Panama is on the FATF List of Countries that have been identified as having strategic AML deficiencies
FATF Statement re AML Strategic Deficiencies: 21 February 2020
Since June 2019, when Panama made a high-level political commitment to work with the FATF and GAFILAT to strengthen the effectiveness of its AML/CFT regime, Panama has taken some steps towards improving its AML/CFT regime, including by drafting sectoral risk assessments for the corporate and DNFBP sectors and free trade zones. Panama should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) strengthening its understanding of the national and sectoral ML/TF risk and informing findings to its national policies to mitigated the identified risks; (2) proactively taking action to identify unlicensed money remitters, applying a risk-based approach to supervision of the DNFBP sector and ensuring effective, proportionate, and dissuasive sanctions again AML/CFT violations; (3) ensuring adequate verification and update of beneficial ownership information by obliged entities, establishing an effective 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 ensuring timely access to adequate and accurate beneficial ownership information; and (4) ensuring effective use of FIU products for ML investigations, demonstrating its ability to investigate and prosecute ML involving foreign tax crimes and to provide 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.
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.
EU Tax Blacklist
Panama is on the EU list of non-cooperative jurisdictions for tax purposes
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.
Panama’s geographic location; dollarized economy; status as a regional financial, trade, and logistics hub; and favorable corporate and tax laws render it attractive for money launderers.
High-profile international money laundering investigations, originated in Panama or elsewhere, have intensified scrutiny of Panama’s vulnerabilities and ability to address illicit financial activity. Panama has agreed to address money laundering and terrorist financing deficiencies noted by international experts, including by strengthening its understanding of its national and sectoral money laundering and terrorist financing risk; strengthening DNFBP regulation and supervision; applying appropriate sanctions for violations; ensuring access to beneficial ownership information; and improving investigations and prosecutions of foreign tax crimes and money laundering in relation to high-risk areas.
President Cortizo took office July 1, 2019, and promptly established the Unit for Competiveness in International Services (UCSI) within the presidency to lead Panama’s AML efforts and coordinate the various agencies. The UCSI meets with President Cortizo weekly to provide progress updates. Since July 2019, Panama has drafted and introduced substantive AML legislation, including draft legislation to create a registry of registered agent and beneficial ownership information.
EU Tax Blacklist
Panama was removed from EU Tax Blacklist on 23 January 2018 following "commitments made at a high political level to remedy EU concerns".
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 36
World Governance Indicator – Control of Corruption 32
Panama's dollar-based economy rests primarily on a well-developed services sector that accounts for more than three-quarters of GDP. Services include operating the Panama Canal, logistics, banking, the Colon Free Trade Zone, insurance, container ports, flagship registry, and tourism. Panama's transportation and logistics services sectors, along with infrastructure development projects, have boosted economic growth; however, public debt surpassed $32 billion in 2015 because of excessive government spending and public works projects. The US-Panama Trade Promotion Agreement was approved by Congress and signed into law in October 2011, and entered into force in October 2012.
Growth will be bolstered by the Panama Canal expansion project that began in 2007 and is estimated to be completed by 2016 at a cost of $5.3 billion - about 10-15% of current GDP. The expansion project will more than double the Canal's capacity, enabling it to accommodate ships that are too large to traverse the existing canal. The US and China are the top users of the Canal. In 2014, Panama completed a metro system in Panama City, valued at $1.2 billion.
Strong economic performance has not translated into broadly shared prosperity, as Panama has the second worst income distribution in Latin America. About one-fourth of the population lives in poverty; however, from 2006 to 2012 poverty was reduced by 10 percentage points.
Agriculture - products:
bananas, rice, corn, coffee, sugarcane, vegetables; livestock; shrimp
construction, brewing, cement and other construction materials, sugar milling
Exports - commodities:
fruit and nuts, fish, iron and steel waste, wood
Exports - partners:
US 19.7%, Germany 13.2%, Costa Rica 7.7%, China 5.9%, Netherlands 4.1% (2015)
Imports - commodities:
fuels, machinery, vehicles, iron and steel rods, pharmaceuticals
Imports - partners:
US 25.9%, China 9.6%, Mexico 5.1% (2015)
Investment Climate - US State Department
As the home of the Panama Canal, the world’s second largest free trade zone, and sophisticated logistics and finance operations, Panama attracts relatively high levels of foreign direct investment from the region and around the world. Panama boasts one of the Western Hemisphere’s fastest growing economies, good credit, a strategic location, and a stable, democratically elected government.
Panama’s Ministry of Economy and Finance predicts the economy will grow by 6.2 percent in 2016, following expansion of 5.8 percent in 2015 and 6.1 percent in 2014. Panama’s sovereign debt rating is investment grade, with ratings of Baa2 (Moody’s), and BBB (Fitch and Standard and Poor’s). The Panama Canal Authority will inaugurate the $5.25 billion expansion project of the Panama Canal in June of 2016, which in turn is expected to increase investment in port systems operations, storage facilities and logistics. Panama’s President, Juan Carlos Varela, has sought to improve Panama’s image and investment climate profile. Overall foreign investment was up 17 percent in 2015, and Panama retains one of the highest “FDI to GDP” ratios in Latin America. The Varela administration has also presided over a series of anti-money laundering reforms that resulted in Panama’s removal from the Financial Action Task Force “Grey List” in 2016.
Panama has implemented free trade agreements with Canada, Chile, Costa Rica, the European Union, Guatemala, Honduras, Nicaragua, Peru the European Free Trade Association, Mexico, and the United States, as well as one partial scope agreement with Cuba. Panama is exploring entry into the Pacific Alliance, negotiating a trade agreement with South Korea, and arranging the entry into force of trade agreements with Colombia and Trinidad and Tobago. This pro-trade posture has further increased Panama’s openness to foreign investment and has provided new protections and privileges for foreign investors.
Panama has challenges, including a poor educational system, high labor costs, a lack of skilled workers, and reports of corruption, fraud, and a perceived lack of judicial transparency. Foreign investors in Panama have also complained about a lack of transparency in government procurements. Some U.S. Firms have reported inconsistent, unfair, and biased treatment from Panamanian courts.
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