Transparency of the Regulatory System
All three major financial regulators (banking, securities, and insurance) regularly publish detailed sector reports on their websites. Panama’s banking regulator began publishing fines and sanctions in late 2016. The securities and insurance regulators have published fines and sanctions since 2010 and 2014, respectively.
In 2012, Panama passed a securities law to regulate brokers, fund managers, and matters related to the securities industry. The Commission structure was modified to follow the successful Banking Law model and now consists of a superintendent and a board of directors. The Securities Commission is generally considered a competent and effective regulator. Panama has committed to seeking the legal authority necessary to allow them to become a full signatory to the International Organization of Securities Commissions Memorandum of Understanding.
Panama is a member of United Nations Conference on Trade and Development’s (UNCTAD) international network of transparent investment procedures (http://panama.eregulations.org). Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures.
International Regulatory Considerations
Panama is not a member of Merocur or the Pacific Alliance. It has been a member of the World Trade Organization since September 6, 1997.
Legal System and Judicial Independence
Panama’s criminal justice system has transitioned from the civil to the accusatory system with the goal of simplifying and expediting criminal cases. Fundamental procedural rights in civil cases are broadly similar to those available in U.S. civil courts, although some notice and discovery rights, particularly in administrative matters, may be less extensive than in the U.S. Judicial pleadings are not always a matter of public record, nor are the processes always transparent.
Laws and Regulations on Foreign Direct Investment
Panama has different incentive laws, depending on the activity, including the Multinational Headquarters Law, Investment stability Law, Incentives for the Film Industry, Call Centers, Industrial Promotion (CFI) and Promotion of Agriculture exports. The Proinvex site provides more details on tax and other benefits.
Government policy and law treats Panamanian and foreign investors equally with respect to access to credit. Panamanian interest rates closely follow international rates (i.e., the London Interbank Offered Rate - LIBOR), plus a country-risk premium. See section 6 for more information on capital markets and portfolio investments.
While there is no formal investment screening by the government, the government does monitor large foreign investments.
Competition and Anti-Trust Laws
Panama’s Consumer Protection and Anti-Trust Agency, established by Law 45, October 31, 2007, and modified by Law 29 of June 2008, reviews transactions for competition related concerns and serves as a consumer protection agency.
Expropriation and Compensation
Panamanian law recognizes the concept of eminent domain but it is rarely exercised. In one recent case, a U.S. company voiced concern about being reimbursed at fair market value in a case where the government’s revocation of a concession adversely impacted access or use of the investors’ property.
ICSID Convention and New York Convention
Panama is a Party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards).
Investor-State Dispute Settlement
Resolving commercial and investment disputes in Panama can be a lengthy and complex process. Despite protections built into the U.S.-Panamanian trade agreements, investors have repeatedly struggled to resolve investment issues in courts. There are frequent claims of bias and favoritism in the court system and complaints about the lack of adequate titling, inconsistent regulations, and a lack of trained officials outside of the capital. The World Economic Forum – Global Competitiveness Index 2016-2017 report ranks the independence of Panama’s judicial system 118 out of 138 countries. Politically connected businesses have benefited from court decisions, and there have been allegations that judges have “slow-rolled” dockets for years without taking action. Many Panamanian legal firms suggest writing binding arbitration clauses into all commercial contracts.
International Commercial Arbitration and Foreign Courts
The Panamanian government accepts binding international arbitration of disputes with foreign investors. Panama is a party to the 1958 New York Convention as well as to the 1975 Panama Convention. Panama became a member of the International Center for the Settlement of Investment Disputes (ICSID) in 1996. Panama adopted the UNCITRAL model arbitration law as amended in 2006. Law 131 regulates national and international commercial arbitrations in Panama.
Commercial law is comprehensive and well established. The World Bank 2017 Doing Business currently ranks Panama 133/190 for resolving insolvency because of the antiquated law, slow court systems, and complexity of the process. Panama adopted a new bankruptcy law in 2015, but Panama’s Doing Business ranking has not yet shown material improvement for this metric.