FATF Status

Panama is no longer on the FATF AML Deficiency list.

Latest FATF Statement  -  27 October 2023

The FATF welcomes Panama’s significant progress in improving its AML/CFT regime. Panama strengthened the effectiveness of its AML/CFT regime to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in June 2019 related to (1) strengthening its understanding of the national and sectoral ML/TF risk and informing findings to its national policies to mitigate the identified risks; (2) taking action to identify unlicensed money remitters, applying a risk-based approach to supervision of the DNFBP sector and applying effective, proportionate, and dissuasive sanctions against AML/CFT violations; (3) verifying updated beneficial ownership information by obliged entities, establishing mechanisms to monitor the activities of offshore entities, assessing the existing risks of misuse of legal persons and arrangements to define and implement specific measures to prevent the misuse of nominee shareholders and directors, and allowing timely access to adequate and accurate beneficial ownership information; and (4) using FIU products for ML investigations, demonstrating its ability to investigate and prosecute ML involving foreign tax crimes and providing constructive and timely international cooperation with such offence, and continuing to focus on ML investigations in relation to high-risk areas identified in the NRA and MER. Panama is therefore no longer subject to the FATF’s increased monitoring process.

Panama should continue to work with GAFILAT to sustain its improvements in its AML/CFT system.

Compliance with FATF Recommendations

The latest follow-up to the Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Panama was undertaken in 2019. According to that Evaluation, Panama was deemed Compliant for 15 and Largely Compliant for 23 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 2 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.

EU Commission’s list of AML/CFT deficient countries

On 13 February 2019, the EU Commission adopted a new list of 23 third countries that had been identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing frameworks as defined under the Fourth and Fifth Anti-Money Laundering Directives. Panama has been included on this list. This list currently includes all countries currently on the FATF AML deficiency lists together with 11 additional jurisdictions.

It is noted that to date the EU Member States have declined to adopt this list. However, as this country has been identified as having AML deficiencies by the EU Commission, we have rated it accordingly.

US Department of State Money Laundering assessment (INCSR)

Panama is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

Overview

Panama is a regional financial hub, and illicit funds move through the country via trade transactions, non-financial service businesses, bulk cash shipments, and the formal banking system.  Deficiencies persist in information sharing, risk management, prosecutions of whitecollar criminals, and implementation of the 2020 beneficial ownership law.  

Panama has shown progress in improving noted deficiencies.  The legislature recently passed a bill that increases sanctions on financial and non-financial entities involved in money laundering and is considering another bill that would authorize asset forfeiture.  Panama made notable strides in the quantity, quality, and use of suspicious transaction reports (STRs) and improvements in risk-based supervision of financial and non-financial entities.  The number of non-drug-related money laundering investigations increased significantly with the operational advent of the U.S.-Panama Anti-Money Laundering and Anti-Corruption (AML/AC) Task Force in May 2021.  Panama needs to successfully prosecute these cases and achieve convictions.

EU Tax Blacklist

Panama is on the EU list of non-cooperative jurisdictions for tax purposes

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                         35

World Governance Indicator – Control of Corruption             29

Panama’s investment climate is good but not without its issues. As the home of the Panama Canal, the world’s second largest free trade zone, and sophisticated logistics and finance operations, Panama attracts billions in foreign direct investment. However, corruption, lack of judicial capacity, a poorly educated workforce, and labor issues have either precluded further investment from foreign companies or complicated existing investments.

Over the last decade, Panama has been 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 10.8 percent GDP growth rate in 2022 (after a contraction of 17.9 percent in 2020) according to Panama’s National Institute of Statistics and Census (INEC). GDP growth for 2023 is expected to be more modest, between 5 and 6 percent according to the World Bank and International Monetary Fund, due to rising inflation, higher fuel prices, and global instability caused by Russia’s war of aggression against Ukraine. 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, and 14 international free trade agreements. Although Panama’s market is small, with a population of approximately 4.4 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, government delays and non-payments, 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, including $3.5 billion from U.S. sources in 2021 according to the U.S. Bureau of Economic Analysis. As of March 31, 2023, 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). However, the ratings agencies have noted that Panama’s underfunded pension system – which is expected to exhaust its cash reserves by the end of 2023 according to a report delivered by the International Labor Organization – and ballooning state payroll could put it at risk of a future ratings downgrade.

Panama’s high COVID-19 vaccination rates of 82 percent of the eligible population with at least one dose and 72 percent with at least two doses as of February 2023 have contributed to its economic recovery. As the global economy rebounded, Panama’s services and infrastructure-reliant industries bounced back significantly. Sectors with the highest increase in economic growth in 2022 included arts, entertainment, and recreation (47.4 percent), hotels and restaurants (36.2 percent), construction (18.5 percent), commerce (16.3 percent), transportation, storage, and communications (13.7 percent), mining (6.3 percent), and industrial manufacturing (5.1 percent). Panama ended 2022 with a year-on-year inflation rate variation of 2.9 percent, according to data from INEC.

The government’s assertion that Panama has a carbon-negative economy 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. In January 2023, President Cortizo signed into law landmark biofuels legislation, which includes an ethanol blending mandate requiring gasoline to contain at least 5 percent ethanol by April 2024, increasing to 10 percent by April 2026.

Panama’s investment climate is also threatened by high government fiscal deficits, unemployment, and inequality. The pandemic resulted in government debt ballooning in 2022 to over $44 billion, which represents a 40 percent increase since the start of the pandemic. The country’s debt-to-GDP ratio stands at around 58 percent, well above pre-pandemic numbers around 46 percent. Unemployment peaked at 18.5 percent in September 2020 (as reported by INEC, although some local economists estimated it reached nearly 25 percent), a 20-year high, but has since fallen to 9.9 percent as of April 2022 (the latest data available from INEC). Nonetheless, high levels of labor informality persist – as of April 2022, nearly 50 percent of the workforce was employed in the informal sector. Additionally, Panama is one of the most unequal countries in the world, with the 14th highest Gini Coefficient and a national poverty rate of 13 percent according to the World Bank. 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.

In July 2022, nationwide protests against high gas prices and rising inflation wracked the country. Groups from diverse sectors of society, including an array of union members and indigenous activists, forced the closures of schools, major highways, and businesses, and prevented free movement of people and goods. In a first round of negotiations with organizations representing the protestors, President Cortizo made numerous concessions, including subsidies for gasoline and price caps for certain medicines. A second phase of negotiations was scheduled to begin in October 2022, but talks never resumed after participants failed to agree on a mediator. It remains to be seen whether the eventual expiration of subsidies and the still-rising cost of living will lead to renewed protests.

Country Links

Financial Analysis Unit Panama (UAF-Panama)

Superintendencia del Mercado de Valores

Superintendence of Banks of Panama