Technology and systemization is being implemented in many parts of our lives, and Panama’s immigration department is finally trying to catch up with their new online application system. They expect that this new system (Migración en Línea) will eliminate bottle-necks and long waits. Applicants may remember arriving at immigration at 5.00 a.m. to get a number for the queue. It will also allow their staff to work more on reviewing the paperwork rather than receiving the documents. Over time the immigration office will be adding to the breadth of applications which can be made online.
Immigration office press release:
In a press release on April 5, 2017, they advised that as of the 15th of April, 2017, it is no longer possible to register (for the first time as a foreigner in Panama) in person at the immigration department (even with a lawyer). Applicants must now complete the application online and submit the documentation electronically. The applicant pays at Immigration still, but it is anticipated that eventually they will move towards an electronic payment system. When rolling out the new system, the immigration office indicated that the steps to follow for registration were:
- complete online registration
- pay at the immigration office
- present the payment receipt at “certifications” and complete the document verification
- you will receive an email update of the status.
As might be expected with any new system, it has not worked perfectly these first few weeks. It has been our experience that we have to then take in the same paperwork that we submitted online, together with the reference number that the system provided us with, and have them complete the registration manually (in person) and not simply verify the documentation. However, we expect that these glitches will eventually be worked out, and then we will, no doubt, find glitches with the new services as they are rolled out. The immigration department is currently announcing (through Facebook & Twitter) that it will be possible to present visa and residency requests through the online system as of the 1st of June, 2017.
This new system already permits the following to be done online:
- status of naturalization applications (only while in the immigration department, not once passed to the Ministry of Government)
- status of visa and authorized visa applications
We will continue to provide updates regarding this system, until it is fully implemented and working smoothly.
For more information, please contact Joan Villanueva.
So, since posting the article regarding the need for accounting records, we have a number of questions asked by clients, so we thought we would provide a “Q&A Accounting Records”:
Is this true even for companies that do no business but only hold title to a property?
Yes – if the company does not actively do business but is holding assets of any nature, it should at the very least have a balance sheet. This would show the value of the asset (the property) and the value of the capital or loans made to the company which provided for the purchase of the proprety. Additionally, there should be included in the accounting the annual property taxes which are paid on the property, or any maintenance costs that are paid by the company that owns the property. Correspondingly, you would need to indicate where the funds come from to pay for these taxes (capital into the company, loans, or rental income).
…I will also need to be advised as to just what I need to keep records of. My corporations are solely to hold real estate and are within my foundation. Other than the corporations, a bank account, the foundation has no other purpose.
For the corporations which hold the real estate, you will need to prepare an accounting such as that suggested above: a balance sheet that shows the value of the asset (the property) and the value of the capital or loans made .
For the Foundation which owns the corporations, you should prepare a balance sheet which shows the assets (corporations – with their values – and the bank account). Funds moving in or out of the bank account should also be accounted, and you should attach to your accounting the monthly bank statements. As explained in our original article, there is no requirement to have a “formal accounting”, but it should at the very least have a balance sheet with assets, liabilities and capital.
Following are some basic examples of sample balance sheets:
As more questions are asked, we will attempt to update and provide answers to these questions about what is required in 2017.
Last year Panama had many changes in the financial sector: the Panama papers scandal lead to greater international pressure for OECD compliance and exchange of information. Months later the Clinton list added Waked and Grupo WISA (affecting some 6000 local employees), including two newspapers. The US alleged money laundering, although these allegations to date have been ruled unfounded by the courts. Nevertheless, these measures have resulted in company liquidations, interventions and sell-offs. There was also increased regulations introduced for lawyers and law firms, regarding bearer shares and due diligence, with registration of firms both with the Supreme Court of Panama and also with the Intendent that supervises Professionals (such as Realtors, Accountants, Casinos, Money Exchanges, Free zone and others). Furthermore, the pressure has increased against Panama to require all companies to provide accounting records.
As of January 1, 2017, Panamanian corporations that are open and operating, are required to have accounting records. They will need to notify their Registered Agent in Panama where these records are being kept.
Accounting Records for Offshore Companies & Foundations
The new rules adopted by Law 52 (2016) are for those offshore companies and foundations, even though they hae no direct business transactions in Panama.
- Offshore corporations – irrespective of whether or not they have bank accounts, are holding property or their purpose and function. If the company is in good standing, it is required to keep accounting records
- Private Interest Foundations – irrespective of what assets or holdings the foundation have
- Holding companies – even companies whose sole purpose is to hold share in other companies are required to have accounting records
Accounting records in Law 52 are described as “that data that clearly and precisely indicates the commercial operations that the entity has, its assets, liabilities and capital contributions.” In the Commercial Code of Panama, we find that the accounts are described as being essencial the the “Diario” and the “mayor”, and the supporting documentation. The “mayor” is the ledger , and the “diario” would be the book where you register the day to day transactions . The supporting documentation would be the invoices, cheque stubs, banking statements, contracts for sale or purchase, or other documentation. All of this data should ensure that the company can provide an updated balance sheet at any time of assets, liability and capital.
The law does not specify “how” these records are to be kept, but in Panama the Commercial code establishes 2 principal ways of keeping your accounting records – manually (in accounts books) or digitally. In this second case, Panama does not recognise Excel sheets as being an acceptable digital form. It is recognised that Excel can be easily modified and does not have a double-entry system. Sage / PeachTree is typically used by businesses in Panama to run their accounting or tailored accounting programs for this purpose.
What is important is that the information MUST be kept up to date – i.e. no more than 60 days after month end.
Panama does not require that these records be maintained physically in Panama or that you hire or retain a Panamanian accountant or book-keeping firm to maintain the accounts. Nevertheless, each company must inform the registered agent which officer/director/agent (natural person, not a company) will be responsible. The company must inform where these records will be physically located. In the event of any changes (the person moves or changes), the registered agent must be informed in no more than 10 days of said change.
For how long?
These records must be kept for no less than five years after the period ends, even in the event that the company is closed down.
What does Gray & Co. expect from clients?
All clients have been sent an Accounting Records declaration form, in which the client is required to indicate:
- who is the person that will be responsible for keeping these accounting records?
- where will the accounting records be kept?
- how will the accounting records be kept – format?
The Registered Agent’s responsibilities:
The registered agent of a company is expect to:
- Have from each client that does not have their accounting records with the law office, a sworn declaration as mentioned above
- In the event of a request for accounting records from a duly authorised Panamanian official, notify the client that they have 15 days in which to comply and provide the records
- Should the client fail to comply in these 15 days, the registered agent is required by law to resign.
Other books & registers
After you have considered the matter of accounting records, you might also turn to look at other documentary requirements. Panamanian corporations are also required to maintain the following books and registers:
- Minutes book – all minutes of meetings of the Board of Directors or Shareholders – these should be in chronological order and should include signed originals. The Company Secretary should hold these.
- Shareholder Register – the register which shows who is(are) the current shareholder(s), and any previous shareholder(s). This should include details such as:
- the number of shares issued
- the share certificate number
- the payment made for the shares (fully paid or partially paid)
- the date of issue
- the name and address of the shareholder
If the company still has bearer shares, these must now be held in custody (since December 31, 2015). For more information, please see our article Bearer Share Custody. If you had bearer shares, and failed to make the change to registered shares, then you need to contact your registered agent to get the company records into order.
For more information regarding these requirements and how Gray & Co. can serve you, please contact us.
They say state-run hacking is how World War III will be waged. In the present time, hundreds of millions of records of private data have been stolen from corporations large and small who thought they were protected. This affects all levels of an organization, and particularly our clients and consumers. So, what do we do?
First of all, we must understand cybercrime. According to Wikipedia, “a hacker is someone who seeks and exploits weaknesses in a computer system or computer network”. A hacker might be intentionally trying to access information for personal monetary gain or to damage a system because he/she doesn´t like the company. Others do it for the thrill and pride of being able to access systems that have been set up at large expense to prevent unauthorized entry, but there is always a back door, a vulnerability that a hacker will find and exploit. These hackers sometimes work alone, or as a syndicate, and others can be hired as another front in an already existing war or rebellion. Because there are so many motives behind hacking, and there´s more likely an entrepreneurial aspect to it, it is very difficult to fight against it. Without motives or sometimes even financial backing, it is hard to thwart efforts of individuals who are able to use their minds to damage large institutions and states.
One more thing, once a company is hacked, you can´t get the information back from the hacker. It´s out there and under the control of the hacker or whoever hired him/her. It could be an ex-employee, a political movement, a whistleblower who disagrees with company activities, or a teenager who doesn´t plan to do anything with it. Perhaps you can find the person and get him/her behind bars, but once breached, the damage is done.
So now that we understand who does it, how do we prevent or protect a company from losses from hacking, reputational as well as financial?
On average, computer systems have been hacked 220 days after they have been hacked. Antivirus software, firewalls (software and hardware), and other traditional forms of protection are obsolete. At any given time, hackers can access computer systems with emails, through old versions of software and browsers, company laptops salesmen take on the road and connect to wifi at a hotel or coffee shop, and worse of all, Android phones. The larger the corporation, the more numerous the opportunities to find a vulnerability, an unprotected terminal, but this problem is not just for large corporations. Small companies, with perhaps less of a budget for cybersecurity, are increasingly vulnerable, and losses from hacking could cripple them.
Cybersecurity starts with education and training. All employees, upon hiring, must be trained on the company´s values and ethics, the usual operational procedures as well as guidelines on dealing with strange email, USB memory cards, installing 3rd party software on office computers, and other user-level security measures. They must also know how to identify phishing (fake messages from seemingly familiar persons) and whaling emails (seemingly from a high executive, but false). For this, competent lawyers can be hired to draft a complete employee handbook that not only ensures employees know what is expected of them on their day-to-day tasks, but also how they must diligently protect the company from cyberattacks. Also they must be aware of the consequences of not following these guidelines, or of deliberately breaching these protocols and exposing company information.
Along with procedure manuals and employee handbooks, confidentiality agreements must be drawn for all employees with access to sensitive information, where they commit and expressly agree to certain protocol and guidelines to help prevent data leaks, and affirm they will not deliberately retrieve and disclose information to third parties.
Another strategy against hacking is insurance. Once hacking takes place, there are reputational and financial losses. Insurance policies can be drawn up to include, depending on the type of company involved, PR campaigns, recalls, notices to change passwords, as well as crisis management to secure the network with additional systems, hardware, software and employee training. Also forensic and legal expenses may be incurred to find and accuse an alleged hacker or group of hackers. Cyber insurance is a new area, which makes it easier to contract a policy that best fits your company needs.
Last but certainly not least, is the main weapon that must be acquired to fight off hackers: a robust and integrated program that analyzes all live processes as well as all terminals and servers, to ensure there are no unauthorized programs run behind the scenes. The best programs that offer this kind of analysis can generally find unauthorized programs in the first 20 minutes of analysis. The programs they find are not in the usual antivirus updates because new ones are created every day, and these are referred to as “zero-day attacks”. Zero day script is new and original software introduced into networks and is it impossible to keep up with considering the types of hackers who create it. Instead, these robust, integrated programs such as Cyfir, CyberArk, and others which detect any process that is not authorized and isolates it until it can be determined it is, in fact, unauthorized.
Corporations large and small are coming to grips with this new reality, and in an ever-changing landscape of cybersecurity, much deliberation must be involved when establishing company policy, guidelines as well as the procedures to be followed in the event of a cyberattack. The CEO, CIO and all members of the organization must work together with their legal team to implement the best strategy to defend against hackers and manage their response.
If you read Panama’s recent headlines, you might be forgiven for thinking that all we have here are scandals and corruption, no laws in Panama and no Criminal Code. If you’ve driven in Panama, you might also be lead to believe that we don’t have a Road Code. That’s not true! We have all the laws we need – we just selectively comply with them, due to selective enforcement. One of my pet peeves in Panama is that drivers STILL don’t know how to go around a round-about!
I highlight this because in 2014 Panama was once again grey-listed by GAFILAT (the Latin American Financial Action Group, a member of the FATF), in spite of having AML (anti-money laundering) and CFT (couter financing of terrorism) laws in place. An IMF visit to Panama highlighted the lack of enforcement of 16 of the principal FATF recommendations. Panama’s principal problem has been one simply of enforcement of the laws that it has. In October 2015, when FATF meets in Europe, Panama will request another evaluation of the measures taken in the past 18 months to ensure enforcement of the laws and compliance with the principal recommendations.
The reality of Laws in Panama
While Panama changed its rules regarding Bearer Shares (requiring that they go into custody or switch to registered shares) and adopted KYC (know your client) rules for lawyers and registered agents, without mentioning the regulations, procedures and reporting standards that exist for financial institutions, it has customarily ignored an important part of the process relating to implementation and supervision.
I will admit, when Panama adopted Law 23 in April of 2015 I groaned – “another law, another supervisory body”: as if there weren’t enough already! As lawyers, we are already subject to the Fourth Chamber (Sala Cuarta) of the Supreme Court, as well as being subject to the oversight of the Colegio Nacional de Abogados (Panama’s Law Society). We already had Law 2 (2011) and Law 47 (2013). And yet, neither of these bodies is charged with the oversight and supervision of compliance with AML/CFT rules.
Law 23 (2015), whose purpose is “to prevent money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction” established the framework for the “Administration Office for Supervision of Non-Financial Subjects”, as part of the Ministry of Economy & Finance. The administrator, Francisco Bustamante, has already participated in meetings to establish a series of training sessions, particularly aimed at operators of the Free Trade Zone in Colon, to ensure best practices are incorporated into policies and manuals, and communicated to all employees that deal with financial transactions. There is a long list of enterprises that will now fall under the supervision of this office, which were previously not supervised by any bodies. To date, supervision had been limited to the Banking Superintendence (banks and trust companies), the Insurance Superintendence (insurance companies & brokers), the Securities Market Superintendence (stock exchanges, brokers & dealers, investment advisers), and the Cooperatives.
This new office, which we will refer to as the AOSNFS (Administration Office for Supervision of Non-Financial Subjects), has the oversight of 16 sectors of the economy, which previously were reported to FAU (Financial Analysis Unit of the Ministry of Economy & Finance) in the case of suspicious financial transactions, but which were not directly subject to any supervision. There are now 20 new “subjects” that will need to report suspicious transactions over the $10,000.00 limit. These sectors are the following:
- Free Trade Zone companies, including Colon FTZ, Barú FTZ, Panamá-Pacifico & Bolsa de Diamante
- Remittance services (for sending money)
- Casinos, betting agencies and other forms of gambling
- Notaries public
It is expected that over time the AOSNFS will issues procedures and policies to be followed by companies within each of these sectors for compliance with AML/CFT measures. With the implementation of this law, adopting Executive Decree 361 (August 2015), which gives an organic structure to the AOSNFS, including offices and sub-directors, it is expected that Panama is 90% compliant with the 6 basic action plans that were agreed upon to get Panama off the grey list. Additionally to Law 23 (2015), Panama has also made modifications to the Criminal Code (tighter money laundering rules, among other things) and also a law to enhance and enable international cooperation with other agencies. As of July 2015, a round of seminars for FTZ companies and currency exchange companies already began. But, there is still a ways to go; the AOSNFS still has to finish appointing its staff, decide which systems and software to use, and then start the laborious task of working with each segment of industry to adopt appropriate Risk Based Approaches for AML/CFT.
As usual, the newspaper headlines in Panama focused on the fact that lawyers, accountants and auditors were to come under supervision by the AOSNFS; and yet, when you read the actual article, the main changes are with the Free Trade Zones, currency exchanges, pawn shops and remittance services. But it’s much more interesting to focus on the lawyers and accountants! Or as another news headline read “Even your lottery winnings will be scrutinised”, since one of the resolutions adopted by the AOSNFS indicated that winnings over $500.00 should be reported, as well as pawning more than $1,500.00 or sending more than $2,000.00 through remittance services. As of today, the AOSNFS has adopted and published 14 resolutions, regulating the type of reporting to be undertaken by different sectors.
If in New Zealand and Australia they have come to realise that dirty money has driven up property prices, would it be true to say the dirty money is responsible for holding Panama’s property prices at an unrealistic high? Overseas research points out that money laundering is much easier in major cities and it has a large impact on property prices, especially as prices in London have soared. In Mexico, after adopting new AML regulations for realtors, pawn shops and used car dealers, companies complained that business had dropped some 30% (Latin America: Money Laundering Grows). Panama’s requirements for developers, realtors and construction companies, in the past, were not stringent enough to deal with these issues, so some have speculated that our real estate bubble need never burst.
The new regulations (Resolution JD-001-015 of the 14 of August 2015), however, provide very practical requirements for ensuring that AML/CFT measures are adopted:
- Developers must obtain proper due diligence from any investors who participate in the project
- Builders and sub-contractors must verify the identity and details of the developer of a project
- Developers must obtain proper due diligence on realtors and agents that sell the project
- Real Estate companies must have proper documentation identifying each of their agents and any independent agents they work with
- Realtors and real estate companies must identify who is the person buying the property, and if a corporation is used, the person controlling the corporation
- In the event of any cash or cash-like transactions, identify any suspicious transactions.
Listed among the measures to be adopted, are requirements such as knowing what the purchase of property is to be used for, knowing the client in person, as well as other ways to verify the documentation that has been received. In the case of any cash or cash-like transaction, the client should provide:
- Full name
- Birth date
- Country of birth and nationality
In the case of a corporation, foundation or other legal entity being used in a purchase, it is additionally required to get full documentation on the corporation, the officers, directors and shareholders, and identify the ultimate beneficial owner. Additionally, banking and commercial references should be obtained. PEP rules have also been introduced with these regulations, which is especially important given Panama’s recent scandals involving members of the past government and their property purchases.
Along similar lines, lawyers, notaries and accountants are required to obtain similar information regarding their clients, for real estate transactions (when they are acting on the client’s behalf). In all of the following cases, this information is required to be obtained:
- Purchase of real estate
- Administering funds, securities or other assets on the client’s behalf
- Administering bank or securities accounts
- Organising capitalisation of a company or its administration
- Creation of corporations, foundations, trusts etc., or their administration
In the event that the client uses cash or cash-like transactions to pay, over USD$10,000.00, the professional should take extra care to ensure that full compliance with the AML/CFT measures is met. These measures are the following:
- Full name
- Postal address, if different
- Phone number
- Mobile phone
- Fax number, if applicable
- Email address, if applicable
As with the case of realtors, in the case of acting on behalf of a legal entity, full due diligence on the parties involved should be obtained, such that the ultimate beneficial owner and other controlling parties are all identified.
In the case of any suspicious transactions, all “non-financial subjects” are required to report the transaction directly to the UAF, in which case they are prohibited from informing the client of the report filed. Law 23 protects the informant from any civil or criminal action being taken against them by the client for having reported the transaction, as it is not considered to be a breach of confidentiality or privilege to report a suspicious transaction under this law.
The issue of AML/CFT will not simply be taken care of by laws in Panama and regulations – without actual supervision and implementation, it will be difficult to ensure that Panama is truly compliant. Unless it assigns enough resources to make enforcement effective, money laundering (whether from corruption, drugs or other crimes) will continue to be a blot on Panama’s reputation.
In recent years, the fight against money laundering has gained importance in the priorities of many countries. Moved by FATF, governments from principal financial centers have worked to identify money laundering typologies, develop recommendations on best practices to combat money laundering and encourage cooperation among national law enforcement and regulatory agencies. In response to this, Panama has adopted laws under which lawyers (as registered agents) are required to fulfill certain basic “Know Your Client” (“KYC”) or “Due Diligence” requirements, similar to those imposed on banks and other financial institutions. Since 2011, these rules have been in place for all new incorporations (corporations, foundations, trusts and other legal entities), and in February 2016 all Registered Agents in Panama must have the KYC documentation in place for all active corporations under their management, irrespective of the date of incorporation.
In this post, I will present the historical and legal background of these requirements, as well as a brief synopsis of the political and economic reasons for compliance with these new rules. I will then enter into detail regarding the requirements of Law 2 (2011) – What does it require? Who must comply? and What does compliance entail? This post will then present how lawyer-client privilege is maintained under these laws, and how information may be legally requested (due process). Finally, I will close looking briefly at the effects of non-compliance on the Registered Agent.
Background laws and regulations
Law 32 (1927), which establishes the legal framework for incorporation of corporations in Panama, establishes in Article 2, subsection 7, that all corporations must have a Registered Agent in Panama. Until 1966, the Registered Agent could be any person or legal entity, and it did not need to be a lawyer. However, Decree 147 (1966) changed this, indicating that since the Registered Agent may be required to exercise some responsibilities that were reserved specifically for lawyers, it was necessary that the Registered Agent be either a lawyer or a law firm.
While Panama has been under scrutiny for many years for failing to comply with international investigations and cooperation against drugs and money laundering, the rules in Panama have actually required compliance and generally been effective. There have been a number of international studies which have run practical exercises to test compliance, and they have generally found that Panamanian lawyers and Professional Service Providers are more compliant than their US, UK or Australian counterparts. For examples, please see:
- US Vulnerabilities to Money Laundering
- 2007 Project on money laundering in the US; and
- 2012 – Global Shell Games
In 1994, Panama enacted Executive Decree 468 which established the obligations and responsibilities of Registered Agents to “Know Your Client”. These regulations were originally limited to money laundering relating to drugs, but this was expanded in 2006, by Executive Decree 124, to include Drugs, Money Laundering and Terrorism. The purpose of this regulation was to protect the reputation of Panamanian corporations, to ensure that they could not be used for drug-related money laundering. This established that all lawyers or law firms who acted as registered agents for corporations were required to “know your client” and have sufficient information to be able to identify the client to the “competent authorities” when so required. Lawyers were required to provide this information to the Prosecutor or to a Court, if such information was requested because of an investigation being underway in Panama or a request through an MLAT. These regulations protected the lawyer, or law firm, that provided this information, stating that this was not considered to be a breach of the lawyer-client privilege and confidentiality that the lawyer was required to maintain. It further provided that the lawyer or law firm would be considered to be in contempt of court for failure to identify the client without just cause (such as failure to follow due process).
Pressure to comply
For over twenty years, Panama has been under pressure to become compliant with the FATF 40 Recommendations, which include rules regarding banking, holding of records and exchange of information. It is also under pressure for the exchange of information for tax purposes, as can be seen by the 30 treaties negotiated as of the 14th of September 2014, by Panama on Double Taxation or Exchange of Information, of which 25 are already in force (Tax Treaty page, MEF). Furthermore, Panama is becoming FACTA compliant, having already agreed in substance to the terms of the model 1 IGA (see Count down to FATCA, FATCA archive, IGA under FATCA, IGA monitor and Panama complies with FATCA). To this end, Panama has established in the Ministry of Economy & Finance an International office to handle all requests for information.
The principal pressure applied to Panama is through the banking sector, where in 2014, after being placed on the FATF grey list, Panamanian banks lost 21 correspondent banking relationships. Banks have, however, been reporting suspicious transactions to the UAF (Financial Analysis Unit of the Ministry of Economy & Finance) since its inception in 1995. Nevertheless, this is not sufficient for compliance with FATF, and following a review and being placed on the grey list, one US bank cancelled all its correspondent relationships with Panamanian banks, and at the time there were 14 banks who only had 1 correspondent banking relationship left. This pressure lead the banking sector to push strenuously for compliance from all sectors of the economy, in order to release the pressure that they were under. At that time, the principal issue at stake was the Immobilisation of Bearer Shares, which was not to come into effect until 2015, with some parts of the law coming into effect in 2018. One of the results of this was that the introduction of Law 18 (2015), which sped up the implementation of Law 47 (2013).
In 2017 Panama will be under review for compliance with the FATF 40 recommendations, and this review will place particular importance not only on the adoption of laws (which Panama has already done), but the effectiveness of these laws, the regulations and structures that the country has in place to actually be able to comply. Therefore, in addition to having adopted the necessary laws, it is necessary for Panama to have put into place any regulations of how the law will be implemented, who will implement the law and the budget that these offices require in order to be effective. It should be noted that Panama has rejected automatic exchange of information (i.e. that foreign government offices can directly request information from our banks or lawyers), and has implemented systems for exchange of information following due process, in order to avoid fishing (or phishing) expeditions.
Law 2 (2011)
In February of 2011, Panama adopted Law 2 “which regulates the measures for Know Your Client for registered agents of legal entities existing according to the laws of the Republic of Panama”. This law applies to all registered agents (lawyers or law firms), to ensure compliance with Know Your Client rules, to prevent money laundering, terrorism financing and any other illegal activity according to the laws of the Republic of Panama, as well as to satisfy Panama’s obligations under international treaties or conventions. This law enables Panama to require information from a Registered Agent regarding the owner of a corporation for the purposes of the Double Taxation and Information exchange treaties that it has signed.
What does it require?
This law requires that the Registered Agent:
- Identify who is really the client and verify their identity
- Obtain information from the client regarding the purpose of the legal entity – what is it being set up for?
- Provide this information to a “competent authority” in the case of a legitimate request.
Under this law, a “competent authority” who may request information from a Registered Agent is defined as:
- Ministerio Público (public prosecutor) or Courts, in the case of money laundering, financing of terrorist activities and any other illegal activities according to the laws of Panama
- Administration Office for Supervision of Non-Financial Subjects (under Law 23 of 2015)
- General Direction of Income of the Ministry of Economy & Finance, for compliance with international treaties or conventions which have been ratified by Panama.
What does compliance entail?
Compliance under this law means that before even establishing a relationship with the client, the law or law firm must identify who the client is and verify their identify, as well as get the information necessary to know what the purpose of the legal entity is. Without this information, the lawyer should not proceed to undertake any work for the client. In the event that the lawyer is unable to obtain updated information, they should abstain from any new work requested. It is also necessary to have the processes in place to be able to update this information, should the client transfer or assign their interest in the company to another person, or where the client’s information has changed (such as a passport expiring) and needs to be updated. It is also necessary to know who holds the bearer shares of a company.
The minimum requirements for compliance are the following:
|Natural person||Legal Entity||Professional Intermediary|
|For the professional intermediary, this applies in the case of those persons (lawyers, bankers, trust companies, insurance companies, brokerage houses and CPAs) who belong to professional associations whose best practices require that they adopt and maintain professional standards to prevent and detect money laundering.|
This information may be kept in physical or electronic files, and must be held for at least five years by the registered agent. In the event that the registered agent loses contact with the client, after three years of no contact (and failure to pay the annual license fees for the client), the lawyer should resign as registered agent of the company, and is only required to keep the records for a further two (2) years.
In summary, compliance entails the following responsibilities:
- identify the client
- identify the purpose of the company or legal entity
- cooperate with due process (a competent authority requesting the identify information of a company owner in a due case)
- update the client information and maintain records
- train staff with respect to KYC rules (in house)
- apply the KYC policy across the board in their office
- comply with any request from a competent authority for informationi
- maintain confidentiality of the information
Lawyer-Client Privilege and Confidentiality
The general rule provided by Law 2 is that the information provided to the Registered Agent (or to any public servant belonging to a competent authority) is considered too be confidential and maintained in strict reserve. Article 8 provides for fines from $1,000 to $25,000 in the case of breach of this confidentiality, without prejudice to any civil or criminal proceedings that may be brought for breach of the confidentiality. Nevertheless, the public interest of disclosure under due process outweighs the right to non-disclosure of the name of the beneficial owner when properly and duly requested. The Registered Agent is specifically exempted in the disclosure of the information requested under this law.
Due Process and Requests for Information
The law establishes, in Article 12, the process for a request for information. This request should be made in writing by the “competent authority”, upon fulfilling the due process required by Panama’s rules, requirements and procedures, to the registered agent:
- To provide the information that they hold regarding the client; and
- To provide the documentation that backs up this information in any format (physical or digital) that they have.
This request from the Panamanian authorities should fulfill the following requirements:
- It must indicate the reasons for this request for information (what is the legal basis – either a process being undertaken in Panama or a request from a Treaty party);
- The time period (term) in which the registered agent must provide the information (no less than 5 working days); and
- The office and address to which the information should be delivered.
The response from the law firm should be presented on plain paper (or in electronic format if so advised), in which they legibly detail the information which is required by law. The competent authority should be able to confirm that they have complied with the requirements of Article 6 (identification of the owner) simply and easily.
It should be noted that the lawyer is not required to provide any other information or documentation apart from that specifically identified in this law, including anything covered by lawyer-client privilege. This means that the lawyer is not required to identify any bank accounts, transactions or other documentation that they have, apart from the identity of the owner of the company. Furthermore, the law specifically establishes that this law does not authorise the authorities to conduct any search and seizures of law offices, nor to remove from their premises any records or files (electronic or physical), and that in order to conduct any such search and seizure all due process of the Panamanian law would need to be complied with separately and apart from this law.
Another important point is that Article 16 indicates that the registered agent is not required to provide the information where the Competent Authority fails to provide the legal basis for the request, or where due process has not be fulfilled, or whether the information leading to the investigation has been obtained by illegal means (such as illegal wire taps, illegally obtained evidence, etc.), whether by the Panamanian or international authorities. Therefore, Panamanian authorities will need to ensure that their counter-parties are fully compliant with due process in their requests for information.
Effects of non-compliance on the Registered Agent
Should a registered agent (lawyer) fail to comply with these rules, they risk fines and even having their license to practice law being suspended for up to three (3) years. Articles 18 to 31 of Law 2 (2011) deal with the process that should be followed to file a complaint against a lawyer (or law firm) who:
- provide incomplete information or fail to provide up-to-date information
- fail to deliver the information or documentation; or
- repeatedly fail to provide complete and up-to-date information or systematically fail to comply.
In closing, I hope that this article has clearly outlined the steps that Panama has taken to comply with their Gatekeeper’s Initiative, to ensure that from the outset lawyers are cooperating in the battle against money laundering and the financing of terrorism. This initiative began when the G-8 Finance Ministers in Moscow called on countries to consider means to address money laundering through the efforts of professional gatekeepers of the international financial system, in which lawyers and company formation agents form an important part.
Other interesting articles on this topic (from other jurisdictions):
- 2012 – Global Shell Games
- 2007 Project on money laundering in the US
- US Vulnerabilities to Money Laundering
- “Pleased to meet you: the new “Know Your Client” regime
- Client Identification & Verification Requirements for Lawyers
- Know Your Client Obligations – A Practical Checklist
- Customer Due Diligence
- New Zealand’s Anti-Money Laundering Law
- Australian lawyers may be required to “Know Your Customer”
- Australia – Anti-Money Laundering legislation
In part 2 of this article, I will present the technical requirements for holding the shares in custody, such as the documentation that the Authorised Custodian should request and what the client should expect to provide in order to have the shares held in custody.
This article will briefly look at the requirements for an Authorised Custodian, especially for a foreign custodian to be authorised, as well as looking briefly at their responsibilities. It will also specify the details of the affidavit that the beneficial owner (referred to as “ultimate beneficial owner” or “UBO”) will need to sign for the Authorised Custodian and other documentation, and what a UBO will need to do in the case of the sale of the shares of the company to another person or for their estate planning needs.
As mentioned in our previous article on the Custody of Bearer Shares, a local authorised custodian can be:
- Banks with a general license
- Trust Companies
- Brokerage houses
- Stock Exchanges
- Lawyers or law firms registered with the 4th Chamber of the Supreme Court
It is also possible for foreign custodians to be authorised to hold the bearer shares in custody. The requirements for foreign banks, trust companies or financial intermediaries are:
- they must be from a FATF member jurisdiction, or
- they must be from a member jurisdiction associated with FATF; and
- they must be registered before the Banking Superintendence of Panama, which will have a special registry of foreign companies.
The minimum requirements for a foreign custodian are:
- General incorporation details – incorporation date, legal details, and contact details
- Certification of licenses held (banking, trust or financial services), which should be translated to Spanish
- Designation of a Panamanian notification agent
- Affidavit which confirms that
- it has full KYC requirements that meet the standards required by Law 2 (2011)
- That it will provide the company’s registered agent with the full details of the beneficial owner of the shares whose certificates it holds in custody.
The Banking Superintendence of Panama has full authority to regulate these requirements, which they have done by Accord No. 4 (2015), which was published in June 2015 in the Gazette. For more information, please see their page: Authorised Custodians for Bearer Shares. So far, no foreign custodians appear to have registered.
Authorised Custodian responsibilities
The authorised custodian has the following responsibilities:
- hold all documentation regarding this service at their Panamanian headquarters (or in the case of foreign custodians, at their registered address)
- have the physical custody of the share certificates at their Panamanian headquarters (or in the case of foreign custodians, at their registered address)
- hold all of the above under strict confidentiality, as required by Law 47 (2013)
- provide this information when required by the competent Panamanian authorities (which will not be considered a breach of the strict confidentiality required above or a breach of confidentiality or the right to privacy)
- issue a certification regarding who is the owner of the shares, when so required by court order, the beneficial owner of the shares or the lien holder (in the case there is a lien on the shares)
In the case of a foreign custodian, there is the additional requirement that they may either:
- put up a bond of $25,000 or
- provide the registered agent of each company for which they are holding the shares with a notice of their appointment as authorised custodian, as well as the complete name and details of the owner(s) of the shares that they hold in their custody (which will not be considered a breach of the strict confidentiality required above or a breach of confidentiality or the right to privacy).
If they put up the bond, the foreign custodian is only required to provide the registered agent with the notification that they are the designated custodian of the shares, and then will only be required to provide the information regarding the ultimate beneficial owner when there is a request from a competent Panamanian authority.
Affidavit of Beneficial Owner
Articles 8 and 9 of the law specify different information and affidavits for companies incorporated before the law entered into effect and for companies incorporated (permitting bearer shares to be held in custody, as of August 4, 2015):
Article 8: companies incorporated before August 4, 2015: At the moment of handing the bearer share certificate into custody, the following information should be provided by Affidavit:
- Details of the owner(s) – UBO:
- complete name
- nationality (or jurisdiction, in the case of another legal entity)
- cédula (national ID card), passport or registration number (in the case of another legal entity)
- phone number and email address (or fax number)
- Registered agent details:
- complete name
- physical address
- phone number and email address (or fax number)
The owner of the bearer shares will in all cases be deemed to be the person that appears in this sworn affidavit. (Please note that the Authorised Custodian may request additional information. These are merely the minimum requirements).
Article 9: companies incorporated after August 4, 2015: At the moment of handing the bearer share certificate into custody, the following information should be provided by Affidavit:
- Details of the owner(s) – UBO:
- complete name
- nationality (or jurisdiction, in the case of another legal entity)
- cédula (national ID card), passport or registration number (in the case of another legal entity)
- phone number and email address (or fax number)
- Registered agent details:
- complete name
- physical address
- phone number and email address (or fax number)
The owner of the bearer shares will in all cases be deemed to be the person that appears in this sworn affidavit.
Transfer of the Shares
One significant change in the handling of bearer shares, now that they will be in custody, is that the transfer of ownership no longer happens by the simple delivery of the share certificate to another person. Previously, to transfer bearer shares, you simply handed the share certificate to another person (no contracts or documentation required), and they were the new owner. But since the UBO will no longer have the share certificate in their power, the minimum requirement will be that the custodian must be formally notified in writing of the transfer, and the new owner must deliver to the authorised custodian the affidavit required for the beneficial owner. We would recommend to clients that they consider documenting the transfer with a contract or donation document, depending on the case.
Estate planning considerations
Likewise, for the transfer of the shares in the case of the death of the ultimate beneficial owner, it will no longer be as simple as giving the future beneficiary the location or access to the key of the safety deposit box or telling them “the share certificates are under my bed”. The UBO will need to provide the Authorised Custodian instructions in writing (we have not yet seen any regulations regarding this part, but for now would recommend to the client a notarised letter of wishes) instructions regarding how the shares are to be transferred in the event of their death. These instructions take prevalence over any hereditary rights or rules in the UBO’s country of residence, according to article 13 of Law 47 (2013).
It should be noted that this transfer does not give the heirs any rights during the lifetime of the UBO, but only upon the death of the UBO, for which the heir(s) must present the death certificate (but no court order is required).
Any specific questions regarding these clauses should be addressed to a lawyer for advice.
Panama was touted as a country where you could have bearer shares and there were little if no regulations to be concerned about. Changes adopted internationally have impacted Panama, and Panama has made a serious commitment to transparency and fighting illegal activities that take advantage of corporate structures. After an extensive consultation period with experts, practitioners and professionals, Panama finally adopted a regulatory framework in 2013 (modified in 2015) for the continued and lawful use of bearer shares, introducing the concept of Authorised Custodian, to maintain the custody of the bearer shares and comply with the minimum of information regarding the beneficial owner of said shares.
The purpose of holding the bearer shares in custody is to facilitate access, in the case of money laundering or other criminal proceedings, to the shareholder information of companies that issue bearer shares. There is still some debate regarding Panama’s immobilisation of bearer shares, as some parties in Panama consider that there is still a double standard operating with the OECD, as Wyoming (USA) still allows bearer instruments and the UK permits bearer warrants.
Innovative key features: introduction of the Authorised Custodian and automatic amendment of the Articles of Incorporation
Law 47 (2013) introduced the custody of bearer shares, allowing for a three-year grace period from the date it entered into effect (it would not come into effect for 2 years), permitting those companies that had bearer shares before the entry into effect of the law to keep their bearer share structure until August 5, 2018. However, in April 2015 this grace period was shortened for all companies, indicating that they only have until the 31st of December, 2015 to decide how they will handle bearer shares:
- either the company needs to adopt a resolution authorising the immobilisation of the bearer shares and delivery of the bearer shares to an authorised custodian
- or adopt registered shares only.
If the company does not adopt a board of director’s resolution (which should be filed at the public registry) indicating that they are keeping bearer shares and choosing to immobilise these, then the law automatically modifies the Articles of Incorporation of the company to prohibit the issuance of bearer shares and making all shares registered shares only.
One of the benefits of the April 2015 modification is that corporations will no longer have to pay to modify their Articles of Incorporation (which was a task that all registered agents and the Public Registry was seeing as monumental and costly) in order to adopt Registered Shares only. The law specifies that the change will occur automatically, unless the company specifically indicates that it will have bearer shares and that these will be immobilised and put into custody of an authorised custodian.
If you choose to place the Bearer Shares in the custody of an authorised custodian, you have a number of options:
- Those custodians authorised by the Banking Superintendence
- Banks, brokerage houses and custodians that have applied to be custodians and have presented their documentation (manuals and procedures) for the custody of bearer shares to their respective Superintendents
- Banks and foreign administrators of countries which are members of the Financial Action Task Force (FATF)
- Lawyers or law firms who are in the special register of the 4th Chamber (General Business) of the Supreme Court of Panama. You can see the list of approved lawyers and law firms on the Supreme Court’s website. Gray & Co. has already applied to be added to this list and should appear on it shortly. Once we have been approved and added to the list, we will request a certification of Authorised Custodian which may be provided to you upon request. (Gray & Co. was added to this list in August 2015).
Custodians of bearer shares will still be subject to the regular rules regarding privacy and confidentiality with respect to the ownership of these bearer shares, but may also be required by appropriate authorities through due process to reveal the information.
With respect to the issue of timing:
- Companies which were incorporated before the law came into effect will have only until the 31st of December 2015 to decide how they will handle the issue of bearer shares and to adopt a resolution deciding to hold the shares in Custody, otherwise the law provides that their Articles of Incorporation are automatically amended to indicate that no bearer shares are allowed. If you are choosing to change to Registered Shares only, you only need to coordinate with us the corporate resolution cancelling your bearer share certificate and issuing the new share certificate with registered shares.
- If you wish to keep Bearer Shares and have them held in custody, you need to contact us immediately to coordinate preparation of the Board of Directors resolution, to be filed with the Public Registry, indicating that you will have bearer shares held by an Authorised Custodian. This must be completed before the 31st of December, 2015.
- Gray & Co. will be incorporating all new companies with Registered Shares only, unless specifically requested by clients to include the option of Bearer Shares held by an Authorised Custodian. This has already been implemented with all new companies since April 2015.
- All companies incorporated as of the 4th of August, 2015 which provide that bearer shares may be issued and held in custody must deliver such bearer shares into the custody of the custodian within 20 days of incorporation.
Please contact us for more information regarding corporate structures and the use of bearer or registered shares.
Por: Judith Chiari.
Como es ya sabido orgullosamente nuestro Panamá ha sido el país Anfitrión de la VII versión de la Cumbre de las Américas, donde se nos otorgo la oportunidad y confianza de albergar a más de una treintena de Gobernantes de distintos países, logrando el objetivo de brindarles un lugar cálido, seguro y sobretodo, democrático; para presentar sus ideas, argumentos, opiniones; aún si estas no eran bien aceptadas por la mayoría.
Vestimos y reforzamos nuestro país y no los defraudamos. Fuimos sede de un momento histórico para el Mundo, el encuentro esperado entre el Presidente Barack Obama y el Presidente Raúl Castro.
Un poco más de medio siglo transcurrió para poder presenciar este momento de finalización de la Guerra Fría entre esta gran potencia, como lo es los Estados Unidos y la bella Isla de Cuba; abriendo con esto, un sinnúmero de posibilidades para ambos países en donde obviamente Cuba saldrá enormemente beneficiada a nivel económico y sus conciudadanos. Read More
CONFIDENCIALIDAD O COMPLICIDAD EN EL EJERCICIO DE LA ABOGACÍA – Blanqueo de Capitales
Por: Judith Chiari
¿Cuál es el límite entre la confidencialidad y la complicidad, que puede tener un profesional del derecho con su cliente? Cómo ejemplo expongo la siguiente situación: Un cliente nuestro de años, al cual le brindamos nuestros servicios en todos sus negocios, se presenta a nuestro despacho y nos confía que él necesita invertir (a manera de “disfrazar”) la procedencia de un dinero proveniente de un nuevo negocio, a su entender, este no es dinero sucio pues no procede del narcotráfico, sino de otra actividad (también ilícita, a nuestro entender como profesionales del derecho).
Cómo reaccionaríamos o actuaremos ante esta situación, sabiendo que como regla de las 40 recomendaciones de la GAFI, la regla número veinte (20) versa lo siguiente:
“Si una institución financiera sospecha o tiene motivos razonables para sospechar que los fondos son producto de una actividad criminal, o están relacionados al financiamiento del terrorismo, a ésta se le debe exigir, por ley, que reporte con prontitud sus sospechas a la Unidad de Inteligencia Financiera (UIF)”
Los análisis de muchos casos demuestran, que los blanqueadores apenas controlan un área se trasladan a otra, en este caso, nos referimos a los profesionales del derecho. Es muy importante conocer las áreas de riesgo en que se da el blanqueo, ya que se les someten a un régimen que de ser un simple portero han pasado a ser los que tienen que alertar para decir aquí hay algo, y decírselo al estado, avisar de que hay una posible operación de blanqueo, para que a través de los órganos convenientes actúen contra esto.
Esta doble vía viene siendo por organismos internacionales, GAFI, la unión europea, INTERPOL, que avisa a que profesionales hay que seleccionar. En la década de los noventa pensaban que solo eran los bancos. Han aparecido muchos otros actores, como agentes de propiedad inmobiliaria, casas de cambios, contables, asesores financieros. Se ha visto más utilización de la profesión jurídica por parte de los blanqueadores, viendo esta profesión como un ámbito alternativo.
Una preocupación que el GAFI, ya dijo en su informe del año 92 que los abogados eran un problema pues el blanqueo de capitales se estaba dando mediante la actividad del abogado, y que había que tomar medidas al respecto, debido a la complicidad que puede existir entre el profesional del derecho y “su cliente”.
Se da entonces la confrontación entre el derecho de secreto profesional e información del cliente y la obligación que se le impone a estos profesionales, de comunicar sobre operaciones sospechosas. Los profesionales del derecho se han visto involucrados en actos de blanqueo en los últimos años , ya sea interviniendo en la planeación diseño y realización de creación de núcleos de imputación jurídica, de nuevos sujetos, en la creación de sociedades, de estratificación de sociedades o actuando en nombre de otros, mediante fiduciarias. Un ejemplo, es el conocido caso como “Ballena Blanca”, donde se detectaron operaciones por lavado por más de 250 millones de euros, y descubrieron, conexiones de más de 1000 sociedades en varios países, incluidos en torno a un buffet de abogados.
Y un ejemplo mucho más reciente y local lo que estamos presenciando en nuestro ámbito nacional en cuanto a centenas de sociedades creadas con el fin de canalizar fondos provenientes del peculado.
El problema no es un problema de conflicto sino de límites, los abogados, estamos enfrentando una grave situación: pasamos de la época en que uno sabía qué recopilación utilizar, a lo de ahora, códigos actualizados de manera constante. Surge aquí la disyuntiva, de que el abogado es exigido por su cliente como un confidente que le resuelva sus problemas legales y a la vez, ese mismo abogado es exigido por las autoridades como un obligado informador de toda actividad que le parezca sospechosa de estar vinculada al lavado de activos.
Planteada la cuestión, se convierte al abogado no en una ayuda del ciudadano, sino en un “micrófono debajo de la mesa”, en un delator. Esa es la cuestión que se plantea en definir donde están los límites.
Por eso entiendo, que muy especialmente en el caso de los abogados, el secreto profesional va más allá de ser un derecho y un deber, pues existe también un deber de callar, para preservar la privacidad del cliente, tiene un significado puramente axiológico, forma parte de las bases del sistema, es un evento fundamental en el Estado de Derecho, pasa de ser un simple derecho a ser una institución jurídica objetiva, subjetiva como el derecho de cliente y derecho/deber de abogado y objetiva base fundamental de derecho de los ciudadanos que precisan asistencia.
El abogado debe ser confidente, pero lo que no debe ser es cómplice y es esto lo que trae el debate.
En la nueva ley 47 del 6 de agosto de 2013, que adopta un régimen de custodia aplicable a las acciones emitidas al portador, en el Capítulo IV , que establece la información; Artículo 10 numeral 4 versa lo siguiente:
“Proporcionar la información a que se hace referencia esta Ley cuando esta sea requerida por las autoridades competentes. El suministro de la información no se considerará como incumplimiento de su obligación de mantener la información en estricta reserva ni como una violación al deber de confidencialidad o el derecho a la privacidad.
Los abogados incumplen cuando asisten la confesión, asesoramiento o determinados operaciones por cuenta de su cliente o bien cuando actúan representado a su cliente en toda transacción financiera.
Por lo tanto el abogado se convierte en sujeto obligado solo cuando deja de actuar como órgano necesario, cuando nos encontremos ante ese ámbito del derecho profesional donde el abogado es un profesional con el que hay que contar sin reservas; ese abogado confidente en el que hay que confiar, en el que hay que depositar toda la confianza y que además es imprescindible, porque sin él no puedo defenderme ante los tribunales.
En esos casos el abogado no es sujeto obligado, por lo tanto el abogado queda despojado de especificidad, de sus particularidades, privilegios cuando no está representando los intereses de su cliente. Tiene que identificar al cliente, examinar transacciones sospechosas, conservar documentos durante un determinado tiempo, comunicación información al servicio de instituciones en contra de blanqueo de capitales, abstenerse frente a las operaciones informadas, mantener silencio frente al cliente de que esa operación ha sido comunicada y que además ha sido paralizada, en ocasiones obviamente el cliente preguntará ¿“porque no las has ejecutado”? En este momento el abogado debe guardar silencio.Para seguir la operación y no ahuyentar a la presa.
La actitud de los abogados se debe a la importancia que para nosotros tiene la relación de confianza entre abogado-cliente y del deber de mantener el secreto profesional. Dicha relación de confianza queda enormemente deteriorada en materia de prevención de blanqueo de capitales, normativa que no sólo nos anima, sino nos obliga a mantener desde un principio una actitud beligerante y de desconfiada con respecto a las intenciones del cliente y los motivos por los que solicita nuestro asesoramiento.
Tener que investigar a nuestro cliente, desconfiar de él, efectuar averiguaciones sobre su actividad sin que lo sepa y, mucho menos, y además de esto, la idea de denunciarlo ante las autoridades por una sospecha o indicio de que los fondos que pretende invertir son de procedencia ilícita, aún sin tener certeza de dicho extremo.
A los abogados se nos imponen obligaciones de índole policial, sin poder disponer de los medios materiales necesarios para poder cumplir dichas obligaciones, como las que tienen otros sujetos obligados, como son las entidades financieras, por poner un ejemplo.
La amplitud del concepto de «blanqueo de capitales», engloba todo capital procedente de «cualquier» actividad ilícita, incluso procedente de delito fiscal, dificulta la labor de detectar a un presunto blanqueador, cuyo perfil no es el de un delincuente tradicional (traficante de armas o droga, por ejemplo), sino que puede perfectamente tratarse de un profesional aparentemente honesto y buen padre de familia, que, por ejemplo, elude el pago de sus impuestos, o es acusado en su país de origen de una quiebra fraudulenta.
El primer tipo de blanqueador es posible, entre comillas, detectarlo, el segundo, sencillamente, es difícil de ser detectado.
Debemos entonces como profesionales, conocer nuestro cliente investigar pero no por esto hostigarlo, en caso tal de tener sospecha cierta y demostrable entonces actuar cónsonamente con la legislación para prevenir quedar envueltos en el delito de blanqueo de capitales.