Panama’s Efforts to Improve Financial Regulations

Panama has been working to enhance its financial regulations and comply with anti-money laundering (AML) standards set by the Financial Action Task Force (FATF). Despite making some progress, the country still faces several challenges in this area.

The Challenges of Panama’s Shipping Industry

One of the main issues facing Panama is its shipping industry. The country’s open shipping registry has been criticized for its lax regulations and lack of transparency. Any country can register a ship under the Panamanian flag, making it a haven for money laundering and tax evasion. The Maritime Authority offers various incentives for ships to join the registry, including:

• Full access to sociedades anonimas (a type of business entity)
• No minimum tonnage requirements

Panama as a “Flag of Convenience” Country

Panama has a reputation as a “flag of convenience” country, sharing this dubious distinction with North Korea, Burma, and Liberia. This means that ship owners can operate under a veil of anonymity, making it difficult to determine their actual ownership. As a result, Panama has fallen prey to illicit financial flows (IFFs), where importers and exporters manipulate trade invoices to avoid paying customs duties, VAT, or income taxes.

FATF Deficiencies

The FATF has identified seven deficiencies that Panama needs to address, many related to the legal framework for dealing with money laundering. While Panama has made some progress in complying with AML standards, it still only fully complies with one of the 40 recommendations issued by the organization in 2012.

Concerns about Influential Individuals and Companies

There have been concerns about the involvement of influential individuals and companies in Panama’s economy, including:

• The Odebrecht Group, which is embroiled in a money laundering scandal
• Real estate developers linked to money laundering and other illicit activities

Conclusion

Panama faces significant challenges in improving its financial regulations and complying with AML standards. While it has made some progress, it still needs to address several key issues to shed its reputation as a haven for money laundering and tax evasion.