PANAMA
The primary purpose of this paper is as a learning process, for me. My intention was to seek to understand the general situation in Panama in respect of anti-money laundering/control of the financing or terrorism (AML/CFT), anti-proliferation and export and trade control measures, controls on proliferation financing (CPF), and related matters.
Any comments, additions and/or corrections are welcome…
- INTRODUCTION AND GENERAL INFORMATION
- THE EU TAX BLACKLIST
- TAX AND THE OECD
- FATF EVALUATION ASSESSMENT
- NATIONAL RISK ASSESSMENT
- THE NATIONAL STRATEGY PLAN
- RELEVANT BODIES
- KEY AML/CFT/CPF LEGISLATION
- IDENTIFIED AML/CFT DEFICIENCIES
- WHAT ABOUT PROLIFERATION?
- RESIDENT AGENTS
- THE LEGAL SYSTEM
- THE LEGAL SYSTEM – THE ACCUSATORIAL CRIMINAL JUSTICE SYSTEM
- BRIBERY AND CORRUPTION
- THE COLON FREE ZONE
- THE PANAMA PAPERS
- ILLEGAL UNREPORTED UNREGULATED (IUU) FISHING
- KIMBERLEY PROCESS AND “BLOOD” OR “CONFLICT” DIAMONDS
- INDIRECT TAX
- HUMAN TRAFFICKING
- GLOSSARY
INTRODUCTION AND GENERAL INFORMATION
There are many factors that mean that Panama not only make it attractive as a jurisdiction to would-be money launderers, proliferators etc; but also make it essential that the country have comprehensive and effective AML/CFT controls, as well as export and other controls to combat proliferation and other trade-related risks. These factors include –
- its geographical location – to which one can add the next couple of factors;
- being a major trade and logistics hub (not only because of the Panama Canal, though which about 5% of all world sea trade passes[1], but also because of the existence of 5 container ports (In 2018 it was announced that the Panama Canal Authority (ACP) is planning to relaunch the concession process to build and operate a new container terminal at Corozal on the Pacific side of the canal in 2020) used for import, export, transit and transhipment of cargo)[2]. In 2016, Colón Container Terminal was the busiest port of transit with 56% of shipping, followed by Balboa (34%), Manzanillo (8%), and then Cristobal (2%)[3];
- the Panama Canal – which contributes about $1 billion in tolls to the economy[4], and greatly boosting the use of the country as a logistics centre[5];
- having the largest single shipping register in the world – the Panama Registry claims to be in charge of managing the world´s largest ship registry, with over 8,000 registered vessels which accounts 18% of the world fleet;
- its status as major financial centre (especially in terms of business in and from Latin America);
- its use of the US dollar as if its own[6];
- the presence of the largest free port and free trade zone in the Americas at Colon[7] (being the largest of 12 such zones in the country); and
- what have been described as favourable corporate and tax laws[8].
Panama remains regarded by the US State Department as a being a jurisdiction of primary concern in respect of money laundering and financial crimes. According to the State Department, the release of the “Panama Papers” and the US Treasury’s designation of the Waked Money Laundering Organisation as a Specially Designated Narcotics Trafficker in 2016[9] exposed and underlined vulnerabilities in Panama’s financial transparency regime.
If further evidence of vulnerability was required, in 2017, Panama agreed a $220 million settlement with Brazilian construction company, Odebrecht, which had admitted to paying $59 million in bribes in the country in 2012-14 to secure public works projects[10]. The settlement included a $100 million penalty for using the banking system for illicit activities. It was also said that Panamanian officials were investigating 43 people related to projects contracted during the last 3 presidential administrations.
It did not help the country’s reputation that the former president, Ricardo Alberto Martinelli Berrocal, who held office 2009-2014. In January 2015, the Supreme Court ordered an investigation of Martinelli over alleged corruption, and his immunity from prosecution (as leader of a political party) was lifted and in due course an arrest warrant was issued and he was accused of embezzling government money to fund illegal surveillance activities. He had fled to the US, but was eventually extradited from Florida in June 2018[11].
In its Country Report on Panama in August 2015[12], the International Monetary Fund (IMF) said that the most immediate priority for Panama was to finalise the process of enhancing financial integrity, and that monitoring, supervision and regulation of the financial sector need to see continued enhancement. To these ends, it said, it was important that Panama finalise the Action Plan agreed with the OECD’s Financial Action Task Force (FATF), which had identified “strategic AML/CFT deficiencies”, though it noted that the passing of the new AML law in 2015 was an important step.
Further impetus for improvements to the country’s AML/CFT regime came in the form of an impending review by GAFILAT, the regional FATF-style monitoring body, which was scheduled to take place in late 2017, and would include use of the new “effectiveness” ratings (meaning that the review would not only look at technical compliance with FATF Recommendations, but also at evidence of how effective controls were).
In late 2015, Panama passed comprehensive legal reforms concerned with AML, with further legislative and administrative changes continuing.
Its first national risk assessment (NRA), published in January 2017[13], identified free trade zones (of which there are 12), real estate, construction, lawyers and banks as being of “high risk”. In the light of this, in May 2017, the government published a National Strategy Report outlining 34 strategic priorities for 17 government institutions, intended to improve the country’s AML/CFT regime and running to 2019.
As is the case with many “offshore” financial centres, most of the money laundering in Panama is likely to primarily originate with illegal activities elsewhere – with drug trafficking, tax evasion[14] and smuggling having been identified by the US State Department as the most common or likely.
However, it is recognised that Panama is a transhipment point for drugs due to not only its geographical location (particularly bordering Colombia[15]), and the large amount of air and sea traffic transiting the country.
The Colon Free Zone (CFZ) is the second-largest free trade zone in the world[16]. In 2017, the NRA published by the Ministry of Economy and Finance acknowledged that Panama’s free trade zones were prone to facilitate money laundering and other crimes[17]. It was said that the weaknesses of the CFZ were highlighted throughout the analysis carried out by the Ministry through the NRA[18].
Law firms and corporate service providers (CSP) in Panama are seen as key gatekeepers, but in the past at least were seemingly subject to less than stringent oversight and control. The current International Narcotics Control Strategy Report from the US State Department[19] says that the use of nominee shareholders and directors, thereby helping to mask the true ownership and control of corporate vehicles, is still prevalent. That said, Panama was said to have instituted comprehensive customer due diligence (CDD) and suspicious activity report (SAR) requirements.
As mentioned, Panama is a member of GAFILAT[20], the Financial Action Task Force of Latin America, what is termed a “FATF-style regional body” (FSRB). In 2016, a public statement from FATF said that the organisation welcomed Panama’s significant progress in improving its AML/CFT regime and noted that Panama had 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[21]. As a result, it was no longer subject to ongoing monitoring, but it was said it would continue to work with GAFILAT to address the full range of AML/CFT issues identified in its mutual evaluation report of 2018.
THE EU TAX BLACKLIST
Panama was removed from the EU tax blacklist[22] in January 2018[23] following “commitments made at a high political level to remedy EU concerns”[24]. The list was of jurisdictions that were regarded as non-cooperative by the EU, and they were assessed including criteria including tax transparency and implementation of “anti-BEPS” measures[25].
As part of this commitment, the government accelerated the implementation of several reforms to strengthen its tax system, and it signed various international agreements on the exchange of tax information[26].
In January 2018, Panama signed up to the Common Reporting Standard (CRS)[27], a move described by the OECD as “reaffirming its commitment to the automatic exchange of financial account information”. The CRS requires jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that are required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions. According to OECD information, as at the date of this paper, Panama had enacted the necessary primary and secondary legislation, but had not yet issued guidance on implementing CRS[28].
TAX AND THE OECD
Panama has a number of special economic zones (SEZ) to attract foreign businesses and to promote innovation, and where special tax reliefs and benefits apply. The most important is the CFZ, Panama Pacifico and Cuidad del Saber (City of Knowledge) – in these 3 zones, there are over 2,000 businesses and 43,000 workers (2.4% of total employment in the country)[29].
In 2018, Law No. 654 inter alia added a new paragraph to the Fiscal Code requiring companies established in SEZ, in an oil free trade zone, or operating as a multinational company headquarters (SEM) to apply transfer pricing rules to dealings with related parties – previously the OECD Guidelines were to be considered the technical reference for purposes of interpreting of the country’s transfer pricing rules and provisions. Transfer pricing has been described by the OECD as the allocation of profits for tax and other purposes between parts of a multinational corporate group[30]. The current OECD international guidelines are based on the “arm’s length” principle – that a transfer price should be the same as if the companies involved were indeed two independent companies, not part of the same corporate structure. The arm’s length principle (ALP) is in Article 9 of the OECD Model Tax Convention and is the framework for bilateral treaties between OECD countries, and many non-OECD governments.
In its 2018 peer review report, the OECD said that Panama was making progress in addressing base erosion and profit shifting (BEPS). BEPS means tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the OECD, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS[31]. The OECD said that anti-avoidance measures still needed strengthening in Panama, to prevent aggressive tax planning and enable the collection of a fair amount of tax by or for the other countries affected. Panama signed the BEPS Multilateral Convention in 2018.
In 2016, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes rated Panama as “non-compliant” for the purposes of the international standard for the exchange of information. After taking steps to remedy this, a “fast track” reassessment in 2017 resulted in an upgrade of its rating to “Largely Compliant”.
In 2016, the country had committed to implementing the international standard of Automatic Exchange of Financial Account Information (AEOI)[32], known as the Common Reporting Standard (CRS), and signing up formally to the necessary instrument[33] in January 2018[34] – with this expected to see the first such exchanges later in 2018[35].
Also in 2016, Panama signed the Convention on Mutual Administrative Assistance in Tax Matters, thereby greatly extending its tax information exchange network. The Convention itself came into effect in 2017.
FATF EVALUATION ASSESSMENT
Panama is a member of GAFILAT, the regional FATF-style regional body, which assesses Panama against the 40 Recommendations issued by FATF and which “set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction” and thereby establish an international standard against which countries can be measured[36].
Since 2013, FATF has also evaluated jurisdictions against 11 “Immediate Outcomes” to assess the effective implementation of the Recommendations and the overall robustness and effectiveness of the control regime in that jurisdiction. The 11 Immediate Outcomes are included in the methodology laid down for carrying out of assessments[37] –
Assessments are undertaken by means of mutual evaluation, a type of peer review using experts selected from other member countries of FATF or the regional body, and the results published in mutual evaluation reports (MER), both by the regional body and by FATF itself. The experts carry out an on-site visit and also call for documents and information from the country being assessed, and enter into an ongoing dialogue with the country up to the time of the report being finalised. The results of the assessments undertaken by the regional bodies are moderated and approved by FATF, and the markings published by FATF in a schedule of results for all jurisdictions that have been assessed.
After the previous MER in 2014, the International Cooperation Review Group (ICRG) of FATF placed Panama in its enhanced follow-up process, and GAFILAT also placed the country under an enhanced follow-up process (which had ended by the time of the next on-site visit in 2017). The role of the ICRG is to monitor and report on “high risk” jurisdictions. Referral to the ICRG is normally based primarily on the results of the jurisdiction’s MER, and jurisdictions whose MER reveals a significant number of key deficiencies are referred to the ICRG. Jurisdictions considered to be falling short may be given a short window (usually 12 months) to demonstrate improvements, and may be required to prepare and submit an action plan and to engage in meetings with FATF representatives, as well providing high-level political commitment to remedying any identified shortcomings.
The latest MER for Panama was published in 2018[38], this followed an on-site visit by a team of evaluators from GAFILAT in May 2017. According to that MER, Panama was deemed “Compliant” for 10 and “Largely Compliant” for 22 of the FATF 40 Recommendations[39].
However, Panama only scored “Substantially Effective” for 2 of the 11 Immediate Outcomes, and failed to score “Highly Effective” for any.
One of the main risks facing Panama in terms of income from criminal activities was said to be the receipt of funds or other financial assets resulting from tax crimes committed abroad. This risk had not been considered in the NRA and in the MER GAFILAT said it was important to point out that tax crimes are not criminalised as a predicate offence for the purposes of money laundering in Panama, which (naturally enough) significantly affects the possibilities for prevention and investigation. The National Strategy Plan included criminalising tax crimes as one of its most important action points, and the MER identified this step as a priority action.
Illicit drug trafficking was seen as the illicit activity committed in the Panamanian territory which was most related to money laundering in the country, with the country being seen as primarily a transit point – not a production base – for drugs heading chiefly to North America.
The other main internal threats relating to money laundering were seen as being corruption[40], financial crimes and crimes against intellectual property[41].
The MER said a priority was for Panama to pay special attention to the free zones sector to prevent measures of improper invoicing of goods[42] or other illegal foreign trade operations[43]. It also said that measures must be taken to control the use of cash in free zones, as well as in the real estate and construction sectors.
The MER called for greater attention to be paid to the risks of terrorism financing and proliferation/proliferation financing[44], and for more effort on raising the awareness of the risks.
However, as was the case with the NRA, the MER noted that tax crime not being a predicate offence for money laundering enhanced the risks in some vulnerable sectors, such as the financial sector, the corporate sector and the free zones. In addition, the MER said that the current control mechanisms of operation of the corporate service sector were not considered enough to mitigate the risks associated to the operation of Panamanian corporations and private interest foundations, especially in the offshore sector[45] (something I think was underlined by the Panama Papers).
NATIONAL RISK ASSESSMENT
FATF regards a national risk assessment (NRA) that identifies, assesses and understands the money laundering and terrorism financing risks facing a jurisdiction as an essential part of developing a national AML/CFT regime[46]. It is also something that an evaluation team would expect the jurisdiction to have undertaken, and it is referred to in the Recommendations (in particular recommendation 1[47], and would inform the rating of the Immediate Outcomes.
Panama’s NRA[48] was approved in December 2016 by the National Commission against Money Laundering, TF and Financing the Proliferation of Weapons of Mass Destruction[49] (CNBC), and the same month submitted to the cabinet and President. It was formally published in January 2017[50], and duly taken into account by the GAFILAT review team.
The NRA identified that the main risks from money laundering are derived from illicit financial flows from abroad which may be placed in Panama and which are associated with drug trafficking. Other offences related to organised crime, smuggling and other offences related to international trade. In respect of internal threats, drug trafficking, corruption, financial crimes and crimes against intellectual and industrial property were identified as the main offences.
The NRA determined that Panama has a vulnerability to the receipt into the country of the proceeds obtained from predicate offences committed abroad and that the legal services and legal arrangements existing in Panama may be misused abroad for money laundering[51].
The NRA also put the terrorism financing risk as “low”, because Panama does not have individuals or terrorist organisations and does not maintain relations with countries at greater risk of terrorism[52]. There were said to be (and this point was endorsed in the MER) mechanisms in place to prevent the use of the financial system for terrorist financing and to implement targeted financial sanctions related to terrorist financing and proliferation.
However, the NRA evaluated mainly terrorism risk and not the terrorist financing risk, and it was said by GAFILAT in the MER that both financial institutions and DNFBP[53] did not fully understand risks of, or from, terrorist financing. In the 2018 MER, GAFILAT called for greater attention to be paid to the risks of terrorism financing and proliferation/proliferation financing, and for more effort on raising the awareness of the risks.
One of the main risks identified by the NRA had been in the real estate sector, and this was identified as a top priority in the on-site monitoring programme of the Intendencia (see list of relevant bodies below).
Another sector identified in the NRA as high-risk were companies that operate in the Colon and other free zones, with large amounts of cash said to circulate in the Colon zone.
Another high-risk area was the legal sector[54], particularly where lawyers act as resident agents[55]. At the time of the 2017 evaluation visit by GAFILAT only 522 such lawyers/agents were registered with the FIU out of a total of 4,216. A resident agent is required to identify the client (including ultimate beneficial owner), obtain information about the purpose for which the legal entity is created, and provide the competent authorities with the required information (such as to combat money laundering and terrorism financing and any other illegal activity[56]). However, the MER concluded there was some doubt or confusion over what, or whether at all, the resident agent had to carry out deeper or follow-up proactive verification – such as to detect subsequent changes affecting or different from that information initially relied upon[57].
The NRA evaluated the risks of companies used for illegal purposes, concluding that the sector was vulnerable and considered of high risk. In particular, the NRA established that there is “a vulnerability for companies without activities in the Republic of Panama to be used in other countries for money laundering or TF purposes”[58].
The MER also pointed out that the NRA did not consider one of the main risks currently experienced by the country in terms of income from criminal activities, which is the receipt of funds or other financial assets derived from tax crimes committed abroad – these not being a predicate offence for money laundering in Panama. Furthermore, it said, the NRA did not go far enough into the analysis of existing risks in each of the different activity sectors identified as vulnerable[59].
According to the conclusions of the NRA, the risks of some types of non-profit organisation (NPO) being used for money laundering or terrorism financing, are low, and (as already mentioned) that terrorism threats are mainly found abroad, and that the NPO in Panama, in general, do not send resources abroad, but raise them for conducting activities within the country. In addition, no cases were identified where an NPO had been used for terrorist financing purposes. Panama did not include NPO within the range of reporting institutions, under Law No. 23, 2015, and did not identify any subgroup of NPO with having a higher risk of abuse for the terrorist financing[60]. The body for Supervision, Monitoring and Evaluation Department of Non-Profit Organizations and Private-Interest Foundations (see the list of relevant bodies below) is in charge of supervising the operation of the NPO, collecting information on directors and financial statements every year, and re-evaluating the sector for possible risks and vulnerabilities regarding terrorist activities.
THE NATIONAL STRATEGY PLAN
The National Strategy for Combating Money Laundering, Terrorist financing and the Proliferation of Weapons of Mass Destruction[61] was jointly developed by the Panamanian government and the IMF. It was formally approved in May 2017.
One of the Plan’s lines of action was for tax crimes to be criminalised (which was also highlighted as a priority action by the 2018 MER), this being an obvious gap in the law, and identified as a source of vulnerability to the country and its finance and business sectors.
One point of note was that the Plan labelled the vulnerability risk of registered agent lawyers as “low”, although the sector was identified as “high-risk” in the NRA, and evidence of the Panama Papers would appear to support the latter assessment.
The Plan established the Strategical Priorities of the country under 5 pillars –
- Transversal;
- Institutional;
- Prevention Component;
- Detection and Intelligence Component; and
- Investigation and Criminal Justice Component.
Based on these 5 pillars, an Action Plan was drawn up, with various objectives set and actions planned up to December 2020.
The National Commission against Money Laundering, Terrorism Financing and Financing the Proliferation of Weapons of Mass Destruction acknowledged the NRA, and it approved the National Strategy. The Commission allows for the co-ordinating of the activities of authorities with jurisdiction on prevention matters, and it was under its aegis that the National Strategy was drafted. As described in the National Strategy, the Commission is charged with –
- approving national risk strategies for money laundering, terrorism financing and countering proliferation of WMD;
- taking the necessary measures to mitigate national risks, manage resources and adopt decisions on execution, in addition to monitoring the action plan; and
- establishing policies and ensuring co-ordination on issues involving money laundering, terrorism financing and countering proliferation of WMD.
RELEVANT BODIES
There are a number of law enforcement, regulatory and supervisory bodies that one need to be aware of when considering the situation in Panama.
There are 4 supervisory bodies for the financial sector – SBP, SMV, SSRP and IPACOOP.
| SBP |
Bank Supervisor of Panama (Superintendencia de Banco de Panamá).
Its supervision includes remittance and currency exchange businesses, although Panamanian law regards these as “non-financial” businesses[62], as well licensed banks (92 at the time of the GAFILAT evaluation), issuers or processors of debit cards, credit and prepaid, payment and electronic money. Remittance houses and savings and housing loan corporations, supervised by the SBP, are authorised by the Ministry of Commerce and Industry (MICI).
Supervises – banks and banking groups; fiduciary companies; financial companies; financial leasing companies; factoring companies. |
| SMV |
Supervisor of the Securities Market (Superintendencia del Mercado de Valores).
Grants licences to the securities companies, investment companies, advisors and investment managers.
Supervises – self-regulated organisations; securities firms; investment managers; pension fund administrators; disability fund managers |
| SSRP |
Panama Supervisor of Insurance and Reinsurance (Superintendencia de Seguros y Reaseguros de Panamá).
Responsible for insurance and reinsurance brokers, as well as insurance loss adjusters etc, insurance agents, executives and managers of companies’ insurance companies (captive insurance), and related businesses.
Its main objective is to protect contracting parties and to promote an inclusive insurance market by performing duties and activities that ensure the solvency and liquidity of insurance companies and the performance of activities regulated in compliance with this law and its regulations.
Supervises – insurance and reinsurance companies; insurance brokers (natural or legal persons); reinsurance brokers (natural or legal persons); insurance adjusters or inspectors; insurance agents (natural or legal persons). |
| IPACOOP |
Panamanian Autonomous Cooperative Institute (Instituto Panameño Autónomo Cooperativo).
Responsible for granting legal status to co-operatives and credit unions, and, if necessary, to intervene and liquidate them for breach of AML/CFT regulations.
Supervises – Credit Unions; Mulitple or Integral Services Cooperative that are involved in savings or credit activities; Other co-operative organisations conducting financial intermediation. |
Other relevant bodies include –
| INTENDENCIA |
Supervisor and regulator of non-financial reporting institutions (DNFBP) and activities (Intendencia de Supervisión y Regulación de Sujetos Obligados No Financieros).
Responsible for a variety of DNFBP, including –
companies in the Colon Free Zone and the Agency of Panama Pacifico, Zona Franca Baru;
casinos, gaming, gambling and betting system organisations (including online);
developers, real estate agent and broker of real estate, when they are involved in transactions for clients concerning the purchase and sale of real estate;
companies in the construction industry;
pawn shops;
companies involved in marketing of precious metals and gemstones;
savings and loans institutions for housing;
money exchanges; and
companies engaged in the buying and selling of new and used cars. |
| FIU |
The Financial Intelligence Unit[63] (FIU, in Spanish UAF)[64].
Serves as the national centre for the collection and analysis of financial information related to money laundering/terrorist financing/proliferation crimes, for receiving and analysing Suspicious Transaction Reports (STR) and Cash (and cash equivalents) Transaction Reports (CTR), which are submitted using an electronic platform[65] that allows interaction with the reporting institutions to offer feedback[66] on the quality of the report. Strict confidentiality applies to STR and their contents can only be disclosed to the Public Prosecutor’s Office (PPO), criminal investigation agents and judicial authorities.
The FIU also receives information from the National Customs Administration (ANA) on travellers’ declarations related to the transportation of money, securities or documents for more than $10,000 (or its equivalent in another currency).
It issues financial intelligence reports with added value which are disseminated by the PPO. Once the analysis is completed, an intelligence report is prepared and evaluated by a committee, together with an assigned analyst and then it is submitted to the General Director of the FIU, who can decide whether to carry out further inquiries or communicate the results of the analysis to the PPO. The FIU can also spontaneously communicate the result of its analysis through its intelligence reports to the PPO and other criminal investigation agents or jurisdictional authorities where it is suspected that money laundering, terrorist financing or proliferation activities have been, or are being, carried out. However, it is normally a working group meeting between the FIU and the PPO that marks the beginning of an investigation.
However, the 2018 MER found that the number of reports disseminated (by the FIU and other competent authorities) was low. It also noted a lack of feedback to the FIU on whether reports it had prepared, or assistance it had rendered, had been of benefit.
The FIU also provides technical assistance at the request of the PPO or other competent authorities.
The 2018 MER noted that there was a low level of STR in sectors identified in the NRA as having high vulnerability to money laundering and terrorist financing (e.g. attorneys acting as resident agents[67], the real estate sector and those in the Colon Free Zone.
The FIU is a member of the Egmont Group of FIU[68], and is thus able to make use of that organisation’s system of secure, confidential requests for assistance and information.
The Ministry of Foreign Relations receives the updated lists of the United Nations Security Council referring to natural or legal persons designated for proliferation, these are communicated to the FIU (and CSN).
The FIU may exchange financial intelligence information with such countries whose FIU is member of the Egmont Group, or with such countries with which it has signed a MoU[69]; it is also able to exchange such information on the basis of reciprocity[70]. The FIU is also party to the Regional MoU for combating money laundering and the financing of terrorism among the different FIU of Central America, Colombia and Dominican Republic, as well as to the MoU of FIU with the 17 other GAFILAT states.
The website of the UAF includes FAQ, which answer such questions as what are predicate crimes, and what are the functions of the unit[71]. |
| MONEY LAUNDERING AND FINANCING OF TERRORISM UNIT |
A specialised entity created by the Office of the Attorney General in 2016 to support prosecuting attorneys in complex financial investigations, developing proprietary investigations and helping with money laundering criminal investigation strategy. The Unit also has a co-ordination mission aimed at strengthening the execution of investigations by means of inter-institutional groups with the participation of the Judicial Investigation Division, the FIU and the Institute of Forensic Medicine and Forensic Sciences. |
| PPO |
The Public Prosecutor’s Office in the Attorney General’s Office.
Disseminates financial intelligence reports prepared by the FIU. It also undertakes investigations.
It is the authority in charge of properly investigating money laundering, predicate offenses and terrorist financing.
A specialised unit for money laundering and terrorist financing has been created to support the PPO, with analysts and appropriate technical support: the ML/TF Specialized Unit[72]. Its support staff include financial, accounting and IT analysts who collaborate on the financial analysis.
The PPO also works with the support of the Department of Judicial Investigation (DIJ) of the National Police (see below), which is dedicated to investigating money laundering and terrorist financing.
The PPO applies for court orders retraining property or other assets. Ultimately, such property may be ordered to be disposed of by the Ministry of Economy Finance. Property which is also evidence remains in the custody of the PPO, but other property is the responsibility of the Department of Administration of Seized Property.
The PPO also acts as the country’s central authority for mutual legal assistance requests, co-ordinating with the Foreign Office, under several international treaties. However, Panama had established several central authorities according to the nature of the offence and the convention involved, to provide legal assistance in criminal matters, and in some cases the responsibility lies with the Ministry of Government, with prior delivery to the PPO, and in other cases with the Foreign Office.
The PPO has a special unit destined to fulfil functions in international co-operation matters, which prioritises and monitors how assistance requests are dealt with, with the objective that they will be answered in a timely manner. |
| DEPARTMENT OF ADMINISTRATION OF SEIZED PROPERTY |
This Department reports to the Ministry of Economy and Finance and is involved where the property involved in cases under the former legal system (i.e. that of prior to the transition to an accusatory system similar to that of the US – see more detail on this below). It is responsible for control of all restrained and seized property which is not considered as also being evidence (in which case remains in the custody of the PPO). It would arrange any disposal, such as by auction, of any condemned property. |
| DIRECTORATE OF ADMINISTRATION OF SEIZED PROPERTY |
This Directorate was created only in 2015 and it also reports to the Ministry of Economy and Finance. It is involved in cases arising under the post-2016 accusatory legal system. Where any monies and securities are restrained or seized these would remain in the custody of the financial institution in which it was found, accruing interest, but monitored and controlled by this office. |
| ANA |
National Customs Authority (Autoridad Nacional de Aduanas).
It controls and supervises customs operations and the flow of goods entering, remaining in or exiting the country and those goods covered by permanent or temporary customs regimes, customs warehouses, free trade zones and duty-free stores.
One of its roles involve handling travellers’ declarations related to the transportation of money, securities or documents[73] for more than $10,000 (or its equivalent in another currency).
Under Panama law[74], money falls under the definition of “merchandise”, thus allowing its seizure alongside any goods or vehicle used to transport it. Non-declaration or false declaration involving cash etc of over $10,000 in value (in whatever denomination) at importation is also regarded as a form of customs fraud. A written declaration system is established for all travellers, who must declare if they carry more than $10,000.
In customs matters, the most intensive co-operation is with Colombia, mainly, and with Costa Rica, these countries sharing land borders with Panama. Colombia is the country in which a greater exchange and co-ordination takes place.
There is also a co-operation programme with US, mainly aimed at controls on containers and merchandise in transit at the Panamanian ports, and that have the US as their final destination (there is a free trade agreement in place between the US and Panama). The US has also provided assistance and support for the acquisition of equipment that allows conducting non-intrusive inspections of shipments to detect radioactive materials.
The ANA undertakes risk-based checks of shipments in transit through the country’s ports. |
| CNBC |
National Commission against the laundering of capital[75] (La Comisión Nacional contra el Blanqueo de Capitales); aka National Commission against Money Laundering, Terrorism Financing and Financing the Proliferation of WMD (Consejo Nacional Contra el Blanqueo de Capitales, Financiamiento del Terrorismo, y de la Proliferación de Armas de Destrucción Masiva)[76].
A council chaired by the Minister of Economy and Finance, with 2 other ministers, the Superintendent of banks, prosecutor general from the PPO, the director of the FIU and the President of the Commission of economy and Finance of the National Assembly[77]. It also has a technical secretariat attached, which has technical and administrative functions. It approves the national risk strategy to prevent money laundering, manages the resources available and identifying money laundering national risks. It also follows up the National Plan to prevent money laundering and establishes policies for the prevention of money-laundering offences. |
| SENAFRONT |
National Border Control Service (Servicio Nacional de Frontera).
This operates at the land border crossings with Costa Rica and Colombia. They are an armed, paramilitary force which often saw clashes with FARC. It is a specialised and permanent police force structured and organised to guard the terrestrial borders of Panama. |
| CSN |
The National Security Council (Consejo de Seguridad Nacional)
This was created in 2010 as a consulting and advisory body for the President on national security and defence issues. Within its scope are terrorism and terrorism financing, as well as the investigation of corruption, organised crime, drug trafficking and migrant smuggling. The Counter-Terrorism Department and the Prevention Committee against Terrorism and its Financing (see below) is part of the CSN.
The CSN also has representation on the Prevention Committee against Terrorism (see below). The Counter Terrorism Department of the CSN was established in 2016 and is dedicated to carrying out intelligence tasks on individuals or legal persons that are suspected of being related to terrorism and terrorist financing.
The Ministry of Foreign Relations receives the updated lists of the UN Security Council referring to natural or legal persons designated for proliferation reasons, these are communicated to the CSN (and the FIU). |
| COUNTER-TERRORISM DEPARTMENT AND THE PREVENTION COMMITTEE AGAINST TERRORISM AND ITS FINANCING |
Departamento de lucha contra el terrorismo y el comité de prevención contra el terrorismo y su financiamiento.
This is part of the CSN and its main function is to collect and disseminate intelligence relating to terrorism, terrorist financing or the proliferation of WMD. It also compiles reports that are submitted to the Prevention Committee against Terrorism (see below).
|
| PREVENTION COMMITTEE AGAINST TERRORISM |
Comité de prevención contra el terrorismo.
This committee involves representatives from the CSN, FIU, PPO, the office of the President, and other state entities. It reviews reports prepared by the Counter-Terrorism Department and the Prevention Committee against Terrorism and Financing, makes recommendations for decisions taken by the CSN, evaluates requests for inclusion on UN sanctions lists and exchanges information with other state bodies in cases of suspected terrorist financing. |
| GIA |
The Inter-institutional Anticorruption Group (Grupo Interinstitucional Anticorrupción).
This was created in 2016[78] to promote preventive actions against acts of corruption and organised crime within public security organisations. It reports to the Executive Secretariat of the CSN. |
| DIJ |
This is the Department of Judicial Investigation (Departamento de Investigación Judicial) of the National Police (see below). |
| POLICE |
The National Police (Policía Nacional).
The PPO works with the support of the Department of Judicial Investigation (DIJ) of the National Police, which is dedicated to investigating money laundering and terrorist financing. At the time of the GAFILAT evaluation Panama was in the process of improving its capabilities to conduct parallel financial investigations, with the creation of specialised units in the PPO and the Police. |
| MINGOB |
The Ministry of Government (Ministerio de Gobierno)[79].
MINGOB is concerned with issues relating to the internal government and internal security. It determines government policies and plans, co-ordinates, directs and executes administrative control of the provinces and indigenous territories, respecting their cultural heritage and promoting their development.
It has the power to grant and suspend the legal status of non-profit organisations (NPO) and keeps an updated list of all NPO[80]. The Supervision, Monitoring and Evaluation and Private-Interest Foundations Department of MINGOB has the role of verifying the legal status of most NPOs and supervising them based on risk, through off-site supervision or on-site visits. This Department is responsible for supervising the operation of the NPO, collecting information on the boards of directors and financial statements every year, and re-evaluating the sector for possible risks and vulnerabilities regarding terrorist activities.
The Office for the Execution of Mutual Legal Assistance Treaties and International Cooperation of the MINGOB is an additional central authority for bilateral treaties, as well as the Inter-American Convention on Mutual Assistance in Criminal Matters and the Treaty of Mutual Legal Assistance in Criminal Matters between the Republics of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. |
| MICI |
Ministry of Commerce and Industry (Ministerio de Comercio e Industria) is the authority that grants licenses to financial companies, leasing companies and factoring companies[81]. Remittance houses and savings and housing loan corporations, supervised by the SBP, are authorised by MICI. It is also responsible for supervising the search for and exploitation of mineral resources[82] and compliance with foreign trade policy. |
| JCJ |
Gambling Control Board (Junta de Control de Juegos)[83]
The Board operates under the Minsitry of Finance and Economy and registers casinos and other playing of games of chance. However, monitoring of this sector was transferred from the JCJ to the Intendencia. |
| MIRE |
Ministry of Foreign Affairs (Ministerio de Relaciones Exteriores).
The authority in charge of co-ordinating the communications with the Sanctions Committees derived from the UN SCR 1267/1988/1989, and the designations made by foreign countries, in accordance with the terms of the UN SCR 1373; and is in charge of reporting, through diplomatic channels and upon deliberation of the CSN, to the respective Committee of the UN Security Council, and receiving response from the latter, to subsequently report to the CSN and the FIU. MIRE is also responsible in respect of proliferation sanctions. |
| PGN |
Office of the Attorney General of the Nation (Procuraduría General de la Nación).
It prosecutes crimes and other violations of the law, and monitors the professional conduct of government officials. The Office is responsible for all criminal cases, unless involving the President or judges of the Supreme Court.
It is the central authority in Panama for the UN Convention against Transnational Organized Crime, the UN Convention against Corruption and the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. |
| NCST |
National Council on Secure Trade.
Comprised of representatives from several ministries[84]; its roles include approval of the strategic trade control regulations (i.e. export and trade controls including counter-proliferation; this being its main role), revoke licences, and manage inclusion on the national register created under Decree 81 of 2017. |
| TCSTT |
Technical Committee on Secure Trade and Transport.
Comprised of members from the same ministries as the NCST, plus a representative of the Panama Canal Authority (PCA)[85]; its roles are to provide technical and administrative support, chiefly by drafting and updating the strategic trade control regulations and the National Control List, and developing and maintaining the licensing process. The latter role includes making decisions on the granting of licences. |
KEY AML/CFT/CPF LEGISLATION
“Money laundering” was defined in Articles 254 to 259 of the Criminal Code; in accordance with Article 254, the crime of money laundering is committed by whoever whether “[…] personally or through another person, receives, deposits, trades, transfers or converts monies, securities, property or other financial resources, reasonably foreseeing that they come from activities related … offences against …with the purpose to hide, disguise or conceal its illicit origin, or whoever helps evade the legal consequences of such offences, will be punishable by 5–12 years in prison. Various inchoate, ancillary, aiding and abetting offences etc are also covered.
The Criminal Code also contains specific provisions for public officials or candidates to public offices: the use of resources from illicit origin for the financing of political campaigns, or of any nature, is criminalised.
Predicate offences are expressly mentioned in Article 254 of the Criminal Code (though not, at the time of the MER, tax crimes).
The government had identified combating money laundering as one of 5 goals in its 5-year National Drug Control Strategy in 2002, and had established the Unidad de Análsis Financiero (UAF)[86], the country’s FIU. In 2016, the FIU launched a website for online submission of STR and CTR. The FIU also saw its budget tripled in2015.
Law 23 of 2015[87] criminalised money laundering and set AML compliance requirements for entities in 31 sectors. It also classified as crimes additional activities related to money laundering and financing of terrorism and also creating conditions for improved judicial assistance and co-operation with foreign institutions. The changes were part of the action plan that allowed Panama to be removed from the FATF “grey” list.
The 2015 Law also established the formation of the national co-ordination system which comprised –
- the National Commission against Money Laundering, the Financing of Terrorism and the Financing of the Proliferation of Weapons of Mass Destruction;
- the Financial Analysis Unit (the FIU, or UAF) for the Prevention of the Crime of Money Laundering and Financing of Terrorism; and
- the Supervisory Institutions.
The Intendencia is responsible for supervision and regulation of those in the non-financial sector subject to controls, and oversees the AML compliance of over 14,000 DNFBP, including in the CFZ, as well as, since 2017, MSB and money transmitters. Stricter oversight controls were imposed on non-profit organisations and foundations from 2017 through MINGOB.
Legislation introduced in 2015 saw the issue of bearer shares was banned in 2016, and those already in use were made subject to requirements that the companies involved had to appoint an authorised custodian (this having to have been done by December 2015) and maintain strict controls over the use of them. The law also permitted the conversion of bearer shares into nominative shares.
According to the MER, all DNFBP have an authority that registers them or that grant an activity permit, and without such registration or permission, it is not possible for a DNFBP to continue its activity. The Intendencia has an MoU with all the entities that register or authorise the operation of the DNFBP.
All banks and trust companies must have a money laundering committee comprised of board members.
With effect from June 2018, Executive Decree 122[88] required the automatic sharing of tax-related financial information with 33, primarily European, states. The measure followed international reporting standards laid out by the OECD Common Reporting Standards (CRS) and approved in Panama in 2016.
On 14th September 2018, 2 additional measures dated 21st August and issued by the Superintendency of Banks of Panama took effect –
- Firstly, the Prevention Agreement for Other Financially Obligated Subjects No. 002-2018 established the registration process of “exchange offices”[89]. This applied to all natural or legal persons that provided services for the purchase and sale of coins, banknotes or other monetary instruments, inside and outside the country, in any form, whether or not their principal activity, excluding those that are subject to the supervision of another regulator. It required AML/CFT and CPF compliance standards and procedures, and the submission of STR/CTR to the FIU.
- Secondly, the Prevention Agreement for Other Financially Obligated Subjects No. 001-2018 established the registration process for money remittance companies[90]. This applied to all natural or legal persons that provide money transfer services, either through transfer systems or transfer of funds, compensation of funds or by any other means, inside and outside of the country, whether or not its main activity. It also imposed similar AML/CFT/CPF-based requirements on those affected.
IDENTIFIED AML/CFT DEFICIENCIES
Leaving aside proliferation (see below), and the obvious problem that tax crimes were not predicate crimes for money laundering purposes, a number of deficiencies were noted in the current International Narcotics Control Strategy Report (INCSR) from the US State Department –
- Inconsistent, incomplete or unnecessary STR and CTR;
- Compliance officers often include minimal analysis with STR;
- Compliance officers are said to notify clients and/or bank executives and directors about investigations (or the likelihood of investigations) – with no “tipping off” law to criminalise such behaviour;
- Authorities lack sufficient resources, including trained staff with industry experience (especially for DNFBP);
- Regulators cannot access STR/CTR due to confidentiality laws;
- The quality of analysis by the FIU was lacking, response times to foreign inquiries were too long, and the quality of requests from foreign counterparts was not good enough (the report suggested that FIU should become an independent agency);
- The CFZ is vulnerable to illicit financial and trade activities due to weak customs enforcement and limited oversight of transactions;
- Tax evasion is not a predicate crime (though legislation to make it such was under consideration in 2018); and
- Law enforcement needs more and better tools to conduct long-term, complex financial investigations, including undercover operations.
WHAT ABOUT PROLIFERATION?
A good definition of proliferation was included in a paper from Project Alpha – “Proliferation is the spread of the capability to manufacture Weapons of Mass Destruction (WMD) to states intent on producing such weapons. In each of the major WMD categories such as chemical weapons, biological weapons and nuclear weapons, there are international treaties which commit signature states to not seek such weapons and, in relation to nuclear and chemical weapons, there are verification regimes designed to detect whether states ‘cheat’.”.[91]
Since 2004, Panama had been party to the US-sponsored Proliferation Security Initiative[92], a move that would permit the US to search Panama’s flagships in international waters if they are suspected of transporting weapons of mass destruction or WMD equipment[93]. Under the agreement, Panama and the US would be able to ask each other for permission on short notice to board their respective flagships on the open seas. The ship’s cargo could then be seized if it is found to be related to non-conventional weapons programmes.
The following is an extract from a paper by me dated 12th October 2018 and posted on my blog[94].
The export, transit or transhipment of strategic goods was not highlighted in the NRA as a significant threat. However, it did note that the most vulnerable sectors for money laundering in Panama would be the sectors related to foreign trade, such as the free trade zones, especially the Colon Free Zone. It said that there was no clear terrorism threat in Panama (at least to Panama itself, whereas an attack on the Canal could equally be a means of damaging the US, China or other major beneficiary from its services, or as merely a “spectacle” to gain publicity). It was the financing of terrorism that was seen as a greater threat.
In May 2017, Panama enacted Executive Decree 81[95] for the control of trade and dual-use material for reasons of national and international security – in other words for the purposes of preventing proliferation of WMD and their delivery systems[96]. The Decree formed part of the Action Plan submitted to the UN by Panama in October 2017 outlining how it intended to implement UN SCR 1540, as amended[97]. As the Action Plan stated, UN SCR 1977 (2011) had invited member states to prepare on a voluntary basis a national implementation action plan for implementing UN SCR 1540 and to submit those plans to the UN’s 1540 Committee.
The aim of UN SCR 1540 is preventing chemical, biological, radioactive and nuclear (CBRN) weapons, as well as their means of delivery and related materials, from coming under the control of non-state actors[98], terrorist groups or organised crime and it urges member states to refrain from providing them with any form of support. It also urges member states, in accordance with their national procedures, to adopt and enforce appropriate effective laws which prohibit any non-state actor to manufacture, acquire, possess, develop, transport, transfer or use chemical, biological, radioactive or nuclear weapons and their means of delivery, and related materials, for terrorist purposes or organised crime, as well as attempts to engage in any of the activities, participate in them as an accomplice, assist them or finance them.
Panama was already party to various relevant international treaties and agreements concerned with the control of CBRN weapons and materials – the Nuclear Non-Proliferation Treaty, the Biological and Toxic Weapons Convention, the Chemical Weapons Convention, and the Convention on the Physical Protection of Nuclear Materials.
Wisely, Panama chose to frame the new law so as to target both states and non-state actors. It was required by the Decree to adopt a list of dual-use goods[99], and to make the transport, transfer, management, trade, import, export and re-export subject to control. The Decree also called for the developing of a system to licence such goods, as well as outreach and educational efforts, and enforcement – all of which was to be outlined in an action plan required by the Decree.
Two bodies were created by the Decree: the National Council on Secure Trade (NCST) and the Technical Committee on Secure Trade and Transport (TCSTT) – see the table above for brief details of their roles.
The NCST and TCSTT were assisted in their work by existing bodies –
- Container Technical Inspection Unit – which uses radiation portal monitors (RPM) at the main coastal ports. These devices are passive, non-intrusive devices used to screen objects and persons passing through them for nuclear and radiological materials[100];
- Inter-Institutional Risk Analysis Office – for the analysis of information in cargo manifests to determine the risk profiles of cargo, vessels, and economic agents;
- Joint Port Control Units (JCPU) – Panama is also a party to the Global Container Control Program[101], an initiative of the UN Office on Drugs and Crime and the WCO designed to improve container traffic security by providing training and promote co-operation among member nations. One of its elements is the creation of JCPU which specialise in the inter-agency profiling of port units at select container terminals in seaports or dry ports, and in Panama JPCU have been established at Balboa which covers the Port of Balboa; and in Colon which covers Port of Manzanillo, Colón Container Terminal and Port of Cristobal;
- National Customs Authority (ANA – see the above table – ANA employs a “single window” system[102], the Sistema Integrado de Gestión Aduanera (SIGA) and, since 2017, the Panamanian Marine Authority and the Panama Canal Authority implemented Ventanilla Única Marítima de Panamá (VUMPA), an electronic system that requires ships to produce required documentation in advance of their arrival so that government agencies can conduct risk assessment and be ready for inspection by a single official. A 2016 report found that SIGA could be adapted to be used to provide a strategic goods licensing system; and
- Panama Canal Authority (PCA)[103] – which can deny a vessel transit of the Canal if the condition or character of the cargo “is such as to endanger Canal structures”, which must be taken to include potentially dangerous cargo, or “which might render the vessel liable to obstruct the waterway”, which again might include a dangerous cargo sinking or rendering the ship uncontrollable. The Regulation on Navigation in Panama Canal Waters requires a minimum of 96-hour notice of intent to transit with dangerous cargo (and similarly, cargo comprising hazardous waste is also required to be notified to the PCA. It also requires all vessels transporting radioactive materials through the Canal to comply with applicable requirements[104], as published in the current edition of the IMDG Code[105] and there are specific requirements for certain types of radioactive cargo[106] with, for example, 30 days’ notice of fissile material carried as cargo – for other vessels intending to arrive at Panama Canal waters all cargo carried on board must be declared at least 96 hours prior to their arrival.
The Decree of 2017 also required a National Registration, Tracking, and Inventory System for Economic Agents of Dual-Use Goods. This will entail a national register, and any “economic agent” wishing to participate in “handling”[107] dual-use goods will have to be registered. It will be an electronic platform, managed by TCCST. TCCST will also develop risk profiles of applicants for inclusion on the register.
At the time the Decree came into force the evidence appeared to show that Panama did not have a significant number of companies that imported or exported dual-use items. Nevertheless, outreach and training would be needed to ensure that both officials and business was aware of the new controls, the requirement for registration when appropriate, and, in particular, the application of the controls to intangible technologies.
Panama is receiving assistance from the US Government under the Export Border and Related Security (EXBS) programme[108], with a focus on legal, licensing, and enforcement training, along with providing information systems and equipment. There is also training and assistance provided under the Global Container Control Program[109].
Rather than compile its own list of items that should be subject to control, it was proposed that Panama should simply adopt the dual-use control list in use in the EU. This had the advantages of complying with all the relevant international non-proliferation agreements, such as –
- the Wassenaar Arrangement[110] on transfers of conventional arms and dual-use goods and The selection criteria for dual-use items under the Wassenaar Arrangement is that dual-use goods and technologies to be controlled are those which are major or key elements for the indigenous development, production, use or enhancement of military capabilities;
- the Australia Group[111], the aim of which is the harmonisation of export controls, to ensure that exports do not contribute to the development of chemical or biological weapons;
- the Nuclear Suppliers Group[112], a group of nuclear supplier countries that seeks to contribute to the non-proliferation of nuclear weapons through the implementation of two sets of Guidelines for nuclear exports and nuclear-related exports; and.
- the Missile Technology Control Regime[113], a voluntary partnership of 35 countries to prevent the proliferation of missile and unmanned aerial vehicle (UAV or “drone”) technology capable of carrying above 500 kg payload for more than 300 km.
It is also regularly updated, and benefits from the input of all the Member States, several of which are themselves major producers of military and dual-use goods and technology.
Another useful factor is that the EU correlates the codes allocated to the dual-use items to their classification codes (“CN Codes” or commodity codes), 8-digit codes used to identify the items for customs purposes on declarations and other documentation[114]. These classification codes themselves correlate to the codes used worldwide under the Harmonized System (“HS Codes”)[115].
The 6-digit HS Code directly equates to the first 6 digits of the CN Code, allowing the items in question to be identified. The first 2 digits identify the chapter the goods come under (e.g. Chapter 09 – Coffee, Tea, Maté and Spices). The next 2 digits identify groupings within that chapter (e.g. 09.02 – Tea, whether or not flavoured). The final 2 digits are even more specific (e.g. 09.02.10 – Green tea: not fermented). Up to the 6-digit level, all countries classify products in the same way (a few exceptions exist where some countries apply old versions).
A decision was made in early 2018 for Panama to adopt the EU list.
Note that the EU uses the term “dual-use item” and not “dual-use goods”. This emphasises that the controls and the control list deals with not just physical goods, but also software and technology – and therefore can cover intangible “exports” (such as the sending of designs or data) as well as the physical export of goods themselves.
Furthermore, since 2011 the EU Regulation prohibited exports of dual-use goods to destinations subject to an arms embargo imposed by the EU, OSCE[116] or UN.
The EU currently has in development a “recast” of the Regulation[117] which contains the dual-use list. This recast, amongst other things, introduces a new “human security” dimension to export controls, to prevent the abuse of certain cyber-surveillance technologies by regimes with a questionable human-rights record, and use OECD-based “due diligence” guidelines to ensure that their goods cannot fall into the wrong hands. The proposals also formally introduce standardised operational internal control programmes (ICP) as part of the assessment in the granting and control of export authorisations and licences[118] (such ICP were previously required by only some EU Member States).
It can be expected that the risk profiling and risk assessments undertaken by the Panamanian authorities would also take into account the existence and worth of such ICP.
The EU Regulation also includes a ‘catch-all clause’ for items which could be used in connection with a WMD programme but may not be included in the list of controlled items[119], and controls on brokering dual-use items and their transit through the EU[120]. It is unclear if either of these aspects are dealt with in the Panamanian law.
Under the EU Regulation, dual-use items are goods and technology which have both a legitimate civil use, but have also a use, or potential use, for military purposes, or for use in connection with weapons of mass destruction. Goods affected include all those which can be used for non-explosive uses (as those with explosive uses would be caught by the general controls on military and paramilitary and related goods), and those relevant to the development, production or use of nuclear weapons and other weapons of mass destruction.
RESIDENT AGENTS
All companies and foundations in Panama must have an authorised resident agent. Law No. 2 of 2011, defines a Resident Agent as being “the lawyer or law firm that provides services as such and that must keep the records required by this law for legal persons constituted in accordance with the laws of the Republic of Panama and with which maintains a professional relationship in the present”.
The Law also regulates the KYC measures for clients of resident agents. Resident agents are required to identify the client, obtain information about the purpose for which the legal entity is created[121], and provide the competent authorities with information, as required, to combat money laundering and the financing of terrorism and any other illegal activity.
However, the MER said that the CDD requirements for resident agents was not clear – though it was clear that the must report any suspicious transactions to the FIU (though the MER also described the number of STR submitted for such transactions were “very scarce”[122]). In any case, the agent is not obliged to obtain information on a third party acting for a client, when that third party is a legal person that belongs to a professional body requiring professional and ethical standards – such as a law firm, bank, insurer, trustee company, accountants etc. That third party need only supply information on the client for whom it is acting “according to the requirements and procedures established in the laws of the jurisdiction where he performs his operations”[123].
From 2015 until the time of the GAFILAT on-site visit in 2017, the Intendencia had conducted a total of 48 supervision proceedings at attorneys and law firms – of the 4,216 registered resident agents. Even so, 15 sanctioning proceedings have been started, but no sanctions have been applied to any case up to the date of the GAFILAT visit. Furthermore, no sanctions have been applied for breach in the registration obligation with the FIU, which applies to 88% of the resident agents.
THE LEGAL SYSTEM
Panama is a civil law jurisdiction with codified laws, derived from Spanish and Roman law, but heavily influenced by US law in certain areas – such as having the concept of habeus corpus, and, to some degree, judicial precedent. In Panamanian courts, trial by jury is not available to settle commercial disputes.
The highest court is the Supreme Court[124], consisting of 9 judges, each appointed for 10-year terms by the President and approved by the National Assembly. Below that are appellate courts, other specialist courts, and 2 circuit courts[125] in each province, plus municipal, courts, family courts etc.
The US State Department in 2012 had claimed that the criminal justice system remains at risk for corruption. This view was echoed by a report published by Transparency International in 2014[126], which stated that the organisation’s Global Competitiveness Report 2013-14 stated that the independence of the judiciary in Panama was the weakest in Latin America and Caribbean, raking at position 118 out of 148 in the world ranking at the time. The World Bank “Doing Business” project is also said to have described the judicial system in Panama as being “slow, inefficient and corrupt”. Transparency International also commented on weak implementation of anti-corruption conventions.
THE LEGAL SYSTEM – THE ACCUSATORIAL CRIMINAL JUSTICE SYSTEM
In 2016, Panama completed a transition of its criminal law, begun in 2011, to a new legal system similar to that in the US and UK. This was the “Accusatorial Criminal Justice System”, aka “the penal accusatory system”. An adversarial system featuring oral trials, and changing from the typically European-style inquisitorial system, where the court (or investigating magistrate) is involved in investigating all or part of the case, to one featuring oral trials and where the judge is the impartial referee between the prosecution and defence. The objective of the reform was said to be to achieve a better investigation, prosecution and adjudication of criminal cases in Panama[127].
The previous system did not allow for the adjudication of cases during the investigation phase. Following the implementation of the new system, up to June 2016, it was said that Panama’s judiciary had already dealt with a total of 1,887 cases during the first 2 phases of the changeover, resulting in 91% of adjudications being handed down before trial[128].
BRIBERY AND CORRUPTION
In the 2017 Transparency International Index Panama was placed at 96th position, with a score of 37, largely unchanged since 2012[129].
The latest edition of the World Bank Worldwide Governance Indicators (WGI)[130], which provides a ranking of 215 countries and territories based on 6 dimensions of governance, including political stability, government effectiveness, and control of corruption, gave Panama a rating of 36 (out of a possible 100).
The 2018 MER identified corruption as one of the main internal threats giving rise to money laundering risk.
The prominence of corruption as a risk may be highlighted by the case of former President Martinelli, who was president 2009-2014.
In 2015, Panama’s Supreme Court ordered Martinelli’s arrest over accusations that he used public funds to illegally spy on more than 150 prominent people. He flew to the US just days before the court launched a corruption investigation against him, but was detained there and subsequently extradited back to Panama in 2018. Returning home, he faced 8 charges – these including allegations that he rigged tenders for public contracts for meals and book bags for schoolchildren under Panama’s largest social welfare scheme, the National Aid Program. In June 2018, Transparency International Panama estimates that as much as 1% of Panama’s GDP – approximately $600 million – may have been lost to various corruption schemes during Martinelli’s presidency[131].
COLON FREE ZONE[132]
As early as 1914, a feasibility study suggested Colon as the best place for a free zone. In 1948, Law No.18 established the Colon Free Zone (CFZ) as an autonomous institution of the Panamanian state, which would have its own legal personality, but subject to inspection and surveillance by the Presidency and the Comptroller General.
Hence, the CFZ now forms a customs territory located in Panama, but to and from which goods can be imported and exported free from tariff, fees, customs rights and sales taxes. It is located in the province of Colon at the Atlantic end of the Panama Canal. It attracts services and bases for importing, storing, assembling, packing and re-exporting goods from all over the world, especially electronic devices, pharmaceutical products, liquors, tobacco, home and office furniture, textile products, footwear, jewellery and toys. CFZ in 2015 accounted for 6% of all non-finance jobs in the country.[133]
It is now the largest free port in the Americas, and second largest in the world, occupying about 2.4 km2 (600 acres) and divided into 2 large areas: one segregated from the city of Colon by a wall, and the other in the harbour area, which is designated for warehouses, covering 0.53 km2 (130 acres) and not far from Colón’s commercial sector. There are said to be over 3000 companies either represented or operating from the zone.
It also has a special tax regime that offers the exemption of several kinds of taxes, with the purpose of promoting the establishment of companies in the zone[134].
The CFZ has a web-based electronic documentation system which allows agents of users of the zone to present documentation to the CFZ administration and customs offices remotely[135].
In 2010, FATF published a report[136] claiming that free trade zones (FTZ), which include free ports, were a ‘money-laundering and terrorist-financing threat’ partly due to inadequate safeguards, relaxed oversight and weak inspections. It sought to demonstrate, using a series of cases studies, ways in which such zones could be misused for money laundering and terrorist financing purposes. The chief factors which this report identified as making the zones vulnerable were –
- inadequate AML/CFT safeguards;
- relaxed oversight by competent domestic authorities;
- weak procedures to inspect goods and register legal entities, including inadequate record-keeping and information technology systems; and
- lack of adequate co-ordination and co-operation between zone and customs authorities.
“The Global Illicit Trade Environment Index Free trade zones: Five case studies”[137] was produced by the Economist Intelligence Unit (EIU) and published in 2018. One of the 5 case studies it featured dealt with the CFZ. Saying that the CFZ is large and hugely important, the report notes that in 2017 the total trade passing through it totalled $19.7 billion[138]. The report remarks that Panama scored zero on the FTZ governance indicator, with the CFZ singled out for lacking effective controls and thus having little in the way of enforcement.
The EIU report claimed that cigarette smuggling is rife, particularly of illicit “white cigarettes”[139], said to chiefly originate in China, India, UAE and Paraguay, and then being sent on to destinations elsewhere in Latin America, including to other free zones. It is also said that the chief purpose of the cigarette smuggling is “origin laundering”, i.e. disguising or misdescribing the origin of the goods to benefit from preferential tax or duty treatment, or to avoid discrimination (e.g. to enable the product to be portrayed of domestic production).
In October 2018, the European Parliament Research Service (EPRS) produced a study into money laundering and tax evasion risks in free ports at the request of the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3).[140] This had followed concerned expressed about free zones expressed in resolutions in the Parliament. Included in this report were useful explanations of what free zones and free ports were.
The EPRS report used the following description of “free ports” –
Free ports are warehouses in free zones, which were – originally – intended as spaces to store merchandise in transit. They have since become popular for the storage of substitute assets, including art, precious stones, antique, gold and wine collections – often on a permanent basis. Apart from secure storage, sales arguments in the free port business include the deferral of import duties and indirect taxes such as VAT or user tax as well as a high degree of secrecy.
“Free zones”, however, were said by the EPRS report to fall into 4 broad categories –
- Free trade zones, typically located near seaports or airports, mainly offer exemptions from national import and export duties on goods that are re-exported. Local services gain, though there is little, if any, value added to the goods traded.
- Export processing zones go a step further by focusing on exports with a significant value added, rather than only on re-exports.
- Special economic zones apply a multisector development approach and focus on both domestic and foreign markets. They offer an array of incentives including infrastructure, tax and custom exemptions, and simpler administrative procedures.
- Industrial zones are targeted at specific economic activities, say media or textiles, with infrastructure adapted accordingly.
Although the CFZ has not been linked to the storage of art, as an illustrating of how free ports and free zones can adapt and evolves, the EPRS study looked in depth at Le Freeport in Luxembourg, where art is involved, the study noting that as interest in art as an investment has grown[141], the appeal of storing it tax-free while it potentially appreciates in value has grown too, spurring the expansion of free ports in Geneva and similar facilities elsewhere in Europe and Asia. Owners do not have to pay import or export taxes when they ship to or from those locations.
The CFZ is not the only free zone in Panama, it having granted a total of 16 licences to operate zones, between the cities of Panama and Colon. The Panama Pacifico Area[142] is one of the most important projects and the main objective of this Special Economic Area[143] is the attraction of new direct foreign investment and the creation of jobs in Panama.
There are also container and logistic parks, with Panama regarded as an excellent logistics centre due to its position and connections – internal and external. An example is Panama Logistics Park[144], a real estate industrial project and logistics centre of 460,000m2, strategically located in the east of Panama City and a short distance from Tocumen Airport.
THE PANAMA PAPERS
The Panama Papers is the name for the release of documents obtained from a Panama-based offshore services provider called Mossack Fonseca[145], and for the investigations carried out following this[146].
The International Consortium of Investigative Journalists (ICIJ), together with the German newspaper Suddeutsche Zeitung and more than 100 other media partners, spent a year sifting through 11.5 million leaked files that originated with Panama-based Mossack Fonseca. 2 years later, Suddeutsche Zeitung received further leaked documents from the now-defunct law firm[147] comprising some 1.2 million additional documents, mostly covering the years 2016-2017.
Operating in more than 21 jurisdictions, Mossack Fonseca was considered one of the 5 biggest wholesalers of offshore secrecy in the world. Of the companies that appear in Mossack Fonseca’s files, around 50% of the more than 113,000 were incorporated in the BVI; but the second favourite jurisdiction was Panama itself, where the firm had its headquarters. Mossack Fonseca traces its beginnings to 1986, when Ramón Fonseca merged his small, law firm in Panama with another local firm headed by Jürgen Mossack, a Panamanian of German origin[148].
The investigation noted that when the BVI cracked down on bearer shares in 2005, Mossack Fonseca moved bearer share clients to Panama.
In February 2017, police in Panama arrested the founders of Mossack Fonseca on money laundering charges after authorities raided the firm’s headquarters as part of investigations into Operation Car Wash[149], Brazil’s largest-ever bribery scandal[150] and Brazilian construction company, Odebrecht[151]. Panama’s Attorney General Porcell called Mossack Fonseca “a criminal organisation that is dedicated to hiding money assets from suspicious origins”. Mossack and Fonseca were released in April 2017.
Panama’s attorney general’s office told Süddeutsche Zeitung that five criminal investigations related to Mossack Fonseca are ongoing.
In the wake of the leaks the firm sought to help (and hopefully retain) some clients by changing its own business name to remove any obvious reference to the Panamanian founders on mail, packages, and invoices. In Samoa, Mossack Fonseca became Central Corporate Services Ltd. In Panama, Mossack Fonseca transferred clients to Orbis Legal Services, which hired some Mossack Fonseca employees to maintain the “same level of service”.[152]
In May 2016, the firm announced to clients that it was shutting down its office in the Isle of Man, and closures of its offices in Jersey and Hong Kong soon followed. Later that year, Fonseca and Mossack announced that they would retire from the firm they had founded. A skeletal Mossack Fonseca would remain open for a few years longer to fulfil existing obligations but would “eventually wither away,” an email to clients said.
In 2018 the firm bearing closed for good. However, in May 2018, prosecutors in Panama charged 10 Mossack Fonseca employees with money laundering as part of investigations into the Car Wash scandal. Mossack remained under investigation elsewhere, including in Germany as an accessory to tax evasion[153].
ILLEGAL UNREPORTED UNREGULATED (IUU) FISHING
From November 2012, the European Commission undertook what it described as a formal dialogue with several countries which were warned of the need to take strong action to fight IUU fishing. One of these countries was Panama. When significant progress was observed, the Commission could end the “dialogue” (using a football metaphor, cancelling the yellow warning card). This was the case for Panama in October 2014.
With its large shipping register it was perhaps inevitable that Panama should be one of the countries affected.
The EU IUU Regulation entered into force in 2010 and applied to all landings and transhipments of EU and third-country fishing vessels in EU ports, and all trade of marine fishery products to and from the EU. It aims to make sure that no illegally caught fisheries products end up on the EU market. To achieve this, the Regulation requires countries to certify the origin and legality of the fish caught by vessels flying their flag, thereby ensuring the full traceability of all marine fishery products traded from and into the EU. The system thus ensures that countries comply with their own conservation and management rules as well as with internationally agreed rules. In addition to the certification scheme, the Regulation introduces an EU alert system to share information between custom authorities about suspected cases of illegal practices[154].
KIMBERLEY PROCESS AND “BLOOD” OR “CONFLICT” DIAMONDS
The Kimberley Process Certification Scheme (KPCS) is a set of standards that regulates the trade in rough diamonds (ala conflict diamonds)[155]. It sets out the way in which each participating country should handle the imports and exports of rough diamonds, and internal controls for ensuring that domestic trading and processing are not contaminated by illicit sales.
It dates from May 2000 when governments, NGO and industry groups sought to come up with a practical way to prevent illicit diamonds from entering the legitimate diamond trade. The resulting Kimberley Process Certification Scheme was designed and entered into force in 2003, with the support of the UN and WTO.
Panama joined the Kimberley Process in 2012[156].
The Panama Diamond Exchange (PDE) – renamed the World Jewelry & Diamond Hub, Panama in 2016, as a large number of its members also dealt in jewellery -was the first and only diamond bourse in the entire region of Latin America, including South America, Central America, Mexico and the Caribbean. It was established in 2006 and officially accepted into the World Federation of Diamond Bourses (WFDB) in 2008.
An article published in 2008 by the Center for Security Studies (CSS) at ETH Zurich[157] warned that Panama might become a funnel for smuggling illegal diamonds abroad; saying that observers worried that Panama’s role in laundering illegal diamonds mined in South America might only grow as the Central American country became a regional hub of the Latin American diamond trade. In the article, Venezuelan and Guyana diamonds were singled out as those might likely to be laundered through Panama. In 2008, there were reports of Venezuelan diamonds being smuggled through Panama[158].
It would appear that Intendencia has responsibility for AML/CFT supervision of traders in the diamond business.
INDIRECT TAX
Panama has a form of VAT, called ITBMS (impuesto a las transferencias de bienes corporales muebles y la prestacion de servicios), and applies to imported goods, products sold or services rendered in Panama[159]. Exports of goods, and certain export-related services (such as international freight charges), are ITBMS-exempt.
According to the OECD in 2018, Panama raises about 2.6% through ITBMS receipts, but only collects around 62% of potential revenue, meaning that 38% is lost[160].
There is also a stamp tax levied on the issuance of certain documents.
ISC is a selective consumption tax (impuesto selectivo al consumo), an excise tax on imports of specific goods such as luxury vehicles, jewellery, firearms, alcoholic beverages and tobacco products.
Insurance tax is levied on insurance premiums.
HUMAN TRAFFICKING
Panama has been described[1] as a source, transit, and destination country for men and women exploited in sex trafficking and forced labour. Children are exploited in forced labour, particularly domestic servitude, and sex trafficking in Panama. Most identified trafficking victims are foreign adults exploited in sex trafficking, especially women from South and Central America[2]. However, it is also said that Panamanians are also exploited in the country, and elsewhere in the Caribbean and Latin America.
In 2018, it was reported[3] that, following a 2-year investigation, Costa Rica and Panama had combined to dismantle a criminal organisation smuggling Chinese to central America for labour exploitation or for onward transportation to the US[4]. It was alleged that Chinese nationals with links to Asia, Europe and South America had been involved. The smuggled individuals were brought from China to Europe by air, moving on to Ecuador, Peru, or Colombia, but with Costa Rica as their final destination – mostly entering through Juan Santamaría International Airport in San José (with the alleged connivance of officials there). The fee charged was said to be between $22,000 and $45,000 fee. Some were smuggled to Panama[5] for onward trafficking to the US. In most cases, it was said, those involved became indebted to the criminals, a debt they then had to pay off and/or work for the criminals.
This was not an isolated case, insofar as the trafficking or people into Latin America is concerned. Earlier in 2018, for example, another gang was found to have charged victims about $10,000 each to bring Asian (including Chinese) people from the Ecuador/Colombia border to Panama for onward passage into the US.
The US State Department 2018 Trafficking in Persons Report[6] said that the Government of Panama does not fully meet the minimum standards for the elimination of trafficking[7]; however, it is making significant efforts to do so[8]. It was said to have demonstrated increasing efforts by investigating, prosecuting, and convicting more traffickers; establishing the National Commission on the Identification and Protection of Victims to address victim identification and administer victim services; and developing and implementing its 2017 National Plan Against Human Trafficking[9] (PNTdP; a 5-year plan extending to 2022)[10]. There is a National Commission for Countering the Trafficking of Persons (Comisión Nacional contra la Trata de Personas)[11], chaired by the Ministry of Public Security. However, it said, the government did not meet the minimum standards in several key areas.
Article 456 of the penal code does not criminalise all forms of sex and labour trafficking because it required movement to constitute a trafficking offence[12]. Anyone who promotes, leads, organises, finances, invites, or manages by any means of communication, mass or individual, or in any other way facilitates the entry into or the exit from Panama or the movement within Panama of a person of any sex, to realise one or several acts of prostitution or to submit a person to exploitation, sexual or labour servitude, slavery or activities similar to slavery, forced labour, servile marriage, mendacity, illicit extraction of organs or irregular (illegal) adoption[13], is guilty of an offence. The use of force, fraud, or coercion are aggravating factors, rather than essential elements of the crime.
Within Panama itself, it has been reported that victims include Nicaraguan men[14], and to a lesser degree, Colombians, for use in the areas of construction, agriculture, mining and other sectors. Most victims of labour trafficking come from Nicaragua by bus and enter Panama through Costa Rica[15].
[1] US State Department, 2018: https://www.state.gov/j/tip/rls/tiprpt/countries/2018/282727.htm
[2] There is at least anecdotal information that Panama issues a number of visas to Colombian women to work as prostitutes – prostitution is legal in Panama.
[3] https://dialogo-americas.com/en/articles/human-trafficking-china-sounds-alarm-latin-america
[4] Somewhat ironical perhaps, given that the US Border patrol was originally established not to keep out Mexicans and others from Central America, but rather the Chinese.
[5] In Panama, the PPO was quoted as saying that the smuggling ring in Panama consisted of Panamanian citizens and foreigners.
[6] https://www.state.gov/j/tip/rls/tiprpt/countries/2018/282727.htm
[7] Hence, Panama is placed in “Tier 2”; meaning Countries whose governments do not fully meet the TVPA’s minimum standards, but are making significant efforts to bring themselves into compliance with those standards.
[8] Although the report notes that it had disbanded the specialist police unit set up in 2016.
[9] http://www.ilo.org/dyn/natlex/docs/ELECTRONIC/90928/105157/F-1007537726/PAN90928.pdf
[10] http://www.programamesoamerica.iom.int/en/news/panama-drafts-its-national-plan-against-human-trafficking
[11] http://evaw-global-database.unwomen.org/fr/countries/americas/panama/2012/plan-nacional-contra-la-trata-de-personas
[12] Law 79 of 2011 on trafficking in persons and related activities; originally criminalised human trafficking. (Ley N⁰ 79 sobre Trata de Personas y Actividades Conexas).
[13] Even where there is no sexual or labour exploitation.
[14] For example, see reports of an example case in 2017: https://www.insightcrime.org/news/brief/human-trafficking-network-dismantled-in-panama/
[15] https://www.panamatoday.com/panama/human-trafficking-continues-active-panama-6501 27/3/18
Ray Todd
12th November 2018
Updated 16th November 2018
GLOSSARY
| ACP |
Panama Canal Authority (Autoridad del Canal de Panama) |
| AEOI |
Automatic Exchange of Financial Account Information |
| ALP |
Arm’s length principle (for transfer pricing) |
| AMERIPOL |
Comunidad de Policías de América |
| AML |
Anti-money laundering |
| AML/CFT |
Anti-money laundering/countering financing of terrorism |
| ANA |
National Customs Authority (Autoridad Nacional de Aduanas) |
| BEPS |
Base erosion and profit-shifting, see: http://www.oecd.org/tax/beps/ |
| CBRN |
Chemical, biological, radiological and nuclear weapons |
| CDD |
Customer Due Diligence |
| CFP |
Countering the financing of poliferation |
| CFZ |
Colon Free Zone |
| CICAD/OEA |
Inter-American Commission for the Control of Drug Abuse, of the Organization of American States |
| CNBC |
National Council against ML/FT/FPWMD (Consejo Nacional Contra el Blanqueo de Capitales, Financiamiento del Terrorismo, y de la Proliferación de Armas de Destrucción Masiva) |
| CN Code |
Combined Nomenclature of the EU |
| CNS |
National Security Council |
| COMALEP |
Multilateral Customs Agreement for Latin America, Spain and Portugal |
| CRS |
OECD Common Reporting Standard |
| CSN |
National Security Council (Consejo de Seguridad Nacional) |
| CSS |
Center for Security Studies |
| CTR |
Cash Transaction Report |
| DGI |
General Directorate of Revenue (Dirección General de Ingresos) |
| DIJ |
Judicial Investigation Directorate (Dirección de Investigación Judicial) |
| DNFBP |
Designated Non-Financial Businesses and Professionals |
| EIU |
Economist Intelligence Unit |
| EPRS |
European Parliament Research Service |
| EU |
European Union |
| EXBS |
US Government Export Border and Related Security programme |
| FATF |
OECD Financial Action Task Force |
| FIU |
Financial Intelligence Unit |
| FSRB |
FATF-style regional body (see GAFILAT) |
| FTZ |
Free trade zone |
| GAFILAT |
Financial Action Task Force of Latin America (the FATF-style regional body) |
| GIA |
Inter-institutional Anticorruption Group (Grupo Interinstitucional Anticorrupción) |
| HS Code |
WCO Harmonised System Code to classify traded goods |
| ICP |
Internal control programme |
| ICIJ |
International Consortium of Investigative Journalists |
| ICRG |
FATF International Cooperation Review Group |
| IMDG Code |
International Maritime Dangerous Goods Code of the International Maritime Organisation |
| INCSR |
US State Department International Narcotics Control Strategy Report |
| Intendencia |
Supervisor and regulator of non-financial reporting institutions and activities (Intendencia de Supervisión y Regulación de Sujetos Obligados No Financieros) |
| INTERPOL |
International Criminal Police Organization |
| IPACOOP |
Panamanian Autonomous Cooperative Inssitute (Instituto Panameño Autónomo Cooperativo) |
| ISC |
Selective consumption tax (impuesto selectivo al consumo) |
| ITBMS |
impuesto a las transferencias de bienes corporales muebles y la prestacion de servicios – a form of value added tax |
| IUU |
Illegal Unreported unregulated fishing |
| JPCU |
Joint Port Control Units |
| JCJ |
Gambling Control Board (Junta de Control de Juegos) |
| KPCS |
Kimberley Process Certification Scheme |
| KYC |
Know your customer |
| MEF |
Ministry of Economy and Finance (Ministerio de Economía y Finanzas) |
| MER |
Mutual evaluation report |
| MICI |
Ministry of Trade and Industry (Ministerio de Comercio e Indus-tria) |
| MINGOB |
Ministry of Government (Ministerio de Gobierno) |
| MIRE |
Ministry of Foreign Affairs (Ministerio de Relaciones Exteriores) |
| ML/TF |
Money laundering/terrorist financing |
| MoU |
Memorandum of Understanding |
| MSB |
Money services businesses |
| MUSBER |
Unified Risk-based supervisión handbook (Manual Único de Su-pervisión Basado en Riesgo) |
| NCST |
National Council on Secure Trade |
| NPO |
Non-profit organisation |
| NFRI |
Non-financial reporting institutions |
| NGO |
Non-governmental organisation |
| NRA |
National Risk Assessment |
| OECD |
Organisation for Economic Development and Co-operation |
| PANDEPORTES |
Panamanian Sports Institute |
| PCA |
Panama Canal Authority (Autoridad del Canal de Panama) |
| PDE |
Panama Diamond Exchange (now the World Jewelry and Diamond Hub) |
| PEP |
Politically Exposed Person |
| PGN |
Office of the Attorney General of the Nation (Procuraduría General de la Nación) |
| PPO |
Public Prosecutor’s Office |
| PWMD |
Proliferation of Weapons of Mass Destruction |
| RI |
Reporting Institutions |
| RPM |
Radiation portal monitors |
| RRAG |
GAFILAT Aset Recovery Network (Red de Recuperación de Activos de GAFILAT) |
| S.A. |
Corporation (Sociedad Anónima) |
| SBP |
Bank supervisor of Panama (Superintendencia de Banco de Panamá) |
| SENAFRONT |
National Border Control Service (Servicio Nacional de Frontera) |
| SEZ |
Special Economic Zone |
| SIGA |
Customs single-window declaration system (Sistema Integrado de Gestión Aduanera) |
| SMV |
Supervisor of the Securities Market (Superintendencia del Mercado de Valores) |
| SSRP |
Panama Supervisor of Insurance and Reinsurance (Superintenden-cia de Seguros y Reaseguros de Panamá) |
| STR |
Suspicious Transaction Report |
| TAX3 |
EU Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance |
| TCSTT |
Technical Committee on Secure Trade and Transport |
| TEU |
Twenty-feet equivalent unit – an inexact unit of cargo capacity often used to describe the capacity of container ships and container terminals |
| TF |
Terrorist Financing |
| UAV |
Unmanned air vehicle (aka drone or remotely piloted vehicle, RPV) |
| UAE |
United Arab Emirates |
| UAF |
See FIU (Unidad de Análsis Financiero) |
| UN |
United Nations |
| UNODC |
United Nations Office on Drugs and Crime |
| UN SCR |
United Nations Security Council Resolution |
| WCO |
World Customs Organisation |
| WGI |
World Bank Worldwide Governance Indicators |
| WMD |
Weapons of mass destruction |
| WTO |
World Trade Organisation |
| ZLC |
Colon Free Zone |
[1] In the 2018 fiscal year the Canal enjoyed a record tonnage passing through, 9.5% up on the previous year, at 442.1 million “Panama Canal tons” or PC/UMS: https://www.hellenicshippingnews.com/panama-canal-registers-record-year/ .The Panama Canal/Universal Measurement System is based on net tonnage, modified for Panama Canal purposes and uses a mathematical formula to calculate a vessel’s total volume; with 1 PC/UMS net ton being equivalent to 100 cubic feet of capacity.
[2] In 2016, 6.2 million TEU containers touched Panamanian ports. 80% of the TEU containers were in transit with final destinations to other countries of the Americas: https://www.inta.org/INTABulletin/Pages/Anticounterfeiting_Update_7214.aspx
[3] For an overview of the role of Panama as a transit and logistics centres see the Panama Logistics Web Portal: https://logistics.gatech.pa/en/
[4] The Canal is said to contribute around4% of the country’s GDP: http://www.oecd.org/countries/panama/
[5] For a very recent feature on the Canal see: https://theloadstar.co.uk/wp-content/uploads/panamalr.pdf
[6] Panama does not have a central bank. It uses the US Dollar as its de facto currency and has a completely market-driven money supply. This means that Panama cannot produce money; it must instead buy or obtain its dollars by producing or exporting real goods or services. The currency in Panama is known as the Balboa, even though US banknotes are used. One Balboa is divided into 100 centésimos, and is issued in 1 cent, 10 cents, 25 cents, and 50 cents coins. Balboas are only issued as coins; Panama does not issue its own banknotes, and acquired US banknotes are used instead. The use of the US currency as its own makes it both easier and more likely that the country can be used to launder cash, and that therefore bulk cash smuggling from the US (and elsewhere in the region where US currency is used or accepted) is a real threat.
[7] In 2016, 13% of the 6.2 million TEU containers entering Panama were destined for the CFZ: https://www.inta.org/INTABulletin/Pages/Anticounterfeiting_Update_7214.aspx
[8] US State Department International Narcotics Control Strategy Report 2018: https://www.state.gov/documents/organization/278760.pdf
[9] https://www.treasury.gov/press-center/press-releases/Pages/jl0450.aspx
[10] https://www.reuters.com/article/us-panama-odebrecht/odebrecht-agrees-to-pay-220-million-fine-aid-panama-probe-idUSKBN1AH57C
[11] https://www.britannica.com/biography/Ricardo-Martinelli
[12] http://www.imf.org/external/pubs/cat/longres.aspx?sk=43208.0
[13] The National Risk Assessment of Money Laundering and Financing of Terrorism – see later in the paper,
[14] Not helped by tax crimes not being predicate crimes for money laundering under Panamanian law, although in 2018 moves were underway to change this situation.
[15] Panama was a province of Colombia until US pressure in the early 20th Century saw it gain independence in 1903 (and so enable the construction of the Canal), and some Colombians still regard Panama as its “lost” province.
[16] https://www.export.gov/article?id=Panama-foreign-trade-zones
[17] A 2010 report from FATF had already documented the vulnerabilities of free zones to money laundering: http://www.fatf-gafi.org/media/fatf/documents/reports/ML%20vulnerabilities%20of%20Free%20Trade%20Zones.pdf
[18] https://www.panamatoday.com/economy/free-trade-zones-panamas-weakest-flank-money-laundering-3504
[19] https://www.state.gov/documents/organization/278760.pdf
[20] El Grupo de Acción Financiera de Latinoamérica; an inter-governmental organisation that comprises 16 countries from South America, Central America and North America: http://gafilat.org.iplan-unix-03.toservers.com/content/inicio/
[21] http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/fatf-compliance-february-2016.html
[22] https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/
[23] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2018.029.01.0002.01.ENG&toc=OJ:C:2018:029:TOC
[24] For a background briefing note on the blacklist see http://www.europarl.europa.eu/cmsdata/147404/7%20-%2001%20EPRS-Briefing-621872-Listing-tax-havens-by-the-EU-FINAL.PDF
[25] As defined by the OECD, base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. For more information see: http://www.oecd.org/tax/beps/
[26] For example, in September 2016, the Panamanian Assembly adopted draft Law No.363, an agreement between Panama and the US to improve international tax compliance through co-operation on the Foreign Accounts Tax Compliance Act (FATCA).
[27] http://www.oecd.org/tax/automatic-exchange/common-reporting-standard/
[28] http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/crs-by-jurisdiction/crs-by-jurisdiction-2018.htm
[29] Ibid.
[30] http://oecdobserver.org/news/archivestory.php/aid/670/Transfer_pricing:_Keeping_it_at_arms_length.html
[31] http://www.oecd.org/tax/beps/
[32] http://www.oecd.org/tax/exchange-of-tax-information/standard-for-automatic-exchange-of-financial-account-information-in-tax-matters-second-edition-9789264267992-en.htm
[33] The CRS Multilateral Competent Authority Agreement (CRS MCAA).
[34] http://www.oecd.org/ctp/panama-joins-international-tax-co-operation-efforts-to-end-bank-secrecy.htm
[35] http://www.oecd.org/countries/panama/
[36] http://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html
[37] http://www.fatf-gafi.org/media/fatf/documents/methodology/FATF%20Methodology%2022%20Feb%202013.pdf
[38] http://www.fatf-gafi.org/media/fatf/documents/reports/mer-fsrb/MER-GAFILAT-Panama-Jan-2018.pdf
[39] This was nevertheless an improvement over the previous MER on 2014, in which it was reported that Panama fully complied with only 1 Recommendation; mostly complied with 3 Recommendations; partially complied with 26 Recommendations; and did not comply with 19 Recommendations. It did not receive a compliant or largely compliant rating in any of the 16 Principal and Fundamental Recommendations: https://www.imf.org/external/pubs/ft/scr/2014/cr1454.pdf
[40] This conclusion being underlined by the Odebrecht affair (see above)
[41] However, in 2016, of 6.2 million TEU containers entering/leaving the country, only 56 were seized for containing counterfeit goods (and this was down from 233 the previous year), with 61% of the goods said to be in transit (i.e. not destined for the Panamanian domestic market). INTA, the International Trademark Association, identified the CFZ as “a sensitive hub of counterfeit goods”: https://www.inta.org/INTABulletin/Pages/Anticounterfeiting_Update_7214.aspx
[42] Involved in trade-based money laundering and other trade-based financial crime: https://www.gov.im/media/1348726/notice-1000-man-trade-based-money-laundering-july-18.pdf
[43] Which might include proliferation, sanctions-busting etc. In 2018, Panama adopted new export controls for dual-use goods, and also adopted the EU list of dual-use items (see below).
[44] Ibid.
[45] See MER paragraph TC31.
[46] http://www.fatf-gafi.org/media/fatf/content/images/National_ML_TF_Risk_Assessment.pdf
[47] “Assessing risks and applying a risk-based approach”.
[48] Evaluación nacional de riesgos de blanqueo de capitales y financiamiento al terrorismo de Panamá: http://www.mef.gob.pa/es/Documents/Evaluacionde%20RiesgoPanama.pdf
[49] Established under Law 23 of 2015.
[50] https://www.presidencia.gob.pa/en/Security/Panama-has-taken-measures-to-combat-money-laundering-Minister-Aleman
[51] Or, indeed, tax evasion/avoidance, as apparently evidenced by the “Panama Papers” and the Odebrecht affair.
[52] Which may seem odd, given its neighbour is Colombia, which has endured decades of problems with criminal and paramilitary organisations (the two elements are almost inevitably linked), and even now, despite a ceasefire between the government the main paramilitary groups (such as FARC) – which appears under risk, to say the least, after recent elections in Colombia – continues to suffer from severe problems from crime and drugs/paramilitary gangs.
[53] Designated non-financial business or profession – best described as a “FATF catch-all for any business or profession that poses a money laundering risk but cannot be classified as a financial institution”: http://www.joebm.com/papers/173-W00047.pdf being those businesses and professions that have similar potential to financial institutions to be used for money laundering. They can include auditors, accountants, tax advisors, casinos and other gambling service providers, CSP, dealers in precious metals or precious stones, lawyers, notaries and other independent legal professionals, real estate agents and trusts.
[54] On the other hand, the National Strategy labelled the sector’s vulnerabilities as being low (despite the apparent evidence of such as the Panama Papers).
[55] Law No. 2 of 2011, defines a Resident Agent as being “the lawyer or law firm that provides services as such and that must keep the records required by this law for legal persons constituted in accordance with the laws of the Republic of Panama and with which maintains a professional relationship in the present”.
[56] Article 3 of Law 2 of 2011 refers.
[57] See MER page 105.
[58] See MER page 104 (paragraph 472).
[59] See MER paragraph TC26.
[60] See MER paragraph TC112.
[61] https://www.superbancos.gob.pa/en/prev-cont-il-op/national-strategy
[62] At least at the the time of the GILFAT on-site visit in 2017.
[63] http://www.uaf.gob.pa/
[64] Created under Executive Decree 136 (1995): Unidad de Análsis Financiero (UAF) in Spanish.
[65] At the time of the 2018 MER, some DNFBP did not have access to the platform.
[66] The STR rejection system allows feedback, both immediate and periodic, that is said to have improved the quality of STR.
[67] See comments re the “Panama Papers” below.
[68] https://egmontgroup.org/
[69] The MER records that at the time of on-site visit there 84 such MoU, including with members of Egmont.
[70] MER paragraph 513.
[71] http://www.uaf.gob.pa/Preguntas-Frecuentes
[72] Created by Resolution No. 25 of 2016 by the Office of the Attorney General.
[73] “Bearer negotiable instruments”, or BNI, in the terminology of FATF.
[74] Law No. 30 of 1984, as amended by Law No. 49 of 2009. The laws allow for the seizure of all goods affected by smuggling or customs fraud, including the cash etc.
[75]http://www.mef.gob.pa/es/direcciones/CNBC/Paginas/Estructura%20y%20Funciones.aspx?selectedClass=menuItem-1
[76] http://www.mef.gob.pa/es/direcciones/CNBC/Paginas/Conformacion.aspx?selectedClass=menuItem-3
[77] Comisión de Economía y Finanzas de la Asamblea Nacional.
[78] Executive Decree No. 290 of 2016 created GIA.
[79] Created by Law No. 19 of 2010.
[80] Note that NPO are not (at the time of the GAFILAT on-site visit) covered by the 2015 AML law, though they are required to be registered with one of several government ministries, or the Panamanian Sports Institute (PANDEPORTES) – which regulates and grants legal status to NPO related to sports activities. They also have to submit an annual donation report to the General Revenue Office for taxation purposes.
[81] However, in the National Strategy there is an action plan so that the licensing of these reporting institutions can be in charge of the Superintendence of Banks
[82] There is gold, and a large-scale, multibillion-dollar copper mining project 120 km from Panama City (said to be capable of producing 380,000 tonnes of copper a year).
[83] Established by Decree No. 2 of 1998.
[84] With the Ministry of Commerce and Industry being the lead ministry.
[85] Autoridad del Canal de Panamá (or ACP) in Spanish: https://www.pancanal.com/eng/op/notices/2018/N01-2018.pdf
[86] http://www.uaf.gob.pa/
[87] Which created the National Coordination System for the Prevention of Money Laundering, TF and the Proliferation of Weapons of Mass Destruction of the Republic of Panama.
[88] https://www.gacetaoficial.gob.pa/pdfTemp/28546_B/GacetaNo_28546b_20180613.pdf
[89] https://www.dentonsmunoz.com/en/insights/articles/2018/october/29/register-of-exchange-houses-before-the-superintendency-of-banks
[90] https://www.dentonsmunoz.com/en/insights/articles/2018/october/29/register-of-money-remittance-companies-with-the-superintendency-of-banks
[91] https://projectalpha.eu/wp-content/uploads/sites/21/2018/11/Big-Data-and-Non-proliferation-The-Alpha-Proliferation-Open-Source-Tool-Alpha-POSTas-posted.pdf
[92] https://www.gpo.gov/fdsys/pkg/PPP-2004-book1/pdf/PPP-2004-book1-doc-pg860.pdf
[93] https://www.nti.org/gsn/article/panama-joins-proliferation-security-initiative/
[94] https://wordpress.com/post/raytodd.blog/4970
[95] https://www.gacetaoficial.gob.pa/pdfTemp/28287_B/61296.pdf
[96] For more information on Executive Decree 81 and its path to implementation, please see “Facilitating the Implementation of Strategic Trade Controls in the Republic of Panama” (Strategic Trade Review Journal, Spring/Summer 2018: https://strategictraderesearch.org/current-issue-summer-2018/
[97] http://www.un.org/en/sc/1540/documents/Panama_action_plan.pdf : a summary of its content was included in my blog post of 12th October: https://wordpress.com/post/raytodd.blog/4970
[98] An individual or organisation that has significant political or other influence but is not allied to any particular country or state. In the context of UN SCR 1540 it is often used to mean terrorist and paramilitary organisations and their members, supporters and organisers.
[99] Note that the EU Dual-use List adopted by Panama as its own uses the term “dual-use items”.
[100] For some background on RPM, see this Stanford University article: http://large.stanford.edu/courses/2016/ph241/wolk1/
[101] https://www.unodc.org/ropan/en/BorderControl/container-control/ccp.html
[102] Such a system provides a single entry point (or “window”) – either physical or electronic – for the submission of all data and documents related to the declaration, clearance and release of goods, and managed by one agency, which then can inform any other agency required and apply or direct any necessary control action. See: http://tfig.unece.org/contents/single-window-for-trade.htm
[103] Autoridad del Canal de Panama, or ACP in Spanish: https://www.pancanal.com/eng/index.html
[104] As well as proof of financial responsibility and adequate provision for indemnity to third parties as a guarantee against any possible damage and/or loss.
[105] The International Maritime Dangerous Goods Code of the International Maritime Organisation: see http://www.imdgsupport.com/free%20imdg%20code%20introduction%2037-14.pdf
[106] See paragraph 16 of NOTICE TO SHIPPING No. N-1-2018: https://www.pancanal.com/eng/op/notices/2018/N01-2018.pdf
[107] The Decree defines “handling” as meaning: “Any action that consolidates, deconsolidates, guards, preserves, packs, unpacks, repacks, handles, dispatches, transships, transits, transports, ensure, measure, certifies, operates, maritime, land or air terminals, remits by mail any of the goods, included in the National Control list of Dual-Use Goods.”
[108] Part of the US State Department’s Bureau of International Security and Non-proliferation (ISN), EXBS works with partner governments throughout the world seeking “to prevent the proliferation of weapons of mass destruction… by helping to build effective national strategic trade control systems in countries that possess, produce, or supply strategic items, as well as in countries through which these items are most likely to transit.” https://www.state.gov/t/isn/ecc/c27911.htm
[109] https://www.unodc.org/ropan/en/BorderControl/container-control/ccp.html
[110] https://www.wassenaar.org/
[111] https://australiagroup.net/en/
[112] http://www.nuclearsuppliersgroup.org/en/
[113] http://mtcr.info/
[114] http://trade.ec.europa.eu/doclib/html/155445.htm
[115] https://unstats.un.org/unsd/tradekb/Knowledgebase/50018/Harmonized-Commodity-Description-and-Coding-Systems-HS
[116] Organisation for Security and Co-operation in Europe: https://www.osce.org/
[117] Council Regulation 428/2009/EC (as amended): http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1527179601283&uri=CELEX:02009R0428-20171216
[118] For a handy summary of the ICP requirements, see https://www.steptoeinternationalcomplianceblog.com/2018/10/eu-promotes-export-controls-and-sanctions-compliance-programs/#page=1
[119] An authorisation shall be required if, while not listed, “the items in question are or may be intended, in their entirety or in part, for use” at any stage of development of chemical, biological, or nuclear weapons, or “are or may be intended, in their entirety or in part, for a military end-use”, exported to countries subject to an arms embargo, or intended for use as a component of listed military items exported without authorisation; and it is the responsibility of the exporter to report to the authorities any awareness that the item he wants to export falls into these categories, even if non-listed.
[120] Article 2(5) of the EU Regulation refers: “brokering services” means the negotiation or arrangement of transactions for the purchase, sale or supply of dual-use items from a third country to any other third country, or the selling or buying of dual-use items that are located in third countries for their transfer to another third country – but the sole provision of ancillary services is excluded from this definition; such ancillary services are transportation, financial services, insurance or re-insurance, or general advertising or promotion.
[121] Though the GAFILAT MER noted a shortcoming in that the agent was not obliged to undertake “proactive” action, but merely had to obtain and file the information supplied on the purported activity of the legal entity: see paragraph 477.
[122] See MER paragraph 480.
[123] See MER paragraph 481.
[124] Corte Suprema de Justicia.
[125] Tribunal Circuital.
[126] https://www.u4.no/publications/panama-overview-of-corruption-risks-in-the-judiciary-and-prosecution-service
[127] http://www.unodc.org/unodc/en/frontpage/2016/June/unodc-supporting-criminal-procedure-reform-in-panama.html
[128] Ibid.
[129] The index, which ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople, uses a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean: https://www.transparency.org/news/feature/corruption_perceptions_index_2017#table
[130] http://info.worldbank.org/governance/wgi/#home
[131] https://www.transparency.org/news/pressrelease/panamanian_authorities_must_ensure_extradited_former_president_faces_justic
[132] http://www.zolicol.gob.pa/index.php
[133] http://www.oecd.org/countries/panama/
[134] https://www.businesspanama.com/invest-in-panama/colon-free-zone-and-other-free-zones/34/b/
[135] http://www.zolicol.gob.pa/en/colon-puerto-libre
[136] http://www.fatf-gafi.org/publications/methodsandtrends/documents/moneylaunderingvulnerabilitiesoffreetradezones.html
[137] https://www.tracit.org/uploads/1/0/2/2/102238034/eiu_ftz_illicit_trade_paper.pdf The Global Illicit Trade Environment Index is commissioned by the Transnational Alliance to Combat Illicit Trade (TRACIT) and produced by The Economist Intelligence Unit (EIU). The Index evaluates 84 countries on their structural capability to guard against illicit trade, highlighting specific strengths and weaknesses.
[138] Though this was a fall from its peak year of 2012, when trade was valued at $3.8 billion.
[139] Cigarettes that are usually manufactured legitimately but are smuggled for the purposes of tax/duty avoidance/evasion.
[140] http://www.europarl.europa.eu/RegData/etudes/STUD/2018/627114/EPRS_STU(2018)627114_EN.pdf
[141] Although the oldest free port catering for art and other valuables is in Geneva, where the city’s first free port was set up in 1854.
[142] http://www.panamapacifico.com/en/
[143] Law 41 of 2004 created the Panama Pacifico Special Economic Area.
[144] https://logistics.gatech.pa/en/assets/logistics-parks/panama-logistics-park
[145] For background to the firm see: https://www.occrp.org/en/panamapapers/inside-the-fall-of-mossack-fonseca
[146] https://www.icij.org/investigations/panama-papers/pages/panama-papers-about-the-investigation/
[147] https://www.occrp.org/en/panamapapers/
[148] https://www.occrp.org/en/panamapapers/mossack-fonseca/
[149] Lava Jato.
[150] https://www.icij.org/investigations/panama-papers/20170210-mossfon-panama-arrests/
[151] In 2017, the company reached a settlement with Panamanian authorities: https://www.reuters.com/article/us-panama-odebrecht/odebrecht-agrees-to-pay-220-million-fine-aid-panama-probe-idUSKBN1AH57C
[152] https://www.occrp.org/en/panamapapers/inside-the-fall-of-mossack-fonseca
[153] https://www.occrp.org/en/panamapapers/inside-the-fall-of-mossack-fonseca
[154] http://europa.eu/rapid/press-release_MEMO-15-5738_en.htm
[155] Global Witness argues that conflict diamonds are defined by the Kimberley Process as ‘rough diamonds used by rebel movements to finance wars against legitimate governments’; and, as a result of this narrow definition, the Kimberley Process is not empowered to address the broader range of risks to human rights posed by the trade in diamonds. Furthermore, as the Kimberley Process applies only to rough diamonds, once stones are cut and polished, they are no longer covered by the scheme.
[156] https://www.kimberleyprocess.com/en/panama-0
[157] “Dirty Diamonds in Panama”: http://www.css.ethz.ch/en/services/digital-library/articles/article.html/108972/pdf
[158] http://www.diamondintelligence.com/magazine/magazine.aspx?id=7454
[159] For more information on ITBMS see https://home.kpmg.com/xx/en/home/insights/2018/10/panama-indirect-tax-guide.html
[160] http://www.oecd.org/countries/panama/
AMENDMENTS TO THIS PAPER
16 November 2018
- Added section on “Human Trafficking”.
- Reference to new container terminal at Corozal added on page 1.
