Panama: Strong Money Laundering Reforms

Experts say Panama’s new reforms will help fight money laundering.

Panama’s Congress on April 22 unanimously approved anti-money laundering legislation that will bolster supervision of non-financial sectors through which proceeds from drug trafficking and other illicit activities have been laundered in recent years. To what extent will the reforms, a main goal of President Juan Carlos Varela, be effective in fighting money laundering in Panama? What do the increased regulations mean for financial services companies operating in the Central American country? Will the changes convince the Financial Action Task Force to remove Panama from its “grey list” of countries with lax anti-money laundering standards?

Richard Fogarty, managing director, and Mauricio Garcia, director for global investigations and compliance services, at Berkeley Research Group: The measures adopted are a strong foundation for organizing a robust system to combat money laundering in Panama. They involve the creation and strengthening of the institutions in charge of implementing the policies, the collection and analysis of information classified as suspicious by the financial and non-financial institutions which are required to report it and the elimination of anonymity in shareholding interests. The regulations approved lay the groundwork for setting up a comprehensive system to combat money laundering, and, of note, they also apply to non-financial institutions, which often become the target and weak link for money launderers to utilize once financial institutions have strengthened their compliance regimes and made it much more difficult to breach their operations. It is important to highlight that the control and prevention measures for money laundering and terrorism financing are specific elements of the risk management system of any institution and, in particular, of financial services institutions. The measures in question here constitute a vehicle by which institutions can focus on the specific principles of bankers, such as knowing with whom they are working and monitoring their transactional behavior, not only in order to have legal coverage, but also to prevent the risk of contagion to other clients, while protecting their reputation as a guarantor of the trust and security of their clients. The increased regulations provide financial institutions with the elements required to ensure transparency in the international market, while adding a key element to institutional stability and sustainability. The changes should be seen more as an additional factor that ensures the sustainability of the financial and non-financial sector in Panama; in reality, the control and prevention of money laundering should not be seen as a legal obligation but rather as institutional principles dedicated to doing business with individuals and clients with well-established reputations, while also enhancing transparency and thus the good reputation of the institution.

Jaime Jácome, Panama-based partner, and Arti Sangar, Dubai-based partner, both at Diaz, Reus & Targ: Panama’s new legislation is certainly an encouraging move toward meeting international norms of cooperation against money laundering. It is indeed undeniable that the implementation of the new legislation is aimed at ameliorating, if not removing entirely, some of the most egregious money laundering methods in the region. However, it is not the approval, but rather the effective and comprehensive implementation of this legislation that will determine its success. The primary challenge would be the extant levels of ignorance and perhaps negligence that exist in the community and how it can be addressed through education, awareness and compliance programs. It is critical that the Panamanian government invests resources to develop guidelines for the implementation of the new legislation and an education campaign to accompany it. The increased regulations are bound to substantially impact the financial industry, as they will have to re-evaluate their AML controls, ensuring that they are geared toward combating money laundering. However, certain challenges can also be foreseen. The implementation of an AML program can be expensive, in balboas, time and resources. This will no doubt also bring about the necessity to invest in technology coupled with the requirement to train staff to achieve globally accepted standards of compliance. Forty-five years after the creation of a successful financial center in the region, the pressure of blacklists and the risk of sanctions have led Panama to tighten its AML legislation. The question that remains is whether the new legislation will minimize, if not eliminate, money laundering in Panama. The onus will lie on the Panamanian government’s implementation measures. If successful, these measures can be expected to smooth the way for the removal of Panama from the FATF’s contentious grey list of countries. However, this legislation should be perceived as a first step in that direction rather than the final one.

Georges Hatcherian, analyst in the Financial Institutions Group at Moody’s Investors Service: The passage of the law is a significant step toward Panama’s removal from the FATF ‘grey list.’ Panama had been included on the list because its Anti-Money Laundering / Combating the Financing of Terrorism (AML/CFT) framework had lagged international standards. The ‘grey list’ made some international banks more reluctant to engage in correspondent banking with Panamanian counterparties, out of concern they could potentially suffer repercussions from indirect exposure to illicit activities. Removal from the ‘grey list’ should hence smooth the access of Panamanian banks to international correspondent banking lines, which are important tools for financing international trade. However, these benefits may be somewhat offset by higher operational costs to ensure compliance with the new law. The legislation addresses a good number of the shortcomings noted by FATF. It calls for the creation of a national coordination system to facilitate greater cooperation between the government and supervisory authorities, with regards to the prevention of money laundering and the financing of terrorism. The law also creates new money laundering controls and ‘know your customer’ requirements for financial and non-financial companies, including casinos, remittance companies, real estate agents and companies in the Colón Free Trade Zone. Before Panama can be removed from the ‘grey list,’ it will have to present its progress at a FATF global meeting in June. Panama could then be removed from the list as soon as October at the subsequent FATF global meeting.