to go before a grand jury, they said. Then they left to write up their reports and have them ready for a meeting at the Justice Department on Monday morning.

Meanwhile, Floyd Carlton had been sitting in a dirty Costa Rican jail awaiting extradition. Noriega had sent him messages to sit tight, "not to say anything, to keep quiet." Noriega promised Carlton that the most he would have to spend in prison in the United States was five years and that he would use his influence to get him out. But Carlton's letters back were increasingly harsh. After Rodriguez's death, there could be no more trusting. Later he summed up his feelings about Noriega: "You're near him, and you feel death near to you. That person inspires you with terror."

So in January 1986, when Carlton was finally put on a plane to the United States, his reaction had been, "Thank God." The idea of standing up in court and talking about Noriega in public filled him with terror. But he had told Dan Moritz he would consider it.

As soon as Floyd Carlton was brought to Miami, the senior assistant U.S. attorney, Dick Gregorie, took over the case and briefed his boss, Leon Kellner.

"Nobody in Washington told Dick Gregorie to stop," Gregorie said. "Nobody said it was okay to go forward either. I figured the more people up there that knew about it, the more likely somebody high up in the administration was going to say, 'Hey, you can't do this.' " So Gregorie didn't set up any flags when Floyd Carlton finally agreed, under some stiff threats of spending a lot of time in jail, to testify against Noriega.

Carlton had all the signs of a strong witness. He had a straightforward way of talking and an extraordinary memory for detail. Dates of trips he had taken years before were checked against his passport, and he was seldom more than a day or two off.

Gregorie knew he had a strong case, but he also knew he needed more than that; he needed an invulnerable case. "If you're going to shoot the king," Gregorie liked to say, "you'd better have a very big gun."

In an attempt to locate additional witnesses who might corroborate Floyd Carlton's testimony, a DEA intelligence analyst had turned up the file on a Colombian trafficker in an Oklahoma prison who had begun to cooperate in an unrelated case and had mentioned Noriega. The prisoner, Boris Olarte, said that he was the bagman making payoffs of $4 million to Noriega on behalf of the cartel in 1984 -- the same period Carlton had claimed that Noriega was receiving protection payments. Olarte described meetings and meeting places that corroborated Carlton's testimony. The irony, pointed out by DEA agents in Washington, was that Olarte had been arrested and turned over to the United States by Noriega's own antinarcotics unit.

Finally, the gun was big enough to shoot the king.

John Dinges is the coauthor of Assassination on Embassy Row and is a foreign editor of National Public Radio. Our Man in Panama is based on four years of research and hundreds of interviews, including extensive interviews with Steven Kalish, and on confidential testimony by Floyd Carlton to congressional investigators and law enforcement agencies.