Risk-Based Approach Lacking in Panama’s Anti-Money Laundering Regime

A recent assessment has revealed that Panama’s anti-money laundering (AML) regime lacks a robust risk-based approach, particularly for the non-bank sector. Inspections primarily focus on regulatory compliance, failing to adequately consider off-site supervision activities and money laundering/terrorist financing (ML/TF) risks.

Inadequate Resources for Supervisory Authorities

Panama’s supervisory authorities face significant challenges in their AML/CFT functions due to inadequate human, financial, and technical resources. To address this issue, regular AML/CFT training should be strengthened for staff conducting inspections, with a focus on identifying high-risk activities and applying related supervisory tools.

Unclear Licensing Requirements

The AML Law in Panama does not cover or only partially covers a significant number of financial institutions operating in the country, including bureau de change. These entities lack licensing requirements and have negligible supervision, creating vulnerabilities in the system.

Lack of Physical Presence Requirements

Banks operating in Panama do not have explicit provisions requiring meaningful mind and management located in the country as a key requirement for physical presence. This raises concerns about the potential establishment of shell banks.

Ineffective Sanctions

While supervisors can apply a range of sanctions for non-compliance with AML/CFT requirements, implementation is ineffective overall. Most sanctions imposed are moderate monetary fines for failure to comply with Customer Transaction Reports (CTRs), which may not be sufficiently dissuasive or proportionate.

Systemic Gaps in Designated Non-Financial Businesses and Professions

The AML Law does not cover resident agents, accountants, and attorneys, who act as corporate services providers. This creates a systemic gap, making it difficult for the Financial Intelligence Unit (FIU) and law enforcement agencies to access information on the ownership and control of legal entities.

Limited Access to Information

Access to information held by resident agents, accountants, and attorneys is restricted and available only to a narrow range of designated competent authorities. The FIU and AML/CFT supervisors do not have access to this information, which limits their ability to effectively and efficiently obtain information, trace assets, and locate beneficial owners.

National and International Cooperation

Panama lacks effective mechanisms for implementing national coordination bodies for AML/CFT. Operational level contacts between the Panama FIU and law enforcement agencies are needed, as well as a system of regular reviews of the effectiveness of national AML/CFT measures to share information and coordinate efforts.

Conclusion

The assessment highlights significant gaps in Panama’s anti-money laundering regime, including inadequate resources, unclear licensing requirements, ineffective sanctions, systemic gaps in designated non-financial businesses and professions, limited access to information, and a lack of national and international cooperation. Addressing these weaknesses is crucial for effective implementation of AML/CFT measures and preventing the misuse of the financial system.