BANKING AND FOREIGN EXCHANGE

Long recognized as a commercial beehive of Central America since it was a converging point of world steam-ship lanes, Panama had similarly developed into a banking and foreign exchange center. The National Banking Commission and the Government's wholly owned commercial bank, Banco Nacional de Panama (BNP), manage and supervise Panama's central banking functions. With the closing down of most banks during the 1988 political strife resulting from the Noriega upheaval, a number of major foreign banking offices and branches left the country, but virtually all have returned. Before this political and economic turmoil took hold of the Republic, Panama's banking system, patterned after the United States banking system, had increased to more than 120 commercial banks. Under Panama's revised banking legislation, any transaction exceeding $10.000 must be scrutinized by the bank involved to make certain it has not evolved from money laundering operations. The United States and Panama also signed a Mutual Legal Assistance Treaty covering money laundering. The United States failed to persuade Panamanians to include tax evasion in the treaty because they fear it would prove disastrous to the offshore banking business. Signing the agreement has made Panama eligible for $80 million in United States aid which otherwise would have been subtracted from the total grant of $420 million.

Inspired by the 1970 banking law, which guarantees free movement of funds and lower taxes, more than 30 foreign countries have been represented with commercial banks in Panama. Despite the run on banks during the height of the Noriega crisis, only three banks closed and the banking industry survived without "suffering permanent damage." Total number of companies registered has soared to more than 285.000.

Banking Recovery

Since the end of the Noriega regime deposits have recovered to some $30 billion and total loans and advances are up 50% to $15 billion. However, domestic credits still are down because of the lagging economy. More than 6,000 Panamanians are employed by the banks, with 85 foreign banks operating in Panama. Net assets of foreign banks grew by $8 billion in the last five years and their level of liquidity is high. Of the 120 banks officially registered, more than 70 provide full domestic and foreign services, 29 are licensed strictly to conduct international operations and the remainder are representative offices. A number of major American banks have opened branches in Panama in order to provide their customers with financing outside of the United States and to facilitate the use of Eurodollar borrowings. Many banks use their Panamanian branches to channel Eurodollars into Central and South American markets, while some of the banks are also active in financing trading. Numbered accounts are available at local banks. Offshore loans and most agricultural credits are exempt from Panamanian income tax.

Under the 1970 reform regulations, which weeded out offshore "pirate" banks, the Banking Commission (Comision Bancaria Nacional) issues bank licenses; sets reserve requirements and supervise the banking system in other ways. Every foreign licensed bank must keep a minimum of 500,000 balboas ($500,000) on deposit at all times to guarantee it can cover its obligations. This consists of deposits at the Banco Nacional de Panama, government banking bonds, or assets free of encumbrances and those designated by the National Banking Commission. The 500,000 balboas ($500,000) are considered as part of the 1 million balboas ($1,000,000) capital. Bank licenses are issued in three categories: License 1, for full-service banks that serve both residents and non-residents of Panama, which must have the minimum paid-in capital of 1 million balboas ($1,000,000) and contingent lines of credit equal to 10% of their assets in Panama; license 2, for offshore banks, which require minimum capital of 250,000 balboas ($250,000); and License 3, for foreign banks having only representative offices in Panama.

Panama Banking Law (Decree Law No. 9) 1998

Panama's revised banking law came into force in June 1998 with the stated intent of strengthening and modernizing bank regulation up to Basle Committee standards while maintaining an autonomous regulatory environment. Panama's banking industry hopes that the position taken by the Superintendent of Banks created in the Law will be made with complete impartiality in view of the fact the appointment is made by the President's office without the right of the Assembly to advise and consent, making such a power potentially easy to abuse. The Banking Superintendency replaces the old Panamanian Banking Commission and is granted not only greater supervisory powers but also the ability to authorize the transfer of shares in a bank when such a transfer affects the control of it. A Superintendant also possesses the capacity to authorize mergers or consolidations of banks and the inspection of the economic groups of which the bank is part.

A restriction is imposed by the Law on the granting of credit facilities to one natural of juridical person where such facilities or warrants exceed 25% of the bank's capital regardless of whether the loan is totally guaranteed with money deposited in the bank. These sweeping changes were designed to improve confidence in the banking system and to encourage deposits from foreigners. Allowances will also be made for foreign regulatory authorities to file requests for information and make inspection visits to the offices of foreign banks located in Panama for the purposes of regulation and supervision. Agreements are to be facilitated between foreign regulatory authorities and the Banking Superintendency as well.

Other provisions include the following that are designed to improve depositor, investor and consumer protection:

• The effective interest rate of all loans must be specified;
• Abusive clauses in banking agreements will be addressed;
• Banks are required to file additional audited statements;and
• The bank liquidation process will be simplified.
  

Banking confidentiality is also guaranteed by the new Law.

Fees for banks located in Panama and those that have representative offices will be paid on the following basis:

General licenses – 30,000 balboas ($30,000) plus a sum of 35 balboas ($35) for each million on total assets up to a maximum of 100,000 balboas ($100,000)(25,000 balboas ($25,000) under previous laws).
International licenses – 15,000 balboas ($15,000)(same as under previous law).
Representative licenses – 5,000 balboas ($5,000).
There are also conditions for minimum capital requirements to carry out the banking activities based on Basle standards, minimum assets to be maintained in Panama, description of activities incompatible with those of banking and a number of other requirements enacted.

Numbered Accounts

The bank act permits numbered bank accounts and sets severe penalties of a fine of up to 10,000 balboas ($10,000) and a jail sentence of up to six months for anyone who discloses information except to the Court in a criminal proceeding. Judges and magistrates must keep the facts confidential while a case is under investigation and may decide never to release the facts. However, in 1987 the National Assembly passed a bill requiring banks to furnish information on financial transactions of suspected drug dealers and allowing their numbered bank accounts to be frozen. Disclosure is required for cash transactions exceeding 10,000 balboas ($10,000) under anti-money-laundering measures enacted in 1990. The Banco Nacional, the Panamanian counterpart of a central bank, is the depository of government funds and manages Panama's international reserves. It also operates as a commercial bank and handles the clearing operations for the banking system.

The $100 annual fee levied on corporations also is applied to branches of foreign banks. In addition, there is a banking tax of $300, monthly for each banking office located in Panama City and a municipal charge of approximately $30 annually. The clearing house fee is $350 per month for each member. The annual tax on a License 1 bank is $25,000 balboas ($25,000), and 15,000 balboas ($15,000) for a License 2 bank. An annual license tax equal to 1% of paid-in capital is also imposed up to a maximum of 20,000 balboas ($20,000).

Anti-Money Laundering Laws Strengthened

Although Panama was one of the first Caribbean countries to adopt strict anti-money laundering measures, its provisions did not satisfy the three international groups that in 1999 issued "report cards" on offshore jurisdictions' performance. Not only was Panama described as "harmful" by the Organization for Economic Development and Cooperation (OECD), but it also landed on the "black list" issued by the Financial Action task Force, and was graded "uncooperative" and not up to international standards by the Financial Stability Forum.

To prevent a disastrous withdrawal of foreign investment, Parliament engaged in damage control by passing two important laws in October, 2000: Law No. 41, entitled "Capital Laundering," amends the Penal Code to expand the scope of anti-money laundering measures to capital laundering," which includes all serious crime ranging from drug trafficking to white slavery and extortion. Cabinet Decree No. 10 of March 9, 1994 made it mandatory for persons entering Panama to declare to Customs the amount of cash or negotiable instruments carried into the country. Since then, bank transactions exceeding U.S. $10,000 in cash or similar exchange have hade to be registered and declared. Law No. 41 of 2000 extended these requirements to include all transactions of more than $10,000 by the stock exchange, casinos, insurers, real estate agents, and the national lottery. Data is now submitted to the newly-created Financial Intelligence Unit for the Prevention of Crime and Capital Laundering (FIU). Law No. 42, also of October 2, 2000, set down the bill for Prevention of the Crime of Capital Laundering. Under Legislative Decree No. 42, natural persons and corporate bodies must declare to the Financial Intelligence Unit (1) cash deposits exceeding 10,000 balboas ($10,000), (2) cashing or exchanging lower denominations of currency for higher denominations, or vice versa; and (3) cashing checks and payment orders issued to bearers with blank endorsements and issued on or close to the same date. Presidential Decree No. 163 of October 2, 2000 amended Decree No. 136 of June 9, 1995, extending the operational capacity of the Financial Intelligence Unit by listing in detail the Unit's functions for: (1) covering collection of information from public institutions and private entities; (2) identifying suspicious or unusual transactions by studying information; (3) exchange of information with similar enterprises in other countries; and (4) providing assistance when required to the Office of the Attorney General and Banking Superintendency.

Confidentiality Still Protected

Executive Decree No. 213 of October 2, 2000, which established the Financial Intelligence Unit for the Prevention of Capital Laundering, covers disclosure of information concerning trusts obtained by the Banking Superintendency or any other Government inspectors and introduces penalties for breaches of confidentiality in all financial matters. A public official violating this provision may have to pay a fine up to $1,000,000.

Under a Panamanian law passed in 1994 with the help of the Panamanian Bar association, money laundering is penalized with prison sentences recently raised to a maximum of 12 years, no bail for defendants, and confiscation of assets. Bank employees are subject to criminal responsibility if found guilty of allowing any money laundering or bending the rules for extradition of offenders in drug-related cases.

Banks and other financial institutions must practice proper due diligence under Panamanian law. They are required to know their clients, monitor and report suspicious transactions of which they are aware, establish internal procedures and controls to prevent money laundering operations, train personnel properly to deter tainted transactions, and keep records of all documents and transactions for a period of five years.

The July 27, 1994 Law was further strengthened by Executive Decree No. 468 of September 19 of that year, and the Code of Conduct approved by the International Lawyers Association, which makes it mandatory for all attorneys to know their clients and to obtain sufficient information and references from clients before rendering any services. A high-level Presidential Commission operates with authority to use all means to prevent money laundering and a so-called "Drug czar" coordinates its efforts with other activities to promote anti-money laundering.

A "Financial Analysis Unit (FAU) for the Prevention of Money Laundering Obtained from Drug Trafficking" operating under Executive Decree No. 136 of June 9,1991 has been successful in compiling information from banks and other private and Government entities and individuals to inhibit activities linked to money laundering. In 2000, the FAU received increased authority to analyze all information compiled to detect suspicious or unusual transactions and movements of cash in the country from drug trafficking. Confidentiality of all financial and banking transactions is honored in order to protect the respectable status of the FAU.

Panamanian authorities have also taken drastic action to help prevent illicit money laundering operations and crime in the Colon Free Zone. In 1996, the Government issued a decree requiring all transactions in the Zone exceeding U.S.$10,000 to be declared and it also halted receipt of such traditional payments as money orders, traveler's drafts and third party transfers.

Captive Finance Companies

Under the Panamanian banking legislation, so-called "captive finance companies" are encouraged to provide available funds and support cash flow requirements by offering a useful tool to finance semi-durable and durable products and stockpiling of goods through fully-recourse paper and collateral loans. In its efforts to become a still more important financial center in the Western Hemisphere, Panama created a rediscount counter for export credits. Initial capital was subscribed to by various Latin America Central banks whose Finance Ministers are supporting the Panamanian plan. There are no exchange is the United States dollar, which is freely interchangeable with the Panamanian monetary unit, the balboa. The balboa is at par with the United States dollar.

Documents are now being processed normally for most letters of credit and collections drawn on Panamanian buyers, with delays on receiving funds longer than 60 days. Meanwhile, the United States Treasury has eliminated regulations that made it nearly impossible for United States companies to survive in Panama. A ruling published in the Federal Register permits "administrative fees and taxes paid in connection with basic business activity" to be processed. The action by the Treasury is said to have come as result of pressure and complaints from the American Chamber of Commerce in Panama.

TRANSFER OF FUNDS AND GUARANTEES

There are no levies or controls on transfer of funds. Investment guarantees on nationalization or expropriation and against inconvertibility of currency are available through the Overseas Private Investment Corporation in the United States.

1 2 3 4 5 6 7 8 9    back|next