Panama: International Law

A Government-led consultative group made up of banking, security and law enforcement representatives met weekly after Panama found itself on the FATF blacklist to review existing banking regulations and hammer out proposals. Panama was keen to talk to the G7 nations in a bid to get itself removed from the FATF money laundering blacklist, and sent a high-level government delegation to Europe with the message that Panama takes any money laundering allegations seriously and had made resolving the issue a priority.

Panama was blacklisted as a money-laundering hotspot by the Financial Action Task Force (FATF) in June 2000, but since then the FATF has recognised the country's efforts to improve its anti-money laundering controls. Panama introduced new anti-money laundering legislation, which extended the maximum penalty for money laundering to 12 years imprisonment. In addition, it enlarged upon the definition of money laundering crimes to include the proceeds of all serious crime instead of the previous limitation to drug trafficking offences. Furthermore, all financial institutions in Panama now come under the watchful eye of the bank superintendency.

Previously only banks were required to report suspicious transactions of more than $10,000 but following the introduction of the legislation, casinos, estate agents, insurers, the stock exchange, companies in the Colon free zone and the national lottery were obliged to declare transactions of more than $10,000.

Panama's efforts to be removed from the FATF's blacklist were successful in June, 2001. US Treasury Secretary at the time, Paul O' Neill was full of praise for the Bahamas, the Cayman Islands, Liechtenstein, and Panama, all of which had successfully worked to have themselves removed from the blacklist, and called the results achieved by the effort 'dramatic'. 'We applaud the legal reforms made by these countries,' he stated, adding: 'These improvements are a testament to the effectiveness of international cooperation in combating money laundering, and I'm optimistic that the FATF process will generate further progress.'

In July of that year, the US Treasury removed its Advisory which had been in place against Panama. This effectively meant that US based banks and other institutions did not need to apply enhanced scrutiny to transactions involving Panama.

After 11th September, allegations were made in Switzerland regarding a possible connection between Saudi dissident Ossama Bin Laden, and the financial services company Al Taqwa Management organisation, which had been established in Panama in January of 2001.

The authorities in Panama took the possibility that their offshore sector might have been used to launder Bin Laden assets seriously, and the country's financial analysis unit, the UAF, launched an investigation.

Panama was praised by US officials for its speedy and cooperative response to this and other requests for information on suspected terrorist accounts.

In February 2002 the authorities in Panama Wednesday unveiled a $1.2 billion, two year program designed to put a stop to international money laundering activities through the country's banking sector.

According to the country's Banking Superintendency, new measures taken in by the action plan included more effective monitoring and reporting of suspect transactions, greater information exchange with the US Federal Bureau of Investigation, tougher prison sentences for money launderers and terrorist financiers, and the establishment of a regional committee to improve regulation of Panama's banking sector.

The country's free trade zone, casinos, and gaming halls also became subject to increased scrutiny as a result of the program.

In 2003, Panama continued to make progress in fighting money laundering, and played a full role in the work of the Caribbean Financial Action Task Force (CFATF), whose members are 'highly committed to supporting the international fight against money laundering and terrorist financing', according to CFATF executive director, Calvin Wilson.

Mr Wilson announced that the CFATF, in conjunction with the Inter-American Development Bank, and the governments of Costa Rica, the Dominican Republic, Panama, and Venezuela was preparing to spend around US$100,000 on training front-line finance industry officials from the public and private sectors in the latest anti-money laundering techniques.

'Money launderers have a powerful incentive to attempt to circumvent anti-money laundering controls, and therefore there is a need to continually provide updated training in monitoring and detecting to respond to the challenges facing banks,' Mr Wilson observed.

Three additional laws passed in 2003 increased Panama's defences against financial crimes, money laundering and terrorism. These were: Law No 45 of 2003 (Financial Crimes); Law No 48 of 2003 (Money Remitters); and Law No 50 of 2003 (Terrorism)

In November, 2004, the International Monetary Fund issued an upbeat assessment of the Panamanian economy, praising the newly-elected government of Martin Torrijos for actions taken to contain public spending, reform taxes and encourage economic growth.

In October 2007, the Organisation for Economic Cooperation and Development (OECD) published two new reports outlining the progress made so far in its campaign against tax evasion.

'Improving Access to Bank Information for Tax Purposes – the 2007 Progress Report' described developments in OECD countries and six others (Argentina, Chile, China, India, the Russian Federation and South Africa) with respect to access for tax authorities to bank information.

Meanwhile, 'Tax Co-operation: Towards a Level Playing Field – 2007 Assessment by the Global Forum on Taxation' compares the legal frameworks for international tax co-operation of 82 OECD and non-OECD economies. It is the second in a series of factual reports by the OECD’s Global Forum on Taxation, which was formed as part of the OECD’s efforts to curb 'harmful' tax practices.

The Organisation observed that:

"Many financial centres, both onshore and offshore, are making progress in improving transparency and international co-operation to counter offshore tax evasion, but some still fall short of international standards that have been developed over the last seven years."

The OECD went on to suggest that significant restrictions on access to bank information for tax purposes remain in three OECD countries (Austria, Luxembourg and Switzerland) and in a number of offshore financial centres (e.g Cyprus, Liechtenstein, Panama and Singapore).

It further argued that a number of offshore financial centres that committed to implement standards on transparency and the effective exchange of information standards developed by the OECD’s Global Forum on Taxation had "failed to do so".

“No one country or even a small group of countries can address the issue of harmful tax practices on their own,” commented Paolo Ciocca, chair of the OECD’s Committee on Fiscal Affairs and co-chair of the Global Forum. “This is a global challenge which requires a global response. In co-operation with partner financial centres, that is what OECD is seeking to achieve."

In May, 2010, the government of Singapore confirmed to the Panamanian Ministry of Finance that it would begin negotiations for the signing of a comprehensive double taxation agreement. The agreement will include provisions for the exchange of tax information on request.

Deputy Minister for the Economy, Frank De Lima, who is to head the negotiating team for Panama, said that talks would begin immediately. De Lima also announced that an additional agreement for the exchange of tax information is to be negotiated with France during May.

De Lima said Panama currently had Organization for the Economic and Cooperation Development (OECD) model agreements for the exchange of tax information with Belgium, Italy, Netherlands, Spain, Barbados and Mexico. A tax agreement had also been concluded with Qatar. The agreements require ratification by parliament before they can enter into force.

Speaking during a recent visit to Hong Kong, Panamanian Minister for the Economy and Finance, Alberto Vallarino, reiterated the country’s commitment to signing Tax Information Exchange Agreements (TIEAs) in a bid to secure its removal from the OECD's so called 'grey list'. Jurisdictions must conclude a total of twelve TIEAs to gain a place on the OECD white list of territories that have substantially implemented the internationally agreed standard and avoid the prospect of international sanctions.

In July, 2010, the Panamanian government finalized negotiations in Luxembourg ahead of the signing of a treaty to avoid double taxation between the two countries, announced deputy economy minister, Frank De Lima, who led the negotiating team for Panama.

With the closure of negotiations, Luxembourg joins eight other nations with which Panama has successfully advanced negotiations, which may allow Panama to be removed from the Organization for Economic Cooperation and Development grey list.

De Lima said that Panama had signed treaties so far with Mexico, Barbados and Italy following the visit of President Silvio Berlusconi. Negotiations are set for July with Portugal, August with Singapore and Korea, September with Ireland and October with the Czech Republic.

Negotiations may also commence with Canada, Bulgaria, Hungary, Portugal, the UK, Cyprus, Germany, and Switzerland.

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