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:
[four_fifths_last][one_third]
- 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 [divider_2][/one_third] [one_third]
- Developers and real estate agents – when they are involved in the transaction for their client
- Construction companies, including contractors and sub-contractors
- Savings & Loans companies
- BDA – Agricultural Development Bank
- BHN – National Mortgage Bank[divider_2][/one_third] [one_third_last]
- Currency exchanges
- National Lottery
- Pawn shops
- Security transport services
- Mail service
- Jewelry shops & intermediaries of precious metals and precious stones
- New & used car sales
- Other activities by professionals:
- Lawyers
- Accountants
- Notaries public[divider_2] [/one_third_last][/four_fifths_last]
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:[four_fifths_last][one_third]
- Full name
- Birth date
- Country of birth and nationality
- Gender[divider_2][/one_third] [one_third]
- Civil status
- Passport or ID number
- Country of residence
- Address
- Postal address, if different
- Home phone number[divider_2][/one_third] [one_third_last]
- Work address
- Work phone number
- Mobile phone
- Email address
- Profession or occupation
- Source of funds[divider_2] [/one_third_last][/four_fifths_last]
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:
[four_fifths_last][one_half]
- 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[divider_2][/one_half] [one_half_last]
- Purchase of a corporation or other entity
- Providing a director for a corporation or legal entity
- Providing a registered or physical office address for a corporation or legal entity
- Providing a nominee shareholder for a corporation
- Providing a nominee settlor for a trust or similar
- Acting as registered agent of a corporation or legal entity[divider_2] [/one_half_last][/four_fifths_last]
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:
[four_fifths_last][one_half]
- Full name
- Address
- Postal address, if different
- Phone number
- Mobile phone
- Fax number, if applicable
- Email address, if applicable[divider_2][/one_half] [one_half_last]
- Principal economic activity
- Commercial and banking references, and in the case of acting on another person’s behalf, this person’s contact details
- Written evidence of the references or a power of attorney with corresponding documentation is also acceptable
- Source of funds[divider_2] [/one_half_last][/four_fifths_last]
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.
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