PANAMA
Summary
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Sanctions

None

FAFT AML Deficient

No Longer on list

Higher Risk Areas

 

US Dept of State Money Laundering assessment

Compliance with FATF 40 + 9 Recommendations

Not on EU White list equivalent jurisdictions

International Narcotics Control Majors List

Offshore Finance Centre

Compliance of OECD Global Forum’s information exchange standard

Medium Risk Areas

 

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average score)

Failed States Index (Political)(Average score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Panama is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Latest FATF Statement - 19 February 2016

The FATF welcomes Panama’s significant progress in improving its AML/CFT regime and notes that Panama has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2014. Panama is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Panama will work with GAFILAT as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report.

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Panama was undertaken by the Financial Action Task Force (FATF) in 2014. According to that Evaluation, Panama was deemed Compliant for 1 and Largely Compliant for 3 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 6 of the Core Recommendations.

 

US Department of State Money Laundering assessment (INCSR)

Panama is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

Panama’s strategic geographic location; dollarized economy; status as a regional financial, trade, and logistics hub; and favorable corporate and tax laws make it an attractive location for money launderers. Panama passed comprehensive AML legal reforms in 2015, but it must demonstrate its ability to effectively implement these reforms, including by investigating and successfully prosecuting complex money laundering schemes.

 

In April 2016, the “Panama Papers” exposed significant vulnerabilities related to lack of financial transparency and the use of shell companies to launder money, commit tax fraud, and evade U.S. sanctions. The Papers also highlighted inadequate supervision of both the financial and non-financial sectors (particularly lawyers and corporate service providers). These vulnerabilities were further highlighted by the U.S. Treasury Department’s designation, in May 2016, of the Waked Money Laundering Organization (Waked MLO) for providing material support, via money laundering and other services, to designated narcotics traffickers. The action highlighted the Waked MLO’s use of the formal banking sector, bulk cash smuggling, real estate, and TBML to launder funds.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

Money laundered in Panama primarily comes from drug trafficking proceeds due to its location along major trafficking routes. Numerous factors hinder the fight against money laundering, including the need for increased collaboration among government agencies, inexperience with money laundering investigations and prosecutions, tipping off of criminals, inconsistent enforcement of laws and regulations, corruption, and an under-resourced judicial system.

 

Criminals launder money via bulk cash smuggling and trade at airports, seaports, and the FTZs, and through shell companies, which exploit regulatory gaps. Criminals also use the formal banking system to hide and move the proceeds of illicit activity. Panama has 18 FTZs, including the Colon Free Zone (CFZ), the second-largest FTZ in the world. Bulk cash is easily introduced into the country by declaring it is for use in the CFZ, but no official verification process exists to confirm its end use in lawful business in the zone.

 

KEY AML LAWS AND REGULATIONS

 

Panama has comprehensive CDD and STR requirements. Only banks have enhanced due diligence procedures for foreign and domestic PEPs.

 

In 2015, Panama strengthened its legal framework, amended its criminal code, and passed a new AML/CFT law and other legislation enhancing the framework for international cooperation. The government passed Law 23 to criminalize money laundering and to expand the AML compliance requirements for entities in 31 sectors. As part of the law, Panama created a new regulator, the Intendencia, to oversee compliance by 12,080 DNFBPs across 16 broad sectorial categories and the CFZ. The number of DNFBPs has dropped significantly in recent years as the government has retired business registrations, for example, those previously registered, but never closed, businesses not paying licensing dues. Panama also passed Law 18 to severely restrict the use of bearer shares; companies still using these types of shares must appoint a custodian and maintain strict controls over their use.

 

In March 2016, the FIU launched a website for companies to submit STRs/CTRs – previously, reports were submitted on paper. The FIU has since registered thousands of entities and begun receiving reports online.

 

Panama is a member of the GAFILAT, a FATF-style regional body.

 

AML DEFICIENCIES

 

Entities often submit inconsistent, incomplete, or unnecessary STRs/CTRs. Bank AML compliance officers often provide minimal analysis in STRs, fearing liability; some notify clients or bank executives about investigations. Panama has no tipping off law to criminalize such acts.

 

Supervisory authorities lack sufficient resources, including trained staff with industry experience, to effectively monitor whether entities (particularly DNFBPs) are complying with reporting requirements. Regulatory bodies cannot access STRs/CTRs due to confidentiality laws, making it difficult for examiners to assess reporting problems. The FIU should improve its quality of STR analysis and shorten its response times to requests for information from foreign FIUs. The FIU should improve the quality of its requests for information to its foreign counterparts, so that information exchanges and collaboration on significant cases can be expedited. The protection of client secrecy is often stronger than authorities’ ability to pierce the corporate veil to pursue an investigation.

 

The CFZ remains vulnerable to illicit financial activities, due primarily to weak customs enforcement and limited oversight of transactions.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

The judicial system lacks sufficient resources to effectively prosecute and convict money launderers and remains at risk for corruption. Panama completed the transition to a U.S.-style accusatory penal system in September 2016. Prosecutors, however, still have minimal experience under the new system.

 

Panama does not accurately track criminal prosecutions and convictions related to money laundering. This year, Panama’s methodology for collecting the number of prosecutions is different from last year’s due to personnel changes and differing interpretations of a “money laundering” case. There were 34 prosecutions from January to August 2016. The government did not provide conviction data.


 

In 2013, the Government of Panama and the United States signed an agreement creating a bilateral committee to allocate $36 million in forfeited assets for AML projects. In December 2016, the committee approved several project proposals.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

38

World Governance Indicator – Control of Corruption

47

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Panama boasts the Western Hemisphere’s fastest growing economy, with low unemployment, and a stable, democratically elected government. As the home of the Panama Canal and the world’s second largest free trade zone, and with an economy nearly 90% based on services, including sophisticated logistics and finance operations, Panama is heavily dependent on foreign investment and has worked to make the investment process attractive and simple for investors. Over the past several years, new trade agreements with the United States, the European Union, Mexico, and Colombia have further increased Panama’s openness to foreign investment and have provided new protections and privileges for foreign investors.

Despite these efforts, however, Panama is plagued by a poor educational system, high labor costs, a lack of skilled workers, and consistent reports of corruption, fraud, and a lack of judicial transparency. Foreign investors in Panama have also complained about a lack of transparency in the government procurement process. Because many investors have struggled to have cases addressed expeditiously by Panama’s court system, most lawyers recommend binding arbitration clauses in contracts.

Panama elected a new government in May 2014. The new President, Juan Carlos Varela, from the centrist Panameñista party will take office on July 1, 2014. His administration is not expected to make significant changes to the investment climate. Despite the challenges, Panama remains one of the safest and most investment friendly countries in Central America and continues to attract high levels of foreign direct investment both from around the region and around the world.

 

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FURTHER REPORTS

Extract from IMF Report: Panama: 2015 Article IV Consultation

The authorities have made substantial progress in Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). An Action Plan agreed with the Financial Action Task Force (FATF) to strengthen Panama’s AML/CFT framework will be reviewed by that organization by end-June 2015. Key legal, institutional and legislative actions have been implemented to date, including:

-      An AML/CFT Policy Unit was created in the MEF last October. The unit has issued policy guidelines and strengthened coordination among anti-money laundering domestic institutions, including the Financial Intelligence Unit.

-      Budget allocations for the Financial Intelligence Unit tripled in 2015. This will significantly strengthen the unit’s technical capabilities, improve its response capacity, and enhance its cooperation with international counterparts.

-      New penal code legislation was approved in March this year classifying as crimes additional activities related to money laundering and financing of terrorism and also creating conditions for improved judicial assistance and cooperation with foreign institutions.

     New AML/CFT legislation was approved by the National Assembly on April 27, 2015 to strengthen controls and reinforce domestic and international cooperation a crucial measure in the Action Plan to allow Panama to exit the FATF’s grey-list.

This legislation also creates the Intendance of Supervision and Regulations, within the MEF’s structure, to exert surveillance on sixteen sectors of business activities and professions subject to controls on AML/CFT.

In addition, a new bearer shares law, also approved in April 2015, requires all common stocks to be registered with an authorized custodian by December 2015. The former law, of 2013, had a transition period until 2018 to enforce said registration. The new law also allows converting bearer shares into nominative shares. This measure and all other initiatives listed above show the determination of the Panamanian authorities in supporting the role and legitimacy of Panama as a banking center and in strengthening AML/CFT regulations and institutions.

Read Full Report

 

Extract from IMF Report: Panama: 2015 Article IV Consultation-Press Release

The authorities have made substantial progress in Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). An Action Plan agreed with the Financial Action Task Force (FATF) to strengthen Panama’s AML/CFT framework will be reviewed by that organization by end-June 2015. Key legal, institutional and legislative actions have been implemented to date, including:

-      An AML/CFT Policy Unit was created in the MEF last October. The unit has issued policy guidelines and strengthened coordination among anti-money laundering domestic institutions, including the Financial Intelligence Unit.

-      Budget allocations for the Financial Intelligence Unit tripled in 2015. This will significantly strengthen the unit’s technical capabilities, improve its response capacity, and enhance its cooperation with international counterparts.

-      New penal code legislation was approved in March this year classifying as crimes additional activities related to money laundering and financing of terrorism and also creating conditions for improved judicial assistance and cooperation with foreign institutions.

-      New AML/CFT legislation was approved by the National Assembly on April 27, 2015 to strengthen controls and reinforce domestic and international cooperation – a crucial measure in the Action Plan to allow Panama to exit the FATF’s grey-list.

This legislation also creates the Intendance of Supervision and Regulations, within the MEF’s structure, to exert surveillance on sixteen sectors of business activities and professions subject to controls on AML/CFT.

In addition, a new bearer shares law, also approved in April 2015, requires all common stocks to be registered with an authorized custodian by December 2015. The former law, of 2013, had a transition period until 2018 to enforce said registration. The new law also allows converting bearer shares into nominative shares. This measure and all other initiatives listed above show the determination of the Panamanian authorities in supporting the role and legitimacy of Panama as a banking center and in strengthening AML/CFT regulations and institutions.

Read Full report