Countries/Jurisdictions of Primary Concern - Panama
Panama’s strategic geographic location; dollarized economy; status as a regional financial, trade, and logistics center; and lax regulatory system make it an attractive target for money launderers. Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking due to the country’s location along major drug trafficking routes. Tax evasion, bank fraud, and corruption also are believed to be major sources of illicit funds. Numerous factors hinder the fight against money laundering, including the existence of bearer share corporations, a lack of collaboration among government agencies, inconsistent enforcement of laws and regulations, and a weak judicial system susceptible to corruption and favoritism. Money is laundered via bulk cash and trade by exploiting vulnerabilities at the airport, utilizing free trade zones (FTZs), and exploiting the lack of regulatory monitoring in many sectors of the economy. The protection of client secrecy is often stronger than authorities’ ability to pierce the corporate veil to pursue an investigation.
Panama has 16 FTZs, including the Colon Free Zone (CFZ), the second-largest FTZ in the world.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: NO
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks, savings cooperatives, savings and mortgage banks, and money exchanges; investment houses and brokerage firms; insurance and reinsurance companies; fiduciaries; casinos; FTZ companies; finance companies; real estate brokers; and lawyers
Number of STRs received and time frame: 894 in 2013
Number of CTRs received and time frame: 714,105 in 2013
STR covered entities: Banks, cooperatives, money exchanges, money transfer companies, casinos, betting and gaming companies, fiduciaries, insurance and insurance brokerage companies, the national lottery, investment and brokerage houses, real estate brokers, pawnshops, and FTZs
money laundering criminal Prosecutions/convictions:
Prosecutions: 24 in 2013
Convictions: 11 in 2013
Records exchange mechanism:
With U.S.: MLAT: YES Other mechanism: YES
With other governments/jurisdictions: YES
Panama is a member of the Financial Action Task Force in Latin America (GAFILAT). Its most recent evaluation can be found at: http://www.imf.org/external/pubs/ft/scr/2014/cr1454.pdf
Enforcement and implementation issues and comments:
In June 2014, in response to continued criticism, Panama developed an action plan to address its AML deficiencies, and the Government of Panama offered a high-level commitment to implement the necessary actions. The government is working with international donors to draft and pass legislation to criminalize money laundering, address CFT, and cover designated non-financial businesses and professions. A key factor contributing to Panama’s vulnerability to money laundering is that not all financial and non-financial sectors are subjected to regulations and supervision.
Numerous assessments over the last five years by an array of different institutions have identified Panama’s financial intelligence unit, the UAF, as a point of primary concern. The UAF has historically been viewed as ineffective and susceptible to political pressure. Shortly after the new administration took office on July 1, 2014, the president named a new director of UAF and made its reform one of his priorities. The UAF’s new director is working to establish an operationally functional unit by strengthening the unit’s analytical ability, increasing its coordination with law enforcement and prosecutorial entities, and reviving its international cooperation with foreign counterparts. The new director’s initial efforts to improve the UAF are promising but will require adequate funding and longer-term support to be successful.
The judicial branch’s capacity to successfully prosecute and convict money launderers remains weak, and judges remain susceptible to corruption. The transition to a U.S.-style accusatory judicial system, which began in September 2010, is expected to be implemented in all the provinces by 2016. All known money laundering convictions are tied to bulk cash cases with an obvious connection to a predicate crime.
The Panama Customs Authority’s collaboration with U.S. agencies increased passenger scrutiny and notable seizures of undeclared cash at Tocumen International Airport. However, regional airports are undergoing renovation and gaining prominence, and could be new channels of access for money launderers. On January 11, 2014, Panama National Police and Panama Customs seized $7,171,300 from the checked luggage of four Honduran nationals upon their arrival at Tocumen International Airport. Although Panamanian Customs can identify potential trade-based money laundering with information from the Trade Transparency Unit, a regional trade data-sharing entity, it can only levy fees for customs tax evasion.
The CFZ continues to be vulnerable to illicit financial activities and abuse by criminal groups, due primarily to weak customs enforcement and limited oversight of trade and financial transactions. Bulk cash is easily introduced into the country by declaring it is for use in the CFZ, but there is no official verification process to confirm its end use for lawful business in the free zone. The lack of integration of the CFZ’s electronic cargo tracking system with Panamanian Customs hinders timely analysis. The new CFZ administrator, appointed in July 2014 by the president, has reinstated the CFZ’s Office of Money Laundering Prevention and is aiming to expand its control over CFZ businesses and transactions.
Panama’s Law 43 (2013) provides for the custody of bearer shares but does not come into effect until August 2015 and allows for a transition period of three years. Thus, Panama will not implement its provisions until 2018. Until the law is fully implemented, financial institutions face a serious risk associated with clients who maintain bearer share companies. Additionally, only banks have enhanced due diligence procedures for foreign and domestic politically exposed persons (PEPs).
On October 22, 2013, the Government of Panama signed a case-sharing agreement with the United States, creating a bilateral committee to manage $36 million of forfeited assets for use by the Panamanian government to strengthen AML practices. However, there is limited cooperation and communication among the various government agencies. Agencies are under-resourced, and often lack the personnel and training to investigate and prosecute complex money laundering schemes. The U.S. and Panamanian governments jointly administer these shared funds to address these issues.
Panama needs to improve its AML legal and regulatory frameworks, strengthen the prosecutor’s office and the judicial system, create a more transparent financial and trade network, and establish an adequate legal framework to freeze terrorist assets. The government’s action plan is providing a roadmap for Panama to achieve these goals.