Agente Residente en Panamá – Reglas de Conocer a su Cliente

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beth-gray

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:

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 archiveIGA 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:

  1. Identify who is really the client and verify their identity
  2. Obtain information from the client regarding the purpose of the legal entity – what is it being set up for?
  3. 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
  • Complete name, address and mailing address
  • Phone number, mobile phone, fax number  and email address
  • Principal economic activity
  • Copy of their national ID card or passport
  • Declaration – what will they use the legal entity for?  (for each corporation requested)
  • Contact details for a banking or commercial reference (or banking and commercial reference letters)
  • Complete name, jurisdiction and incorporation details
  • Registered address and mailing address
  • Phone number and fax number
  • Name of the legal representative or manager, and their email address
  • Principal economic activity
  • Copy of national ID card or passport of each person that has more than 25% interest (unless a public registered company)
  • Copy of incorporation documents
  • Declaration – what will they use the legal entity for?  (for each corporation requested)
  • Contact details for a banking or commercial reference (or banking and commercial reference letters)
  • Complete name, jurisdiction and incorporation details
  • Registered address and mailing address
  • Phone number and fax number
  • Name of the legal representative or manager, and their email address
  • Principal economic activity
  • Copy of incorporation documents
  • Declaration from their client – what will they use the legal entity for?  (for each corporation requested)
  • Certification that:
    • they maintain a relationship with the person for whom they are requesting the registered agent services
    • their KYC practices, including the case of bearer shares
    • that they will provide, upon request, all the information to identify the client that they represent according to the requirements and procedures of their applicable legislation
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:

  1. To provide the information that they hold regarding the client;  and
  2. 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:

  1. 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);
  2. The time period (term) in which the registered agent must provide the information (no less than 5 working days); and
  3. 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:

  1. provide incomplete information or fail to provide up-to-date information
  2. fail to deliver the information or documentation; or
  3. 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.

More information

Other interesting articles on this topic (from other jurisdictions):

Custodio de acciones al portador (parte 2)

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beth-gray

En la segunda parte de este artículo, yo presentaré los requisitos técnicos para mantener las acciones en custodio, incluyendo la documentación que el Custodio Autorizado deberá solicitar, y lo que el cliente deberá suministrar para poder tener las acciones bajo custodio.

Este artículo brevemente mencionará los requisitos de un Custodio Autorizado, especialmente si un custodio extranjero quiere ser autorizado, además de rapidamente ver sus responsabilidades.  Este también especificará los detalles de la declaración que el dueño beneficiario (se llamará el ¨último dueño beneficiario” o “UBO”) deberá firmar para el Custodio Autorizado y otra documentación, y lo que un UBO deberá hacer en el evento de vender las acciones de la compañía a otra persona, o para lo que requiere para su planificación de patrimonio.

Custodio Autorizado

Como mencionamos en nuestro último artículo sobre el Custodio de Acciones al Portador, un custodio local autorizado puede ser:

También es posible para custodios extranjeros ser autorizados para mantener las acciones al portador en custodio.  Los requisitos para bancos extranjeros, compañías de fideicomisos o intermediarios financieros son:

  • deben ser de una jurisdicción de un miembro de FATF, o
  • deben ser de una jurisdicción de un miembro asociado con el FATF; y
  • deben estar registrados ante la Superintendencia de Panamá, quienes deben tener un registro especial de compañías extranjeras.

Los requisitos mínimos para un custodio extranjero son:

  1. Detalles generales de registro de sociedad – fecha de registro, detalles legales y detalles del contacto
  2. Certificación de licencias que mantiene (de servicios de banca, fideicomiso o financieros), la cual deberá ser traducida al español
  3. Nombramiento de un agente de notificación panamaeño
  4. Declaración que confirma que
    1. Tiene los requisitos de Conozca su Cliente que cumplan con los estándares requeridos por la Ley 2 (2011)
    2. Que le suministrará al agente residente de la compañía detalles completas sobre el dueño beneficiario de las certificados de acciones que mantiene bajo custodio..

La Superintendencia Bancaria de Panamá tiene plena autoridad para regular estos requisitos, lo cual han hecho bajo Acuerdo No. 4 (2015), el cual fue publicado en Junio 2015 en la Gaceta.  Para más información, por favor referirse a su página: Custodios Autorizados de Acciones al Portador.  Hasta ahora, no se han registrado custodios extranjeros.

Las Responsabilidades de Custodios Autorizados

El custodio autorizado tiene las siguientes responsabilidades:

  1. mantener toda la documentación relacionada con este servicio en su sede en Panamá (o en el caso de custodios extranjeros, en su dirección registrada)
  2. tener custodio físico de los certificados de acciones en su sede en Panama (o en el caso de custodios extranjeros, en su dirección registrada)
  3. mantener todos los anteriores bajo estricta confidencialidad, tal como lo requiere Ley 47 (2013)
  4. brindar esta información cuando así lo requiere las autoridades competentes de Panamá (lo cual no se considerará una violación de la estricta confidencialidad requerida como se describe arriba, ni una violación de la confidencialidad o del derecho a la privacidad)
  5. emitir una certificación sobre el dueño de las acciones cuando así lo requiere una orden judicial, el dueño beneficiario de las acciones o el tenedor del gravamen (en el evento que exista un gravamen sobre las acciones)

En el caso de un custodio extranjero, hay un requisito adicional que ellos deberán hacer uno del siguiente:

  1. depositar un bono de $25,000 o
  2. brindar al agente residente de cada compañía de la cual mantiene acciones con una notificación de su designación como custodio autorizado, además del nombre completo y detalles sobre el(los) dueño(s) de las acciones que se mantienen bajo su custodio (lo cual no se considerará una violación de la estricta confidencialidad requerida arriba ni una violación de la confidencialidad ni del derecho a la privacidad).

Si ellos depositan un bono, el custodio extranjero solamente tiene la obligación de suministrar al agente residente con la notificación que ellos son el custodio designado de las acciones, y que entonces solo están obligados a brindar la información sobre el último dueño beneficiario cuando así lo solicita una autoridad competente de Panamá.

Declaración del Dueño Beneficario

Los Artículos 8 y 9 de la ley especifican diferente información y declaraciones para las compañías registradas antes de que la ley se hizo vigente, y para las compañías registradas (permitiendo que acciones al portador se mantengan bajo custodio desde el 4 de agosto del 2015):

Artículo 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:

  1. Details of the owner(s) – UBO:
    1. complete name
    2. nationality (or jurisdiction, in the case of another legal entity)
    3. cédula (national ID card), passport or registration number (in the case of another legal entity)
    4. phone number and email address (or fax number)
  2. Registered agent details:
    1. complete name
    2. physical address
    3. 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:

  1. Details of the owner(s) – UBO:
    1. complete name
    2. nationality (or jurisdiction, in the case of another legal entity)
    3. cédula (national ID card), passport or registration number (in the case of another legal entity)
    4. address
    5. phone number and email address (or fax number)
  2. Registered agent details:
    1. complete name
    2. physical address
    3. 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.