Panama
Detailed Assessment Report—FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

This report evaluates the level of implementation of Financial Action Task Force (FATF) Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in Panama. The findings reveal that Panama is vulnerable to money laundering from a number of sources, including drug trafficking and other predicate crimes committed abroad, such as fraud and financial and tax crimes. The AML Law covers most of the core financial sectors but does not fully apply to the insurance sector and does not extend to a number of other financial activities as required under the FATF standard. Competent authorities, including law enforcement and the Financial Intelligence Unit, do not have timely access to information on legal persons and arrangements as required under the FATF standard.

Abstract

This report evaluates the level of implementation of Financial Action Task Force (FATF) Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in Panama. The findings reveal that Panama is vulnerable to money laundering from a number of sources, including drug trafficking and other predicate crimes committed abroad, such as fraud and financial and tax crimes. The AML Law covers most of the core financial sectors but does not fully apply to the insurance sector and does not extend to a number of other financial activities as required under the FATF standard. Competent authorities, including law enforcement and the Financial Intelligence Unit, do not have timely access to information on legal persons and arrangements as required under the FATF standard.

Executive Summary

1. Key Findings

1. Panama is vulnerable to money laundering (ML) from a number of sources including drug trafficking and other predicate crimes committed abroad such as fraud, financial and tax crimes. It is a country with an open, dollarized economy and, as a regional and international financial and corporate services center, offers a wide range of offshore financial and corporate services. It is also a transit point for drug trafficking from South American countries with some of the highest levels of production and trafficking of illegal drugs in the world. These factors put the country at high risk of being used for ML. Although the authorities have not conducted a risk assessment, they attribute the largest sources of ML to drug trafficking and other predicate crimes committed abroad. No information or estimates were provided on the extent of domestic and foreign predicate crimes and the amount of related ML in Panama. No terrorism financing (TF) cases have been detected so far.

2. Panama has criminalized ML and TF, but its AML/CFT framework is not fully in line with the FATF Recommendations. Some CFT requirements are included in subsidiary instruments but these, like other provisions contained therein, appear to go beyond the AML Law and, therefore, inconsistent with the legal principles established under the Constitution. This creates uncertainty as to their validity, if challenged. There are inadequate statistics on ML investigations, prosecutions, and convictions to properly assess the effectiveness of implementation of the ML/TF legislation.

3. The AML Law covers most of the core financial sectors but does not fully apply to the insurance sector and does not extend to a number of other financial activities as required under the FATF standard.1 This Law applies to bureau de change but this high-risk sector is not subject to licensing or registration nor, in practice, is it regulated and supervised.

4. Of the designated non-financial businesses and professions (DNFBPs), only trustees are fully covered under the AML Law, while casinos and real estate brokers (legal persons only) are only subject to currency transaction reporting (CTR) obligations. Other DNFBPs including lawyers, accountants, notaries, corporate services providers (including resident agents who must be lawyers), and dealers in precious metals and stones are not covered. Resident agents providing corporate services are covered under a specific law that provides a limited range of customer identification requirements and are subject to strict secrecy provisions that severely limit or prohibit access to information by supervisors and the financial intelligence unit (FIU).

5. The substantial gaps in coverage of financial activities and DNFBPs in the AML/CFT framework pose significant ML/TF risks to the country and other jurisdictions. At the time of the mission, the authorities had no concrete plans to address these shortcomings.

6. Competent authorities, including law enforcement and the FIU, do not have timely access to information on legal persons and arrangements as required under the FATF standard. In turn, this limits their capacity to cooperate nationally and internationally. A law was passed in July 2013 to provide for the custody of bearer shares and facilitate access to information on the owners of such shares. The law will not come into force for two years (2015), and for bearer shares issued prior to the law coming into effect, a three-year transition period for compliance is provided ending during 2018.

7. The FIU’s operational effectiveness is hampered by restrictions on its access to information on legal persons and arrangements and by limited resources. The FIU has identified only a few significant ML cases and has provided limited cooperation to its foreign counterparts. In addition, its operational independence could be enhanced through amended administrative reporting arrangements.

1.1. Legal Systems and Related Institutional Measures

8. Panama has ratified the main AML-related UN Conventions and has legal provisions in its Penal Code with respect to ML that are broadly in line with the FATF standard, but a number of significant deficiencies remain. ML has been criminalized as an autonomous offense relating to a large number of FATF-designated categories crimes, but counterfeiting of currency, smuggling, forgery, and piracy are not covered, and illicit association and trafficking in stolen goods are only partially covered. In addition, criminal liability of legal persons is limited as it does not cover situations where a legal person is used to launder assets but does not benefit from it. There are no parallel civil proceedings when such person is convicted of ML.

9. The sanctions provisions for ML offenses are consistent with those for other serious criminal offenses under Panamanian law and are largely in line with the international standards. However, the assessment of effective implementation cannot be properly ascertained due to the lack of adequate statistics. The number of prosecutions seems to be relatively low, taking into account the size of the financial and economic system of Panama, its status as an international financial and corporate center, and its geographic location as a transit country for drugs. This also suggests that implementation is weak.

10. Panama has ratified the UN TF Convention and the Penal Code criminalizes TF but does not cover all of the required designated offenses.2 The TF offense does not explicitly cover the financing of a terrorist organization or an individual terrorist, the collection of funds, and the indirect provision of funds for TF. Weaknesses in the AML regime also affect the CFT framework including those related to the liability of legal persons. In addition, the criminalization of TF has not been implemented in the primary preventive measures legislation as was done for ML. The AML Law does not include CFT provisions and certain provisions have only inconsistently been included in subsidiary instruments raising constitutional uncertainty as to their validity if challenged. This is a significant shortcoming.

11. The sanctions for TF are consistent with the sanctions applicable to other serious criminal offenses in the Penal Code and are broadly in line with international practice. However, as for ML, the lack of adequate statistics does not allow for a proper assessment of effective implementation. The authorities indicate that they are not aware of any TF cases in the country.

12. The legal framework of Panama allows for the freezing, seizure, and confiscation of the instruments and proceeds of crime including ML and TF; however, it does not provide for the confiscation of property of corresponding value and the application of other measures. The procedures extend to property that is directly or indirectly derived from proceeds of crime, including income, profits, and other benefits. There are no provisions for freezing and seizure on an ex-parte basis or without prior notice, and for voiding of contracts and arrangements. Key limitations to the effective implementation of these procedures are the secrecy and confidentiality provisions and practices afforded to the beneficial owners and controllers of legal persons and arrangements that hamper access to information for purposes of tracing and locating illicit assets. In addition, the volume of confiscated assets associated with ML seems small taking into account the abovementioned risks of ML faced by Panama.

13. Even though Panama has provisions for freezing assets, it does not have effective laws and procedures to freeze without delay terrorist funds or other assets in accordance with the relevant UN Security Council resolutions. Terrorist funds can only be frozen in the context of a criminal trial, through the application of the general rules for seizing the instruments and proceeds of crime.

14. Panama has established a financial intelligence unit as the center for receiving, analyzing, and disseminating information related to suspicious transactions, but its effectiveness is constrained by inadequate resources and access to information, including on legal persons and arrangements. While the law establishes reporting obligations on a number of financial and non-financial entities, it does not cover all of the FATF financial activities and DNFBPs which deprive the FIU of important sources of information for analyzing and disseminating cases suspected of ML and TF. Most suspicious transaction reports (STRs) are filed by the banking sector and the number of reports has been declining, partly attributed to onerous documentation requirements.

15. The legal framework for the FIU provides for its operational and budgetary independence, but its analytical and case dissemination capacity could be improved. The detection of potential ML cases by the FIU through its analysis of STRs is uncommon and its support for law enforcement mainly involves reactive assistance in the conduct of drug-related financial investigations. In addition, the FIU’s dissemination reports to law enforcement lack sufficient supporting documentation which limits their value to, and impairs the effectiveness of investigations and prosecutions. More specific feedback and guidance to reporting entities could also improve the quality of STRs.

16. The FIU has mechanisms for domestic and international cooperation but does not provide a full range of cooperation and information exchange to its foreign counterparts, despite the high demand. In practice, the FIU only shares public data and information contained in its database. Unlike the number of requests it receives from abroad, the FIU’s requests to foreign counterparts is relatively low.

17. Panama has established law enforcement authorities (LEAs) that are responsible for ML and TF investigations and prosecutions, but their activities are mainly concentrated on drug-related offenses. Moreover, the lack of adequate statistics does not allow for a proper determination of whether law enforcement measures are being effectively implemented, and to ascertain whether ML has been investigated or prosecuted as a stand-alone offense. Limited resources and training also hamper the effectiveness of LEAs. Shortcomings in the legal framework for the conduct of investigations (such as a 60-day limitation for preliminary investigations and a 10-day window before having to disclose to a suspect the existence of undercover operations) limit the LEAs’ capacity to conduct complex and lengthy financial investigations. Limitations on the timely and efficient access to information held by financial institutions, particularly banks, and on information on legal persons and arrangements, also impact their effectiveness.

18. Panama has established a system for the declaration and monitoring of cross-border transportation of currency and bearer instruments, but the measures in place are not comprehensive or effective. The measures apply only to inbound cash movements, and mostly at the Tocumen International Airport. There are no specific legal provisions for restraining and seizing currency that may be related to ML/TF. Parallel administrative and criminal sanctions can be applied for noncompliance but the absence of statistics does not allow for a determination of how well the system operates in practice. Some sanctions for breaches of the declaration requirement are relatively low, and there are no apparent arrangements that would allow for cooperation with foreign counterparts.

1.2. Preventive Measures – Financial Institutions

19. Panama has implemented an AML Law but it does not cover CFT and many financial activities subject to the FATF standard are not included or only partially covered. In particular, the AML Law does not cover the following entities and activities: (i) insurance companies and intermediaries (insurance companies, reinsurance companies, and reinsurance brokers are only subject to CTR requirements); (ii) savings and loan associations; (iii) the national mortgage bank; (iv) multi-service cooperatives; (v) issuance and managing means of payment; (vi) financial leasing; (vii) factoring; and (viii) safekeeping/custody of cash and other liquid assets (e.g., gold). The AML Law covers bureau de change but this active sector is not subject to licensing or registration requirements, and in practice is not effectively supervised.

20. The AML Law has broad provisions that are further supported by more detailed regulations, but many of the requirements that should be in law or regulations are included in other enforceable means (OEMs). In addition, many of the provisions contained in regulations and OEMs appear to go beyond the primary AML Law contrary to constitutional provisions and their validity could be challenged. The authorities maintain that under Panamanian jurisprudence, they are enforceable until declared illegal or unconstitutional. Notwithstanding, potential challenges to their validity may have a dissuasive effect on compliance by financial institutions and enforcement by supervisors. A number of the preventive measures are not fully in line with the FATF Recommendations including in the areas of: identification and verification of beneficial owners and controllers, conduct of ongoing due diligence, enhanced due diligence for high-risk customers, cross-border banking relationships, provisions for reliance on third parties, and non face-to-face business relationships. In addition, there are limited customer due diligence (CDD) requirements and guidance for trustees and foundation clients. In particular, identification and verification of beneficial owners or controllers of bearer share companies and the settlors and ultimate beneficiaries of trusts is weak.

21. Internal AML/CFT controls are stronger in the banking sector but weaker in others. In particular, shortcomings were identified in CDD procedures, internal audit, and employee due diligence requirements. Implementation of AML/CFT requirements is generally weak in the nonbanking sectors partly due to weak oversight.

22. All covered financial institutions are subject to recordkeeping requirements that are broadly in line with the FATF standard. Records must be retained for 10 years or more but there are limited requirements to maintain records of both domestic and international transactions, business correspondence, and to make available such information in a timely manner to competent authorities. Deficiencies in the CDD requirements also limit the effectiveness of recordkeeping requirements.

23. Although ordering banks are required to obtain and maintain information on the originator of wire transfers, there is no explicit requirement that they and any intermediary banks transmit this information in the payment message. Beneficiary banks are prohibited from processing wire transfers when the name of the originator and the originator bank are not included in the payment message. However, the prohibition does not extend to wire transfers lacking other originator information as required by the standard. Beneficiary banks are not required to apply a risk-based approach for identifying and handling wire transfers that lack complete originator information or, in such circumstances, to consider filing a STR, restrict or terminate business relationships.

24. Financial institutions are required to report transactions they suspect involve ML but the requirements apply only to a narrow range of financial institutions designated in the AML Law. Moreover, the reporting obligation under this law does not extend to suspicion that a transaction may be related to terrorist financing as required under the standard. There is a 60-day reporting timeframe for institutions to report suspicious transactions after they are identified. This period may be too long for purposes of the standard that requires suspicion to be reported promptly. The effectiveness of the STR reporting regime is also weakened by an overemphasis on currency transaction reporting (CTRs).

25. Overall, financial institution secrecy laws do not overly inhibit the implementation of the FATF Recommendations but confidentiality provisions and supervisory practices limit access to information on trusts held by FIs and others acting as trustees. Such limitations also restrict effective interagency and international cooperation, and information exchange.

26. There are five supervisory authorities responsible for AML/CFT supervision and enforcement, but the absence of CFT requirements in the AML Law (some CFT provisions are included in regulations and OEMs) limits the overall scope and effectiveness of supervision.3 Supervisors generally have powers to supervise financial institutions and ensure compliance with the AML/CFT requirements, but the effectiveness of implementation varies significantly across sectors. While supervision of the banking sector is more advanced, the systems and capacity for AML/CFT supervision of other sectors is weak, especially with respect to on-site inspections. In addition, there is a more limited scope of supervision of trust business conducted by financial institutions. The scope and depth of supervisory methodologies and procedures used, including for applying a risk-based approach, are absent or inadequate for the nonbank sector. Most inspections mainly focus on regulatory compliance and do not sufficiently take account of off-site supervision activities and ML/TF risks.

27. The human, financial, and technical resources allocated to the supervisory authorities for their AML/CFT functions are generally inadequate. Regular AML/CFT training for staff conducting AML/CFT inspections should be strengthened particularly with respect to the identification of high-risk activities and the application of related supervisory tools.

28. An important number of financial institutions operating in Panama that are captured under the FATF standard are not covered, or only partially covered under the AML Law, and are, therefore, not subject to effective AML/CFT supervision. (See paragraph 21 above). Bureau de change are covered under the AML Law and subject to supervision by the Ministry of Commerce and Industry (MICI) for AML purposes only, but their activities are not licensed or registered and, in practice, their supervision is negligible. The licensing requirements for financial institutions are generally broad with respect to the banking and securities sector. However, the licensing procedures for all other financial institutions can be improved and lack a system of ongoing and periodic review of fit-and-proper tests for owners and key officials of licensees. In addition, bureau de change should be licensed or registered and subject to effective supervision.

29. There are no explicit provisions in the Banking Law or elsewhere for banks to have meaningful mind and management located in Panama as a key requirement for physical presence. There are some requirements and measures in place to prevent the establishment of shell banks in Panama, but these could be strengthened by specific mind and management requirements for physical presence.

30. A broad range of sanctions can be applied by supervisors for noncompliance with AML/CFT requirements (with the exception of MICI) but implementation cannot be regarded as effective overall. The AML Law allows for sanctions to be imposed on financial institutions as well as their executives and other employees. Most of the sanctions applied are moderate monetary fines for failure to comply with the CTR obligations and not with the broader range of AML obligations. The fines that have been imposed are relatively low and may not be sufficiently dissuasive or proportionate to be deemed effective.

1.3. Preventive Measures – Designated Non-Financial Businesses and Professions

31. The AML Law imposes the full range of obligations that are applicable to financial institutions only on trustees, whereas casinos (including internet casinos) and real estate brokers (legal persons only) are only subject to CTR obligations. The remaining DNFBPs (i.e., lawyers, notaries, accountants, company services providers/resident agents, real estate brokers (natural persons), and dealers in precious metals and stones) are not covered by the AML Law. This is a significant systemic gap given the important role they play in Panama’s financial and economic system, and the risks they pose.

32. Trustees place far more effort in complying with their CTR obligations than on compliance with the rest of the AML requirements. Notably, trustees have filed a very low number of STRs and few sanctions have been applied. Other than the Superintendency of Banks of Panama (SBP) which supervises trustees, the supervisors for casinos and real estate agents have relatively limited supervisory resources. Overall, the effectiveness of implementation of AML requirements and supervision of covered DNFBPs is weak.

1.4. Legal Persons and Arrangements and Nonprofit Organizations

33. Panama registers legal persons and arrangements in its Public Registry but information on the ownership and control of such entities is not generally available, including with respect to bearer share companies. Panamanian companies can issue bearer shares and at the time of the mission, there were no requirements for their immobilization or custody.4 In addition, corporate information is generally held by resident agents (each corporate entity and arrangement requires the appointment of a resident agent in Panama who must be an attorney), but access to such information is restricted and available only to a narrow range of designated competent authorities. The FIU and AML/CFT supervisors do not have access to information held by resident agents. These limitations adversely affect the ability of the FIU and LEAs to effectively and efficiently obtain information, and trace and locate assets held by legal entities. The weaknesses are compounded when documentation is held overseas. Because resident agents, accountants and attorneys (as corporate services providers) are not subject to the AML Law, there are no established efficient procedures for the FIU and other competent authorities to access information on the ownership and control of legal entities. In addition, financial institutions providing services to these entities, especially bearer share companies, do not sufficiently verify the identity of beneficial owners which further limits availability and access to such information to competent authorities.

34. Trusts are the main form of legal arrangement present in Panama (trustees are supervised by the Superintendency of Banks of Panama (SBP)), but the availability and access to information by competent authorities is limited. There are no provisions in place to provide efficient access to information on the beneficial ownership and control of trusts (including protectors). In addition, while the SBP conducts AML/CFT supervision of trustees on a regular basis, the scope of supervision does not fully extend to reviewing compliance with customer due diligence requirements regarding ultimate beneficial ownership and control, especially when beneficiaries and/or settlors of trusts are other legal persons or arrangements.

35. Nonprofit organizations (NPOs) are registered in the Pubic Registry and are subject to authorization and supervision by a specialized unit of the Ministry of Government. However, this specialized unit is not operational. There have been no domestic reviews on the activities, size, and other features of the nonprofit sector for TF purposes, and no assessment of their vulnerabilities and TF risks has been conducted.

1.5. National and International Cooperation

36. Panama has national coordination bodies for AML/CFT but effective mechanisms for implementation are lacking.5 There is a need to establish operational level contacts for cooperation between the Panama FIU and LEAs, and a system of regular reviews of the effectiveness of national AML/CFT measures. To this end, access and sharing of information would be required but would be limited by the lack of availability of and access to comprehensive statistics on e.g., corporate entities and other legal arrangements.

37. There is a legal framework for international cooperation, including mutual legal assistance treaties (MLATs) on criminal matters. However, shortcomings in the range of predicate offenses to ML and TF offense limit the effectiveness of the system. Panama applies the principle of dual criminality in a very strict manner and it does not provide legal assistance when the offense is also considered to involve fiscal matters.

38. The limited range of entities that are subject to the AML Law, and the absence of CFT obligations for financial institutions and DNFBPs limit the ability of competent authorities to effectively cooperate with foreign counterparts. In practice, the FIU unduly limits the types of information it shares with foreign counterparts and it cannot share information in the absence of memoranda of understanding (MOUs). The FIU makes comparatively fewer requests for cooperation than it receives. The lack of statistics on cooperation by other competent authorities (e.g., LEAs) does not allow for a proper assessment of effectiveness. Supervisory agencies have concluded a number of MOUs with foreign counterparts but not all of these arrangements explicitly provide for cooperation on AML/CFT matters and effectiveness cannot be properly assessed in the absence of adequate statistics.

2. General

2.1. General Information on Panama

39. The Republic of Panama (Panama) is an independent country located in Central America, bordering both the Caribbean Sea and the North Pacific Ocean, between Colombia and Costa Rica. It has a total area of 17,517 square km with land boundaries of 555 km of which 225 km is shared with Colombia in the north and 330 km with Costa Rica in the south. It has a total coast line of 2,490 km. Panama is in a strategic location on eastern end of the isthmus forming a land bridge connecting North and South America, and controls the Panama Canal that links the North Atlantic Ocean with the North Pacific Ocean.

40. Explored and settled by Spain in the 16th century, Panama broke with Spain in 1821 and joined a union of Colombia, Ecuador, and Venezuela. When this union was dissolved in 1830, Panama remained part of Colombia until 1903 when it gained its independence. As of July 2012, its population was estimated at 3,510,045 of which about 1.5 million live in Panama City, its capital. The official language is Spanish but English is commonly spoken in urban areas. Other indigenous dialects and foreign languages are also spoken by minority groups. The country is made up of nine provinces, 77 districts or municipalities, three indigenous provincial territories, and two indigenous towns.

41. The country is governed through a unicameral National Assembly with 71 seats. Its members are elected by popular vote to serve five-year terms. The Executive Branch is composed of the President, two Vice-Presidents and three Ministers of State. The president is both the chief of state and head of government. Currently there is only one Vice-President and 16 persons have been appointed by the President to the Council of Ministers.

Judicial System

42. Panama has a civil law system with judicial review of legislative acts by the Supreme Court of Justice that is comprised of nine judges appointed for staggered 10-year terms. There are five superior courts and three courts of appeal. The legal system is at its apex governed by a 1972 Constitution which has been revised several times. The Constitution establishes the Supreme Court as the highest judicial body in the land and defines it as the guardian of the integrity of the Constitution. In consultation with the attorney general, it has the power to determine the constitutionality of all laws, decrees, agreements, and other governmental acts. The Supreme Court also has jurisdiction over cases involving actions or failure to act by public officials at all levels. There are no appeals from decisions by this Court. The administration of justice may also be exercised through arbitration jurisdiction, as determined by law. The courts of arbitration may hear and decide for themselves on matters within their jurisdiction. For the purposes of judicial jurisdiction, Panama is divided into four Judicial Districts which are further divided into Judicial Circuits and Judicial Districts/Municipalities in accordance with the political subdivisions of the country.

43. The Supreme Court is comprised of judges appointed by agreement of the Council of Ministers, and subject to approval by the Legislative Branch, for a period of 10 years. Several constitutional provisions are designed to protect the independence of the judiciary. However, observers have indicated that a major defect in the judicial system lies in the manner in which appointments are made to the judiciary. Appointments of judges are subject to the approval of the Legislative Assembly and it is observed that this may subject it to undue influence by the executive.

44. The functions of the Public Ministry (Ministerio Publico) are headed by the Attorney General, prosecutors and other officials as determined by law. The main functions of the Public Ministry are to: defend the interests of the State or municipality; promote compliance with the law, judicial decisions, and administrative provisions; oversee the official conduct of public officials and ensure that they fully carry out their duties; prosecute crimes and violations of Constitutional or legal provisions; serve as legal advisor to administrative officials; and carry out other functions set forth in the law.

45. The following chart summarizes the structure of the Judicial System. (Source: Organo Judicial.)

Governance

46. The Transparency International Corruption Perception Index for 2012 scored Panama at 38 (0=highly corrupt to 100=very clean) and ranked it at 83 among 174 countries.

47. The World Bank’s Worldwide Governance (perception) Index for 2011 scored Panama at -0.07 for Rule of Law (-2.5=weakest to 2.5=strongest) and ranked it at 53.52 (0=lowest to 100=highest) among 215 economies. For corruption, Panama scored at -0.35 and ranked at 46. For regulatory quality it scored Panama at 0.41 and ranked it at 65. The World Bank uses three other indexes to estimate the quality of governance including voice and accountability, political stability and absence of violence, and government effectiveness.

General information on the economy

48. The official currency of Panama is the Balboa and is equivalent to the US dollar. Nonetheless, its economy is totally US dollar-based and it does not have a central bank. Its economy is largely based on services, which constitute about 63 percent of its GDP, but there have been recent increases in the construction and industrial sectors. The primary service sectors include operating the Panama Canal, financial and corporate (offshore) services, the Colon Free Zone, container ports, flagship registry, and tourism. The Panama Canal expansion project began in 2007 and is scheduled to be completed by 2014 at a cost of $5.3 billion. This expansion is expected to significantly bolster economic growth and to more than double the Canal’s operating capacity. The United States and China are the top users of the Canal. Panama is also constructing a metro system in Panama City, valued at $1.2 billion and scheduled to be completed by 2014.

49. Panama’s GDP for 2012 was estimated at $36 billion ($25.79 billion in real terms). According to World Bank data, the poverty ratio has been steadily declining but was still at around 26.2 percent in 2012. The unemployment rate (percent of economically active population) for 2012 was 4.2 percent and 4.5percent as of March 2013.

2.2. General Situation of Money Laundering and Financing of Terrorism

50. Panama is a country with an open, dollarized economy, which offers a wide range of offshore financial services and is adjacent to countries with the highest levels of production and trafficking of illegal drugs in the world. That puts the country at high risk of being used for money laundering and even terrorist financing activities. However, the authorities have not conducted any study or assessment of the risks of money laundering or terrorist financing associated with drug trafficking and other related crimes.

51. According to the authorities, the largest source of ML is drug trafficking. Other significant but less important predicate offenses and sources of ML are cited to include: arms trafficking, financial crimes, human trafficking, kidnapping, corruption of public officials and illicit enrichment. With respect to predicate crimes committed outside of Panama, the authorities indicate that these would include activities related to financial crimes, tax crimes (tax evasion is not a predicate crime for ML in Panama) and fraud. These foreign offenses are likely to be linked with Panama’s position as an offshore jurisdiction. It is believed that ML related to these crimes is conducted electronically through the use of computers and the internet using new banking instruments and systems both in Panama and internationally. The authorities indicated that the diversity of foreign predicate crimes has been increasing in recent times.

52. No information or estimates were provided on the extent of these domestic and foreign predicate crimes and the amount of related ML conducted in, through or from within Panama. The authorities have informed that no TF cases had been detected within Panama up to the time of the on-site visit. Statistics on the number of STRs received by the UAF shows a decline from 1,315 STRs in 2008 to 652 in 2011, and 405 for the first half of 2012. The decline was largely consistent across all sectors with banks showing the largest decline from 1,024 STRs in 2008 to 481 in 2011. The reasons for this decline are discussed under Recommendations 13 and 26 of this report and assessors are of the view that these statistics are not a reliable measure of the volume of predicate crimes and related ML/TF which, as indicated in the preceding paragraph, may be increasing.

53. Notwithstanding the above, no statistics were provided by the judicial branch with respect to cases to substantiate a link between STRs and predicate crimes. Panama does not have a computerized system that would allow for a tracking of the cases along the penal chain. Statistics on the number of investigations, prosecutions and convictions of ML/TF are incomplete or missing. Panama provided the following statistics regarding the number of prosecutions for money laundering from 2009 to 2012, linked to the predicate offenses. However, it is noted that under the title “against the economic order” are grouped all the cases reported by the FIU, whose predicate offenses are unknown.

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54. Additionally, the authorities provided the following information on seizures and confiscations made between 2010 and 2012. However, there has been no study or analysis of these results.

55. BANK ACCOUNTS

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56. CASH

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57. MOVABLE AND IMMOVABLE PROPERTY (no valuation provided)

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58. In the Detailed Assessment Questionnaire (DAQ), no statistics were provided with respect to prosecutions, convictions and confiscations associated with predicate crimes and/or related ML/TF that would provide assessors with a reliable and more general overview of the extent of criminality in Panama, the risks to its economic and other adverse consequences. Nonetheless, the authorities indicated that criminal organizations use both the traditional financial sectors to launder money as well as other economic sectors that are vulnerable due inadequate or the absence of prevention mechanisms in those sectors. A key factor contributing to this vulnerability, as acknowledged by the authorities, is that not all the financial and non-financial sectors are subject to the AML/CFT regime (mainly the AML Law of 2000, subsidiary instruments and supervision) of Panama.

Money Laundering methods, typologies, and trends

59. The authorities only provided a generic description of the types of instruments and vehicles used to launder property but which may not be specific to Panama. For purposes of this assessment, it is assumed that all of those methods and typologies also apply in Panama. No specific information was provided about changes in ML patterns as a result of countermeasures employed. The following vulnerable entities and sectors were cited by the authorities:

  • Use of offshore banks established in tax havens. Note that Panama issues a special international (offshore) license for banks that are only permitted to conduct business with foreigners. At the time of the mission, 48 banks operated under international licenses out of a total of 79 banks.

  • Structuring of electronic (wire) and banking transfers within and across countries including through the internet. In light of the significant proportion of international business conducted by financial and non-financial businesses in Panama (see next section), the use of cross-border transfers can be assumed to be substantial as well as the inherent ML/TF risks in such operations.

  • Shell and shelf companies that may not be active, exists only on paper but which can be used to receive and transfer property. It is noted that Panama is considered an important corporate and trust services jurisdiction and is believed to have a significant number of companies with issued bearer shares. At the time of the mission there was no requirement to immobilize or otherwise hold shares in custody or to register the true beneficial owners or controllers. Post mission in July 2013, a law (Law 47 of 2013) that provides for the custody of bearers shares was passed and published in August 2013. This law will not come into effect until August 2015 (two years from publication) and for bearer shares issued prior to the law coming into effect (August 2015), there will be an additional transition period of three years ending August 2018. In addition, each legal entity established in Panama must appoint a Registered Agent (not subject to the regular AML/CFT regime of Panama applicable to financial and non-financial sectors) that should conduct customer due diligence and keep records pursuant to a special law (Law 2 of 2011) and under strict secrecy. The UAF, as the cornerstone of Panama’s AML/CFT institutional regime, does not have access to the information on companies Registered Agents (RAs) represent (especially beneficial ownership and control) and RAs are not subject to an ongoing supervisory regime.

  • Others: lawyers, accountants, and notaries (not subject to the AML/CFT regime in Panama), issuers and operators of debit and credit cards including prepaid cards (not subject to the AML/CFT regime in Panama), financial leasing companies (not subject to the AML/CFT regime in Panama), factoring companies, money exchange and FOREX businesses, casinos and games of chance including internet casinos, firms engaged in the purchase, sale and auction of art and antiques (not subject to the AML/CFT regime in Panama), car dealers (not subject to the AML/CFT regime in Panama), private associations and foundations (not subject to the AML/CFT regime in Panama), and firms engaged in electronic commerce activities (not subject to the AML/CFT regime in Panama). See Recommendations 5, 23, 29, 12, 16, and 24 for a description of financial and non-financial activities that are not subject to Panama’s AML/CFT regime. Most of the high risk sectors indicated by the authorities are not under such regime.

Financing of Terrorism

60. There are no statistics regarding provisional measures, prosecutions or criminal sanctions related to terrorism or TF. The authorities indicated that they are not aware of cases of terrorism finance. They do state however, that Colombian armed groups (presumably includes the FARC which Colombia and some other countries have designated as a terrorist organization) occasionally enter Panamanian territory in the border areas. In its DAQ response, the authorities indicated that a review of assistance provided by Panamanians to such Colombian groups was classified as “humanitarian collaboration.”6 To the extent that any of these groups are considered by Panama and/or other countries as terrorist organizations by virtue of their activities or acts (as defined under the applicable UN Convention and related instruments), any financing elements of their operations taking place or being facilitated in, from within or through Panama should be considered as a real risk of TF for Panama. On this assumption, any narco-terrorist group from other countries that are involved in predicate offenses e.g., drug and arms trafficking, would represent a real and significant risk of terrorism financing for Panama if any funds associated with such activities and groups involve the use of Panamanian institutions, corporations, foundations, persons, and facilities, etc. The authorities have indicated that drugs and arms trafficking are two of most significant sources of money laundering in Panama.

2.3. Overview of the Financial Sector7

61. Panama is an important regional financial services center, especially for Central America and South America. Most of the financial services offered are traditional products and there is no significant activity on derivatives and other structured products. Globally, Panama is not a large financial center with respect to deposits liabilities. Panamanian banks have at around $40 billion in deposits, significantly below the levels seen in major offshore financial centers (Hong Kong SAR, $845 billion; Singapore, $870 billion) or other regional offshore centers such as the Bahamas ($488 billion) and Cayman Islands ($1,782 billion).

62. There are five regulatory and supervisory agencies involved in the oversight of the financial sector in Panama, namely the Superintendency of Banks (SBP) for banks and trust companies; the Superintendency of the Securities Market (SMV) for the stock exchanges, brokerage houses, stock brokers investment fund managers, and clearing houses; the Panamanian Autonomous Institute for Cooperatives (IPACOOP) for savings and loans cooperatives; the Superintendency of Insurance and Re-Insurance (SSRP) for insurance companies, re-insurance companies and re-insurance brokers; and the Ministry of Commerce and Industry (MICI) for finance companies, money remitters, and foreign exchange houses (casas de cambio).

Banking Sector

63. At the time of the mission there were 79 banks operating in Panama, including one in liquidation. In addition, there were 14 bank representative offices. Of the operating banks, two are state-owned, 48 had general (onshore) licenses, and 28 had international (offshore) licenses (Table 3). At end 2012, total assets of $89.8 billion and total deposits were $64 billion representing an increase of about 10.5 percent from the previous year. Of these deposits, $54.5 billion were held by onshore banks and $9.5 billion by offshore banks. Onshore banks had about $17 billion in deposits from foreigners and $37.5 billion from local depositors. Total deposits (foreigners) in the offshore banks were $9.4 billion resulting in total foreigner deposits in the private banking sector of about $26.5 billion. However, the real volume of offshore and foreigner deposits is likely to be significantly understated because Panamanian registered companies, including foreign-based/owned companies registered in Panama, as well as Panamanian offshore companies, trusts and foundations are classified as local deposits.

64. Panama’s onshore banks are largely foreign-owned, with the latter accounting for about 50 percent of total onshore deposits and about 52 percent of total foreign deposits, including offshore banks. Some foreign banking groups from Latin America have based their regional activity in Panama, including several of Central America’s largest regional financial groups. Some of the largest onshore banks are also part of conglomerates that own several other types of financial institutions, including insurance companies, asset management firms, leasing firms, and factoring companies. The following table illustrates:

Banking Sector

(in US$ billions)

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Source: Superintendencia de Bancos de Panama website.

65. Trustees fall under the supervision of the SBP and can provide both trust services and other nontrust business activities for clients (e.g., foreign company incorporation, administration of foreign trusts, and private foundations, etc.). In practice such business can be conducted by banks, insurance companies, lawyers and any other natural or legal person that habitually engage in trust business. There are currently 69 trustees.

Capital market

66. The domestic capital market is relatively small and unsophisticated with most market intermediaries, especially brokerage houses (which are also authorized to conduct FOREX business pursuant to Art. 72 of Law 1 of 1999 as amended), primarily engaging in transactions in international markets. At the time of the mission, there were: 81 brokerage houses of which 17 were members of the Panamanian stock exchange, 16 investment fund managers, 44 investment advisors, one stock exchange, one clearing house, and eight credit rating agencies. Stock brokers are part of a brokerage house and do not operate independently.

67. No updated information was provided on the volume of activities of securities firms but based on 2011 figures, the total volume of transactions conducted by brokerage houses during that year was about $83 billion, of which only 35 percent was accounted for by brokers that were members of the stock exchange and 65 percent by nonmembers. Of the total volume of transactions, 91 percent were international transactions. This indicates that most of the stock broking activities are offshore in nature. Similar results were recorded for investment advisors who managed about 3,665 accounts ($5.6 billion) of which 75 percent were for foreign clients.

68. The SMV supervises Bolsa de Valores and Latin Clear, both of which are self-regulatory organizations (SROs). The Bolsa is a demutualized corporation organized under Panama Law. Its shareholders include the main local banks, commercial firms, insurance companies and brokerage houses. Latin Clear acts as the central securities depositary for performing custody, clearing, and settlement operations for equity instruments, government bonds, corporate bonds, commercial paper, and treasury certificates. The securities held at the depositary are immobilized.

Cooperatives and savings and loans

69. At the time of the mission, there were 167 credit and savings cooperatives and 25 multipurpose cooperatives that also offer credit and savings products. As of December 2011, total assets of cooperatives were $811 million and equity contributions were $141.2 million. The four largest cooperatives hold 53 percent of the sector’s assets and almost 60 percent of deposits. Technically, the multi-purpose cooperatives are not subject to the AML/CFT regime because only the savings and loans cooperatives are covered by the main AML Law (Law 42 of 2000).

Savings and Loan Mortgage Associations and Companies (hereinafter “associations” or “asociaciones”) and the National Mortgage Bank (Banco Hipotecario Nacional)

70. There are four savings and loans mortgage associations that make up Panama’s National Mortgage Savings and Loans System (SINAP) that are primarily engaged in real estate lending. According to the authorities, their loan limit is B55,000 per customer and is regulated by the National Mortgage Bank (“Banco Hipotecario Nacional”). As their name implies, they are authorized to accept savings and can be organized as companies or mutual entities. None of these entities are subject to the AML/CFT regime of Panama. Statistics on their operations As at December 31, 2012 follow:

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Insurance sector

71. The insurance sector is small relative to the banking sector, but expanding. There are 31 licensed insurance companies of which 31 are authorized to sell policies for individuals and 27 are composites (general, life and guarantees (fianzas), and five pure lives. The sector’s assets account for 5 percent of GDP. For 2012, premia subscribed totaled about $1.2 billion of which life policies accounted for about $255 million (individual $120 million and group $135 million). Health, automobile and guarantees (fianzas) accounted for the other top three sources of premia followed by “other” category which totaled about $112 million. It is not known what proportion of insurance policies and amounts relate to policies that have investment features. The top three companies accounted for about half of total premia. Total assets at the end of 2011 for all insurance companies were $1,700,000,000.

72. These entities are licensed to conduct various lines of business including individual and group policies for medical and life insurance, and annuities, etc. Licenses for general insurance are also issued covering various risks including fire, theft, and accidents, etc. Some insurers are also licensed as sureties for, inter alia, for contracts and payments, including construction bonds and other guarantees.

73. The following insurance intermediaries have been authorized in accordance with their line of business:

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74. Under the Insurance Law (Law 12/2012), the SSRP is responsible for the regulation and supervision of insurance companies, insurance agency administrators, insurance broker administrators, adjusters, insurance brokers (individual or companies), captive insurers, captive insurance administrators, and re-insurance and re-insurance brokers.

Bureau de change (Casas de Cambio)

75. There are an estimated 79 bureaux de change (casas de cambio) operating in Panama but this activity is not regulated or supervised but they are covered under the AML Law which designated the MICI as the supervisor for AML purposes. There are no statistics with respect to the size and activities of the sector, nor information with respect to their ML/TF risks.

Money Remitters

76. At the time of the mission there were 17 money remittance firms operating in Panama. During 2011, equivalent of $2.4 billion was sent abroad and $2.8 was received. Remitters are subject to the AML Law and supervised by MICI.

Other Financial Institutions

77. In addition, there are other types of financial entities operating in panama including finance companies (subject to the AML Law), leasing and factoring companies (both not subject to the AML Law) as follows: 162 finance companies and 124 leasing companies. No data was provided for factoring companies. It is estimated that these entities represent approximately 2.5 percent of GDP. Total assets of finance companies at the end of 2011 was $843 million, of which loans and receivables totaled about $759 million or 90 percent. These assets were funded mainly through loans and other accounts payable ($453 million) and “other liabilities” ($185 million). No detailed information was available for leasing companies’ assets.

78. There are also about 285 pawn shops (not subject to the AML Law) that engage in collateralized lending.

79. The tables below reflect the breakdown for each type of financial institution operating in Panama.

Statistical Table 1.

Structure of Financial Sector, 2012

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Statistical Table 2.
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80. The following table sets out the types of financial institutions that can engage in the financial activities that are within the definition of “financial institutions” in the FATF 40+9.

Statistical Table 3.

Financial Activity by Type of Financial Institution

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2.4. Overview of the DNFBP Sector

81. Panama has all categories of DNFBPs operating in or from within the country and their activities appear to be significant, based on their numbers as shown in the following table.

Statistical Table 4.

Financial Activity by Type of Financial Institution

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82. Law 42 of 2000 (the main AML Law) covers casinos (including internet casinos), real estate brokers (and developers that can also conduct brokerage business) doing business as legal persons, and trustees (“fiduciaries” that are legal persons). Nonetheless, only trustees are subject to all of the provisions of AML Law 42, while casinos and real estate brokers are only subject to cash and quasi-cash reporting (CTR) obligations. As for the financial sector, Law 42 only covers AML and does not cover CTF issues. There are no AML/CFT measures or supervision for lawyers, accountants, notaries, company services providers (other than some customer due diligence requirements for registered agents (that must be lawyers) under Law 2 of 2011), and for dealers in precious metals and dealers in precious stones.

83. Panama is an international center for corporate and trust services where lawyers and accountants play a key role in the conduct of such business. Trading in precious metals and stones is also a significant activity, particularly in the Colon Free Trade Zone. Nonetheless, as noted above, they are not subject to AML Law regime (Law 42). Resident Agents, who must be lawyers, are covered by Law 2 of 2011 but only with respect to certain customer identification requirements and with a more lenient approach compared to the ones applicable to e.g., trustees.

2.5. Overview of commercial laws and mechanisms governing legal persons and arrangements

84. Legal persons in Panama are covered under Article 64 of the Civil Code of 1917, as well as in other specific legislation. The following relevant legal entities can be incorporated in Panama:

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85. Panama did not provide statistics on the total number of entities that have been registered to date and which may still be active stating that the database used by Public Registry does not easily allow the generation of such information, including how many companies have issued bearer shares. They provided information on the number of registrations since 2009 as shown below.

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86. The extent of available information on these legal persons differs considerably by their type. General information can be gathered from the Public Registry, but it does not include information on their beneficial owners (e.g., corporations, both with nominative and bearer shares, and private foundations).

87. Legal personality of NPOs is granted by the Ministry of Government that keeps a record of NPOs. Once legal personality is granted, the NPOs are registered with the Public Registry of Panama and with the Panamanian taxation authority for tax exempt status.

2.6. Overview of Strategy to Prevent Money Laundering and Terrorist Financing

AML/CFT Strategies and Priorities

88. In its DAQ, the authorities state that the National Council for the Study and Prevention of Crimes Related to Drugs (CONAPRED) was in the process of developing a new National Drugs Strategy for 2012–2017, which would include ML related to drug trafficking. CONAPRED falls under the Public Ministry (Ministerio Publico). However, the proposed Strategy and CONAPRED are primarily focused on domestic narcotics demand and supply issues, and would not specifically address nondrug crimes and sources of ML. Neither does it address TF issues. Previous Strategy documents include specific AML objectives and activities. It is not clear whether or how CONAPRED’s AML strategies and activities integrate into a broader national AML/CFT strategy and policy that is led by the High Level Presidential Commission on AML/CFT, as discussed further below.

The Institutional Framework for Combating Money Laundering and Terrorist Financing

89. There is a number of public sector institutions (some with private sector participation) involved in national AML/CFT efforts. The roles of the principal agencies are described below.

90. The Ministry of Finance and Economy is a key player in national AML/CFT efforts particularly as it chairs the High Level Presidential Commission on AML/CFT (Commission Presidencial de Alto Nivel) that was established by Executive Decree in June 2003, substituting a similar Commission established in 1995 to deal only with drug-related AML issues. The primary mandate of the Presidential Commission, as established in this Decree is stated as:

Article 1: The High Level Presidential Commission against Money Laundering and the Financing of Terrorism is hereby established as a Permanent Consultative Council Ad-Honorem, to advise the President of the Republic in relation to the implementation of the necessary measures to develop the national policy against money laundering and the financing of terrorism, as this crime is defined in the Penal Code and Law No. 22 of 9 May 2002.”

91. A legal amendment in 2005 added additional functions of the Presidential Commission to include (i) coordination activities of the public and private sectors at national and international levels, to efficiently and consistently implement the national policy to combat ML and TF and (ii) to foster the implementation of measures to adequately develop and update the national AML/CFT policy. Further changes defined the administrative and operational functions of the Chair and the Commission. This Commission should lead the formulation of a comprehensive integrated national AML/CFT strategy but at the time of the mission, such strategy had not been developed. This Commission is made up of public and private sector representatives9 and meets once a year. The Commission is chaired by the Minister of Finance (or his designate) and the Secretariat is by the financial intelligence unit (UAF). Technical meetings are also organized. It is noted that CONAPRED is not specifically represented in this Commission. However, the Attorney General’s Office is represented in the Commission which also falls under the Public Ministry like CONAPRED.

92. Panama created a financial intelligence unit, the UAF10 (Unidad de Analisis Financiero) in 1995 which is now attached to the Ministry of the Presidency. It is in charge of receiving and analyzing suspicious transaction reports (STRs) from the reporting entities, and of disseminating cases to the Attorney General Office (PGN=Procuradoria General de la Nacion) that forwards cases for investigations to the various investigating units (Fiscalias). Composed of 26 staff, the UAF is the cornerstone of the institutional framework for combating money laundering and terrorist financing. The UAF is also in charge of receiving and maintaining statistics on cash transaction reports above the equivalent of B10, 000. It also receives statistics of cross-border currency transportation from the Customs Administration and has a role in national coordination, training and other AML/CFT activities with respect to both the public and private sectors.

93. The Attorney General Office11 (Procuradoria General de la Nacion) is in charge of prosecutions. It is made up of various specialized Prosecutorial Units (Fiscalias). Panama is currently transitioning from an inquisitorial to an accusatorial system. As a consequence, two procedural penal codes are coexisting until 2015–2016. The Organized Crime Unit is in charge of investigation money laundering and terrorism financing offenses when such offenses are not prosecuted jointly with the predicate offenses. This PGN/Organized Crime Unit is the main recipient of the cases from the UAF.

94. The Office of Judicial Investigations (Direccion de Investigacion Judicial – DIJ12) is the Police unit in charge of investigating penal offenses on Prosecutors’ requests. It has a specialized unit of nine investigators in charge of money laundering and terrorism financing cases. The Judicial System (Organo Judicial) and National Police also play a role in the enforcement of national AML/CFT measures.

95. The General Customs Administration13 is in charge of monitoring the cross-border cash transportation, through a system of disclosure. The declarations filled by travelers are later shared with the UAF, which maintains overall statistics of cash movements in Panama.

96. Other public agencies have been designated as supervisors for entities subject to Panama’s AML/CFT regime that are responsible for overseeing compliance with the applicable legislation (AML Law and subsidiary instruments some of which include CFT provisions). They also participate in other AML/CFT activities such as coordination, training and awareness-raising. These supervisors and the sectors they oversee for AML/CFT purposes are (Executive Decree 55 of 2012): (i) Superintendency of Banks (for banks and trust companies); (ii) Superintendency of Securities Markets (for brokerage houses/brokers, investment managers, and securities clearing house (centrales de valores); (iii) Superintendency of Insurance and Reinsurance (insurance and reinsurance companies, and reinsurance brokers); (iv) Panamanian Autonomous Cooperatives Institute (savings and loan cooperatives); and (v) Ministry of Commerce and Industry casas de cambio (not a regulated activity), finance companies, remittance firms, real estate brokers and developers, free zones under its jurisdiction); National Lottery (as an SRO for the sale of lottery tickets); Ministry of Economy and Finance (for casinos and other games of chance); and three Administrators of Free/special commercial Zones (for entities in the Colon Free Zone, Baru Free Zone and Agencia Panama-Pacifico).

97. As noted above, not all of the financial and designated non-financial businesses operating in Panama that are covered by the FATF Recommendations are subject to the primary 2000 AML Law and are, therefore, not subject to AML/CFT supervision by any of the above supervisors for AML/CFT compliance purposes. (See Recommendations 5, 23, and 29 of this report).

Approach Concerning Risk

98. The authorities have not conducted an assessment of ML/TF risks at the national, regional or sectoral level to inform the formulation of national strategies, law and regulations, policies, systems, and procedures to combat ML/TF. The Superintendency of Banks has initiated efforts to apply risk-based processes for AML/CFT supervision of banks and trust companies but at the time of the mission this had not been fully developed and implemented. There has also not been a formal risk assessment to better inform this initiative.

99. With respect to the scope of the application of the 2000 AML Law, a number of financial and non-financial activities listed by the FATF and being conducted in Panama are not covered. Subsidiary legislation and particularly administrative regulatory instruments have extended some AML/CFT obligations to the covered entities and also extended coverage to additional entities not subject to the AML Law. In cases where the AML Law and subsidiary instruments do not include some FIs and DNFBPs, and where the provisions do not fully cover the FATF requirements, they have not been based on an assessment of risk in those sectors or activities to support their exclusion or partial applicant of the FATF requirements. In addition, many of the provision in these subsidiary instruments go beyond the main AML Law in contravention of explicit Constitution provisions.

Progress since the Last IMF/WB Assessment or Mutual Evaluation

100. Since the last AML/CFT assessment of Panama in 2005, the authorities reported the following principal measures to strengthen the national AML/CFT regime, with comments from the assessors where applicable.

101. 2012: New Superintendency of Insurance and Reinsurance was created and is now responsible for AML/CFT supervision.

102. Colon Free Zone Authority establishes an AML/CFT unit to review compliance by firms operating within the Zone.

103. 2011: Law establishes inter-institutional coordination and cooperation system amount the supervisory agencies and created the Superintendency of Securities Markets.

104. 2011: Law on Registered Agents (which must be lawyers) for corporate/legal entities establishes customer due diligence requirements for their clients. The law does not extend the full AML obligations as for e.g., trust companies, imposes strict secrecy restrictions on registered agents, does not require custody of bearer shares of companies, does not require Registered Agents to Report Suspicious Transactions and does not allow the UAF to have access to their records. Registered agents are not subject to the AML Law and a supervision regime as are the other covered financial and non-financial entities. The Supreme Court has power to sanction registered agents. It is not clear why they were not covered by under the 2000 AML Law as are e.g., trust companies.

105. 2010: Penal Code amended to sanction for failure to declare or falsely declare cross-border currency movements exceeding B10,000. Customs authorities issued a resolution to give effect to this requirement with respect to travelers subjected to such declarations. However, the requirements for travelers leaving the country have not been implemented.

106. 2010: Amending legislation for provisional restraint, disposal and distribution of property linked to certain crimes including ML and TF.

107. 2007: Penal Code added TF and made it a predicate offense to ML, and added 14 additional predicate offenses.

108. 2005: UAF and National Mortgage Bank enter into an arrangement for savings and loans associations send CTRs to the UAF. However, neither the mortgage bank or savings and loans associations are subject to the 2000 AML Law, hence this arrangement is minimal. There is an administrative requirement for such associations to prepare know your customer manuals and the transfer of their supervision to the Superintendency of Banks is being contemplated.

109. Based on the above and while some of these measures are important, there still remain significant systemic gaps and deficiencies in the AML/CFT regime including the inadequacy and unconstitutionality of key provisions of the legal framework, gaps in legal and supervisory coverage of financial and DNFBP businesses operating in Panama that fall under the FATF Recommendations, lack of transparency of beneficial ownership and control of legal entities and arrangements, deficiencies in customer due diligence and the use intermediaries/introducers, etc.

3. Legal System and Related Institutional Measures

Laws and Regulations

3.1. Criminalization of Money Laundering (R. 1 and 2)

3.1.1. Description and Analysis14

110. Legal Framework:

111. Panama has ratified the United Nations Convention against Transnational Organized Crime through Law 23 of 2004 and the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances through Law 20 of 1993. Panama has criminalized money laundering offense under Sections 254 to 259 of the Penal Code, as adopted by Law 14 of 2007 (Amended by Act 26 of 2008, Act 5 of 2009, Law 68 of 2009, Act 14 of 2010 and Act 40 of 2012), under Book II, Title VII Crimes against the Economic Order, Chapter IV Money Laundering.

112. Criminalization of Money Laundering (c.1.1—Physical and Material Elements of the Offense):

113. Section 254 of the Penal Code provides that: “whoever, personally or through another person, receives, deposits, trades, transfer or convert money, securities, property and other financial resources, reasonably foreseeing that they come from activities related to international bribery, the Offenses against the Law of Copyright and Related Rights, against Industrial Property Rights or against humanity, drug trafficking, illicit association to commit drug offenses, qualified fraud, financial crimes, illegal arms trafficking, human trafficking, kidnapping, extortion, embezzlement, murder for money or reward, crimes against the environment, corruption of public officials, illicit enrichment, acts of terrorism, financing of terrorism, pornography and corruption of minors, trafficking and commercial sexual exploitation, or traffic of international vehicles, in order to hide, conceal or disguise the illicit origin, or help evade the legal consequences of such offenses shall be punishable with five to twelve years in prison.”

114. Section 255 provides that: “It shall be punished with the penalty referred to in the preceding article whoever:

115.

1. Without their participation, but knowing its provenance, conceals, disguises or impedes the determination, origin, location, destination or ownership of money, goods, securities or other financial resources, or help secure their advantage, when these come from or are obtained directly or indirectly from any of the illegal activities mentioned in the preceding article, or otherwise, help secure their advantage.

2. Performs transactions personally or through another legal or natural personal, in banking, financial, commercial or any other kind of establishment, utilizing money, securities or other financial resources from some of the activities mentioned in the previous article.

3. Personally or through another person, natural or juridical, provides to any person or banking institution, financial, business or other nature, false information to open bank account or to carry out transactions with money, securities, property or other financial resources, from of some of the activities planned in the previous article.”

116. Section 256 criminalizes the reception and use of money or any financial resources coming from money laundering to finance political campaigns.

117. Section 257 punishes whoever knowingly uses his function, employment, trade or profession to authorize or permit the crime of money laundering.

118. Section 258 provides that: “a public official who conceals, alters, removes or destroys evidence or proof of crime related to money laundering, or procures the escape of the person arrested, detained or sentenced, or receives money or other benefits in order to help or hurt to any of the parties to the proceedings shall be sentenced to three to six years in prison.”

119. The offense covers explicitly the following material elements of the ML offenses as defined in the Vienna and Palermo Conventions: the conversion or transfer of property, knowing that such property is the proceeds of crime (“reasonably foreseeing”), for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offense to evade the legal consequences of his or her action; the concealment or disguise of the source, location, disposition, movement or ownership of or rights with respect to property, knowing (“reasonably foreseeing”) that such property is the proceeds of crime; the acquisition, possession or use of property (the sole reception of the criminal proceeds is criminalized), knowing, at the time of receipt, that such property is the proceeds of crime. The concealment of the “true nature” of property derived from a predicate offense is not covered explicitly. However, there is firm jurisprudence which interprets the text as comprising that element. According to a Sentence of the Second Chamber on Criminal Matters of the Supreme Court of Justice of 16 December 2010: “the aim of money laundering is to conceal the nature, location, source and ownership of the proceeds for the purpose of obstructing and avoid detection by the authorities.”

120. The Laundered Property (c. 1.2):

121. The offense of ML extends to any type of property, regardless of its value, that directly or indirectly represents the proceeds of crime.

122. Section 254 of the Criminal Code covers all types of property regardless of its value: “who, personally or through another person, receives, deposits, trades, transfer or convert money, securities, property and other financial resources, providing reasonably come from ....”

123. Additionally, Section 255 extends to “money, goods, securities or other financial resources, or help secure their advantage, when these come from or are obtained directly or indirectly from any of the illegal activities mentioned in the preceding article.”

124. Although section 254 doesn’t mention explicitly the indirect proceeds, it must be interpreted in accordance with Section 29 of Law 23 of 1986, as amended by Section 1 of Act 34 of 2010, which provides for the provisional seizure of the instruments, the movable and immovable property, securities, the derivatives or products related with the commission of (among other offenses) money laundering and terrorism. That provisional seizure must be ordered on the properties directly or indirectly related to the abovementioned unlawful activities. The same provision is included in Section 252 of the Criminal Procedure Code.

125. It is important to note that, under Section 327 of the Civil Code, the concept of personal property includes rights and obligations, and actions, related to personal property; shares and participation shares in commercial and civil companies, even when they possess immovable property; and personal incomes and pensions.

126. Proving Property is the Proceeds of Crime (c.1.2.1):

127. Section 254 criminalizes money laundering as an autonomous offense. It establishes the list of predicate offenses as activities related with certain serious crimes and it is not necessary that a person be convicted of a predicate offense when proving that property.

128. Through case law it has been noted that money laundering is an autonomous crime and that a conviction on the predicate offense is not needed in order to proceed to trial, prosecute or sentence for money laundering. (e.g.: Sentences of the Second Chamber on Criminal Matters of the Supreme Court of Justice of January 2, 2005; July 7, 2009; and April 7, 2011).

129. For such purpose, the existence of a prior activity related with some of the predicate offenses listed in Section 254 can be inferred through indicia (cases of January 24, 2005 and July 7, 2009 sentenced by the Criminal Chamber of the Supreme Court).

130. The Scope of the Predicate Offenses (c.1.3):

131. The following FATF-designated categories of predicate offenses are covered under Panamanian law (Section 254 of the Penal Code):

  • Participation in an organized criminal group and racketeering. This only involves the participation in an illicit association to commit drug-related offenses;

  • Terrorism, including terrorist financing;

  • Trafficking in human beings and migrant smuggling;

  • Sexual exploitation, including sexual exploitation of children;

  • Illicit trafficking in narcotic drugs and psychotropic substances;

  • Illicit arms trafficking;

  • Illicit trafficking in stolen and other goods. This only covers the illicit trafficking of stolen vehicles;

  • Corruption and bribery;

  • Fraud;

  • Counterfeiting and piracy of products;

  • Environmental crime;

  • Murder, grievous bodily injury;

  • Kidnapping, illegal restraint and hostage-taking;

  • Robbery or TF. This only covers the theft of vehicles

  • Extortion;

  • Financial crimes (this includes insider trading and market manipulation – Sections 243 to 253 of the Penal Code);

  • The following FATF-designated categories of predicate offenses are not covered:

  • Counterfeiting currency;

  • Smuggling;

  • Forgery; and

  • Piracy.

132. Threshold Approach for Predicate Offenses (c.1.4):

133. Panamanian law doesn’t apply a threshold approach for predicate offenses.

134. Extraterritorially Committed Predicate Offenses (c.1.5):

135. Predicate offenses for money laundering extend to conduct that occurred in another country, which constitutes an offense in that country, and which would have constituted a predicate offense had it occurred domestically. Section 20 of the Penal Code provides that the Panamanian criminal law applies to offenses committed abroad, when they produce or must produce their effects in Panamanian territory.

136. Laundering One’s Own Illicit Funds (c.1.6):

137. The offenses of money laundering established under Section 254 of the Penal Code (conversion or transfer of property) can be applied to persons who commit the predicate offense,, once there is no legal exemption or prohibition on that matter. However, Section 255, which criminalizes the conducts of concealment and disguise, explicitly provides that, in those cases, the offense of money laundering does not apply to persons who committed the predicate offense.

138. Ancillary Offenses (c.1.7):

139. Ancillary offenses are defined in the general section of the Penal Code and apply to all offenses, including ML. All ancillary offenses provided for under the Vienna and Palermo conventions are covered under Panamanian law as discussed below:

a) Illicit Association:

Section 320 provides that, when three or more persons agree for the purpose of committing crimes, each shall be punished for that fact alone with imprisonment of three to five years. If the association is to commit, among others, the crimes of money laundering or terrorism, the penalty will be six to twelve years in prison.

b) Attempt:

According to Section 82 of the Penal Code, attempt shall be sentenced to not less than half the minimum or more than two-thirds of the maximum sentence.

c) Aiding and abetting, facilitating and counseling:

Section 80 of the Penal Code provides that the author, the primary instigator and the primary accomplice will be punished with the same penalty that the law establishes for the offense.

Section 81 provides that the secondary accomplice will be punished with no less of half of the minimum or more of half of the maximum penalty that the law establishes for the offense.

Primary accomplice is who participates in the execution of the offense or provides assistance to the author without which he could not have committed the crime (Section 44).

Secondary accomplice is who, in any other way, helps the author or the authors, to commit the crime or, who helps or conceals the product of the crime in compliance with an agreement mad prior to its execution (Section 45).

Instigator is whoever prompts other or others to commit crimes (Section 47).

140. Additional Element—If an act overseas which do not constitute an offense overseas, but would be a predicate offense if occurred domestically, lead to an offense of ML (c.1.8): An act overseas which do not constitute an offense overseas, but would be a predicate offense if occurred domestically, could lead to an offense of ML, as far as Section 254 refers to activities related to crimes, and it doesn’t make any distinction on where the predicate offense is committed or persecuted.

141. Liability of Natural Persons (c.2.1):

142. For the acts criminalized under Section 254 of the Penal Code it is required that the perpetrator either knew or may have reasonably foreseen that objects are the proceeds of criminal activity. For the acts criminalized under Sections 255 to 257 it is required that the perpetrator knew that objects are the proceeds of criminal activity. Only the intentional commission of money laundering is criminalized, according to Sections 26 and 27 of the Penal Code, unless there is a legal exception.

143. The Mental Element of the ML Offense (c.2.2):

144. The Panamanian law permits the intentional element of the offense of ML to be inferred from objective factual circumstances. Section 376 of the Criminal Procedures Code (CPC) establishes the principle of evidential freedom. This principle states that the facts and circumstances related with the punishable facts may be proved by any means of evidence, except for the exceptions provided for in the laws. Additionally, Section 380 provides that Judges shall appraise and assess each of the evidence in accordance with sound judicial discretion (sana crítica). The assessment may not contradict the rules of logic, the maxims of experience or scientific knowledge.

145. Liability of Legal Persons (c.2.3):

146. Section 51 of the Penal Code establishes that: “when a legal person is used or created to commit a crime whenever it is benefited by it, any of the following sanctions shall be applied to it:

  • 1. Cancellation or suspension of license or registration for a term not exceeding five years.

  • 2. Fine of not less than five thousand balboas (B5,000.00) and not more than twice the damage or the patrimonial benefit.

  • 3. Total or partial loss of tax benefits.

  • 4. Disqualification to contract with the State, directly or indirectly, for a term not exceeding five years, which will be imposed along with any of the above.

  • 5. Dissolution of the company.

  • 6. Fine of not less than twenty five thousand balboas (B25,000.00) and not more than twice the damage or the patrimonial benefit, in the case of the legal person being the provider of the service of transportation by which drugs enter the country.”

This provision doesn’t cover the hypothesis when a legal person is utilized to launder money but is not benefited by it.

147. Criminal Liability of Legal Persons should not preclude possible parallel criminal, civil or administrative proceedings and (c.2.4):

148. Additionally, Section 128 or the Penal Code provides that every criminal offense generates civil liability for its perpetrators, instigators and accomplices. However, the authorities have not informed what civil or administrative sanctions are applicable in these cases.

149. Sanctions for ML (c.2.5):

150. The Penal Code sanctions the different conducts of money laundering as follows:

  • Sections 254 and 255: five to twelve years of imprisonment;

  • Section 256: five to ten years of imprisonment;

  • Section 257: five to eight years of imprisonment; and

  • Section 258: three to six years of imprisonment.

151. The applicable sanctions for ML seem to be in line with the sanctions applicable to other serious criminal offenses under the Panamanian law. For example, fraud and robbery are sanctioned with up to twelve years of imprisonment. Drug trafficking is punished with up to fifteen years of imprisonment.

152. Moreover, sanctions for ML offenses are reasonably in line with the range for FATF countries, especially in the region (i.e., in Argentina=2–10 years of imprisonment, in Brazil=3–10 years of imprisonment, in Mexico=5–15 years imprisonment, in Italy=4–12 years imprisonment, in the United States=fine and/or imprisonment of up to 20 years or both, in the United Kingdom=fine, imprisonment of up to 14 years or both).

153. Statistics (R. 32):

154. Panamanian authorities provided the following statistics on prosecutions and convictions relating to ML:

a) Number of judicial investigations for money laundering from 2009 to 2012, indicating the origin:

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b) Number of judicial investigations for money laundering from 2009 to 1012, indicating the predicate offenses are presented below. It must be noted that under the title “against the economic order” are grouped all the cases reported by the FIU, whose predicate offenses are unknown.

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c) According to the Ministerio Público, the number of judgments/verdicts for money laundering from 2009 to 2012 are the following (ACC. Means “accused”):

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155. However, the Judiciary Organ reported that there were nine sentences and nine acquittals in 2010–2011. This information clearly contradicts the figures provided by the Ministerio Público.

156. The authorities reported that there are only definitive judgments for money laundering which involve drug-trafficking as a predicate offense.

Analysis and Effectiveness

157. From a legal standpoint, the money laundering offense does not have serious structural deficiencies which could pose formal difficulties in the prosecution of this crime. However, the number of prosecutions seems to be relatively low, taking into account the size of the financial and economic system of Panama, as well as the risks posed by the varied services provided in the country and its strategic geographic situation. This could be due to, inter alia, the following issues:

  • Deficiencies of the preventive system;

  • Insufficient resources and training provided to the competent authorities; and

  • The law enforcement authorities in Panama focus their investigative efforts mainly on drug-trafficking related money laundering.

158. The authorities haven’t provided information on the following issues:

  • Differentiation between prosecutions and convictions relating to money laundering in conjunction with a predicate offense and those for autonomous stand-alone money laundering offenses;

  • Third party laundering and self-laundering; and

  • The respective number of foreign and domestic predicates.

159. Additionally, the statistics provided by the authorities are not explicit enough regarding the range of penalties effectively applied. Therefore, it cannot be appropriately assessed whether the sentences are effective and dissuasive or not.

160. Finally, the poor maintenance and the lack of concordance of statistics at all stages of law enforcement authorities prevent an adequate and thorough assessment of the effectiveness of the enforcement of money laundering in Panama. Post mission, the authorities stated that they only maintain hard statistics on sentences (“fallos”) for drug-related cases and that other ML cases linked to other crimes are still under investigation.

3.1.2. Recommendations and Comments:

  • The following FATF-designated categories of crime should be included as predicate offenses to money laundering: counterfeiting of currency, smuggling, forgery, and piracy.

  • Illicit association as a predicate offense to money laundering should cover a wider range of crimes, not only drug trafficking.

  • Trafficking in stolen goods as a predicate offense to money laundering should cover a wider range of property, not only vehicles.

  • The offense of money laundering should apply to persons who committed the predicate offense with respect to the conducts of concealment and disguise regulated under Section 255 of the Penal Code.

  • Widen the scope of the criminal liability of legal persons in order to cover the hypothesis of such person being utilized to launder money whether it is benefited by it or not.

  • Establish clear parallel criminal, civil or administrative proceedings applicable when a legal person is convicted for money laundering.

  • Strengthen statistics for ML offenses throughout the chain of procedures from investigation to court decisions.

3.1.3. Compliance with Recommendations 1 and 2

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3.2. Criminalization of Terrorist Financing (SR. II)

3.2.1. Description and Analysis

161. Legal Framework:

162. Panama has ratified the International Convention for the Suppression of the Financing of Terrorism through Law 22 of 2002. It has also criminalized the financing of terrorism under Section 294 of the Penal Code, as adopted by Law 50 of 2003, under Book II, Title IX Crimes Against the Collective Security, Chapter I: Terrorism.

163. Criminalization of Financing of Terrorism (c.II.1):

164. TF is covered in Section 294: “whoever intentionally finances, subsidizes, hides or transfers money or other financial resources or of any other nature, to be used to commit any of the acts described in 293 of this Code, even though that person is not involved in its execution or the execution is not carried out, shall be sanctioned with 15 to 20 years of imprisonment.”

165. Section 293 criminalizes and defines terrorism: “Whoever, for the purpose of disturbing the public peace, cause panic, terror or fear in the population or any segment thereof, use radioactive material, gun, fire, explosive, biological or toxic substance or any other means of mass destruction or element that has that potential, against the living, public services, goods or things shall be punished with imprisonment from twenty to thirty years. The penalty shall be twenty-five to thirty years in prison for heads of organizations or terrorist cells or who help its creation or causes the death of one or more persons.”

166. The offense explicitly covers the material element of provision of funds as defined in the International Convention for the Suppression of the Financing of Terrorism: “finances, subsidizes, transfers.” It doesn’t cover the collection of funds.

167. Terrorist financing offense extends to any person who willfully provides funds with the unlawful intention that they should be used or knowing that they are to be used to carry out a terrorist act. The law doesn’t cover the financing of a terrorist organization or an individual terrorist and doesn’t contain a definition of the means by which the financing of terrorism can be carried out. Therefore, the commission by any means is punishable.

168. The indirect provision of funds is not explicitly covered and the authorities have not provided any jurisprudence or legal opinion upon that matter.

169. Terrorist financing offense extends to any funds as that term is defined in TF Convention. Section 294 refers to money, property, financial resources or any other nature. That includes movable and immovable property. As stated above, under Section 327 of the Civil Code the concept of personal property includes rights and obligations, and actions, related to personal property; shares and participation in shares in commercial and civil companies, even when these possess immovable property; and personal incomes and pensions. The definition includes funds whether from a legitimate or an illegitimate source.

170. Terrorist financing offense does not require the funds to be used to carry out or attempt a terrorist act. The action shall be punished “even though that person is not involved in its execution or the execution is not carried out.”

171. Ancillary offenses are defined in the general section of the Penal Code and apply to all offenses, including TF.

a) Illicit Association:

172. Section 320 provides that, when three or more persons agree for the purpose of committing crimes, each of them shall be punished for that fact alone with three to five years of imprisonment. If the association is to commit, among others, the crimes of money laundering or terrorism, the penalty will be six to 12 years in prison.

b) Attempt:

173. According to Section 82 of the Penal Code, attempt shall be sentenced to not less than half the minimum or more than two-thirds of the maximum sentence.

c) Aiding and abetting, facilitating and counseling:

174. Section 80 of the Penal Code provides that the author, the primary instigator and the primary accomplice will be punished with the same penalty that the law establishes for the offense.

175. Primary accomplice is who participates in the execution of the offense or provides assistance to the author without which he could not have committed the crime (Section 44). Section 81 provides that the secondary accomplice will be punished with not less than half of the minimum or more than half of the maximum penalty that the law establishes for the offense. Secondary accomplice is who, in any other way, help the author or the authors, to commit the crime or, who helps or conceals the product of the crime in compliance with an agreement mad prior to its execution (Section 45).

176. Instigator is whoever prompts other or others to commit crimes (Section 47).

The scope of terrorist acts

177. Pursuant to Section 2 TF Convention, countries are required to criminalize the financing of “terrorist acts,” whereby the term includes (1) conduct covered by the offenses set forth in the nine Conventions and Protocols listed in the Annex to TF Convention and (2) any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a Government or an international organization to do or to abstain from doing any act.

178. Section 293 covers, in a generic fashion, a range of offenses established in the Conventions and Protocols listed in the Annex to TF Convention as well as the hypothesis defined in paragraph 2. However, the regulation only applies when there is “the purpose of disturbing the public peace.” Additionally, in order to commit any of the terrorist acts, the author must have used some of the instruments mentioned in the law: “radioactive material, gun, fire, explosive, biological or toxic substance or any other means of mass destruction or element that has that potential.”

179. As far as those subjective and objective elements are not required in many of the offenses set forth in TF Conventions, their inclusion in the law limits the scope of the financing of terrorism crime in Panama.

180. Predicate offense for Money Laundering (c.II.2): Section 254 of the Penal Code establishes the activities related to the crimes of terrorism and financing of terrorism as predicate offenses to money laundering.

181. Jurisdiction for Terrorist Financing offense (c.II.3): It is not clearly established that terrorist financing offenses apply, regardless of whether the person alleged to have committed the offense(s) is in the same country or a in different country from the one in which the terrorist(s)/terrorist organization(s) is (are) located or the terrorist act(s) occurred/will occur. However, once the act of financing is committed as defined in the law in the Panamanian territory, it will be punished in accordance with the general rules set out by Sections 18 to 21 of the Penal Code.

182. Mental Element of TF offense (c.II.4) (applying c.2.2 in R. 2):

183. The Panamanian law permits the intentional element of the offense of ML to be inferred from objective factual circumstances. Section 376 of the Criminal Procedures Code (CPC) establishes the principle of evidential freedom. This principle states that the facts and circumstances related to the punishable facts may be proved by any means of evidence, except for the exceptions provided for in the laws. Additionally, Section 380 provides that judges shall appraise and assess the evidence in accordance with sound judicial discretion (sana crítica). The assessment shall not contradict the rules of logic, the maxims of experience or the scientific knowledge.

184. Liability of Legal Persons (applying c.2.3 and c.2.4 in R. 2):

185. As stated in relation to the offense of money laundering, Section 51 of the Penal Code establishes sanctions to the legal persons engaged in any criminal activity and also establishes that liability does not preclude possible parallel criminal, civil or administrative proceedings. This provision doesn’t cover the hypothesis when a legal person is utilized to launder money but is not benefited by it. There aren’t clear parallel criminal, civil or administrative sanctions and proceedings applicable when a legal person is convicted for terrorist financing.

186. Sanctions for TF (applying c.2.5 in R. 2):

187. The Penal Code sanctions the commitment of terrorism financing with 25 to 30 years of imprisonment. The applicable sanctions for TF seem to be in line with or above the sanctions applicable to other serious criminal offenses under the Panamanian law. For example, fraud and robbery are sanctioned with up to twelve years of imprisonment. Drug trafficking is punished with up to fifteen years of imprisonment and homicide is sanctioned with up to twenty years of imprisonment.

188. Statistics (R. 32):

189. Panama does not have statistics regarding terrorist financing.

Effectiveness of Implementation

190. According to the Panamanian authorities, there have not been any cases of terrorist financing; therefore, it is not possible to assess the effectiveness of the offense.

3.2.2. Recommendations and Comments

  • The terrorist financing offense should extend to any person who willfully collects funds for terrorism.

  • The terrorist financing offense should cover the financing of a terrorist organization and an individual terrorist.

  • The indirect provision of funds should be explicitly covered by the law.

  • All the offenses established in the Conventions and Protocols listed in the Annex to TF Convention as well as the hypothesis defined in paragraph 2 must be explicitly covered under the terrorist financing offense.

  • In order to commit any of the terrorist acts, it shouldn’t be required that the author must have used some of the instruments mentioned in the law: “radioactive material, gun, fire, explosive, biological or toxic substance or any other means of mass destruction or element that has that potential,” unless it is explicitly required by the international treatises.

  • Clearly establish that terrorist financing offenses apply, regardless of whether the person alleged to have committed the offense(s) is in the same country or a in different country from the one in which the terrorist(s)/terrorist organization(s) is (are) located or the terrorist act(s) occurred/will occur.

  • Establish clear parallel criminal, civil or administrative sanctions and proceedings applicable when a legal person is convicted for terrorist financing.

3.2.3. Compliance with Special Recommendation II

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3.3. Confiscation, Freezing and Seizing of Proceeds of Crime (R. 3)

3.3.1. Description and Analysis

191. Legal Framework:

192. The legal basis for freezing and seizing of the instruments and proceeds of crime is included in Section 29 of Law 23 of 1986 (amended by Section 1 of Law 34 of 2010) and Section 252 of the Criminal Procedures Code. Forfeiture is provided in Sections 50 and 75 of the Penal Code.

193. Confiscation of Property related to ML, TF or other predicate offenses including property of corresponding value (c.3.1):

194. The above-mentioned provisions explicitly provide for the seizing and forfeiture of: “the instruments, property and real estate, securities and derivatives of the commission, or related to the offenses against public administration, money laundering, financing of terrorism, drug trafficking and related crimes. The Panamanian law doesn’t provide for the confiscation of property of corresponding value.

195. Confiscation of Property Derived from Proceeds of Crime (c.3.1.1 applying c.3.1):

196. Seizure and forfeiture extend to property that is directly or indirectly derived from proceeds of crime, including incomes, profits or other benefits from the proceeds of crime. Sections 50 and 75 of the Penal Code provide for the forfeiture of the property, assets, securities and instruments used or derived from the commission of the offense. Those provisions don’t mention explicitly the property indirectly derived from crime. However, Section 252, of the Criminal Procedures Code, second paragraph, provides for the seizure of the property directly or indirectly related to illicit activities. Therefore, once the Penal Code doesn’t make an explicit distinction, they are covered.

197. Provisional Measures to Prevent Dealing in Property subject to Confiscation (c.3.2):

198. Section 29 of Law 23 and Sections 252 and 253 of the Criminal Procedures Code provide for provisional measures, including the freezing and/or seizing of property, to prevent any dealing, transfer or disposal of property subject to confiscation. According to this provisions, the instruments, assets, securities and derivatives related to crimes against the public administration, money laundering, financial, against intellectual property, terrorism, drug trafficking and related crimes will be temporarily seized, until the case is decided by the competent court.

199. Ex-Parte Application for Provisional Measures (c.3.3):

200. The abovementioned legal provisions don’t establish explicitly that the freezing and seizing is made ex-parte or without notice. However, according to the authorities it is done in practice and that the subject of the investigation or his legal defense is not informed beforehand.

201. Identification and Tracing of Property subject to Confiscation (c.3.4):

202. Law enforcement agencies, the FIU or other competent authorities have powers to identify and trace property that is, or may become subject to confiscation or is suspected of being the proceeds of crime. However, the authorities have restrictions on access to information on legal entities and arrangements held by lawyers, registered agents and others subject to the FATF Recommendations (see analysis on Recommendations 26, 27, and 28).

203. Protection of Bona Fide Third Parties (c.3.5):

204. Section 75 of the Penal Code excludes from the confiscation the property belonging to third parties not responsible for the offense. Additionally, Section 252 of the Criminal Procedures Code provides that provisional measures must be adopted respecting the rights of bona fide third parties, consistent with the provisions of the Palermo Convention.

205. Power to Void Actions (c.3.6):

206. Section 270 of the Criminal Procedures Code provides that, when there are reasonable grounds for concern that the situations that facilitate the commission of the offense may continue during the trial, the judge can implement the appropriate measures for protection or suspension in order to prevent the effects of crime. However, this doesn’t provide for voiding contracts and arrangements entered into prior to trial that would prejudice identification, tracing, investigations, freezing, seizure and confiscation.

207. Statistics (R. 32):

208. Seized and Forfeited Property in money laundering cases:

209. BANK ACCOUNTS

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210. CASH

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211. MOVABLE AND IMMOVABLE PROPERTY

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212. Additional Elements (R. 3)—Confiscation of Property which Reverses Burden of Proof (c.3.7):

213. Section 257 of the Criminal Procedure Code provides that the person accused on charges of money laundering, corruption of public servants, unjust enrichment, terrorism and drug trafficking must demonstrate the lawful origin of the property seized to request the lifting of the measure.

214. Panama doesn’t have any provisions for a) Confiscation of assets from organizations principally criminal in nature; or b) Civil forfeiture.

Effectiveness of Implementation

215. The volume of forfeited property for money laundering seems to be relatively small, taking into account the size of the financial and economic system of Panama, as well as the risks posed by the varied services provided in the country and its strategic geographic situation. It is noted that confiscations are largely cash and other money instruments and that other forms of confiscation are relatively insignificant e.g., real estate considering its importance in the local economy. It is also noted that the AML/CFT Law does not cover all real estate intermediaries. The small volume of confiscations could be due to the following:

  • Deficiencies of the preventive system;

  • Insufficient resources and training provided to the competent authorities; and

  • The law enforcement authorities in Panama focus their investigative efforts mainly on drug-trafficking related money laundering and cash.

216. The competent authorities have restrictions to access to information on legal entities and arrangements held by lawyers, registered agents and others that should be subject to the FATF Recommendations.

217. Inadequate maintenance and the lack of concordance of statistics at all stages of law enforcement authorities prevent the assessment of the effectiveness of the enforcement of money laundering in Panama.

3.3.2. Recommendations and Comments

  • Laws should provide for the confiscation of property of corresponding value.

  • Establish explicitly in the law that the freezing and seizing is made ex-parte or without notice.

  • Laws should permit voiding contracts and arrangements entered into prior to trial that would prejudice identification, tracing, investigations, freezing, seizure and confiscation.

  • Enhance prosecutions and confiscation for non drug-related ML.

  • Enhance the powers of the competent authorities to access to information on legal entities and arrangements held by lawyers, registered agents and others that should be subject to the FATF Recommendations.

3.3.3. Compliance with Recommendation 3

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3.4. Freezing of Funds Used for Terrorist Financing (SR. III)

3.4.1. Description and Analysis

218. Legal Framework:

219. The legal basis for freezing and seizing of the instruments and proceeds of crime are included in Section 29 of Law 23 of 1986 (amended by Section 1 of Law 34 of 2010) and Section 252 of the Criminal Procedures Code. Forfeiture is regulated in Section 75 of the Penal Code.

220. Freezing Assets under S/Res/1267 (c.III.1):

221. Panama doesn’t have effective laws and procedures to freeze without delay terrorist funds or other assets of persons designated by the United Nations Al-Qaida and Taliban Sanctions Committee in accordance with S/RES/1267(1999). Terrorist funds only can be frozen in the context of a criminal trial, through the application of the general rules for seizing the instruments and proceeds of crime.

222. Freezing Assets under S/Res/1373 (c.III.2):

223. Panama doesn’t have effective laws and procedures to freeze without delay terrorist funds or other assets of persons designated in the context of S/RES/1373(2001). Terrorist funds only can be frozen in the context of a criminal trial, through the application of the general rules for seizing the instruments and proceeds of crime.

224. Freezing Actions Taken by Other Countries (c.III.3):

225. Panama doesn’t have effective laws and procedures to examine and give effect to, if appropriate, the actions initiated under the freezing mechanisms of other jurisdictions.

226. There aren’t any provisions regarding the extension of c.III.1—III.3 to funds or assets controlled by designated persons (c.III.4).

227. Communication to the Financial Sector (c. III.5):

228. Panama doesn’t have any freezing mechanisms referred to in Criteria III.1-III.3; therefore, there aren’t effective systems for communicating to the financial sector actions taken under such mechanisms.

229. Guidance to Financial Institutions (c.III.6):

230. The financial intelligence unit (UAF) receives, on a regular basis, the updated lists of terrorists and terrorist organizations issued by the UN Security Council under Resolution1267 (1999) through the Ministry of Foreign Affairs. After receiving the updated lists, these are referred immediately to the supervisory for them to notify the obliged entities regulated by the AML law (Law 42 of October 2, 2000 for the Prevention of Money Laundering). These entities should issue a Suspicion Transaction Report in case they may be holding targeted funds or other assets. However, there is no provision regarding what would be the procedures after such report is issued.

231. De-Listing Requests and Unfreezing Funds of De-Listed Persons (c.III.7):

232. Panama doesn’t have effective and publicly know procedures for considering de-listing requests and for unfreezing the funds or other assets of de-listed persons or entities in a timely manner consistent with international obligations.

233. Unfreezing Procedures of Funds of Persons Inadvertently Affected by Freezing Mechanism (c.III.8):

234. Panama doesn’t have effective and publicly know procedures for unfreezing, in a timely manner, the funds or other assets of persons or entities inadvertently affected by a freezing mechanism upon verification that the person or entity is not a designated person.

235. Access to frozen funds for expenses and other purposes (c.III.9):

236. Panama doesn’t have appropriate procedures for authorizing access to funds or other assets that were frozen pursuant to S/RES/1267(1999) and that have been determined to be necessary for basic expenses, the payment of certain types of fees, expenses and service charges or for extraordinary expenses.

237. Review of Freezing Decisions (c.III.10):

238. Freezing, Seizing and Confiscation in Other Circumstances (applying c.3.1–3.4 and 3.6 in R. 3, c.III.11):

239. Confiscation of Property Related to Terrorist Financing (c.3.1.1 applying c.3.1): Sections 50 and 75 of the Penal Code provide for the forfeiture of property, assets, securities and instruments used or derived from the commission of all offenses. Those provisions don’t mention explicitly the property indirectly derived from crime. However, Section 252, of the Criminal Procedures Code, second paragraph, provides for the seizure of the property directly or indirectly related to illicit activities. Therefore, once the Penal Code doesn’t make an explicit distinction, they are covered.

240. Provisional Measures to Prevent Dealing with Property subject to Confiscation (c.3.2): Section 29 of Law 23 and Section 252 of the Criminal Procedures Code provide for provisional measures, including the freezing and/or seizing of property, to prevent any dealing, transfer or disposal of property subject to confiscation. According to this provisions, the instruments, assets, securities and derivatives related to crimes against the public administration, money laundering, financial, against intellectual property, terrorism, drug trafficking and related crimes will be temporarily seized, until the case be decided by the competent court.

241. Ex-Parte Application for Provisional Measures (c.3.3): The abovementioned legal provisions don’t establish explicitly that the freezing and seizing on an ex-parte basis or without notice. However, it is done in practice, according to the information provided by the authorities.

242. Identification and Tracing of Property subject to Confiscation (c.3.4): Law enforcement agencies, the FIU or other competent authorities should be given adequate powers to identify and trace property that is, or may become subject to confiscation or is suspected of being the proceeds of crime.

243. Power to Void Actions (c.3.6): Section 270 of the Criminal Procedures Code provides that, when there are reasonable grounds for concern that the situations that facilitate the commission of the offense may continue during the trial, the judge can implement the appropriate measures for protection or suspension in order to prevent the effects of crime. However, this doesn’t provide for voiding contracts and arrangements entered into prior to trial that would prejudice identification, tracing, investigations, freezing, seizure and confiscation.

244. Protection of Rights of Third Parties (c.III.12):

245. Section 75 of the Penal Code excludes from the confiscation the property belonging to third parties not responsible for the offense. Additionally, Section 252 of the Criminal Procedures Code provides that provisional measures must be adopted respecting the rights of bona fide third parties, consistent with the provisions of the Palermo Convention.

246. Enforcing the Obligations under SR. III (c.III.13):

247. Panama has established the Coordination Council for the Fight against International Terrorism, through Executive Decree No. 448 of December 28, 2011. This body is responsible for ensuring compliance with international conventions, resolutions of the General Assembly and Security Council of the United Nations (UN), on terrorism. The Council is comprised of representatives of the Ministry of Foreign Affairs, which presides the body, Ministry of Public Security, Ministry of Interior, National Police, Division of Judicial Investigation (DIJ), State Border Service (SENAFRONT), National Air Service (SENAN), National Immigration Service (SNM), Panama Canal Authority (ACP), Civil Aviation Authority, Panama Maritime Authority (AMP), National Customs Authority, Board of National Security, Finance Analysis Unit (UAF), Judicial Investigation Department and the Superintendency of Banks. The functions of the Council (Section 3 of the Executive Decree) are the following:

  • a) Discuss the strategy on effective implementation of the resolutions on terrorism of the Security Council of the United Nations.

  • b) Gather information from national public institutions about measures taken against international terrorism.

  • c) Report to international forums and organizations about the actions taken by Panama in combating international terrorism.

  • d) Recommend legislative and administrative measures to the Executive Branch in order to ensure the effective implementation of international obligations in the fight against international terrorism.

248. Statistics (R. 32):

249. Panamanian authorities haven’t provided statistics related to freezing, seizing or confiscation of terrorist assets.

250. Additional Element (SR. III):

251. Panama hasn’t implemented any measures in Best Practices Paper for SR. III (c.III.14).

252. Additional Element (SR. III):

253. Panama hasn’t implemented any procedures to Access Frozen access frozen funds (c.III.15).

254. Assessment of Effectiveness: Panama does not have laws and procedures to comply with Special Recommendation III; therefore, it is not possible to assess the effectiveness of the system.

3.4.2. Recommendations and Comments

  • Establish effective laws and procedures to freeze terrorist funds or other assets of persons designated by the United Nations, Al-Qaida, and Taliban Sanctions Committee in accordance with S/RES/1267(1999). Such freezing should take place without delay and without prior notice to the designated persons involved.

  • Establish effective laws and procedures to freeze terrorist funds or other assets of persons designated in the context of S/RES/1373(2001). Such freezing should take place without delay and without prior notice to the designated persons involved.

  • Implement effective laws and procedures to examine and give effect to, if appropriate, the actions initiated under the freezing mechanisms of other jurisdictions. Such procedures should ensure the prompt determination, according to applicable national legal principles, whether reasonable grounds or a reasonable basis exists to initiate a freezing action and the subsequent freezing of funds or other assets without delay.

  • Implement an effective system for communicating actions taken under the freezing mechanisms referred to in Criteria III.1—III.3 to the financial sector16 immediately upon taking such action.

  • Provide clear guidance to financial institutions and other persons or entities that may be holding targeted funds or other assets concerning their obligations in taking action under freezing mechanisms.

  • Implement effective and publicly known procedures for considering de-listing requests and for unfreezing the funds or other assets of de-listed persons or entities in a timely manner consistent with international obligations.

  • Implement effective and publicly known procedures for unfreezing, in a timely manner, the funds or other assets of persons or entities inadvertently affected by a freezing mechanism upon verification that the person or entity is not a designated person.

  • Adopt appropriate procedures for authorizing access to funds or other assets that were frozen pursuant to S/RES/1267(1999) and that have been determined to be necessary for basic expenses, the payment of certain types of fees, expenses and service charges or for extraordinary expenses. These procedures should be in accordance with S/RES/1452 (2002).

  • Establish appropriate procedures through which a person or entity whose funds or other assets have been frozen can challenge that measure with a view to having it reviewed by a court.

3.4.3. Compliance with Special Recommendation III

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3.5. The Financial Intelligence Unit and its Functions (R. 26)

3.5.1. Description and Analysis

255. Legal Framework:

256. The financial intelligence unit of Panama (UAF, Unidad de Analisis Financiero) was created in 1995 by Executive Decree 136 of 1995 within the Public Security and National Defense Council (C.S.P.D.N). Its main function at that time was money laundering associated with drug trafficking. Its functions were later amended as follows:

  • Executive Decree 163 of October 3, 2000 in accordance with the newly adopted Penal Code definition of money laundering which expanded the definition of ML to include nondrug predicate offenses (article 389 of the Penal Code) and by extension also expanded the mandate of the UAF to these other crimes.

  • Executive Decree 78 of June 5, 2003: Included the prevention of financing of terrorism among its principal functions based on Panama’s ratification of the UN Convention for the Suppression of the Financing of Terrorism in 2002.

  • Executive Decree 930 of November 27, 2009: the UAF is recognized as an administrative entity, with budget autonomy, and transferred it to the Ministry of the Presidency of which it is a part.

257. It is important to note that the Executive Decrees creating and amending prior Decrees do not link, in their preamble, the UAF’s activities to those applicable provisions of the main AML Law (Law 42 of 2000), particularly those with respect to reporting entities and their supervisors. On the other hand, Law 42 (and its Executive Decrees) includes the UAF for purposes of STR and CTR reporting obligations.

258. In addition, while the financing of terrorism (TF) is a function of the UAF as provided by Executive Decree 78 2003, TF is not part of Law 42 which only deals with money laundering issues. It is acknowledged that TF is a predicate offense to money laundering under Panama’s legislation and that administrative instruments issued by supervisory authorities do contain CTF elements, but this is not at issue here. Hence there is a disconnect between the functions of the UAF with respect to financing of terrorism and the provisions of Law 42 and its Executive Decrees applicable to reporting entities that do not include CTF elements.

259. According to Article 2 of Executive Decree 78 of 2003, the functions of the UAF are to:

  • Obtain from the public institutions and reporting entities all information relating to financial, trade or business transactions that could be linked to money laundering offense and financing of terrorism, as provided for under current laws in Panama on the these matters;

  • Analyze the information obtained in order to determine suspicious or unusual transactions, as well as operations and patterns of money laundering and financing of terrorism;

  • Maintain statistics of the cash transactions in the country with respect to money laundering and financing of terrorism;

  • Exchange with foreign counterparts information for the analysis of cases that could be linked to money laundering and financing of terrorism, subject to the signing of MOUs or other cooperation agreements with such counterparts;

  • Disseminate information directly to the Attorney General when the UAF believes that the Prosecutor should conduct an investigation; and

  • Provide Prosecutors from the Attorney General’s Office and to designated officials from the SBP (Superintendency of Bank of Panama) with any type of assistance requested, for the analysis and dissemination of intelligence reports which could assist in criminal or administrative investigations of acts and offenses related to money laundering and the financing of terrorism.

260. Establishment of FIU as National Centre (c.26.1): The UAF is part of the Ministry of the Presidency and is organized as follows:

261. The UAF has a total of 26 staff, including eight analysts in charge of analyzing the STRs. Under Law 42 of 2000 (and its Executive Decrees), reporting entities are required to send to the UAF STRs related to money laundering only, but NOT those linked to terrorism, terrorism acts, terrorism organizations, or terrorism finance (see c.13.2). Most of the supervisory administrative instruments issued under Law 42 mainly Agreements (Acuerdos) and Resolutions (Resoluciones) [both are considered OEMs], have included financing of terrorism issues but this requirement should be in law or regulation (see R. 13) and not OEMs, and should extend to terrorism, terrorism acts, terrorism organizations (see c.13.2). In addition, the legality of these OEMs with respect to CTF (and other scope issues) could be challenged on Constitutional grounds because under Art. 184 of the Constitution subsidiary instruments should not extend outside the text and spirit of the primary law.

262. Art. 2 of Executive Decree 78 states that the UAF can obtain any information from public institutions and reporting entities relating to ML and TF. This would include STRs and any other related information. This function is supported by Articles 1(5) and 2 of Law 42 that requires reporting entities to send to the UAF STRs and to provide it, at their own initiative or upon request by the UAF, with any information at their disposal relating to ML (not TF) to enable the UAF to examine and analyze such information.

263. It is noted that the FIU is not required to receive STRs from a number of financial institutions and DNFBPs not covered by the Law 42 including high risk sectors such as lawyers, accountants, notaries and company services providers. Law 42 applies to bureau de change for STR purposes but this is not a regulated sector and is in practice not supervised.

264. Although the legislation does not explicitly state that the UAF is the national center for receiving and requesting STR and related information, it is in fact the only agency acting in this capacity.

265. Guidelines to Financial Institutions on Reporting STR (c.26.2):

266. The UAF has issued templates for filling STRs, for each type of reporting entity. They are in Excel (1 page) and contain another page of guidelines on how to be filled in. Information on the beneficial owners is not specifically required to be reported on STRs. The UAF explained that the information on beneficial ownership is expected to be contained in the opening documentation related to the bank accounts reported to the UAF, as required by sectoral regulatory instruments.

267. The forms, compiled in the Circular UAF-01-2009 of November 11, 2009, have been disseminated to the Superintendency of Banks, the National Lottery, the Panama Pacifico Free Zone, the Securities Commission, the Insurance Commission, the Gaming Supervision, the Banco Hipotecario Nacional, the MICI (for finance companies, real estate brokers, and money remittance firms, casa de cambio), IPACOOP, and the Export Processing Zone Management (MICI). These STR forms are sent by the competent supervisory authorities directly to the compliance officers of the reporting entities. When STRs have been inappropriately completed, the UAF requests their accurate completion within 15 days. Any breach in the way the form is completed could lead to sanctions pursuant to Article 8 of Law 42 of 2000.

268. It is noted that some of the recipients of the STR reporting forms are not covered as reporting entities by Law 42 of 2000 but were initially covered under Art. 5 (adding a new Article 3-C to Executive Decree 1 of 2001) of Executive Decree 266 of 2010, where the STR obligation under Law 42 was applied to all reporting entities that were only subject to CTR obligations under Law 42. However, post mission the authorities informed that Executive Decree 266 of 2010 has been revoked reverting to the original scope of Law 42 with a more limited scope of STR reporting entities. Executive Decree 266 of March 23, 2010 was fully revoked on March 31, 2010 by Executive Decree 294. It is also acknowledged that supervisory authorities have issued OEMs (“acuerdos” and “resoluciones”) that aim to extend the reporting obligations to other persons and entities under their jurisdiction. However, the STR reporting requirement under R.13 should be in law or regulations (e.g., Laws and Executive Decrees) and not in OEMs.

269. Access to Information on Timely Basis by FIU (c.26.3):

270. Pursuant Article 2(a) of Executive Decree 78 of 2003, the UAF can gather from public institutions and from reporting entities all information related to financial, commercial or business transactions that may be linked to money laundering “and” financing of terrorism. As noted above, CFT is not covered under Law 42 but this provision aims to indirectly but inadequately expand the scope of the STR reporting requirement under the AML Law to include TF.

271. The UAF indicated that it has access to the following sources of information from public authorities:

  • the Customs database of cross-border cash transportation (see SR. IX);

  • the Immigration Agency database, about cross-border movements of persons;

  • the Public Register (“Registro Publico”) (legal entities/companies’ register);

  • Panama-Emprende: authority that licenses and approvals for the commencement of business operations; database of the credit bureau (Panama Credit Association (“APC”))

  • the registries of vehicles, boats, and planes;

  • the Civil Register;

  • the Social Security register;

  • the UNSC and OFAC lists; and

  • the database of criminal records held by the police – access to ongoing investigations and/or intelligence reports was not clear.

272. According to the UAF, access to the different registers is direct, on line, and based on high level agreements with the respective authorities. Some of the authorities’ representatives met by the assessors were not aware of these agreements and did not know that the UAF accesses their database (e.g., immigration and police).

273. Also, the type of applications available on the analysts’ computers, according to the IT section of the UAF, refers only to: the UAF database, the Registro Publico (accessible by internet), the Civil register (Tribunal Electoral, accessible by internet and security code), the register of vehicles (Direccion Nacional de Transito, accessible by internet and security code), and Analyst Notebook. In addition to these sources, the UAF has access to Egmont Secure Web and to the internal system of Cases Management. It was shown to the assessors that the analysts can access the Immigration database.

274. There is a very strict protocol for each and every procedure and activity undertaken by the UAF (Manual de Procedimientos – Area de Analisis tactico). According to this protocol, the Head of the Analysis Unit is personally in charge of entering the STRs data into the database: date, reporting entity, person(s) concerned (but not beneficial owners), date of birth, ID, and a summary of the suspicion as it appears on the STR form.

275. The UAF is satisfied of its access to information in order to perform its functions. However, the existence of companies that issue bearer shares is a strong impediment to the ability of the UAF to access relevant information on the beneficial owner of such companies. This was also noted as a challenge for reporting institutions that are not required to hold bearer shares in custody but rely on client declarations only. In the same vein, the information contained in the Registro Publico does not record information on shareholders or beneficial owners of legal entities. Efforts to enact legislation to immobilize bearer shares for companies have been unsuccessful to date. This situation creates a systemic gap in the ability of the UAF to obtain (prompt) access to information on beneficial ownership and effective control of legal entities, including private foundations, for its intelligence gathering and generation functions. The UAF did not mention having tried to access information on numbered bank accounts that are still authorized since the 1959 legislation that provides for such accounts, either directly or through the SBP. [Post mission, a new law (Law 47 of 2013) providing for the custody of bearer shares was approved in July 2013 and published on August 6, 2013. However, this law will come into force two years after its publication, and for bearer shares issued prior to the law coming into force there is an additional transition period of three years, that is, until August 6, 2018. It also noted that under this new law the UAF is not a defined competent authority that can request information from the custodian with respect to the underlying entity and bearer share ownership].

276. The recent Law 2 of February 1, 2011 on Resident Agents requires them to conduct identification procedures for its customers who request their services as Registered Agents, but these requirements do not extend to identifying the beneficial owners of legal entities for which they act as Registered Agents. The customers seeking such services are not always the owners or controllers of such entities and may be intermediaries such as lawyers and trustees. Importantly, Law 2 does not provide the UAF with access to the information on legal entities and arrangements represented by such Agents. (Only lawyers can act as Resident Agents for legal entities and they are not covered by the AML regime for compliance and reporting purposes). Law 2 of 2011 on Resident Agents contains confusing and inadequate customer due diligence and does not allow the UAF to have access. Art. 2(3) and Art. 12-16 of Law 2 provide limited and procedurally restricted access to the Prosecution and Judicial agencies for AML/CFT purposes, and the tax department of the Ministry of Economy and Finance for international treaties. To the extent that the resident agents do not maintain information on beneficial owners and controllers of legal entities they represent, that would be a significant impediment, even if the UAF has access to their information. No explanation was given on the fact that the UAF was excluded from the scope of this law as a competent authority for AML/CFT matters.

277. Art. 2 (b) of Executive Decree establishes as one of the primary functions of the UAF the analysis of information received to identify suspicious or unusual activities, transactions and trends, related to money laundering “and” the financing of terrorism.

278. Additional Information from Reporting Parties (c.26.4):

279. Article 2 of Law 42 of 2000 allows the UAF to obtain from all reporting entities any information they may have, beyond STRs, in order to enable the UAF to examine and analyze such information. In addition, UAF Article 2 of Executive Decree 78 also provides the UAF with a general function to obtain from public bodies and reporting entities any information it may require for its AML/CFT activities.

280. However, the UAF does not regularly require additional information from reporting entities or through their supervisors because it is of the view that the data contained in the STRs is now sufficient for its purposes. Post mission the UAF indicated that these are minimum requirements and that it can request additional information. The financial institutions confirmed that they attach all the documentation related to the account they report (including documentation on 80 percent of debits/credits on a one-year basis, even if not suspicious), which actually generates for the UAF a lot of work. The UAF states that it improves its analytical capacity to receive this information. But as indicated above, current information on beneficial owners or controllers of (bearer) legal entities may not be easily available or identifiable, especially when clients are represented by intermediaries such as lawyers, accountants, trustees and other trust and company services providers from Panama or overseas.

281. In addition, reporting entities are of the view that they have no feedback from the UAF after a STR has been sent out. As a general matter, the UAF does not give feedback on their STRs to the respective reporting entities on a bilateral and regular basis. Post mission, the UAF stated that feedback is provided in the course of their participation in training activities with reporting entities on various topics such as typologies and the quality of STRs. Confidential information cannot be divulged by the UAF.

282. The overall analysis of the STRs is also somehow impaired by the CTR reporting which is structurally deficient. Indeed, to date the entities located in the Free Zone of Colon, the Economic Area Panama Pacifico, Export Zone, and Free Zone of Baru do not identify the customers that perform above-the-threshold cash transactions. This lack of proper identification of the originators or beneficiaries of the cash transactions impede a throughout analysis of any suspicious financial information. Panama has included the Free Zones under their AML legislation because of the ML/TF risks they pose, as allowed under R. 20 of the FATF Recommendations.

283. Dissemination of Information (c.26.5): Article 2 (e) and (f) of Executive Decree 78 of 2003 (amending ED 163 of 2000 and ED 136 of 1995) establishes the UAF’s dissemination function as follows:

  • (e) Directly provide the Attorney General Office (Procurador General de la Nacion), information the UAF believes an investigation should be carried out by the Prosecutor’s Office (Ministerio Publico). This provision does not specify that the grounds for disseminating such information (e.g., financial) are based on suspicion of ML or TF. The main recipient of the information provided by the UAF under this function is Organized Crime Unit the Prosecutor’s Office or directly from the UAF when requested do so by the Organized Crime Unit.

  • (f) Assistance to the Prosecutors by the Attorney General Office and designated staff of the Superintendency of Banks of Panama on their request on the analysis of cases and provision of intelligence to assist with criminal or administrative investigations related to ML/TF.

284. In practice, the Prosecutors explained that the UAF is asked to provide information when they are investigating primarily the predicate offense (drug cases), which can lead to charging the suspect with the money laundering offense, in addition to the predicate offense. In 2011, the Attorney General Office (AGO) requested the UAF to consult its database for information 56 times, and to assist them with financial analysis. The communication with the SBP seems to be adequate, with frequent contacts to discuss the reporting duties of the financial institutions. However, the fines imposed by the Supervisory bodies have mostly been grounded on late submission of CTRs, and never on poor quality of STRs.

285. Within the UAF, the management of the reception, analysis, and dissemination of the information held by the UAF is strictly defined by a protocol (manual de procedimientos). The Head of the Analysis can undertake analysis of the STRs himself “when the circumstances of the case justify that he deals with it personally.” Otherwise, the STRs are assigned to the analysts by chronological order. The results of the analysis of an STR are later presented to a Consultative Analysis Committee (Comite Consultativo de Analisis) in charge of deciding on its dissemination or not.

286. The Committee comprises the Director of the UAF, the Head of the Analysis Unit, the Legal Adviser and the analyst in charge of the case. By vote the Committee decides if the case is to be referred to the AGO or not. Based on this vote, the Director sends the case to the AGO, files the case or requests further analysis. The Committee also acts as a liaison body with the prosecutors, on urgent cases and cases sent by the prosecutors, when a swift reply is required.

287. When a report is transmitted to the AGO, the UAF does not attach the documentation related to it (e.g., bank account statements, etc.). Only the analysis is transmitted. This practice has evolved over the years. In the past, the UAF used to communicate all the information that it has obtained in the course of performing its functions for use as reference material to help them conduct their activities but not for use in their investigations records. Post mission, the UAF indicated that reporting entities often send information to the UAF under seal that such should only be used by the UAF for information security purposes. In addition, they indicate that Magistrates have ruled that the UAF was sending too much information to the investigation authorities beyond the intelligence mandate of the UAF. In addition the stated that the information sent by the UAF are only copies and not generally acceptable for evidentiary purposes. Notwithstanding, discussions with the Judicial authorities indicate that they do not see any legal impediment for the UAF to communicate to the Prosecutor the banking documentation legally gathered, even if it cannot be used for evidentiary purposes. So far, the lack of documentation attached to the UAF reports obliges the ML investigative unit of the Police to compel exactly the same documentation from reporting entities that was accessed by the UAF.

288. The Protocol contains a template to be used for dissemination of reports to the AGO. It expressly mentions that the information transmitted is the result of an intelligence analysis and that in consequence it has to be verified. The template also contains the identification of the reporting entity that filed the STR. Neither Law 42 of 2000 nor UAF Executive Decrees 136 and 78 contain any provision that prohibits the UAF for disclosing which entity filed the STR. Finally, the template is designed to match the information that is submitted by the banks, and is not readily applicable to operations and transactions processed by other reporting entities. The UAF maintains that the template is modified according to the reporting entity whose STR generated the case.

289. As a general matter, the strict formal procedures that guide all aspects of the UAF activities tend to restrict the scope of analysis of the collected information. There is little room e.g., for use of typologies work or for “outside-the-box” approach to analysis. As a result, all cases transmitted to the Prosecutor are based, according to the UAF, on inconsistencies between financial transactions and customer’s profile information, of which some may be “unusual” as opposed to suspicious.

290. The UAF has not provided detailed and yearly statistics about the origin (nature of the reporting entities) of the STRs that were transmitted to the AGO after analysis. The limited data that were shared tend to show that, based on the source of STRs and the results of analysis performed by the UAF, a large majority of reports to the AGO are probably based on banking information (75 percent), the remaining part being based on money remitters information (24 percent) and the rest mostly on information from casinos.

291. Operational Independence (c.26.6):

292. Art. 1 of Executive Decree 930 of 2009 amended Art. 1 of Executive Decree 136 of 1995 explicitly stating that UAF shall be an administrative agency with “budgetary autonomy” forming part of the Ministry of the Presidency. However, neither Executive Decree 136, which first established the UAF in 1995, nor subsequent Decrees or Regulations specify the operational rules for the functioning of the UAF to support its operational independence. The UAF depends on the legal framework of the overarching entity it is administratively attached to. Since the Executive Decree 930 of November 27, 2009 the UAF is part of the Ministry of the Presidency. Therefore, the “Reglamento interno” of the Ministry of Presidency, based on the Resolution 5 of January 25, 2008 provides for the administrative and ethics rules applicable to the UAF. Notwithstanding, the various functions of the UAF as indicated in the applicable Decrees (e.g., Executive Decree 78 of 2003) allows it to, inter alia, send reports directly to the judicial authorities. Its activities are to be conducted confidentially and there are sanctions for violations.

293. According to Article 8 of the Resolution 5 of 2008, the UAF director is named by the Ministry of the Presidency, for no precise duration of term, and can be revoked by the Minister. The UAF Director is directly accountable to the Minister. This positioning has raised some concerns from the reporting entities about the undue influence from the Executive on the UAF.

294. The UAF budget is partly composed by an allocation from the Ministry of Presidency, and partly by the sanctions imposed by the Supervisors to the reporting entities, in accordance with Article 8 of Law 42 of 2000. These sanctions can be imposed by a decision of the Supervisory body or upon request of the UAF, and the proceeds go to a Special Account.

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295. For 2012, the total budget was B768, 008 of which B667,708 was for salary related expenses and B100,300 for other operating costs, including travel participation in training events. Art. 8 of Law 42 states that the proceeds from sanctions are to be used exclusively for staff training, equipment and information technology/tools, and other resources to support its specialization.

296. Protection of Information Held by FIU (c.26.7):

297. The FIU is housed in a building located in a protected zone. The entrance of the whole area is guarded by armed officers from the SPI, and the rest of the compound serves as training center for the SPI (Sistema de Proteccion Institucional), in charge of the security of the public authorities. This zone also houses other security agencies of Panama and that access to the UAF’s premises is strictly controlled and subject to tight security controls for staff and nonstaff persons designed to protect the information it possesses. In addition, the UAF has implemented security protocols in its information technology (IT) systems to protect its databases and other information it maintains on computers and otherwise. The assessors are not aware of any breach of security or confidentiality of the information held by the FIU.

298. Article 4 of Law 42 of 2000 states that the UAF staff should keep information confidential, or be subjected to the sanctions contained in Article 8 (fine from $5000 to$1.000.000) and to the Penal Code provisions and sanctions regarding breach of confidentiality. The only penal sanctions for breach of confidentiality however relate to the violation of secret of correspondence (Article 164 of the Penal Code). The authorities consider that in case of leak of information, the penal sanctions relating to corruption (Articles 258 and 348 of Penal Code) would also apply. The public agent would also be automatically removed from office and subject to other proceedings under the Penal Code (Executive Decree 136 of 1995, Article 6).

299. The analysts are recruited after a selection process that includes, inter alia, interviews, professional and academic documentation, background checks and a polygraph test. While working with the UAF, they are regularly submitted to unannounced polygraph tests and anti-drug tests. This provides some assurance to the UAF with respect to the integrity of its staff. The analysts have diverse advanced academic backgrounds (e.g., accountants, lawyers, finance, and economists, etc.)

300. Publication of Annual Reports (c.26.8):

301. The UAF publishes annual reports (the last two were provided to the assessors for 2010 and 2011). They contain a description of the UAF activities in terms of domestic cooperation, training, awareness raising and operational statistics. The reports are disseminated to both public and private entities during a one-day event, counted by the UAF as training to reporting entities, and held jointly with the Supervisory agencies. During these training events, the UAF takes the opportunity to present UAF statistics and typologies, and to emphasize the importance of compliance. The 2011 annual report also contains two examples of typologies of money laundering.

302. Membership of Egmont Group (c.26.9):

303. Panama has been a member of Egmont Group since 1997.

304. Egmont Principles of Exchange of Information among FIUs (c.26.10):

305. In addition to being a member, Panama requires its counterparts to sign a Memorandum of Understanding in order to exchange operational information. To date, 40 MOUs have been signed by Panama with Argentina, Australia, Bahamas, Barbados, Belgium, Bermuda, Bolivia, Brazil, Bulgaria, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Croatia, Dominican Republic, El Salvador, Ecuador, France, Germany, Georgia, Guatemala, Haiti, Honduras, Israel, Italy, Mexico, Monaco, Netherlands Antilles, Paraguay, Peru, Portugal, Russia, South Africa, Spain, St Vincent, United Kingdom, United States, Ukraine, and Venezuela. In addition, in 2011 Panama signed a regional MOU with all Grupo de Accion Financiera de Sudamerica (GAFISUD) members’ FIUs (adding Uruguay to the list of previously existing country agreements). The disproportion between the total number of countries in the Egmont network (131 members at the time of the on-site visit) and the limited number (40) of countries with which Panama actually cooperates using this network is noted.

306. The UAF provides cooperation to the countries it has signed MOUs with by searching its own databases and accessing public information related to the request. According to the UAF, where information is requested that is held by a specific financial institution (e.g., bank account), that financial institution is requested to file a STR with respect to that information to enable the UAF to conduct its analysis. Such practice has not been corroborated by the financial institutions met by the team during the assessment. In addition, if such requests for STRs are numerous, it can distort the STR statistics if no suspicion is involved. This practice is not contained in the Procedures Manual of the UAF.

307. The UAF indicates that it has provided information through Egmont’s secure website and has also provided information in connection with international judicial assistance cases.

308. In the absence of MOU, the UAF does not disclose information contained in its database to an Egmont member but will share only publicly available information, and invite the requesting country to sign a MOU. Such practice is noncompliant with the Egmont Group principles as referred to by criterion 26.10. When there is a MOU, the UAF stated that it can request information from other sources (and presumably share it with the requesting state) pursuant to legal proceedings (“solicitud motivada”). Statistics in terms of exchange of information through the Egmont Network are the following:

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309. Adequacy of Resources—FIU (R. 30):

310. The UAF appears correctly structured, with specialized support units (including for international cooperation – Legal unit) and one operational unit (analysis Unit).However, the staffing could be reinforced, notably in the legal section in charge of international cooperation (one staff for the time being).

311. Article 3 of Executive Decree 136 of 1995 states that the UAF shall be composed of professional staff with adequate skills in finance, data management and data analysis in order to perform efficiently its functions. In addition, the UAF shall be equipped with adequate data management systems.

312. The staffing appears also to be insufficient with regard to the volume of CTRs that are not received/processed electronically (two persons are in charge of entering them in the UAF’s database). More staffing would also allow undertaking a full-fledged analysis of the request from foreign counterparts. So far, seven analysts are in charge of analyzing the total of 652 STRs received last year. The software used by the analyst is Analyst Notebook.

313. The financial resources provided to the UAF seem to be insufficient to allow it to fully undertake its duties. So far all the STRs and a large amount of the CTRs are transmitted to the UAF in paper. The UAF is, therefore, obliged to file them into its database manually. There is a project to request the reporting entities for the electronic filing of STRs and CTRs. This should be done as soon as possible in order to allow more time for the actual analysis of the information.

314. Statistics (R. 32):

315. The UAF maintains statistics of the STRs and CTRs received. Over the last three years, the statistics of STRs were as shown in the table below. In 2009, the number of STRs was 956. The UAF explains the decrease of the overall number of STRs (956 in 2009, 815 in 2010 and 647 in 2011) by a closer attention given to their quality by the reporting entities. The number of STRs filed by the Government (Gobierno) relates to the STRs made by the Supervisory bodies such as the SBP. The number of STRs filed by the remittances providers (remesas) also includes the STRs filed by the bureaux de change (casas de cambios) but no breakdown is available.

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Source: UAF.

316. The UAF cannot give details on the underlying suspected activities detected through the STRs. The reporting entities send STRs as soon as they notice a discrepancy between the transactions and what they know about their client. According to the Prosecutor’s office, lots of cases detected by the banks are related to families sending money abroad for family assistance (to students in Colombia for instance). Also, the bank accounts are frequently closed by the banks after a STR has been filed, which impedes an effective subsequent investigation.

317. As far as banking institutions are concerned, they reported 853 STRs in 2009, 664 in 2010, and 481 in 2011. Therefore, there has been a decreased of 43.6 percent of STRs between 2009 and 2011 in the banking sector, which coincides with the dissemination of the new STR form in November 2009. Such decrease is not visible for the other reporting entities which, due to the nature of the transactions, do not need to attach a voluminous documentation to the STR.

318. The number of STRs coming from the banking sector appears quite elevated in comparison with the feedback given to the assessors by the banking institutions themselves, during the on-site mission. The most important banks explained filing a maximum of 20-30 STRs by year in average. As the breakdown by financial institutions was not communicated to the assessors, it is difficult to reconcile the numbers to that respect.

319. The UAF does not maintain statistics on the localization of the suspicious activity, being located in or out the Free Zones that exist in Panama. In terms of its own activity, the UAF maintain the following statistics:

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320. For the nine months ending September 2012, the number of STRs received from banks was 403, reversing a sharply declining trend since at least 2010.

321. With regard to the follow-up on the reports transmitted by the UAF to the Attorney General Office, the DIJ explained that it receives on average three or four cases a month from the UAF (through the Prosecutor’s Office) for a total of about 48 cases by year

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Effectiveness of Implementation

322. So far, it has not been established that the functions of the UAF in generating financial intelligence through the collection, analysis and dissemination of information has led to the detecting, prosecuting and conviction of significant money laundering cases. Most of the cases submitted for investigations are closed at prosecutorial level and, according to the judicial authorities, they are not aware of any case originating from a UAF report that has led to a conviction for money laundering. The number of cases transmitted to the judicial authorities (Prosecutor that refers cases to the Ministero Publico) (146 in 2011) represents 22 percent of the total number of STRs received (652 in 2011). This ratio tends to suggests that the analysis performed at the UAF level could be improved significantly. Only 31 cases were opened in 2011 following UAF reports. While the Panama’s 2006 assessment report showed that the UAF was mainly used as an intermediary conduit for STR information to the Prosecutor, there have been improvements from that time but the ratio of 22 percent still appears to be high. It is acknowledged while successful investigations, prosecutions, and convictions are not the responsibilities of t the UAF and lack of ML convictions could be due to these processes. However, improvements in UAF’s analysis could add significant value to the information/intelligence needed for the successful prosecution of ML/TF offenses and generation of such intelligence is the main function of the UAF.

323. The current practice of not disseminating the documentation legally gathered may impede timely, more efficient and successful investigations by the Prosecutor’s Office, even when such information cannot be used for evidentiary purposes for which other processes are available. In the same vein, the limited actions taken by the UAF in the context of the Egmont requests are an impediment to successful international cooperation. Panama is very often requested by its counterparts to provide information, partly due to its standing as an international financial center. In response, Panama has not always provided sufficient assistance. On the other hand, the limited use of international cooperation arrangements by Panama (37 outgoing requests out of 652 STRs received so far) tend to limit the added value by the UAF to its analysis and hence the quality of disseminations.

324. The UAF’s ability to undertake a comprehensive analysis of the suspicious financial information is grossly undermined by legal restrictions. The UAF has no access to information maintained by noncovered entities, and in particular, by the lawyers acting as resident agents for companies and other legal entities for which they act, which is a major deficiency in the context of Panama.

325. In addition, the lack of identification data in CTR reports submitted by some sectors (e.g., free zones) limits the value of the CTR reporting system for purposes of the UAF’s intelligence generating functions. The Free Zones and the Colon Free Zone, in particular, are of systemic importance to Panama’s economy and are considered to be of high risk by virtue of its legal inclusion in the AML/CFT preventive regime.

326. Insufficient guidance/feedback given by the UAF to the reporting entities also impedes enhancement of the quality of the STRs. According to the UAF, many STRs are not well supported and involve insignificant amounts of money. One main risk of ML in Panama lies in the use of legal structures, due to their opacity. This risk is not reflected in the STRs filed to the UAF, and the UAF does not seem to pursue this matter with the reporting entities and their designated supervisors. Enhanced enforcement of compliance by the reporting entities would increase the quantity and quality of STRs, disseminations, and would provide additional funding for the UAF if fines were applied. Increased feedback from the UAF to the supervisors not only on the number of STRs but also on quality of such institution-specific reports (e.g., through a quality rating system) would assist in this process.

327. Finally, the attachment of the UAF to the highest level of the Executive (Ministry of Presidency) may contribute to a perception of lack of independence that could, inter alia, adversely affect effective STR compliance by the reporting entities.

3.5.2. Recommendations and Comments

  • The legal framework including for setting up the FIU should be updated, in order to include (i) proper TF requirements for reporting entities and consequential powers for the UAF and (ii) legal power of dissemination of information, with no contradiction with the legal obligations of confidentiality. The UAF should have access to the information maintained by all DNFBPs according to the standard, including the lawyers, registered agents, accountants, and real estate agents. The amendment to the law on Resident Agents providing access to the UAF would, therefore, be a priority.

  • The UAF should amend the guidelines to fill the STRs in order to request only the relevant documentation supporting suspicion of money laundering or financing of terrorism, and not the whole documentation attached to the disclosed bank accounts.

  • The UAF should consider transmitting to the AGO along with the intelligence report all the relevant documentation gathered in the course of the analysis. It would save time to the investigative authorities, enhance efficiency and contribute to more successful investigations and prosecutions.

  • The UAF should ensure adequate staffing to perform its full range of functions that include the maintenance of statistics, international cooperation and enhanced feedback to the reporting entities.

  • The UAF should provide a wider range of assistance to foreign counterparts and not limiting its assistance to the consultation of its own database, as requested by the Manual de Procedimientos.

  • The UAF should make more systematic use of international cooperation in order to enhance the quality of its analysis.

  • The UAF should maintain more accurate and relevant statistics in order to better support the activities of competent authorities, including the supervisors e.g., provide a breakdown of statistics related to bureau de change and money remitters for instance.

  • The UAF should be able to rely almost exclusively on budgetary resources other than fines which are unpredictable.

  • The appointment (and removal) of the Director of the UAF should be statutorily independent and not subject to perceived political considerations for nomination and revocation. And administrative reporting obligations should be more independent of the Ministry of the Presidency.

3.5.3. Compliance with Recommendation 26

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3.6. Law Enforcement, Prosecution and Other Competent Authorities—the Framework for the Investigation and Prosecution of Offenses, and for Confiscation and Freezing (R. 27 and 28)

3.6.1. Description and Analysis

328. Legal Framework:

329. The following authorities are playing a role in the investigation and prosecution of money laundering offenses in Panama: the Supreme Court, the Attorney General’s Office (AGO (Procuradoria General de la Nacion (PGN), several Prosecutors’ Offices (Fiscalias – Ministerio Publico) under the authority of the AGO, the Judicial Police (Direccion de Investigaciones Judiciales), the Customs Administration, the Migration Administration, and the Judicial Authority (Poder Judicial). No authority has been specially designated to investigate terrorism financing offense.

330. The Judicial Branch is comprised of the Supreme Court, courts of Appeal, and trial courts established by law. Starting September 2011, Panama is transitioning from the inquisitorial system to the accusatorial system, and as a consequence the judicial system reads unclear for the time being (one penal code, but two procedural codes are currently used in the country). The judges stressed to the assessors that their main challenge lies in capacity building and expertise in financial matters, both at the judicial level and at the prosecutorial level. Any judge in Panama can be attributed a money laundering case, by territorial competence.

331. The function of Public Prosecution is exercised by the Attorney General, the Attorney for Administration, and the prosecutors, representatives, and other public officials established by law. Following are the duties of the Public Ministry (Ministerio Publico) (Article 220 of the Constitution of the Republic of Panama):

  • Defend the interests of the State or the Municipality.

  • Promote compliance with the law, judicial decisions, and administrative provisions.

  • Oversee the official conduct of public officials and ensure that they fully carry out their duties.

  • Prosecute crimes and violations of Constitutional or legal provisions.

  • Serve as legal advisors to administrative officials.

  • Fulfill the other functions set forth in the law.

332. The Attorney General of the Nation and the Attorney for Administration are appointed in keeping with the same eligibility and ineligibility requirements established for Supreme Court Justices. The prosecutors and representatives are appointed by their superiors. Alternates are appointed by the respective prosecutor or representative (Article 219 of the Constitution of the Republic of Panama).

333. In 2008 the Prosecutor’s Office in charge of Organized Crime was revamped by a Resolution 29 taken by the PGN on November 12, 2008. Since that date, this Office has been in charge of investigating money laundering offense when the offense is not already under investigation along with the predicate offense by the other Specialized Sections Fiscalias (point 2 b. of the abovementioned resolution of the PGN). This Office was established at the same time a Financial Investigative Unit within the section (Fiscalia) of Organized Crime which is composed of law enforcement agents with special qualification. The section has a national competence.

334. Articles 1988 and 2031 of the Penal Procedural Code of Panama enable the Prosecutor’s Offices to direct police activity in order to search for the truth, obtain witness declarations, complete the investigations, obtain evidence, and order the freezing of assets connected with the crimes. Law 79 of 2011 (Art. 75) empowers the Specialized Organized Crime Unit (Fiscalia Execializada contra la Delincuencia Organizada) to commence investigations and other procedures for various crimes including ML (when the procedures have not been undertaken by other specialized units (fiscalias) that deal with other predicate offenses) and TF. This Specialized Unit also participates in processing international judicial assistance under the UN Convention against Transnational Organized Crime and its Protocols.

335. The Immigration Directorate (Servicio Nacional de Migracion) is an agency within the Ministry of Public Security. Created by a Decree-Law 3 of February 22, 2008, it is in charge of regulating and implementing the migration policy of the State, with regard to Panama’s citizens and foreigners. It delivers visas and can also revoke them, per Article 50 of the Decree-Law 3 of 2008.

336. The Migration Directorate relies on the Advanced Passenger Information System (APIS) to check on the passengers who travel to Panama. The APIS is an electronic data interchange system established by U.S. Customs and Border Protection (CBP). APIS governs the provision of a limited number of data elements (identification details from the passport and basic flight information) from commercial airline and vessel operators to the computer system of the destination state.

337. The Migration Directorate maintains its own database of entries/departures of the country that is accessible to investigative authorities upon request. UAF also accesses it in order to perform its analysis. This information may be valuable to the UAF in case of analysis of financial information related to foreigners/nationals making frequent travels to/from Panama as it may reveal a link between their travels and financial transactions.

338. The Customs Administration is also an agency involved in the fight against money laundering. It has presence throughout Panamanian territory, primarily at points of entry into the Republic of Panama (airports, ports, and borders). The border with Colombia is mostly a jungle and hardly accessible, and, therefore, porous. Many activities of drugs, cash, weapons and human trafficking are known to take place in that region.

339. The Decree Law 1 of February 13, 2008 creates the National Authority of Customs and is in essence the Customs Code. Article 34 of this Decree defines the Special authority to investigate and prosecute Customs code offenses. Smuggling and other customs offenses are investigated and judged in first instance by the Customs Administration (Article 1249 of the Fiscal Code). Smuggling is a predicate offense to ML, and, therefore, the information obtained by the Customs administration is useful to the UAF is performing its analysis. In addition, Customs authorities are in charge of enforcing the provisions related to cross-border cash transactions and share the statistics with the UAF.

340. The legal framework with respect to cross border cash transaction was revamped in July 2012 and now contains penal sanctions (see SR. IX for more information). The legal basis for customs powers of seizure and investigations are contained in Law 30 of November 8, 1984 and in Decree-Law 1 of February 13, 2008, Articles 33 and 34.

341. Designation of Authorities ML/TF Investigations (c.27.1):

342. The Direccion de Investigaciones Judiciales (DIJ) within National Police is specifically responsible for investigating money laundering offenses. Financing of terrorism offense is investigated by the Prosecutors and the Judicial Police since this offense was criminalized under the Penal Code. No special unit within the Judicial Police has been created to deal specifically with this type of offense, which would fall under the competence of the DIJ. The assessors were informed that Panama has never dealt with a financing of terrorism case.

343. Within the DIJ, a special section in charge of investigating money laundering was created by Resolution DG-202-05 of June 16, 2005 (Seccion de Investigacion Financiera – SIF), with national competence. The section is composed of 16 agents, including the Director, an Executive Director, an analyst (in charge of preparing flow charts to illustrate cases) and a lawyer. Except the Director of the SIF who is a civilian, they are all police agents, with an accounting background and/or qualified experience.

344. By Article 14 of Law 69 of December 27, 2007, the DIJ is also in charge of maintaining the database of Criminal Records (Gabinete de Archivo e Identification personal).

345. For investigating money laundering, the DIJ counts with a network of public entities where it can access information from administration of the Colon Free Zone, Ministry of Economy and Finance, Social Security Agency, Public Registry, Transportation Administration, Panama Emprende (companies’ declaration of business by the MICI), Migration Authority, Customs Administration, SBP, SVN and IPACOOP (Credit Association of Panama). The DIJ also maintains close contacts with the US DEA and with Western Union representatives, in order to access relevant information when needed. At international level, the DIJ uses the Interpol network, through the National Bureau. The DIJ is the Interpol liaison in Panama.

346. When the DIJ is given a UAF dissemination report by the Prosecutor in charge of Organized Crime, it conducts the same type of data gathering and analysis that the UAF has done because the file sent by the UAF does not contain any supporting documents associated with the report. (See R. 26 above). Consequently, the DIJ has to request from the financial and other reporting institutions the same documentation that has been obtained by the UAF.

347. According to the investigators and the Prosecutors, the DIJ has a maximum of 90 days to perform the preliminary investigations (Law 69 of December 2007). Once a suspect has been notified of the charges by the Prosecutor, the investigation phase shall last maximum 6 months (Article 291 of the Penal Procedural Code), but can be extended to one to two years in case of organized crime, upon authorization by a judge (Article 502 and 504 of the Penal Procedural Code). The revised Procedural Code (to be implemented in 2014 in all the territory) will expand the preliminary investigation phase to four months, and an unlimited time for money laundering cases but upon authorization by a judge (Article 2033 of the Codigo de Procedimiento Penal).

348. These proceedings are not appropriate for large and complex ML and TF cases, especially those with international connections. Indeed, the DIJ reported to the assessors that the financial institutions often delay the process by not replying on a timely fashion to their requests, impeding the DIJ to perform useful investigation within the initial period of 60 days. However, no charges have yet been brought against the financial institutions or their representatives in such cases.

349. By Law 2 of February 1, 2011, the competent authorities, strictly defined as the Prosecutors, the Judicial Authority, and the Tax administration, can request Resident Agents (lawyers) for legal entities, following due process, for information they hold on their clients or to provide information maintained in any form or document that has been obtained under the provision of Law 2 of 2011. Art. 13 of this Law states that the request for information or documents shall require that (i) the notification shall state the reasons why the competent authorities require such information or documents, (ii) the time within which the authorities require such information or documents which shall not be earlier than five days, and (iii) the office of the competent authority where such information or documentation should be delivered.

350. The five days delay to provide information seems inappropriate in case of a sensitive and urgent ML/TF case. It allows for loss of evidence, suspect’s alert, and does not seem justified by any practical reasons.

351. Art. 14 of Law 2 further states that “with respect to the attorney-client privilege, the lawyer shall not be required to submit any information or documents required by this Law covered by the attorney-client privilege, unless such information is strictly limited to that which is required by this Law with respect to its know your client obligations.”

352. The right to require information (not documents) by the competent authority shall not be considered as an authorization to search (raid) the offices of the resident agent or to confiscate files or file maintenance and records registers, such as computers and databases. These actions on behalf of the competent authority shall be undertaken in accordance with the applicable rules (procedures) for such purposes established en the ordinary Panamanian legislation.”

353. Under Law 2 above, the requirements of Resident Agents (including customer identification) will enter into force six months from the law coming into effect with respect to incorporation of new legal entities. For clients and relationships established before the Law came into effect, any registered agent that does not have in custody the required data, documents or information has five years to comply with the requirements, that is until around 2016. During this lapse of time, the investigative authorities will still face challenges when trying to identify the beneficial owners of companies represented by registered agents/lawyers.

354. The investigative authorities, Public Prosecutors and DIJ alike, did not mention to the assessors how they were dealing with this new law and how it was implemented in practice by the resident agents.

355. Ability to Postpone/Waive Arrest of Suspects or Seizure of Property (c.27.2):

356. Since the Law 63 of August 28, 2008, the Prosecutor has the ability to conduct undercover operations, controlled deliveries, analysis and infiltration of a criminal organization and surveillance and tracing of persons during the course of an investigation, with the objective to collect evidence on the offense and on the perpetrators and participants (Article 315 of Codigo Proceso Penal).

357. This provision applies to any type of offense under investigation, including money laundering and financing of terrorism. However, Article 317 adds that such investigative measures are subjected to the control of a judge (Juez de Garantias), within a maximum timeframe of 10 days. The parties can object in front of the judge to the measures taken by the Prosecutors, their substitutes (of the Prosecutors), or the police agents, during an oral hearing.

358. The Article 317 does not provide for the postponement of seizure of property, and the judicial control during the 10-day window coupled with the ability of affected parties to object, does not seem appropriate for complex and sensitive investigations like money laundering or financing of terrorism.

359. Undercover operations are performed by unit in the DIJ other than the money laundering unit. Neither the prosecutors nor the DIJ provided any statistics regarding the use of these faculties in money laundering cases.

360. The legislation does not provide with the possibility to postpone or waive the arrest of a suspected person, although the police and/or the prosecutor leading the investigation can decide the appropriate timing for any arrest.

361. Additional Element—Ability to Use Special Investigative Techniques (c.27.3):

362. Per Administrative Resolution 093-R-49 of 2008, implementing the Law 69 of December 27, 2007, the DIJ is habilitated to undertake surveillance, wiretaps, and mailing interceptions, upon a judicial authorization. The authorization should be requested by the Commissioner of the National Police and the Prosecutor’s Office (Article 64 of the Resolution abovementioned).

363. The legal framework for wiretaps is detailed at Article 311 of the Penal Procedural Code. They cannot exceed 20 days, except judicial authorization (no mention for what maximum period it could be prorogated).

364. Additional Element—Use of Special Investigative Techniques for ML/TF Techniques (c.27.4):

365. The assessors were not given statistical elements to ascertain the use of special investigative techniques in money laundering cases. Prosecutors noted that it is less relevant to use them on the cases that come from the UAF because the cases are “dead,” meaning that the bank accounts are usually closed and the surveillance of the funds is, therefore, complicated (need to re-trace the assets first).

366. As far as predicate offenses are concerned, it seems that such investigative techniques are more commonly used in drug trafficking cases. However, no statistics were given.

367. Additional Element—Specialized Investigation Groups and Conducting Multi-National Cooperative Investigations (c.27.5):

368. Both the Prosecutors and the Police (DIJ) mentioned the good relationships with a couple of foreign countries (US, Canada, and Colombia), allowing for multi-national cooperative investigations in specific cases.

369. Neither the Prosecutors nor the DIJ mentioned any permanent or temporary groups specialized in investigating the proceeds of crime apart from the anti-money laundering section of the DIJ.

370. Additional Elements—Review of ML and TF Trends by Law Enforcement Authorities (c.27.6):

371. The law enforcement authorities do not review ML and TF methods, trends and techniques on a regular and interagency basis. The interagency cooperation seems to happen only at the initiative of the US Drug Enforcement Agency, which provides for technical assistance to different competent authorities in Panama.

372. Each agency like UAF and DIJ issues an annual report which contains information on their activities. However, the information on methods, trends and techniques contained is very limited in the UAF report for 2011, and the typology shared by the police with the assessors relates to the Black Market Peso Exchange scheme, which is relatively dated.

373. In 2005, a Tripartite Coordination Commission has been created between the Judicial Authority, the Prosecutor’ Office, and the UAF. Its objectives are to coordinate actions for the adoption of measures to promote the analysis, investigation and judgment of the offenses of money laundering and financing of terrorism. The TCC was reactivated in 2009 according to UAF website. There is no mention of any meetings of the TCC in the 2011 UAF report, and none of the interlocutors mentioned this Commission during the on-site mission.

374. Ability to Compel Production of and Searches for Documents and Information (c.28.1):

375. The ability to compel production of and searches for documents and information has not been specifically envisioned in the Penal Procedural Code (PPC) for ML/TF and the underlying offenses. Therefore, the general provisions of the PPC apply.

376. Article 293 and 294 of the PPC provide for the search of houses and offices, upon authorization by a judge, after request from the Prosecutor. Article 325 provides for the search of persons and vehicles, when there are sufficient reasons to presume that the proceeds of a crime could be hidden in the vehicle or in a person.

377. Article 307 provides for the seizure of documentation as evidence, with exception for the persons holding such documents under legal privilege. In such case, if the Prosecutor wants to seize the documents, he should request a judge’s authorization

378. By Law 2 of February 1, 2011, the competent authorities, strictly defined as the Prosecutors, the Judicial Authority, and the Tax administration, can request Resident Agents (lawyers) for legal entities, following due process, for information they hold on their clients or to provide information maintained in any form or document that has been obtained under the provision of Law 2 of 2011. Art. 13 of this Law states that the request for information or documents shall require that (i) the notification shall state the reasons why the competent authorities require such information or documents, (ii) the time within which the authorities require such information or documents which shall not be earlier than five days, and (iii) the office of the competent authority where such information or documentation should be delivered.

379. Art. 14 of Law 2 further states that “with respect to the attorney-client privilege, the lawyer shall not be required to submit any information or documents required by this Law covered by the attorney-client privilege, unless such information is strictly limited to that which is required by this Law with respect to its know your client obligations.

380. The right to require information (not documents) by the competent authority shall not be considered as an authorization to search (raid) the offices of the resident agent or to confiscate files or file maintenance and records registers, such as computers and databases. These actions on behalf of the competent authority shall be undertaken in accordance with the applicable rules (procedures) for such purposes established en the ordinary Panamanian legislation.”

381. Under Law 2 above, the requirements of Resident Agents (including customer identification) will enter into force six months from the law coming into effect with respect to incorporation of new legal entities. For clients and relationships established before the Law came into effect, any Registered Agent that does not have in custody the required data, documents or information has five years to comply with the requirements, that is until around 2016. During this lap of time, the investigative authorities will still face challenges when trying to identify the beneficial owners of companies represented by Registered Agents/Lawyers.

382. Power to Take Witnesses’ Statement (c.28.2):

383. Article 320 of the PPC provides with the power to take witnesses’ statements, including for use in investigations and prosecutions of ML/TF and other underlying offenses or in related actions. Article 332 provides authorities with a range of protection measures for witnesses.

384. Statistics (R. 32):

385. The DIJ was only able to provide statistics for its activity between 2006 and 2009. These statistics were previously communicated to the Organization of the American States, and are only related to money laundering of drug trafficking proceeds.

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386. Additionally, the DIJ mentioned that it receives an average of three to four cases by month that the UAF originated and transmitted to the PGN for further investigations. This small number (between 36 and 48 cases by year) hardly matches with the statistics given by the UAF of 146 cases transmitted annually. Actually, not all the UAF reports sent to the PGN are making their way to the DIJ, which is the AML specialized unit. Other law enforcement units may receive them, in particular anti-drug Units.

387. The statistics given by the Prosecutor’s Office do not detail between the assets that were frozen, seized or confiscated. All refer to laundering of drug trafficking proceeds.

388. Between 2009 and 2012, around $36 million were seized in cash in drug trafficking cases and later confiscated. During the same period, 45 real estate properties (farms, apartments, and lots, etc.,) and 184 vehicles were also seized.

389. There is no statistics related to persons or entities and amounts of property frozen pursuant to or under UN Resolutions relating to terrorist financing.

390. There is no statistics for STRs resulting in investigation, prosecution or convictions for ML/TF or the underlying predicate offense. There is no statistics for criminal sanctions applied to persons convicted of ML or TF offenses.

391. The following statistics were compiled by the assessors and are based on the numbers given by the Judiciary authority (Organo Judicial). All the cases are related to money laundering of drug trafficking.

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392. The following statistics were given by the Prosecutor’s office (PGN) and are related to court decisions on money laundering cases. They are slightly different from the statistics given by the Judiciary authority. Post mission the authorities provided aggregated statistics for the following years: 2006–2009 (32 ML-specific sentences were issued of which 13 were guilty verdicts, 14 not guilty, and five mixed verdicts); 2010–2011 (18 ML-specific sentences of which nine were guilty verdicts and nine not guilty). Statistics for other ML related crimes were also provided.

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393. There are deficiencies in the maintenance of statistics at the judicial level. Indeed, Panama does not have a computerized system that would allow for a tracking of the cases along the penal chain. There also seems to be a merge of data related to drug cases where money laundering offense is prosecuted in addition to the drug offense with data on cases where money laundering is prosecuted autonomously. It is not clear if this second aspect already happened, and whether there are money laundering cases in Panama that are not drug related. Many money laundering cases also appear to be linked to cash seizures at the airport.

394. Adequacy of resources—LEA (R. 30): The DIJ is composed of 16 staff, including the management and support staff. The profile of the agents seems adequate. However, the number of agents seems to be insufficient for the DIJ to perform its functions adequately and in a timely fashion. With a total of 146 cases sent to the Prosecutor last year by the UAF, in addition to the financial investigations on drug cases that are the “bread and butter” of the Unit, the current staffing does not allow for a throughout investigation of the cases, much less take on complex and longer term ML cases involving non-drug predicate offenses

395. In terms of trainings, there seems to be limited in-house opportunities for the DIJ to be adequately trained and updated on new criminal trends in Panama and overseas. Capacity building is mostly made by external agencies or in the context of bilateral foreign assistance: participation to international events, Interpol meetings, and US DEA technical assistance.

396. According to UAF data, there was no training delivered in 2011 and 2012 to the Police in charge of money laundering cases (DIJ). The attendance of the DIJ to the public release of the UAF annual report cannot be counted as training to that respect.

397. The situation seems to be similar at the judicial level. The general lack of domestic coordination between agencies in Panama does not provide for adequate and relevant training opportunities. Once a year the UAF presents its annual report. The event is counted as training by the judicial authorities and lasts half a day. On September 27, 2012, the 2011 annual report was presented in the morning to reporting entities and supervisors and in the afternoon to public agencies.

398. The judges (Organo Judicial) provided for information regarding the training they received over the last five years.

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399. It should be noted that most of the training over the last two years was organized and delivered by the industry. It is also noted that the number of training programs is limited. The agendas provided to the mission indicated a focus on awareness raising rather than more hard tangible training on techniques and best practices for investigating and prosecuting money laundering and terrorism financing cases.

400. None of the trainings focused on financing of terrorism.

401. The judges met by the assessors did not mention any training or educational programs concerning money laundering and financing of terrorism offenses or concerning seizure, freezing and confiscation of property that is the proceeds of crime or is to be used to finance terrorism.

402. There is only one Prosecutor in charge of organized crime who is also in charge of receiving all the UAF reports. This appears to be insufficient, even if after preliminary investigations by the DIJ the reports can be dispatched to other Prosecutors

403. By Executive Decree 246 of December 15, 2004, a Code of Ethics was established for all public servants in Panama. A breach of the principles contained in the Code shall be sanctioned by verbal reprimand, written reprimand, and removal from office, etc., (Article 44 of the Executive Decree). Beside these administrative sanctions, the public servants remain liable for penal sanctions in case of commission of a penal offense. All public servants, including the Judiciary, are requested to disclose their assets when they enter and when they leave their functions (Article 304 of the Constitution of Panama).

Effectiveness of Implementation

404. The law enforcement authorities in Panama use the money laundering offense primarily with respect to drug trafficking offenses. In this regard, during 2011 the AGO requested the UAF for assistance in conducting financial analysis and provide financial information (its core area of expertise) 56 times. Article 2(f) of ED 163 of 2000 provides for this possibility for the AGO to request UAF assistance, and should be related to money laundering offenses only. It remains unclear whether the AGO is using the UAF in drug cases in order to assess if there are grounds to charge the defendant for money laundering as well (or to estimate the assets of the defendants), or whether money laundering charges are notified prior to the request to the UAF. According to the ED 163 of 2000, the requests should happen only on the second hypothesis.

405. The police is constrained by the very tight timeline for its preliminary investigations that does not seem adequate for financial crime investigations. In addition, the access to financial information is challenging, and the new law on resident agent, a significant area of financial and corporate activity, constrains timely access to information and documentation for investigation and prosecution purposes (five days delay minimum between the request and the time the information should be provided). In addition, the five year grace period provided to resident agents to comply with customer identification requirements for existing clients creates a significant information source lacuna. As the authorities did not mention any real cases of implementation of the law, it is difficult to analyze the effectiveness of its implementation by law enforcement authorities.

406. Capacity building is also an issue at all stage of the judicial chain.

407. The poor maintenance and the lack of concordance of statistics at all stages of law enforcement authorities prevent the assessment of the effectiveness of the enforcement of money laundering in Panama. It remains unclear to what extent the money laundering offense is used as an additional tool to deter crime (i.e., all categories of predicate offenses), or solely as a substitute to the drug trafficking offense in the circumstances of cash seizures.

408. Statistics on number of investigations of ML/TF, on those that led to prosecutions, on those that led to convictions, statistics on application of special investigation techniques, statistics on production orders, searches and seizures, for example, are missing.

3.6.2. Recommendations and Comments

  • Panama should ensure that the provisions of the Procedural Penal Code allow for throughout investigations in money laundering and financing of terrorism cases, in particular by allowing appropriate time for performing complex investigations.

  • Panama should make use of the special investigative techniques in money laundering cases on a regular basis and keep statistics of such use.

  • Panama should have immediate access to the information detained by Resident Agents upon request, without the uncompressible delay of five days.

  • Panama should maintain updated statistics on the money seized, frozen, confiscated, in money laundering cases, with a breakdown by type of predicate offenses.

  • The law enforcement authorities in Panama, including the AGO, and the Judiciary, should be more adequately trained, on a regular basis, and should develop in-house capacities on financial investigations.

  • The law enforcement authorities should access relevant information to investigations in a timely fashion. When information is not provided in a timely fashion by the requested parties (financial institutions for instance), sanctions should be pronounced.

3.6.3. Compliance with Recommendations 27 and 28

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3.7. Cross-Border Declaration or Disclosure (SR. IX)

3.7.1. Description and Analysis

409. Legal Framework:

410. By a Cabinet Decree of March 9, 1994, Panama introduced the obligation for travelers to declare cross border cash transportation, through filing a written declaration, for amounts above $10,000. The requirement was only for passengers entering Panama until July 2012.

411. Modified by Law 29 of June 2, 2008, the current Article 18(5) of Law 30 of 1984 (Customs law) reads as follows: Constitutes a customs fraud: (5) The absence of declaration, or false declaration by travelers, when they enter (not when leaving) the customs territory, of cash (dinero), negotiable instruments or other convertibles assets, above B10,000 or equivalent in foreign currency at the day of the declaration. It will not be considered a false declaration when the difference between the assets disclosed and the assets effectively carried is not superior to 3 percent of the total of assets carried.

412. The scope of negotiable instruments is not clearly determined and seems to encompass only letters of change and checks, by Law 52 of 1917.

413. The sanctions are provided for Article 24 of Law 30 of 1984, modified by Law 28 of June 2, 2001 and by Law 49 de 2009, Article 35, regarding the perpetrators of customs fraud and contraband. The Article 24 of Law 30 of 1984 now reads as follows:

  • 1) imprisonment of one (1) to three (3) years in case of committing the crime of smuggling and customs fraud, and a fine of two (2) to five (5) times the value of the subject merchandise

  • 2) imprisonment of four (4) to six (6) years, in case of repeated offense, and a fine of five (5) to ten (10) times the value of the goods subject of wrongful if exceed the value of fifty thousand dollars (B50, 000.00).

414. In 2010, by Law 67 of 2010, this legal framework was completed by a penal offense which reads as follows: “Those, when entering or leaving the country, who omits to declare or wrongly declares money, assets or negotiable instruments above the threshold of B10,000 will be sentenced to two to four years in jail.”

415. The Penal Code was very recently modified by Law 40 of July 4, 2012, and now reads as follows, per Article 375 A of the Penal Code:

  • “Those, when entering or leaving the country, who omit to disclose or falsely disclose money (dinero), assets (valores) or negotiable instruments (documentos negociables) that they carry, above the amount of B10,000 will be sentenced by two to four years in prison and the seizure (decomiso) of the money, assets or negotiable instruments that were not disclosed. In case of a foreign citizen, in addition to the seizure, his/her immediate deportation and the permanent prohibition to enter to the country will be ordered, once the sentence above will have been served.”

416. By amending the Penal Code, and with no reference to the existing provisions of the Customs law, this new provision does not repeal the existing provisions and just duplicates (and expands) them. However, the coexistence of dual requirements, and of two sets of sanctions, could create operational issues.

417. Mechanisms to Monitor Cross-border Physical Transportation of Currency (c.IX.1):

418. The declaration system described above in place to monitor cross-border physical transportation of currency is very new. Before July 2012, only inflows of currency transportation were monitored. Law 15 of 2007, Article 32, established as a contraband offense the concealment of money, negotiable instruments or other values convertible into cash or a combination of these, within goods or cargo to any customs destination. This law also adds to Article 16 of Law 30 de 1984 the definition of customs fraud (and not Article 18 (5) of Law 30 of 1984, as modified by Law 29 of 2008 establishing the cross border declaration system). It does not cover the mailing of currency or bearer negotiable instruments by a legal or natural person. In addition, by not being linked to the Article 18(5), there is no threshold applicable and thus the provision provides for a complete prohibition of transporting cash or negotiable instruments in cargo. The mission was not told how this provision is enforced, if it is.

419. The declaration requirement is mostly enforced at Tocumen International airport. The Customs authorities met during the on-site mission did not mention the recent regulation regarding cross-border physical transportation of currency.

420. It remains unclear how the penal provisions interplay with the Customs Code and the ability of Customs officers to control outflows of currency by passengers leaving the country, as the sanction is only a penal sanction, not a Customs one, for outbound transportation. The sanctions are, therefore, both administrative and penal, including the deportation at the penal level. It remains unclear how the different authorities in charge of enforcing these provisions communicate. The Customs administration informed the mission about enforcing the offense through the Customs proceedings (which include a special prosecution), but did not mention the role of the regular Prosecutor, if any, in bringing charges for the violation of the criminal offense and, upon conviction, the application of sanctions under the Penal Code.

421. Request Information on Origin and Use of Currency (c.IX.2):

422. Under the Customs regulation (Ley 30 de 1984, modified), and upon the discovery of a false declaration or in the case of failure to declare, the Customs authorities undertake “in-depth” controls, in which the Customs official is entitled to ask for additional information, including with regard to the origin of the cash and its intended use.

423. Since the 2010 introduction in the Penal code of sanctions related to outbound transportation of cash, it seems that the practice has not changed and that the requirement for outbound transportation is not being enforced.

424. Restraint of Currency (c.IX.3):

425. The Customs and the Penal provisions do not specifically provide for the possibility for the competent authority to stop or restrain currency or bearer negotiable instruments for a reasonable time in order to ascertain evidence of money laundering or terrorist financing where there is a suspicion of ML/TF. Only in case of a false declaration the competent authorities will be able to restrain the discovered assets, according to the Customs Law of 1984.

426. Retention of Information of Currency and Identification Data by Authorities when appropriate (including in Supra-National Approach) (c.IX.4). The current form used by the Customs authority for passengers entering Panama contains details on the declaration of the name of the carrier and of the monetary instruments above the threshold. It does not contain data on the type of currency. The written declarations are filed by the Customs into a computerized database on a monthly basis and transmitted to the UAF. The processed data is held for a period of five years. Physical archives are held both at Tocumen airport (after 2011) and at the Customs Headquarters. There is no such declaration form for outbound transportation of cash.

427. Access to Information by FIU (including in Supra-National Approach) (c.IX.5):

428. The UAF has access to the information collected by Customs, and also to the cross-border transportation incidents (lack/false declaration). The communication is made electronically by the Customs on a monthly basis. The UAF then integrates the data to its own database. However, this information is readily available only with respect to the International Airport of Tocumen (Panama City). The data is transmitted directly by the Customs authorities at the airport to the UAF. As far as the other airports and other points of entry and exit are concerned, the Customs mentioned that the UAF has to liaise directly with each responsible authority in order to access the relevant data. However, according to the Customs authority, the legal framework regarding cross-border transportation of currency is not enforced at other border points of entry and exit other than at the main airport.

429. Domestic Cooperation between Customs, Immigration and Related Authorities (c.IX.6):

430. The mission was not informed of specific coordination arrangements among customs, immigration and related law enforcement authorities on issues related to the implementation of the cross-border transportation of currency. There is coordination at Tocumen airport between Customs and Migration, but not on this topic in particular.

431. International Cooperation between Competent Authorities relating to Cross-border Physical Transportation of Currency (including in Supra-National Approach) (c.IX.7):

432. The arrangements (International Customs Cooperation and Mutual Administrative Assistance Agreements) for international cooperation between customs administrations are also applicable for cross-border physical transportation of currency. In addition to the international administrative international mutual assistance, there is a customs agreement between customs administrations from Latin America, Spain and Portugal (COMELAP). The mission was not informed of particular actions undertaken under the aegis of this agreement in relation with cross-border physical transportation of cash. However, lack of national coverage and implementation of the cross-border declaration regime would limit the scope of such cooperation.

433. As a member of GAFISUD, Panama participated in the annual exercises related to cross-border cash transactions. In this context, Panama shared the results of the controls and statistics related to the monitoring of cross-border cash transactions.

434. Sanctions for Making False Declarations/Disclosures (applying c.17.1-17.4 in R. 17) c.IX.8:

435. The new Article 375-A of the Penal Code provides for the confiscation of the undeclared assets, meaning not the totality of the cash, securities and monetary instruments, and for jail time between two and four years. Consequently, in the case of under-declaration, say only $1 million undeclared out of a total of $5 million being transported only $1 million would be subject to confiscation. In case of a foreign citizen, in addition to the confiscation, his/her immediate deportation and the permanent prohibition to enter to the country will be ordered, once the sentence above will have been served.”

436. Although they may appear dissuasive, these sanctions do not appear to be effective or proportionate. In addition they do not apply to legal persons. The latter is relevant with respect to confiscation of transportation by a legal person through e.g., containerized cargo and through the mail system as opposed to only the physical transportation by natural persons.

437. By referring to the Article 18(5), Article 27-A of Law 30 of 1984 (Customs Law) states that the cash, negotiable documents and other negotiable assets, seized or confiscated by the General Directorate of Customs, will not be restituted in any circumstances. However, this provision has been declared unconstitutional by decision of the Supreme Court on June 23, 2010. The authorities did not inform if the text has later been amended to take into account the Supreme Court ruling.

438. The sanctions provided by the Customs code are the following:

  • 1) imprisonment of one (1) to three (3) years in case of committing the crime of smuggling and customs fraud, and a fine of two (2) to five (5) times the value of the subject merchandise.

  • 2) imprisonment of four (4) to six (6) years, in case of repeated offense, and a fine of five (5) to ten (10) times the value of the goods subject of wrongful if exceed the value of fifty thousand dollars (B 50, 000.00).

439. In addition, the Customs provisions allow a tolerance of 3 percent for false declaration.

440. It remains unclear how the existing two sets of sanctions (Customs and penal) interplay and are applied in practice. According to the Customs authorities, the Public Prosecutor sanctions the offense of absence of or false declaration by using the related offense of falsification of public documents. Such practice was not mentioned by the Public Prosecutor and would go against the provisions of article 375-A of the Penal Code which already provides for the offense and its sanction.

441. Sanctions for Cross-border Physical Transportation of Currency for Purposes of ML or TF (applying c.17.1–17.4 in R. 17, c.IX.9):

442. The sanctions described above apply in the case of absence of declaration or false declaration. They are not necessarily applied when such cross border transportation is also tied to ML or TF. However, if the circumstances of the case reveal a ML or TF scheme, then the offense of ML or TF can be prosecuted and the related sanctions will apply separately.

443. Confiscation of Currency Related to ML/TF (applying c.3.1-3.6 in R. 3, c.IX.10). Confiscation of Currency Pursuant to UN SCRs (applying c.III.1—III.10 in SR. III, c.IX.11). Provisional measures and confiscation (as described under R. 3) can be applied in the case of cross border transportation of cash that are related to ML/TF if and only if ML/TF offense is also prosecuted. If not, the legal framework as described above applies.

444. The mission has no information on the use of the cross-border cash transportation framework in relation with UNSCR lists. The current legal framework does not allow implementation for TF suspicion.

445. Notification of Foreign Agency of Unusual Movement of Precious Metal and Stones (c.IX.12):

446. The mission was not informed of any specific framework or initiative regarding the communication to foreign authorities of the discovery of unusual cross-border movement of gold, precious metals or precious stones. A couple of weeks after the on-site mission, Panama joined the Kimberley Process and now participates in the international efforts for monitoring diamonds trade (Decree 43 of November 13, 2012).

447. Safeguards for Proper Use of Information (including in Supra-National Approach) (c.IX.13):

448. The information collected daily at Tocumen Airport in Panama City is digitalized on site on a daily basis. In other check-points, the information about money above $10,000, duly declared when entering the country, is not digitalized.

449. Training, Data Collection, Enforcement, and Targeting Programs (including in Supra-National Approach) (c.IX.14):

450. The Customs authority did not mention any specific training provided to the agents in charge of implementing the cross-border cash transactions requirements. In any case, as the law is enforced only at Tocumen airport and to a very limited extent at the border with Costa Rica, it is unlikely that regular training and data collection are organized on that particular topic.

451. Supra-National Approach: Timely Access to Information (c.IX.15):

452. Non-applicable.

453. Additional Element—Implementation of SR. IX Best Practices (c.IX.16):

454. Panama did not provide any information regarding the implementation of measures set out in the Best Practices Paper for SR. IX.

455. Additional Element—Computerization of Database and Accessible to Competent Authorities (c.IX.17):

456. Declarations are computerized and the data are made available to the UAF and transmitted to it, and are available to the Prosecutor’s Office, upon request.

457. Statistics (R. 32):

458. The UAF shared with the assessors a comprehensive set of statistics, on the basis of the declarations made by the travelers when entering Panama.

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459. There is no statistic regarding outbound movements of cash. During the on-site mission, the Customs administration shared the following statistics related to its own enforcement:

  • 2012: 38 sentences to date, for non or false declaration of cash, around $2 million as fines and confiscations

  • 2011: 83 sentences, and $4,343,223 as fines and confiscations

  • 2010: 68 sentences, for an amount confiscated of $3,523,884,000

460. Adequacy of Resources—Customs (R. 30). By lack of resources, the regulation is only implemented at the international airport of Tocumen, leaving large parts of the country uncontrolled (in particular the southern border with Colombia). The Customs authorities mentioned some controls for money entering the country on the northern border with Costa Rica at the airport of Albrook.

461. Despite the fact that the regulation changed in 2010 to include the requirement to declare outbound movements of cash, no statistics are provided, raising doubts on the enforcement of the regulation for outbound movements.

Effectiveness of Implementation

462. The current legal framework is not effective in terms of monitoring the outbound transportation of cash in Panama because the law is not enforced to that respect. No statistics are maintained on the outbound flow of cash.

463. As far as the inbound transportation is concerned, the limited geographical enforcement of the regulation (mostly in Tocumen and limited enforcement on the north of the country) leaves loopholes that could be easily exploited by criminals.

464. The sanctions do not allow a proportionate response to the breach of the offense when it is not related to ML/TF. On the contrary, the legal framework as provided for by the Penal Code does not allow restraint and full confiscation of undeclared illicit money in case it is linked to ML/TF.

465. The Customs agents are not able to restrain the declared assets if they have suspicion that they could be linked to ML/TF, and the declaration form does not contain information on the type of currency declared.

466. From a general standpoint, the combination of the legal sanctions and the Customs provisions is unclear in practice. The Customs authorities did not even mention to the assessors the existence of the July 2012 reform of the Article 375 A of the Penal code during the on-site mission, providing for sanctions against false or absence of declaration.

467. On substance, neither the Customs authorities nor the UAF explained the typologies of the cash transportation in Panama. For instance, one could question the presence of Haiti, one of the poorest countries in the world, amongst the first four countries declaring cash entering Panama over the last three years. The total amount of cash declared by travelers originating from Haiti is around $200 million.

3.7.2. Recommendations and Comments

  • Panama should review the whole legal framework in order to ensure consistency and applicability of the legal provisions regarding cross-border cash movements. The interplay between the penal and administrative provisions (and sanctions) should be clarified.

  • Panama should enforce the legislation for outbound movements of cash and properly include the requirement for transportation of cash and bearer negotiable instruments by mail or cargo.

  • Panama should provide for proportionate, dissuasive and effective sanctions, and should maintain comprehensive statistics regarding the implementation of the sanctions.

  • Panama should adapt the legal framework regarding cross-border cash movements to the fight against ML/TF, by enabling the competent authorities to restrain and seize assets that are related to ML/TF.

  • Panama should coordinate internally on the topic of cross-border cash movements and should ensure international cooperation through appropriate channels. Panama should provide statistics regarding international cooperation in this domain.

  • Panama should use the valuable data collected to train and raise awareness amongst competent authorities on this topic of cross-border cash transportation. Patterns of money-laundering or tax evasion could be shared with foreign competent authorities.

3.7.3. Compliance with Special Recommendation IX

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4. Preventive Measures—Financial Institutions

4.1. Law, Regulations, and Other Enforceable Means

468. Laws and Regulations: The cornerstone of the legal framework of preventative measures in the financial sector are Law 42-2000 (the AML Law) and various Executive Decrees. Laws (“leyes”) can be passed by the Legislative Assembly (“Asamblea Legislativa”), or under certain circumstances may be issued by the Executive (e.g., when the Legislative Assembly is not in session, in which case they are called Law Decrees (“decreto ley”). Law Decrees are subject to discussion and amendment or revocation once the Legislative Assembly resumes its sessions. For purposes of this assessment, Regulations are Executive Decrees issued by the President which were issued to regulate the AML Law. Three such Decrees have been issued namely: Executive Decree 1-2001, Executive Decree 266-2010, and Executive Decree 55-2012. Executive Decree 1-2001 designated the Supervisory agencies and activities they supervise, and established their responsibilities. It also detailed the cash and quasi-cash reporting obligations of the covered persons and entities which were also listed in this Decree. Executive Decree 266-2010 amended the first Executive Decree 1-2001 with respect to the CTR reporting obligations and added a new Article 3-C that applied the suspicious transaction reporting (STR) obligation to all the entities that were covered with respect to CTR obligations (see R. 13). It is important to note that under the AML Law certain insurance activities only have a narrow AML obligation to report CTRs, and under Art. 7 not all insurance intermediaries are covered. Executive Decree 266-2010 (issued 23 March 2010) sought to impose STR obligations on the covered insurance activities as well as on other non-financial activities covered by Art. 7 of the AML Law, contrary to the provisions of Art. 184 of the Constitution. However, this Executive Decree 266 of 23 March 2010 was fully revoked on 31 March 2010 by Executive Decree 294. Executive Decree 55-2012 mainly amended Executive Decree 1-2001 with respect to the list of designated Supervisory agencies and the persons and entities under their supervision.

469. The persons and entities that conduct financial activities covered under the law and regulations, hereinafter “covered FIs,” are required under the AML Law to implement preventative measures (CDD, CTR reporting, monitoring, STR reporting, internal controls, record keeping) in compliance with the agreements and provisions issued by the competent authorities (AML Law).

470. Other Enforceable Means (OEM): For purposes of this assessment, OEMs are the enforceable administrative instruments issued by the various supervisory agencies designated by the Executive Decrees for, inter alia, purposes of supervision of compliance and sanctions. These OEMs are principally in the form of Agreements (Acuerdos) and Resolutions (Resoluciones). Some of the competent authorities have also issued Circulars (Circulares) that provide general or specific guidance and information for various prudential and AML issues relating to the financial sector, including CDD and record keeping provisions. These, however, are not OEMs. For purposes of this assessment, Agreements and Resolutions are other enforceable means as that term is defined by the FATF to the extent that they establish enforceable requirements with sanctions.

471. Notwithstanding the above, it is noted that many of the provisions of OEM instruments go beyond the requirements of the AML Law in some significant respects, including adding entities and primary provisions not subject to the primary AML Law. While these provisions may be unconstitutional, they are considered enforceable until such time as they have been declared as such by the courts.

472. See chart below for a current list of laws, regulations, OEMs, and guidance considered in this section.

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Customer Due Diligence and Record Keeping

4.2. Risk of Money Laundering or Terrorist Financing

473. Size of Financial Sector – Scope of Application: The AML Law applies to a broad range of financial institutions, but does not cover all financial activities that fall within the scope of the FATF Recommendations. The following financial institutions are covered under Article 1 of the AML Law: banks (onshore and offshore), bureau de change (casas de cambio), money remitters (natural and legal persons whether or not this is a principal line of business), finance companies, savings and loan cooperatives, stock exchanges, clearing houses, brokerage houses (which are also the only entities recently authorized to conduct FOREX, stock brokers, (natural persons), and investment (mutual) fund managers/administrators. Collectively, all of the above financial institutions (FIs) are referred to as “covered FIs.” Trustees (fiduciaries) are also covered under Article 1. However, when conducted by banks or other FIs, that activity will be assessed as a FI. Trust business conducted by non-FIs will be assessed as DNFBPs.

474. There are other important financial activities operating in Panama as defined by the FATF Recommendations that are not covered by Article 1 of the AML Law. These are:

  • Insurance companies and intermediaries (the underwriting and placement of life insurance and other investment related insurance), including insurance company and brokerage managers, insurance brokers, and agents (both natural and legal persons),

  • Savings and loan associations (“asociaciones de ahorro y credito”),

  • National Mortgage Bank (Banco Hipotecario Nacional) which regulates savings and loans associations,

  • Multi-service cooperatives, (cooperativas de servicios multiples),

  • Issuing and managing means of payment (e.g., credit and debit cards),

  • Financial leasing,

  • Factoring, and

  • Safekeeping/custody of cash and other liquid assets (e.g., gold).

475. No assessment or explanation has been provided to justify the exclusion of these financial activities (e.g., based on risk). The failure to incorporate any one of these individual financial activities in the law may only be minor if the size and scope of each financial activity is not significant. However, even if individually they are not significant, when taken together, their exclusion would be significant and create an important gap in the AML system that should be rectified.

476. Article 7 of the AML Law establishes that insurance and reinsurance companies, as well as reinsurance brokers (no mention of insurance managers, brokers, and agents) are reporting entities (for CTRs-cash and cash equivalent reports), but they are not subject to the full range of AML obligations established in the AML Law. The authorities were unable to point to any regulation of issuers and managers of payment systems (especially credit and debit cards). Executive Decree 46-2008 states that financial leasing and factoring falls under the control of the MICI for purposes of compliance with AML prevention, however, financial leasing and factoring are not covered entities under the AML Law. Also, there exists a type of cooperative in Panama called a “multiple service cooperative” (cooperativa de servicios multiples) which offers savings and loan as one of its services. There are 25 “multiple service cooperatives” operating in Panama as of the date of this report that, because of their specific designation and definition under the cooperatives law, fall outside the scope of Art. 1 of the AML Law with respect to savings and loan cooperatives. It is unclear if there is any regulation of the safekeeping/custody of cash and other liquid assets (e.g., gold).

477. In addition, while casas de cambio are covered under Art. 1 of the AML Law, this activity is not regulated in Panama, unlike money remitters who can engage in currency exchange activities. This situation makes implementation of the AML requirements less effective than for those sectors that are otherwise regulated and supervised. Likewise, while investment fund managers are covered, regulation and supervision of private investment funds and investment funds with only foreign subscribers (offshore type of funds) are overall subject to a lighter system of regulation and supervision by the SMV which may also result in the implementation of a less rigorous system of AML supervision in potentially higher risk scenarios.

478. It is worth mentioning that the AML Law only deals with AML issues and does not address CFT. Panama has criminalized TF under the Penal Code and has implemented the UN Convention for the Suppression of the Financing of Terrorism through Law 22 of 2002. Consequently, this shortcoming has a negative impact on some of the recommendations applicable for the financial sector.

479. The following table provides a summary of these activities and their regulators/supervisors.

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SSRP has issued Resolution 8-2008 for Insurance and Reinsurance companies, and Insurance and Reinsurance Agents, which goes beyond the scope of Law 42-2000.

480. Competent Authorities: For the purposes of this report, the covered entities will be referred to as outlined below. The SBP is the competent authority for banks and trust companies (FIs) “Bank and Trust Companies,” unless specified one of the other. The SMV is the competent authority for stock exchanges, clearing houses, brokerage houses (including FOREX activity), stock brokers, and investment fund managers (FIs) (“Securities”). The MICI is the competent authority for bureau de change (casas de cambio), money remitters (natural and legal persons providing this service), and financing companies (“Bureau de Change, Money Remitters, and Finance Companies”). The IPACOOP is the competent authority for savings and loan cooperatives (“Cooperatives”). While not an obligated entity per Article 1 of the AML Law, the SSRP is the competent authority for insurance and reinsurance companies and brokers “Insurance.”

4.3. Customer due Diligence, including Enhanced or Reduced Measures (R. 5 to 8)

4.3.1. Description and Analysis

481. Legal Framework:

482. The first paragraph of Art. 1 of the AML Law sets the broad AML requirement for all covered FIs (hereinafter those FIs listed in the first para. are referred to as “covered” entities to distinguish them from the list of entities (FIs and non-FIs) under Art. 7 that only have a CTR obligation under this law). This paragraph states that all covered entities shall maintain diligence and care in the conduct of their operations to prevent ML. Per Article 1(1) of the AML Law, all covered FIs are required to adequately identify their clients by requiring them to provide references and other documentation, and with respect to (“sociedades”) require certification and current status of incorporation, including identification of their directors, officers, controllers and legal representatives. Note that this requirement would technically not extend to legal entities that are not “sociedades” e.g., foundations and trusts companies. Such identification should enable them to document and adequately establish the real owner or beneficiary, whether acting in such manner directly or indirectly. Article 7 of the AML Law, which applies only to declaratory (or “reporting” entities (e.g., insurance and reinsurance companies), requires that these entities maintain in their records the name, address, and identity document number of their clients. Executive Decree 1-2002 and Executive Decree 55-2012 (which regulate the AML Law) do not further elaborate CDD requirements. Executive Decree 266 of 2010 also seeks to extend the STR obligation under the AML Law to CTR reporting entities However, this Executive Decree 266 of March 23, 2010 was fully revoked on March 31, 2010 by Executive Decree 294.

483. For banks, the primary regulatory instrument regarding CDD is Agreement 12-2005. For securities entities, the primary regulatory instrument regarding CDD is Agreement 5-2006.

484. MICI has issued two regulatory instruments regarding CDD: Resolution 14-2001 for finance companies and Resolution 328-2004 for money remitters. In addition to this section, the application of preventative measures for money remitters is also discussed under SR. VI. While MICI is the competent authority for exchange houses (casas de cambio), they have not issued any additional regulatory instruments for these institutions. The lack of regulation of exchange houses is a scope issue for preventative measures. As stated above, financial leasing and factoring are not covered by the AML Law (though they are mentioned in the Executive Decree 46-2008 regarding MICI), and therefore, are an additional scope issue for preventative measures.

485. For savings and loan cooperatives, Resolution 41-2009 is the primary regulatory instrument regarding CDD; however, this Resolution merely repeats, verbatim, the requirements outlined in the AML Law and does not add any additional detail to those requirements. As savings and loan cooperatives do not have any additional regulations outside of the obligation identified in the AML Law, their requirements will not be addressed in detail in Section 3.2.

486. While outside of the purview of the AML Law other than for CTR reporting, SSRP has issued Resolution 8-2008 regarding CDD for insurance entities. A brief description of this Resolution will follow the detailed analysis for Recommendations 5-8.

487. Prohibition of Anonymous Accounts (c.5.1):

488. Banks are allowed to maintain numbered accounts, and the identity of the beneficial owner of the account must be known to senior bank officials (Law 18-1959). The obligation to adequately identify the client in Article 1(1) of the AML Law applies to all accounts whether numbered or nominative. Securities are explicitly prohibited from maintaining anonymous accounts or accounts in fictitious names (Agreement 5-2006, Art. 5.a.6).

489. When CDD is required (c.5.2):

490. Banks: Bank must conduct due diligence on clients which will be the object of the business relationship, regardless of the amount of the transaction. In addition they must pay special attention when performing transactions in excess of ten thousand balboas (used interchangeably and on par with US dollars in this report), when detecting unusual operations, when there is a suspicion of money laundering, of terrorism financing or of other illicit activities, as well as when the bank has doubts regarding the veracity or adequacy of the information gathered or held on the customer’s identity (Agreement 12-2005, Art. 4 and 5).

491. Securities: Securities entities must conduct due diligence on client (a natural person or legal entity) on whose behalf a transaction is conducted by a SMV FI with respect to one-off transactions, occasional transactions or in a habitual manner, independent of the existence of more general contractual relations previously established between the parties (Agreement 5-2006, Art. 5). SMV FIs must also pay special attention to and conduct more exhaustive due diligence when there is a suspicion of money laundering or terrorism finance (Agreement 5-2006, Art. 11).

492. Finance Companies and Remitters: Finance companies and money remitters are required to adequately identify their clients (does not distinguish between occasional or business relationships), but the other elements of c.5.2 are not contemplated, particularly when there is suspicious of ML or TF regardless of the amount, and when there are doubts about the veracity or adequacy of previously obtained identification data.

493. For all of the covered FIs, these requirements are set out in OEM, not law or regulation (Law or Executive Decree) as required by the FATF Methodology.

494. For all of the covered FIs, there is no requirement to conduct CDD when carrying out occasional transactions that are wire transfers.

495. Identification measures and verification sources (c.5.3):

496. Banks: Banks must include documented evidence in the respective files of due diligence executed to accurately verify the identity of their customer. For natural persons, the information the banks must include in the client profile includes the following details (Agreement 12-2005):

  • The customer’s full name, marital status, profession or occupation, adequate identity document, nationality, domicile, and residence;

  • Recommendations or references of the account holder or authorized signatories;

  • True copy of the passport or equivalent document (for nonresidents present in Panama);

  • Purpose of the relationship;

  • Type, number, volume, frequency and habitualness of the banking relationship;

  • Financial profile, the personal or commercial background, and source of the funds; and

  • For domestic and foreign legal entities and legal arrangements (e.g., foundations, trusts, NGOs, and NPOs): incorporation documents, and the identification of directors, executive officers, controllers (for powers of attorney) and legal representatives when applicable, to identify the real or ultimate beneficial owner of the account, directly or indirectly (Agreement 12-2005, Art. 4.1 and 5.1).

497. Securities: Securities entities must use their reliable judgment to verify that the identification information provided by the client is accurate. The information the securities entity must include in the client profile includes the following (Agreement 5-2006, Art. 5) for all covered entities:

For natural persons:

  • Full name, date of birth, marital status, and profession or occupation;

  • Professional and personal address;

  • Phone number, address, email address, and fax number;

  • Copy of identification document (ID or passport), or other ID document that sufficiently verifies their identity of the person(s) that apply to open the account and the beneficiaries of the account, and a copy of the passport with entrance stamp (for non-Panamanian clients);

  • Copy of the passport with entrance stamp (for nonresidents present in Panama); and

  • Any other document deemed necessary to identify the client.

For legal entities:

  • Complete data on incorporation documents, address and registered office;

  • Description of the activities of the entity;

  • Exact details of the physical location of the activities;

  • Telephone numbers, address, email, fax number;

  • A copy of the identification document (ID or passport) of the final beneficiary and/or effective owners of the accounts In the case of trusts or legal entities, including entities with nominatives or bearer shares.

498. The SMV FI must require certifications evidencing the incorporation and validity of the trust and company through certification issued during the previous 30 days, as well as identifying officers, directors, controllers (for power of attorney) agents and legal representatives of such corporations and trusts. Exceptions to the latter requirement on individuals apply when the information can be obtained from public sources through access to an electronic database established in an official registry in the jurisdiction of origin of the entity.

499. Finance companies and remitters: Entities regulated by MICI must identify their clients with the following details:

500. For finance companies (Resolution 14-2001, Art. 1):

  • Complete name of the natural or legal person;

  • Personal identification card or passport, and Tax Registration Number (Registro Unico del Contribuyente);

  • Residential or commercial location, or registered office;

  • Residential or commercial phone numbers, P.O. Box number, and email; and

  • Copies of checks or utility bills e.g., electricity, water, and telephone bills.

501. For legal entities

  • Certification from the public registry; certification from a public accountant, and the validity of legal status that shows the officials, directors, controllers (powers of attorney), legal representative and validity of the company;

  • Commercial and banking references;

  • Description of activity; and

  • Declaration of source of funds.

502. For money remitters (Resolution 328-2004, Art. 1):

  • Complete name of the natural or legal person;

  • Personal identification card or passport, and Tax Registration Number (Registro Unico del Contribuyente);

  • Residential and commercial location; and

  • Residential and office telephone numbers, P.O Box number, and email.

503. Identification of Legal Persons or Other Arrangements (c. 5.4):

504. As stated in Article 1(1) of the AML Law, all covered FIs are required to adequately identify their clients by requiring them to provide references and other documentation, including with respect to the directors, officers, controllers and legal representatives with respect to legal entities (sociedades). Such identification should enable them to document and adequately establish the real owner or beneficiary of such entities, whether acting in such manner directly or indirectly. Note that references here to “sociedades” would limit its application to e.g., companies and partnerships (sociadades anonimas and sociedades de responsibilidad limitada). It is unclear whether such requirement would extend to e.g., trusts and foundations that are governed under separate legal regimes with different parties to such arrangements.

505. Banks: For banks, in the case of national or foreign legal persons, trusts, private interest foundations, nongovernment organizations, welfare institutions and/or nonprofit organizations, the bank must require the corresponding certifications that are evidence of incorporation, as well as the identification of directors, executive officers, proxies, and legal representatives when applicable, in such a way that they can properly identify and document the final beneficial owner of the account, whether direct or indirect (Agreement 12-2005, Art. 4.1.g and 5.1.e).

506. Securities: For securities entities, in the case of administrative powers given to someone other than the client, the entity must verify the identity of the person acting on behalf of the entity, and should apply reasonable measures and due diligence to identify the incorporation documents and the directors and legal representatives (Agreement 5-2006, Art. 5.b.6 and 5.b.7).

507. Finance companies: For legal persons or legal arrangements, finance companies must require a public registry certification, certification of a certified public accountant identifying the officers, agents, persons appointed to act on behalf of the entity, and a description of activity of the legal entity (Resolution 14-2001, Art. 1.a, e, and g).

508. Remitters: For legal persons or legal arrangements, money remitters must obtain a complete name and tax ID number (Resolution 328-2004, Art. 1.a)

509. Identification of Beneficial Owners (c.5.5, 5.5.1, and 5.5.2):

510. As stated in Article 1(1) of the AML Law, all covered FIs are required to adequately identify their clients by requiring them to provide references and other documentation, including with respect to the directors, officers, controllers (under powers of attorney “apoderados”) and legal representatives with respect to legal entities. Such identification should enable them to document and adequately establish the real owner or beneficiary, whether acting in such manner directly or indirectly. This article, however, is somewhat incoherent as the identification of directors, controllers and legal representatives would not necessarily result in the identification of beneficial owners, e.g., significant shareholders, and specific parties to trusts and private foundations. In addition, the article does not establish verification of identity requirements for beneficial individuals when customers are acting on behalf of others; reference to beneficial owners here is only with respect to legal entities.

511. Banks: The bank must properly identify and document the real or final beneficial owner