Panama in the spotlight: making progress on money laundering?

Written by Mary Munford on Tuesday June 28, 2016

Panama in the spotlight: making progress on money laundering?

There’s a saying about there being no such thing as bad publicity, though anyone who has been on the receiving end of negative media reports would probably not agree.

Panama has attracted global attention as a result of the April 2016 publication by the International Consortium of Investigative Journalists of the Panama Papers, following a huge leak of records from Panamanian law firm Mossack Fonseca. The details they contained about thousands of secretive offshore companies once again turned the spotlight on Panama, which has historically been seen as a secretive ‘tax haven’.

Mossack Fonseca strongly denies any wrongdoing; nevertheless, Panama was described by the US Department of State’s latest International Narcotics Control Strategy Report (INCSR), published a month before the Panama Papers, as ‘an attractive target for money launderers’, due to a range of factors including lack of government agency co-operation and lack of experience in money laundering prosecutions.

An immediate reaction to the publication of the Panama Papers was that President Juan Carlos Varela pledged to create ‘an international committee of national experts and internationally recognised expertise’ to help improve the transparency of the country’s financial system.

Significant progress

PanamaLet’s go a bit further back and look at some other positives. For a start, there’s the decision of the Financial Action Task Force (FATF) in February 2016 to remove Panama from monitoring under FATF’s ongoing anti money laundering/counter financing of terrorism (AML/CFT) compliance programme. In announcing the decision, FATF acknowledged ‘significant progress made in addressing the strategic AML/CFT deficiencies earlier identified’.

And a June 2016 report by the International Monetary Fund also found positives in Panama, highlighting Panama’s determination to combat financial crime with a May 2016 case in which  Panama’s Superintendent of Banks took operational control of a local bank that US authorities had designated as part of a money laundering group and associated actions. These included ‘the opening of criminal investigations, taking control of a local brokerage house, and beginning extraordinary inspections of nonfinancial entities by the Panamanian authorities’.

These international acknowledgements of Panama’s efforts to raise its game follow a busy legislative programme that the Panamanian government highlighted in a statement issued in the wake of the Panama Papers.

Bearer shares

This included new rules that severely restrict the use of bearer shares – shares that can be held anonymously, making them useful in money laundering and other financial crime – and Law 23 of April 2015, which embeds the risk-based approach to addressing money laundering and terrorism financing. It has also strengthened the customer due diligence regime for the financial sector and designated non-financial businesses, such as law and real estate firms, and the role of supervisory bodies.

Elsewhere, in May 2016 Panama signed up to the Organisation for Economic Co-operation and Development’s Common Reporting Standard, aimed at addressing tax evasion, for the automatic sharing of financial account information with other countries, to begin in 2018. Along similar lines, in the previous month Panama and the United States signed an intergovernmental agreement under the US Foreign Account Tax Compliance Act, or FATCA, on the automatic sharing of financial account information between the two country’s tax authorities.

The Future

The Panamanian government’s post-Panama Papers statement described Panama as ‘a serious country’ and recent actions suggest that it is paying serious attention to AML/CFT. It’s also worth remembering that while the law firm at the centre of the scandal was located in Panama, those offshore shell companies so popular for their secrecy are set up all by advisors and experts all over the world…so perhaps another set of Papers might one day be turning the publicity spotlight on another country.


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