Panama

Executive Summary

Panama’s investment climate is mixed. Over the last decade, Panama was one of the Western Hemisphere’s fastest growing economies. Its economic recovery from the COVID-19 pandemic is outpacing most other countries in the region, with a 15.3 percent growth rate in 2021 (after a contraction of 17.9 percent in 2020) and a projected growth rate of 7.8 percent for 2022, according to the World Bank. Panama also has one of the highest GDP per capita rates in the region and has several investment incentives, including a dollarized economy, a stable democratic government, the world’s second largest free trade zone, and 14 international free trade agreements. Although Panama’s market is small, with a population of just over 4 million, the Panama Canal provides a global trading hub with incentives for international trade. However, Panama’s structural deficiencies weigh down its investment climate with high levels of corruption, a reputation for government non-payment, a poorly educated workforce, a weak judicial system, and labor unrest. Panama’s presence on the Financial Action Task Force (FATF) grey list since June 2019 for systemic deficiencies in combatting money laundering and terrorist financing increases the risk of investing in Panama, notwithstanding the government’s ongoing efforts to increase financial transparency.

The government is eager for international investment and has several policies in place to attract foreign direct investment (FDI). As such, it continues to attract one of the highest rates of FDI in the region, with $4.6 billion in 2020, according to the U.S. Bureau of Economic Analysis. As of March 18, 2022, Panama’s sovereign debt rating remains investment grade, with ratings of Baa2 (Moody’s), BBB- (Fitch), and BBB (Standard & Poor’s with a negative outlook).

Panama’s high vaccination rates of 80 percent of the eligible population with at least one dose and 70 percent with at least two doses as of March 21 have contributed to its economic recovery. As the global economy rebounded, Panama’s services and infrastructure-reliant industries bounced back significantly in 2021. Sectors with the highest economic growth in 2021 included mining (148 percent increase), construction (29 percent), commerce (18 percent), industrial manufacturing (11 percent), and transportation, storage, and communications (11 percent). Panama ended 2021 with a year-on-year inflation rate variation of 2.6 percent, according to data from the National Institute of Statistics and Census (INEC).

The government’s assertion that it is climate-negative creates opportunities for economic growth, aided by laws 37, 44, and 45 that provide incentives to promote investment in clean energy sources, specifically wind, solar, hydroelectric, and biomass/biofuels.

Panama’s investment climate is threatened, however, by high government fiscal deficits, unemployment, and inequality. The pandemic resulted in government debt ballooning by $3 billion in 2021 to over $40 billion. The country’s debt-to-GDP ratio stands at around 64 percent, well above the 46 percent it stood at before the pandemic. Unemployment peaked at 18.5 percent in September 2020, a 20-year high, but has since fallen to 11.3 percent as of October 2021. Yet high levels of labor informality persist. Additionally, Panama is one of the most unequal countries in the world, with the 14th highest Gini Coefficient and a national poverty rate of 14 percent. The World Bank’s 2022 Global Economic Prospects Report and the World Economic Forum’s 2022 Global Risks Report noted that Panama should focus on inclusive economic growth and structural reforms to avoid economic stagnation and an employment crisis.

Table 1: Key Metrics and Rankings 
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 105 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 83 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $4.6 billion https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $12,420 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

Panama welcomes FDI and relies heavily on investment to fuel its economy. With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes. Panama benefits from stable and consistent economic policies, a dollarized economy, and a government that consistently supports trade and open markets and encourages foreign direct investment.

Panama has had one of the highest levels of FDI in Central America, a trend that continued even during the pandemic. Through the Multinational Headquarters Law (SEM), the Multinational Manufacturing Services Law (EMMA), and a Private Public Partnership framework, Panama offers tax breaks and other incentives to attract investment. Executive Decree No. 722 of October 2020 created a new immigration category: Permanent Residence as a Qualified Investor, after an initial investment of $300,000. The Ministry of Commerce and Industry (MICI) is responsible for overseeing foreign investment, prepares an annual foreign investment promotion strategy, and provides services required by investors to expedite investments and project development (for more details, please visit: https://www.mici.gob.pa/noticias/gobierno-nacional-crea-programa-de-residencia-para-inversionistas-calificados).

The Cortizo administration created a new Minister Counselor for Investment position that reports directly to the President, with the aim of attracting new investors and dislodging barriers that confront current ones. MICI, in cooperation with the Minister Counselor for Investment, facilitates the initial investment process and provides integration assistance once a company is established in Panama.

The Export and Investment Promotion Authority “PROPANAMA” was created by Law 207 on April 5, 2021. It provides investors with information, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama. In some cases, other government offices work with investors to ensure that regulations and requirements for land use, employment, special investment incentives, business licensing, and other conditions are met. Entities that carry out a minimum investment of two million dollars in Panama enjoy the benefits of legal stability, with national, municipal, and customs tax incentives and stability in the labor regime for a period of ten years.

In 2021, the United States ran a $7.5 billion trade surplus in goods with Panama. The U.S.-Panama Trade Promotion Agreement (TPA) entered into force in October 2012. The TPA has significantly liberalized trade in goods and services, including financial services. The TPA also includes sections on customs administration and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protections.  In March 2022, however, the Panamanian government (GoP) formally asked the U.S. government to review certain agricultural tariff provisions of the TPA. Over the last year, Panamanian producers have become increasingly vocal in demanding that their government renegotiate new protections in the face of declining Panamanian tariffs on U.S. agricultural exports. As of March 2022, the U.S. government was reviewing the GoP’s request.

Panama is one of the few economies in Latin American that is predominantly services-based. Services represent nearly 80 percent of Panama’s GDP. The TPA has improved U.S. firms’ access to Panama’s services sector and gives U.S. investors better access than other WTO members under the General Agreement on Trade in Services. All services sectors are covered under the TPA, except where Panama has made specific exceptions, such as for postal services, air transportation, and water distribution. Under the agreement, Panama has provided improved access to sectors like express delivery and granted new access in certain areas that had previously been reserved for Panamanian nationals. However, some American companies face problems in this sector, including allegations of tax evasion by some local companies. In addition, Panama is a full participant in the WTO Information Technology Agreement.

Panama passed a Private Public Partnership (PPP) law in 2019 (Ley 93) and published regulations for the program in 2020 (Decree 840) as an incentive for private investment, social development, and job creation. The law is a first-level legal framework that orders and formalizes how the private sector can invest in public projects, thereby expanding the State’s options to meet social needs. Panama’s 2022 budget includes funding to implement PPP projects.

Panama has been selected to host Bloomberg’s “New Economy Gateway” forum in May 2022, which will cover sustainable investment and the future of trade. It will be the first time that this forum has been held outside of Asia.

The Panamanian government imposes some limitations on foreign ownership in the retail, maritime, and media sectors, in which, in most cases, owners must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law (under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances). There are also limits on the number of foreign workers in some foreign investment structures.

In addition to limitations on ownership, around 200 professions in both the public and private sectors, including within the Panama Canal Authority, are reserved for Panamanian nationals. Medical practitioners, lawyers, engineers, accountants, and customs brokers must be Panamanian citizens. Furthermore, the Panamanian government instituted a regulation that rideshare platforms must use drivers who possess commercial licenses, which are available only to Panamanians, and is considering the implementation of additional regulations that would further restrict American ride-sharing companies.

With the exceptions of retail trade, the media, and many professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity, and the Panamanian government does not screen inbound investment. Foreigners do not need to be legally resident or physically present in Panama to establish corporations or obtain local operating licenses for a foreign corporation. Business visas (and even citizenship) are readily obtainable for significant investors.

Panama generally allows private entities to establish and own businesses and engage in remunerative activities. It does not have a formal investment screening mechanism, but the government monitors large foreign investments, especially in the energy sector.

Panama does not currently impose any sector-specific restrictions or limitations on foreign ownership or control. There are no licensing restrictions, although Executive Decree 81 of May 25, 2017, established controls over dual-use goods for reasons of national security. Panama does not currently have any requirements for controls over technology transfers.

Panama has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization in the past three years.

The World Trade Organization (WTO) conducted a “Trade Policy Review” of Panama as of December 2021. Trade Policy Reviews are an exercise mandated in WTO agreements in which member countries’ trade and related policies are examined and evaluated at regular intervals: WTO | Trade policy review -Panama2022 

Post has no knowledge of any civil society organization that has provided comprehensive reviews of concerns about investment policy.

Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found on the Ministry of Commerce and Industry’s website ( https://www.panamaemprende.gob.pa/ ), where one may register a foreign company, create a branch of a registered business, or register as an individual trader from any part of the world. Corporate applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Commerce and Industry, and the Social Security Institute. Panamanian government statistics show that applications from foreign businesses typically take between one to six days to process.

Historically, government procurement procedures have presented barriers to trade with Panama. The Cortizo administration has publicly committed to ensuring greater transparency in the award of government tenders. Law 153, officially passed in May 2020, provides greater transparency in public procurement by mandating that all public entities use an electronic procurement system https://www.panamacompra.gob.pa/Inicio/#!/ .

Other agencies where companies typically register are:

Panama does not incentivize outward investment, nor does it restrict domestic investors from investing abroad.

3. Legal Regime

The Panamanian legal, accounting, and regulatory systems are generally transparent and consistent with international norms.

Panama has five regulatory agencies, four that supervise the activities of financial entities (banking, securities, insurance, and “designated non-financial businesses and professions (DNFBPs)” and a fifth that oversees credit unions. Each of the regulators regularly publishes on their websites detailed policies, laws, and sector reports, as well as information regarding fines and sanctions. Panama’s banking regulator began publishing fines and sanctions in late 2016, which tend to be significantly lower than neighboring countries. The securities and insurance regulators have published fines and sanctions since 2010. Law 23 of 2015 created the regulator for DNFBPs, which began publishing fines and sanctions in 2018. In January 2020, the regulator for DNFBPs was granted independence and superintendency status like that of the banking regulator. The Superintendency of the Securities Market is generally considered a transparent, competent, and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Post is not aware of any informal regulatory processes managed by non-governmental organizations or private sector associations.

Relevant ministries or regulators oversee and enforce administrative and regulatory processes. Any administrative errors or omissions committed by public servants can be challenged and taken to the Supreme Court for a final ruling, a process that often involves a long and arduous dispute resolution. Regulatory bodies can impose sanctions and fines which are made public and can be appealed.

Panama does not promote or require companies to disclose environmental, social, and governance (ESG) data to facilitate transparency and/or help investors and consumers distinguish between high- and low-quality investments.

Laws are developed in the National Assembly. A proposed bill is discussed in three rounds, edited as needed, and approved or rejected. The President then has 30 days to approve or veto a bill the Assembly has passed. If the President vetoes the bill, it can be returned to the National Assembly for changes or sent to the Supreme Court to rule on its constitutionality. If the bill was vetoed for reasons of unconstitutionality, and the Supreme Court finds it constitutional, the President must sign the bill. Regulations are created by agencies and other governmental bodies but they can be modified or overridden by higher authorities.

In general, draft bills, including those for laws and regulations on investment, are made available on the National Assembly’s website and can be introduced for discussion at the bill’s first hearing. All bills and approved legislation are published in the Official Gazette in full and summary form and can also be found on the National Assembly’s website: https://www.asamblea.gob.pa/buscador-de-gacetas .

Accounting, legal, and regulatory procedures in Panama are based on standards set by the International Financial Reporting Standards (IFRS) Foundation, including financial reporting standards for small and medium-sized enterprises (SMEs). Panama is a member of UNCTAD’s international network of transparent investment procedures. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations, including the number of steps, the names and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing times, and legal bases justifying the procedures.

Information on public finances and debt obligations (includes explicit and contingent liabilities) is transparent. It is published on the Ministry of Economy and Finance’s website under the directorate of public finance, but not consistently updated: https://fpublico.mef.gob.pa/en .

Mining regulations are changing. In 2018, the Supreme Court declared unconstitutional the law on which the country largest mining investment contract was based. According to some industry experts, the ruling was a deliberate move to force contract renegotiations and achieve more favorable terms for the government. In 2022, the same company’s concession was renegotiated for renewal, with its royalties to the government increasing significantly as a result. Panama’s enormous potential for generating mining income is undercut by long delays in the government’s concession and permit approval process, according to foreign investor contacts.

Panama is part of the Central American Customs Union (CACU), the regional economic block for Central American countries. Panama has adopted many of the Central American Technical Regulations (RTCA) for intra-regional trade in goods. Panama applies the RTCA to goods imported from any CACU member and updates Panama’s regulations to be consistent with RTCA. However, Panama has not yet adopted some important RTCA regulations, such as for processed food labeling, and dietary supplements/vitamins.

The United States and Panama signed an agreement regarding “Sanitary and Phytosanitary Measures and Technical Standards Affecting Trade in Agricultural Products,” which entered into force on December 20, 2006. The application of this agreement supersedes the RTCA for U.S. food and feed products imported into Panama.

A 2006 law established the Panamanian Food Safety Authority (AUPSA) to issue science-based sanitary and phytosanitary (SPS) import policies for food and feed products entering Panama. Since 2019, AUPSA and other government entities have implemented or proposed measures that restrict market access. These measures have also increased AUPSA’s ability to limit the import of certain agricultural goods. The Panamanian government, for example, has issued regulations on onions and withheld approval of genetically-modified foods, limiting market access and resulting in the loss of millions in potential investment. In March 2021, Panama passed a bill to eliminate the AUPSA. In its place, the bill created the Panamanian Food Agency (APA).  APA began operations on October 1, 2021, and has responsibility for both imports and exports.  The APA intends to improve efficiency for agro-exports and industrial food processes, as well as increase market access.

Historically, Panama has referenced or incorporated international norms and standards into its regulatory system, including the Agreements of the World Trade Organization (WTO), Codex Alimentarius, the World Organization for Animal Health (OIE), the International Plant Protection Convention, the World Intellectual Property Organization, the World Customs Organization, and others. Also, Panama has incorporated into its national regulations many U.S. Food and Drug Administration regulations, such as the Pasteurized Milk Ordinance.

Panama, as a member of the WTO, notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). However, in the last five years it has ignored comments on its regulations offered by other WTO members, including but not limited to the United States.

When ruling on cases, judges rely on the Constitution and direct sources of law such as codes, regulations, and statutes. In 2016, Panama transitioned from an inquisitorial to an accusatory justice 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 United States. Judicial pleadings are not always a matter of public record, nor are processes always transparent.

Panama has a legal framework governing commercial and contractual issues and has specialized commercial courts. Contractual disputes are normally handled in civil court or through arbitration, unless criminal activity is involved. Some U.S. firms have reported inconsistent, unfair, and/or biased treatment from Panamanian courts. The judicial system’s capacity to resolve contractual and property disputes is often weak, hampered by a lack of technological tools and susceptibility to corruption. The World Economic Forum’s 2019 Global Competitiveness Report rated Panama’s judicial independence at 129 of 141 countries.

The Panamanian judicial system suffers from significant budget shortfalls that continue to affect all areas of the system. The transition to the accusatory system faces challenges in funding for personnel, infrastructure, and operational requirements, while addressing a significant backlog of cases initiated under the previous inquisitorial system. The judiciary still struggles with lack of independence, a legacy of an often-politicized system for appointing judges, prosecutors, and other officials. On January 11, 2022, President Cortizo committed $15 million to the Judicial Branch to implement Law 53 of August 27, 2015, which mandates that judges be selected by a merit-based process instead of by appointment, but implementation still faces serious challenges. Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the two branches.

Regulations and enforcement actions can be appealed through the legal system from Municipal Judges, to Circuit Judges, to Superior Judges, and ultimately to the Supreme Court.

Panama has different laws governing investment incentives, depending on the activity, including its newest law intended to draw manufacturing investment, the 2020 Multinational Manufacturing Services Law (EMMA). In addition, it has a Multinational Headquarters Law (SEM), a Tourism Law, an Investment Stability Law, and miscellaneous laws associated with particular sectors, including the film industry, call centers, certain industrial activities, and agricultural exports. In addition, laws may differ in special economic zones, including the Colon Free Zone, the Panama Pacifico Special Economic Area, and the City of Knowledge.

Government policy and law treat Panamanian and foreign investors equally with respect to access to credit. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

The Ministries of Tourism, Public Works, and Commerce and Industry, as well as the Minister Counselor for Investment, promote foreign investment. However, some U.S. companies have reported difficulty navigating the Panamanian business environment, especially in the tourism, branding, imports, and infrastructure development sectors. Although individual ministers have been responsive to U.S. companies, fundamental problems such as judicial uncertainty are more difficult to address. U.S. companies have complained about several ministries’ failure to make timely payments for services rendered, without official explanation for the delays. U.S. Embassy Panama is aware of tens of millions of dollars in overdue payments that the Panamanian government owes to U.S. companies.

Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions.

The Ministry of Commerce and Industry’s website lists information about laws, transparency, legal frameworks, and regulatory bodies.

https://www.mici.gob.pa/direccion-general-de-servicios-al-inversionista/informacion-para-el-inversionista-direccion-general-de-servicios-al-inversionista 

Panama’s Consumer Protection and Anti-Trust Agency, established by Law 45 on October 31, 2007, and modified by Law 29 of June 2008, reviews transactions for competition-related concerns and serves as a consumer protection agency.

Panamanian law recognizes the concept of eminent domain, but it is exercised only occasionally, for example, to build infrastructure projects such as highways and the metro commuter train. In general, compensation for affected parties is fair. However, in at least one instance a U.S. company has expressed concern about not being compensated at fair market value after the government revoked a concession. There have been no cases of claimants citing a lack of due process regarding eminent domain.

The World Bank 2020 Doing Business Indicator, the most recent report available, ranked Panama 113 out of 190 jurisdictions for resolving insolvency because of a slow court system and the complexity of the bankruptcy process. Panama adopted a new insolvency law (similar to a bankruptcy law) in 2016, but the Doing Business Indicator ranking has not identified material improvement for this metric.

6. Financial Sector

Panama has a stock market with an effective regulatory system developed to support foreign investment. Article 44 of the constitution guarantees the protection of private ownership of real property and private investments. Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions. Panama has agreed to IMF Article VIII and pledged not to impose restrictions on payments and transfers for current international transactions.

In 2012, Panama modified its 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 Superintendency of the Securities Market is generally considered a competent and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).

Government policy and law with respect to access to credit treat Panamanian and foreign investors equally. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.

Panama’s banking sector is developed and highly regulated and there are no restrictions on a foreigner’s ability to establish a bank account. Foreigners are required to present a passport and taxpayer identification number and an affidavit indicating that the inflow and outflow of money meets the tax obligations of the beneficiary’s tax residence. The adoption of financial technology in Panama is nascent, but there are several initiatives underway to modernize processes.

Some U.S. citizens and entities have had difficulty meeting the high documentary threshold for establishing the legitimacy of their activities both inside and outside Panama. Banking officials counter such complaints by citing the need to comply with international financial transparency standards. Several of Panama’s largest banks have gone so far as to refuse to establish banking relationships with whole sectors of the economy, such as casinos and e-commerce, in order to avoid all possible associated risks. Regulatory issues have made it difficult for some private U.S. citizens to open bank accounts in Panama, leaving some legitimate businesses without access to banking services in Panama. Panama has no central bank.

The banking sector is highly dependent on the operating environment in Panama, but it is generally well-positioned to withstand shocks. The banking sector could be impacted if Panama’s sovereign debt rating continues to fall. As of March 18, 2022, the sovereign debt rating remains investment grade, with ratings of Baa2 (Moody’s), BBB- (Fitch), and BBB (Standard & Poor’s). Approximately 4.7 percent of total banking sector assets are estimated to be non-performing.

Panama’s 2008 Banking Law regulates the country’s financial sector. The law concentrates regulatory authority in the hands of a well-financed Banking Superintendent ( https://www.superbancos.gob.pa/ ).

Traditional bank lending from the well-developed banking sector is relatively efficient and is the most common source of financing for both domestic and foreign investors, offering the private sector a variety of credit instruments. The free flow of capital is actively supported by the government and is viewed as essential to Panama’s 68 banks (2 official banks, 39 domestic banks, 17 international banks, and 10 bank representational offices).

Foreign banks can operate in Panama and are subject to the same regulatory regime as domestic banks. Panama has not lost any correspondent banking relationships in the last three years despite its inclusion on the FATF grey list since June 2019.

There are no restrictions on, nor practical measures to prevent, hostile foreign investor takeovers, nor are there regulatory provisions authorizing limitations on foreign participation or control, or other practices that restrict foreign participation. There are no government or private sector rules that prevent foreign participation in industry standards-setting consortia. Financing for consumers is relatively open for mortgages, credit cards, and personal loans, even to those earning modest incomes.

Panama’s strategic geographic location, dollarized economy, status as a regional financial, trade, and logistics hub, and favorable corporate and tax laws make it an attractive destination for money launderers. Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking. Tax evasion, bank fraud, and corruption are also believed to be major sources of illicit funds in Panama. Criminals have been accused of laundering money through shell companies and via bulk cash smuggling and trade at airports and seaports, and in active free trade zones.

In 2015, Panama strengthened its legal framework, amended its criminal code, harmonized legislation with international standards, and passed a law on anti-money laundering/combating the financing of terrorism (AML/CFT). Panama also approved Law 18 (2015), which severely restricts the use of bearer shares; companies still using them must appoint a custodian and maintain strict controls over their use. In addition, Panama passed Law 70 (2019), which criminalizes tax evasion and defines it as a money laundering predicate offense. In 2021, Panama passed Law 254, which modifies six distinct laws in order to give the non-financial regulator more authority and strengthen know-your-customer (KYC) requirements. For example, it modifies Law 23 of 2015 to align Panama with accounting records standards and increase sanctions for money laundering violations from $1 million to $5 million; it also modifies Law 52 of 2016 to require resident agents for offshore corporations to hold or have access to a copy of the company’s accounting records.

In June 2019, the Financial Action Task Force (FATF) added Panama to its grey list of jurisdictions subject to ongoing monitoring due to strategic AML/CFT deficiencies. FATF cited Panama’s lack of “positive, tangible progress” in measures of effectiveness. Panama agreed to an Action Plan in four major areas: 1) risk, policy, and coordination; 2) supervision; 3) legal persons and arrangements; and 4) money laundering investigation and prosecution. The Action Plan outlined concrete measures that were to be completed in stages by May and September 2020. Due to the COVID-19 pandemic, FATF granted Panama two extensions, pushing the deadline to January 2021. In its March 2022 plenary, FATF recognized that Panama had largely completed eight of fifteen items on its Action Plan and highlighted the items Panama must still address, while noting the country’s progress since the last plenary meeting.

In February 2022, the European Union (EU) kept Panama on its tax haven blacklist along with American Samoa, Fiji, Guam, Palau, Samoa, Trinidad and Tobago, the U.S. Virgin Islands, and Vanuatu. The EU does not consider Panama to have met international criteria on transparency and exchange of tax information. Panama, however, remains committed to complying with the recommendations of the OECD’s domestic tax base erosion and profit shifting action plan.

Panama has made strides in increasing criminal prosecutions and convictions related to money laundering and tax evasion. However, law enforcement needs more tools and training to conduct long-term, complex financial investigations, including undercover operations. The criminal justice system remains at risk for corruption. Panama has made progress in assessing high-risk sectors, improving inter-ministerial cooperation, and approving – though not yet implementing – a law on beneficial ownership. Additionally, the GoP and the United States signed an MOU in August 2020 that created an anti-money laundering and anti-corruption task force that has advanced investigations of financial crimes. The United States provides training to the task force to combat money laundering and corruption, as well as training for judicial investigations and prosecutions.

Panama started a sovereign wealth fund, called the Panama Savings Fund (FAP), in 2012 with an initial capitalization of $1.3 billion. The fund follows the Santiago Principles and is a member of the International Forum of Sovereign Wealth Funds. The law mandates that from 2015 onward contributions to the National Treasury from the Panama Canal Authority in excess of 3.5 percent of GDP must be deposited into the Fund. In October 2018, the rule for accumulation of the savings was modified to require that when contributions from the Canal exceed 2.5 percent of GDP, half the surplus must go to national savings. At the end of 2021, the value of the FAP’s assets totaled $1.4 billion. Since the beginning of its operations, FAP has generated returns of $455.6 million and contributions to the National Treasury of $235.6 million.

9. Corruption

Corruption is among Panama’s most significant challenges. Panama ranked 105 out of 180 countries in the 2021 Transparency International Corruption Perceptions Index (CPI). High-profile alleged procurement irregularities in 2020, including several related to pandemic response, contributed to public skepticism of government transparency. U.S. investors allege that corruption is present in the private sector and at all levels of the Panamanian government. Purchase managers and import/export businesses have been known to overbill or skim percentages off purchase orders, while judges, mayors, members of the National Assembly, and local representatives have reportedly accepted payments for facilitating land titling and favorable court rulings. The Foreign Corrupt Practice Act (FCPA) precludes U.S. companies from engaging in bribery or other similar activities, and U.S. companies look carefully at levels of corruption before investing or bidding on government contracts.

The process to apply for permits and titles can be opaque, and civil servants have been known to ask for payments at each step of the approval process. The land titling process has been troublesome for many U.S. companies, some of which have waited decades for cases to be resolved. U.S. investors in Panama also complain about a lack of transparency in government procurement. The parameters of government tenders often change during the bidding process, creating confusion and the perception that the government tailors tenders to specific companies. Panama passed Law 153 on May 8, 2020, to modernize its public procurement system and address some of these concerns.

Panama’s government lacks strong systemic checks and balances that incentivize accountability. All citizens are bound by anti-corruption laws; however, under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the branches. Another key component of the judicial sector, the Public Ministry (Department of Justice) and the Organo Judicial (Judicial Branch), have struggled with a historical susceptibility to political influence.

In late 2016, Brazilian construction firm Odebrecht admitted to paying $59 million in bribes to win Panamanian contracts worth at least $175 million between 2010 and 2014. Odebrecht’s admission was confined to bribes paid during the Martinelli administration; however, former President Juan Carlos Varela (2014-2019) is also under investigation on charges of corruption related to Odebrecht. Odebrecht agreed to pay a large fine as part of a judicial settlement, but Panama has imposed sanctions because Odebrecht failed to make all the required payments. While Odebrecht continues to operate in Panama, two Odebrecht projects have been cancelled: the Hydraulic Project Chan II and the new Tocumen Airport. The Government of Panama is now seeking to ban Odebrecht from any other public procurement tenders.

Panama has anti-corruption mechanisms in place, including whistleblower and witness protection programs and conflict-of-interest rules. However, the public perceives that anti-corruption laws are weak and not applied rigorously and that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption. The lack of a strong professionalized career civil service in Panama’s public sector has also hindered systemic change. The fight against corruption is hampered by the government’s refusal to dismantle Panama’s dictatorship-era libel and contempt laws, which can be used to punish whistleblowers. Acts of corruption are seldom prosecuted, and perpetrators are almost never jailed.

Under President Cortizo, Panama has taken some measures to improve the business climate and encourage transparency. These include a public-private partnership (APP) law passed in September 2019 that covers construction, maintenance, and operations projects valued at more than $10 million. The law is designed to implement checks and balances and eliminate discretion in contracting, a positive step that will increase transparency and create a level playing field for investors. In addition, the public procurement law that was approved in May 2020 is aimed at improving bidding processes so that no tenders can be “made to order”.

Panama ratified the UN’s Anti-Corruption Convention in 2005 and the Organization of American States’ Inter-American Convention Against Corruption in 1998. However, there is a perception that Panama should more effectively implement both conventions.

ELSA FERNÁNDEZ AGUILAR
National Director
Autoridad Nacional de Transparencia y Acceso a la Informacion (ANTAI)
Ave. del Prado, Edificio 713, Balboa, Ancon, Panama, República de Panama
(507) 527-9270
efernandez@antai.gob.pa
www.antai.gob.pa

Olga de Obaldia
Executive Director
Fundacion Para el Desarrollo y Libertad Ciudadana (Panama’s TI Chapter)
Urbanización Nuevo Paitilla. Calle 59E. Dúplex Nº 25. Ciudad de Panamá. PANAMÁ
(507) 2234120
odeobaldia@libertadciudadana.org
https://www.libertadciudadana.org/ 

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The Lessons of 1989: Freedom and Our Future