A month after U.S. troops invaded Panama to remove a dictator accused of drug trafficking, President George Bush sent Congress a letter certifying that the new, U.S.-installed government "has made the war against drugs the centerpiece of its program."

The December 1989 invasion is history, and the dictator, Gen. Manuel Antonio Noriega, is in a Florida prison. But the collapse of an important bank here has added to a growing body of evidence that little has changed in Panama -- that drug traffickers continue to launder billions of dollars in drug money through the wide-open Panamanian banking system.

"Panama's financial institutions are used by traffickers to launder drug-related proceeds," a 1995 State Department report concluded, adding: "As a financial and commercial center with a location that is ideal for narcotics smuggling and illicit financial transactions, money laundering remains a major problem in Panama."

Money laundering is the way drug traffickers convert profits into seemingly legal proceeds by moving them through financial institutions and legal businesses until the money is impossible to trace. Panama, with a population of 2.3 million, has more than 120 banks, largely because of strict bank secrecy laws that provide a screen for moving money without revealing its true owners.

The collapse last January of the Banco Agro Industrial y Comercial de Panama (Banaico), a scandal that has touched senior members of the government of President Ernesto Perez Balladares, has provided an unusually clear window on the country's continued role as a money-laundering center.

"Banaico was a money-laundering operation masquerading as a bank," said a senior U.S. official. "As long as millions of dollars flowing through maintained the capital flow, it looked all right. When the flow stopped, it collapsed."

U.S. investigators said Banaico had long-standing ties to the cocaine-trafficking cartel in Cali, Colombia, and the bank faces several U.S. indictments. The flow of money stopped, officials suspect, because money launderers were spooked by U.S. investigators' attention and pulled their money out.

When Banaico collapsed, investigators found that $50 million of its $110 million in assets was unaccounted for. Operating jointly with Banaico was a small bank chartered on the Caribbean island of Montserrat. That bank, Lion International Bank and Trust, had about $11 million deposited in Banaico, but only $8 million has been accounted for, according to bank auditors.

"It is not that the money doesn't exist," a lawyer for Manuel Morales, president of Banaico, said, summing up the situation. "It is just that the money is not there."

Senior U.S. officials and Panamanian bankers said Lion bank existed largely on paper. Its main role was to allow Banaico to pass on suspicious deposits to accounts abroad.

Morales was given full power of attorney over Lion bank -- a move a Panamanian investigator called a "judicial fiction" to give Banaico maneuvering room abroad and its clients a place to squirrel away suspect cash.

Among Banaico's largest account holders was Jose Castrillon Henao, currently under arrest. Panamanian and U.S. officials point to him as a key link in the Cali cartel's money-laundering operations. His accounts totaled $2.6 million. He gave two checks totaling $51,000 to the 1994 campaign of Perez Balladares, something the president has acknowledged but said he was unaware of.

Despite the tightening of some requirements under Perez Balladares, it is still a legal practice for lawyers to open shell corporations, an essential step in moving money anonymously.

According to numerous lawyers who play the corporate shell game as part of their livelihood, it costs about $1,200 to do the paperwork. For a fee of $100 to $300 a year, lawyers hold posts in the companies as nominal directors, often never even meeting the company's real owner. Under Panama's bank secrecy laws, it is virtually impossible to find out who chartered a company.

Because of this widespread practice -- rather than criminal activity -- two senior members of the Perez Balladares administration have been tainted by the Banaico collapse.

According to public records, Banaico's vice president and secretary was Mayor Alfredo Aleman, a chief fundraiser of Perez Balladares' campaign who later became president of the nation's central bank. Aleman resigned in early 1995 when U.S. officials warned the president that Panama's certification in the drug war was endangered by Aleman's position in the bank. And the president of a holding company that nominally held the largest number of shares in the bank is Ricardo Arias, a former ambassador to Washington and now foreign minister.

Neither has been charged with any wrongdoing.

Arias said publicly that he had asked that his name be removed from the company, but that it never was. Aleman, whose lawyer has told him not to grant interviews, said when the scandal broke that he was uninvolved in the bank's activities.

"Arias is a classic case of how the system works," said a local banker investigating Banaico. "No one believes Arias would have anything to do with drug trafficking at all, but there his name is. That is how lawyers in this country make a living, sitting on boards of companies they do not know, and it is perfectly legal."

Perez Balladares said it is unfair to claim that Panama remains unchanged from the freewheeling days of Noriega, when drug traffickers could simply show up with suitcases of cash and deposit money in a bank with no questions asked. He cited new laws to crack down on money laundering, including the formation of the Financial Analysis Unit, operated jointly by U.S. and Panamanian authorities, as a watchdog for shady banking transactions.

Perez Balladares also pointed out a new law making lawyers responsible for knowing their corporate clients in creating shell companies. "It used to be, I sell you a corporation and you sell it to someone else,' " the president said. "Now lawyers are responsible for knowing their client."

Lawyers say the new law is not enforced. Nevertheless, U.S. officials say they believe Panama is slowly changing.

"The fundamental change is that they understand in the future Panama is in trade with Hong Kong and Taiwan, and if they have a crummy reputation they won't get the money," a U.S. official said. "They are going step by step to change things, designed in a way not to uncover the past or the venality of the elite, and bit by bit restructure."

They have a long way to go. For example, Fridrich Adolf Specht, a convicted German bank swindler accused by U.S. law enforcement officials of also being involved in money laundering, was the largest contributor to the campaign of Perez Balladares and his Democratic Revolutionary Party. Sources in the party said Specht had been a close friend of former dictator Omar Torrijos, who made Specht Panama's honorary consul in the Netherlands and allowed him to travel on a Panamanian diplomatic passport.

According to senior party sources, Specht gave close to $600,000 to the party, including $200,000 to the Perez Balladares campaign. The president said the entire campaign cost $2.7 million.

In an interview last week, Perez Balladares acknowledged his campaign received the $200,000. But he said, "A lot of people put in $200,000, so that was not unusual." He said he has never met Specht.

The president said all Specht asked for in return for the money was a promise to study a waste-recycling project. The project, which Specht intended to finance through Banaico, looked suspiciously like the scam he had been convicted of, according to investigators, an effort to swindle a German trading firm and Dutch bank of $6 million. Perez Balladares said he agreed to look at the project, but that, because it involved toxic waste, it was turned down, proving that Specht had not bought political influence.

Attorney General Jose Antonio Sossa cited legal technicalities in explaining why no crime had been committed through the donations of Castrillon or Specht. "The law that made it a crime for drug money to be given to was enacted after the election and is not retroactive," he said in an interview. "And if money comes into Panama, even if it was from a crime in another country, that does not make it a crime in Panama." CAPTION: Officials say that behind Banaico's sealed doors lies a trail of evidence about drug-related money laundering and corruption.