Bearer shares are stock certificates issued by a corporation that bear no name of legal entity or individual. Instead they would simply have the word “Bearer” on their face, meaning that anyone in possession of the certificate is the owner of the share.
Also, of course, true bearer shares are unregistered and hence the names of the holder would not appear on any share register, and the only way to identify the shareholder would be for he or she to produce the actual certificate. Whoever holds the certificate owns the company.
Whilst bearer shares have a bad reputation, being linked to tax evasion, money laundering and worse, there were otherwise legitimate reasons for their use – principally for privacy reasons, but also because they allow the ease of transfer, with no needs for contracts, registers to be updated etc.
THE HISTORICAL PERSPECTIVE
Panama has a long history as a “tax haven”. This status is said to date from 1919 with the registry of foreign ships to help Standard Oil escape US taxes and regulations. The shipping registry, like that of Liberia (another “flag of convenience”, as such jurisdictions became known), acquired a bad name for its use to avoid or evade not only tax, but also the requirements of labour laws and environmental controls.
JP Morgan had helped Panama formulate incorporation laws in 1927 that permitted anyone to start tax-free, anonymous corporations, thus paving the way for its role in offshore finance. It was in 1970 that Panama established the National Banking Commission, and to attract offshore investments the decree creating the Commission also prohibited the investigation of the private affairs of any bank client except under a (Panamanian) court order. By 1982, there were 125 banks with assets of $49 billion. By 2015, confidence having returned after the deposing of Manuel Noriega in 1989, the banking sector boasted assets of $115 billion.
Bearer shares had also been introduced by Law 32 of 1927 – these being stock certificates without a named, designated owner on their face, which effectively allowed anonymous ownership of a corporation.
Efforts to reform the relevant laws had a long history. For example, in 2011, a Free Trade Agreement with the US was signed after several years of negotiation. Acceptance of this agreement was conditional on several things, including negotiating a tax information exchange agreement and eliminating bearer shares. In addition, in order to conform to OECD standards, the same year a proposed law to amend corporate law in Panama. These amendments would have included the abolition of the bearer shares, but this proposal was opposed by various parts of the Panamanian economy and could not even be discussed in Parliament. It would take another 2 years before a successful attempt could be made, with immobilisation, rather than abolition, being employed. This attempt was able to be debated, despite once more fierce opposition.
Following the “Panama Papers” leaks of 2014, and despite the then President Varela complaining of the scapegoating of the country, one of the measures adopted in the aftermath were new rules limiting the use (and usefulness) of bearer shares. The President announced this move in a news release in January 2016. Bearer shares were to be regulated, so as to reduce the anonymity associated with them and in response to criticism and demands from international bodies. It did not help that the investigation into the Panama Papers revealed that when the BVI cracked down on bearer shares in 2005, the Panamanian law firm at the centre of the scandal, Mossack Fonseca, moved bearer share clients to Panama.
THE NEW LAWS
The National Assembly had already passed Law 47 in August 2013, providing for the establishing of a system for custodial care of bearer shares. This was the Law that was to take affect on 6 August 2015, and gave holders 3 years to take them to an authorised custodian which would then hold them. However, as noted below, these dates were subsequently brought forward, taking effect from May 2015, and with the deadline for existing corporations changed from 2018 (i.e. after the 3-year period of grace previously allowed) to 31 December 2015.
This method of dealing with the problem of bearer shares was termed “immobilisation”. This refers to the fact that, once in the new Law was fully in force, they will have lost their mobility, in that they could not be simply and easily moved from one person to another, without any changes or notifications being required.
Along with the bearer shares, the holder had to also submit a sworn declaration providing information on the identity of both the valid owner and the corporation, along with the name of the resident agent acting for the corporation. Any new bearer shares had to be submitted to the authorised custodian – a Panama lawyer (or law firm), a licensed bank, a Panama fiduciary, or a licensed brokerage house – within 20 days of issue (although the issue of new bearer shares was to be effectively banned from 31 December 2015). Failure to comply with the requirements, for either existing or new, bearer certificates would render them invalid and annul their legal effect.
A registry of authorised custodians was established, and the sworn declarations were to be made available to a “competent authority” when conducting an investigation into terrorist financing, money laundering or other illegal activity, or in compliance with an international double tax treaty or other international agreement to which Panama was a party. The register of custodians was maintained by the Bank Supervisor of Panama (Superintendencia de Banco de Panamá, aka SBP). The law also permitted the conversion of bearer shares into nominative shares as an alternative to filing its bearer shares with an authorised custodian.
From 31 December 2015, any corporation wanting to continue issuing bearer shares had to have filed with the Public Registry board resolutions confirming this decision and, if not, the law would be considered to have amended a company’s Articles of Incorporation to prohibit the issuing of bearer shares.
Law 18 of 23 April 2015 amended Law 47 to reduce the deadlines for the implementation of the new bearer shares regime, bringing the provisions of Law 47 into effect from 4 May 2015, instead of August 2015.
Finally, Law 21 of 2017 introduced amendments concerned with the custodial regime for bearer shares.
An assessment report from the Global Forum on Transparency and Exchange of Information for Tax Purposes in November 2019 gave Panama an overall marking “Partially Compliant” in place of the previous “Largely Compliant” – which amounted to an effective downgrading. This included a rating of only “Partially Compliant” for Item 3 (availability of ownership and identity information; availability of banking information; and qualify and timeliness of responses to assistance requests). It was also marked “Largely Compliant” for availability of accounting information and access to information). The recommendations of the 2019 report focussed on the then recently implemented beneficial ownership information legislation and guidance, and gaps and lack of strong supervision. The recommendations also mentioned problems some other countries had encountered in obtaining some information on request, in particular accounting information or information for entities with bearer shares. In its earlier 2015 Peer Review of Panama, the Global Forum had also identified the position of bearer shares and beneficial ownership information as problems which should be addressed.
A further disincentive introduced by Panama was a higher rate of withholding tax on dividends on profits from ownership through bearer shares – 20%. Companies holding an Operations Licence and/or carrying on business in Panama had, in other cases, to withhold tax at 10% on dividends distributed out of domestic profits, or 5% on dividends from foreign-source profits or export profits.
Further transparency in corporate control and ownership was introduced by means of Law 129, which came into effect on 22 February 2020, with the relevant competent authority, called the Superintendence, having until 17 September 2020 to put the necessary administrative arrangements in place. The purpose of the Law was to create a register of ultimate beneficial owners (or “UBO”) – the Registro Unico de Beneficiarios Finales (“Sole Registry of Ultimate Beneficiaries”), using information collected by resident agents, which all legal entities were obliged to have and who were also registered on a register maintained by the Superintendence.
It should be noted that, despite the changes affecting bearer shares and ultimate beneficial owners, the names of shareholders, or those owning or controlling corporations and other legal entities in Panama, were not to be made publicly available. Indeed, Law 47 does not mean that offshore corporations registered in Panama have to register the names of shareholders at the Public Registry (the equivalent of the Companies Registry and Civil Registry). Only the corporation’s officers, directors and its registered resident agent are registered at the Public Registry. This is intended to protect privacy while imposing control over the illegal activities involved by “immobilising” the shares.
24 August 2020
 Visiting Panama in the 1990s I was told that one of the motor yachts moored at the Causeway in Panama City (the “Islamorada”) was famous for having belonged to Al Capone (there is a photograph at https://elpais.com/elpais/2015/06/02/inenglish/1433247923_595241.html). Certainly, during the Prohibition Era, shipowners in the US used Panama registration to allow them to sell alcohol to passengers.
 Panamá: Democracia bajo la sombra de la corrupción, ORLANDO J. PÉREZ (Millersville University, USA) 2017: https://scielo.conicyt.cl/pdf/revcipol/v37n2/0718-090X-revcipol-37-02-0519.pdf
 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 comprising some 1.2 million additional documents, mostly covering the years 2016-17. 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.
 The OECD Global Forum on Transparency and FATF.
 As noted elsewhere, all such corporations are required by law to have a resident agent in Panama, and these resident agents are themselves registered on a register maintained by the Superintendence.
 The gradings are “C”, “LC”, “PC” and “NC”.
 Implemented from February 2020, see https://voices.transparency.org/panama-takes-a-turn-towards-transparency-but-will-it-go-far-enough-8643ea1c7c85
 FATF defines the “beneficial owner” as the natural person(s) who ultimately owns or controls and/or the natural person on whose behalf a transaction is being conducted; including those persons who exercise effective control over a legal person or arrangement. The ownership or control includes where this is done by means of a chain of ownership or control other than direct control.