Non Profit supervision in Panama: AML standards

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Non Profit supervision in Panama: AML standards

Non Profit supervision: fighting money laundering

The OECD insisted, in reports on Panama’s financial center, that Panama tighten the Non Profit regulations and oversight. As a result, Executive Decree 62 (2017) regulates the creation and supervision of Non Profit organisations.  We previously dealt with setting up a Non Profit, so here I will outline the provisions regarding Non Profit supervision.

Who supervises?

The Executive Decree establishes a special deparment in the Ministry of Government. At this time,  “Department of OSFL Supervision, Follow Up & Evaluation” is part of the Legal Matters and Applications Department .  We will refer to this department as the OSFL-SFE Department.

OSFL = Organizaciones Sin Fines de Lucro = Non Profit Organizations

What are their powers?

The OSFL-SFE has 2 principal powers and objectives:

  1. Permanant risk analysis of all OSFLs legally recognised by the Ministry of Government
  2. Control mechanisms to minimise risk and follow up on the OSFL, to ensure compliance with all applicable laws

What are they supposed to do?

Consequently, the OSFL-SFE:

  • Maintains risk reports regarding OSFL’s in Panama
  • Requires reports on the funding of Non Profit entities and verify the information provided to them
  • Checks on the funding received, generated or transferred by Non Profits
  • They may report any suspicious activity to the Unidad de Analisis Financiera (the Financial Analysis Unit).

The OSFL-SFE has the following powers:

  1. Require whatever documentation they consider will allow them to supervise, follow up and evaluate OSFLs
  2. Inspect the books, records and documents of the administration, financial management and financing of the Non Profits under their supervision
  3. Request that the legal representative of any Non Profit present documents as needed for these 2 purposes

Additionally, the OSFL-SFE may visit the premises or offices of a Non Profit organization.

What should your Non Profit do?

You must keep accurate accounts, books and records of all donations received, funds raised and donations made from your Non Profit to another. At the end of each year, you report to the Tax Department 2 things:

  • Expenses: this allows the tax department to verify this information against the income tax returns of service providers and cross-check the information
  • Donations received and details of the donors – this is cross-checked against those who are claiming tax deductible donations

Consequently, your Non Profit organisation must keep update records:

  • File any change of Board of Directors at the Public Registry;
  • Update your membership records each year with any changes;
  • If your bylaws are out-dated, then you need to assign a committee to review them and bring them into compliance with new regulations and laws. Once reviewed, present the proposed changes to your General Assembly to modify your Statutes or Bylaws as appropriate. These changes must then be approved by the Ministry of Government, before they can be filed at the Public Registry.

Although it is published in Spanish, the full regulation on Non Profit supervision and organisations can be found in Gazette #28249-A.

For more information and assistance in establishing or managing your Non Profit organization please contact Betsy Moran.

2017 Executive Order 62: Non Profit organizations

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March 30, 2017 – Executive Order #62

Rules for Non profit Organizations: associations & foundations

This Order was issued by the Ministry of Government (“MinGob“), regulating Non Profit Organizations, such as associations and foundations.
Examples of such Not-for-Profits are:

  • associations
  • private not-for-profit foundations
  • churches
  • religious churches, congregations or communities
  • federations or other entities which are not tied with cooperatives, sports, agriculture or other types which have special legislation.

In simple terms, this Executive Order establishes the basic requirements for registering a Not-For-Profit with MinGob, who is in charge of granting “legal status”, which is later published and made known through the Public Registry of Panama.  Unlike companies, which receive their legal status simply through the filing at the Public Registry, in the case of Non Profit entities, it is MinGob who grants them legal standing.

It is easy to present the papers to MinGob, but you will require the services of a lawyer.  The basic requirements are:

  1. Power of attorney and Application by the lawyer
  2. Articles of Association, establishing the Board of Directors and approval of the Bylaws, signed by the President and Secretary
  3. List of the members of the Board of Directors (at least 3 members) – natural or legal persons.  If you include a legal person, this entity must approve (shareholders or stakeholders) participation in the Board of Directors.
  4. The Bylaws, which should be duly signed by the President & Secretary
  5. Two full sets of copies of the entire set of documents.

The entity must not have private beneficiaries and may in no way dish out income or donations received to members, board members or founders.  It may, however, hire staff.

Bylaws of Non Profit Organizations

The Bylaws of the Not-For-Profit Organization should contain the following:

  • Name – in Spanish or with a translation to Spanish
  • Registered Address in Panama (changes must be notified)
  • Geographic area in which it will operate
  • Detailed objectives – is it philanthropic, union or other nature
  • Initial capital or donations to the entity and money raising actions
  • Will it require quotas?  If so, who sets the quotas?
  • How to become a member, how human rights are upheld, and other basic Constitutional rights
  • Losing membership
  • Rights and duties of members
  • Governing bodies: General Assembly, Board of Directors
  • Who is the legal representative?
  • Changing the bylaws?
  • How the accounts will be registered? Manner in which you will record funds received and spent?
  • Can branches or chapters be set up?  How is this to be done?
  • What is the process for dissolving and liquidating? How will the funds be used on dissolution?

If there are mistakes or errors in the documents handed in, you have 60 days to fix them (once notified), otherwise the request will be denied.

Board Members

Members of the Board  must be residents of Panama: natural or legal persons, Panamanian or immigrants.  Embassy staff, diplomats, and other State or international entity envoys, may also be members.  Global Non Profit bodies may also help establish local Not-For-Profit bodies and appoint resident board members, such as:

  • Chambers of Commerce
  • Philanthropy
  • Culture
  • Religion
  • Education
  • Science
  • Art
  • Sport

Other matters

Order #62 regarding Non Profit Organizations also covers other matters like:

  • Review and Inquests
  • Records
  • Use of funds – prudence and purpose
  • Changes of Bylaws
  • Setting up branches of foreign bodies
  • Dissolving and liquidating
  • Supervision, follow-up and reviews

For more information regarding setting up a Non Profit Organization, please contact Betsy Moran.  She will assist with the registration process, and follow up to get all of the permits, including tax exemption status.

Footnotes:

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