## 1panea2024004 ## Source details **Canonical URL:** [1panea2024004](https://www.imf.org/-/media/files/publications/cr/2024/english/1panea2024004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1panea2024004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1panea2024004.pdf.json) --- ### Transparency of Beneficial Ownership — context and vulnerabilities - Panama’s AML/CFT regime last assessed against FATF standards in 2017; strategic deficiencies identified, notably in preventing misuse of legal persons and arrangements. - Panama was grey listed by the FATF in June 2019 and remained on the grey list until October 2023; an onsite visit took place in September 2023. - Structural vulnerabilities increasing ML exposure: - Dollarized economy, open financial sector, wide-ranging corporate services, and regional politically stable financial hub status. - Corporate sector risk profile: - Corporations and private interest foundations: exposed to a high level of money laundering risk. - Trusts: exposed to a medium-high level of risk. ### Beneficial Ownership Registry (RUBF) — legal framework and implementation - Key reform: - Establishment of Registro Único de Beneficiarios Finales (RUBF) administered by the SSNF; central repository of beneficial ownership information collected by resident agents. - Legal design and data requirements: - RUBF launched on April 18, 2022; Law 129 of March 17, 2020 created RUBF; Law 254 of November 11, 2021 harmonized beneficial owner definition. - Resident agents must provide: full name, ID/passport number, date of birth, nationality, address, date when he/she became a beneficial owner, plus basic legal person information. - Timeframes: resident agents have 15 business days to provide information following incorporation, registration with the RPP, or appointment of new resident agent; resident agent then has 5 business days from receipt to update RUBF when notified of changes. - Information remains available while legal person is active, and for at least 5 years following dissolution (Law 129 of 2020, Art.21). - Access and confidentiality: - RUBF intended to be free, private, and accessible only by a limited number of agencies; direct access limited to resident agents and designated officials; SSNF designated official authorized to make information available to other competent authorities (Art.14). - Designated officials must provide information to competent authorities within seven business days of request (Art.17). - Unauthorized disclosure penalized: US$200,000 (Art.17). - Implementation and enrollment statistics: - Resident agents enrolled increased five-fold from 721 to 3,866 during a two-month enrollment campaign in March and April 2023. - Total universe of resident agents estimated at over 4,700; 4,798 resident agents in total registered with the SSNF (not all actively providing resident agent services). - Registered legal persons increased by 45 percent to 129,321, representing 65 percent of legal persons with active registration (vigente) in the Registro Público de Panamá (RPP) as of April 2023. - Between January and April 2023, registration in RUBF increased by 96.5 percent while active companies declined by 15 percent. - Latest numbers for May 2023 indicate over 140,000 legal persons registered in the RUBF. - Scope gaps and technical features: - RUBF excludes legal persons that do not require a resident agent and excludes trusts (trusts may register voluntarily but are not required). - RUBF currently allows searches only by legal person name and RPP folio number; other fields (e.g., beneficial owner name, ID number, date of birth, nationality, address) are available in the database but not yet searchable. - Verification and interoperability: - Multi-layer verification design: resident agent verification + interoperability with official databases + SSNF risk-based onsite inspections. - Interagency interoperability agreement signed on November 21, 2022; planned validations include Civil Registry, RPP, UAF, DGI, MICI. - SSNF Decree 13 (March 25, 2022) requires checks against sanctions lists and open sources; SSNF expected to start running RUBF against sanctions lists later in 2023. - Operational resourcing: - DBF within SSNF staffed with 10 recruits as of March 2023; resources allocated for hiring 10 additional staff. ### Suspended Companies, public registry trends, and fiscal implications - Registered and suspended company trends: - Active legal persons with registration in RPP fell from 500,479 in May 2017 to 218,806 in March 2023. - As of January 31, 2023, 519,247 legal persons were subject to suspension orders, resulting in 477,544 suspended legal persons. - Decline accelerated toward end-2022: a drop of 67,754 legal persons from November 2022 to March 2023. - Causes and mechanics of suspension: - RPP suspends corporate rights for: failure to pay annual registration fee for three consecutive years; failure to designate a resident agent for more than 90 calendar days; failure to comply with obligations for which suspension is a sanction. - Suspension for delinquency presumes at least three years of annual fees of at least US$300 and a US$1,000 fine for reactivation. - Once suspended, legal persons have one year to be reactivated by paying a fine and addressing the cause; after one year RPP notifies the competent authority to order dissolution—but involuntary dissolution orders have not been issued in practice. - Reactivation and fiscal impact: - Of hundreds of thousands suspended for delinquency, only 18,120 have been reactivated. - Fiscal implication example: if close to 79 percent of suspended legal persons are subject to suspension for delinquency, and as of January 31, 2023 there were 477,544 suspended legal persons, the DGI is owed at a minimum US$716,793,544.00. - Operational and compliance implications: - Suspended status is reflected in the RPP and in certificates of good standing; suspension often results in suspension of license and prevents onboarding with obliged entities. - Need for policy-level agreement and procedures to dissolve and unwind suspended companies that have passed reactivation deadline. - Banks and obliged entities require guidance on dealing with existing clients whose legal status is suspended to facilitate identification and avoid asset dissipation. ### Supervision of Resident Agents (SSNF and DGI) — scope, tools, and calibration needs - Legal and supervisory framework: - Resident agents (lawyers/law firms) subject to AML/CFT obligations under Law 23 of 2015 and supervision by SSNF (established by Law 124 of January 7, 2020). - Resident agents must undertake risk-based CDD, identify and verify beneficial owners, and keep records for at least five years. - DGI supervises resident agents on accounting records obligations; DGI offsite supervision since 2018 with four offsite inspection cycles per year. - SSNF supervision model and activity: - SSNF adopted a risk-based supervisory model, using self-evaluation tool (FODE) with 114 questions to automate risk ratings. - SSNF assigned risk ratings to 1,585 resident agents; 410 resident agents rated high risk (118 law firms and 292 independent lawyers). - Offsite supervision scaled up: 3,064 obliged entities across DNFBPs in 2022 (up from 379 in 2021); 90 percent in professional sectors. - Onsite inspections: 17 in 2019; 18 in 2020; 46 in 2021; 90 in 2022. From November 2022 to March 2023, 71 thematic onsite inspections covering 1,353 high-risk legal persons. - SSNF selects a sample of 500 high-risk legal persons monthly to develop supervisory plans. - Calibration and resourcing gaps: - Plan for 2023: 100 onsite inspections—shortfall relative to 410 resident agents rated high risk (annual onsite inspections for each high-risk agent per draft manual). - Recommendation to fine tune risk parameters to identify a narrower set of highest-risk resident agents and/or extend supervisory cycle from one year to 18 months for high-risk agents. - Sanctions: 1 in 2019; 5 in 2020; 4 in 2021; 23 in 2022; nine sanctions imposed in 2023 as of reporting. - Coordination with DGI: - Greater coordination and information exchange between SSNF and DGI would enhance supervision; consider joint inspections. - DGI currently conducts random offsite samples of 25 to 30 resident agents per cycle and communicates non-compliance findings to SSNF. ### Nominee services, bearer shares, and controls - Nominee services: - 2021 Sectoral Risk Assessment: over three quarters of resident agents offered nominee-director-like services; close to 9 percent offered nominee-shareholder-like services. - Regulation JD-02-2022 requires annual sworn statements (due July 15) disclosing nominee directors/shareholders, nominator identity, and related information; SSNF identified over 800 resident agents providing nominee services. - Controls required by JD-02-2022 include enhanced due diligence on nominees, documented contracts identifying the natural person on whose behalf the nominee acts, nominee acceptance documentation, and training requirements (at least eight hours initial AML/CFT training plus annual refreshers). - Consideration: make nominee status public through the RPP or introduce licensing requirements for nominees. - Bearer shares: - Corporations can still issue bearer shares; Law 47 of August 6, 2013 created a custodial regime requiring authorized custodians. - Authorized custodians: local banks or trust companies licensed by SBP, brokerage houses licensed by SMV, or a lawyer in good standing; foreign custodians must be licensed in FATF/FSRB member jurisdictions and registered with SBP. - Sworn statements to custodians do not require beneficial ownership identification; a declared owner of bearer shares could be a legal person. - As of March 31, 2017, 2,282 companies filed for custody of bearer shares; Panama lacks current information on total bearer shares in circulation. - Recommendation: ensure corporations can no longer issue bearer shares and require custodians to hold beneficial ownership information in line with FATF Recommendation 24 and FATF Interpretative Note 12. ### Fintech and Virtual Assets — regulatory gaps and recommended actions - Fintech sector status and registration: - Over 20 companies using fintech; categorized as financial companies and money remitters providing payments, investments, and credit services authorized by MICI. - Fintech institutions require an operational notice from MICI; Law No. 5 of November 2007 automates registration via “Panama Emprende” but does not capture beneficial ownership in applications. - As of the mission, twenty fintech institutions operating and subject to AML/CFT obligations; 13 had operational permits by MICI and Resolutions by SBP; seven voluntarily approached SBP for review. - Possible gap: other fintechs may operate without SBP/SMV review or AML/CFT supervision due to definitional/terminology issues in Law No. 23 of 2015. - AML/CFT terminology and scope issues: - Article 22 lists reporting entities; Article 22(g) covers “issuing payment means and electronic money” and Article 22(1)(f) limits "processors" to those processing credit or debit cards. - Narrow interpretation of these terms may exclude fintech providers offering regulated services via digital channels from uniform AML/CFT obligations and supervision. - Recommendation: clarify AML law terminology (particularly “issuing payment means and electronic money”) and harmonize with new payments law language. - Virtual assets and VASPs: - Anecdotal evidence of very limited peer-to-peer virtual asset transactions; some banks allow settlement of VA transactions conducted on exchanges abroad for a very small number of customers with enhanced controls. - Panama lacks a legal framework for VAs/VASPs; two congressional bills in 2022 and 2023 were vetoed by the President; bills sent to the Supreme Court. - Recommended actions: - Assess ML/TF/PF risks emerging from VAs/VASPs. - Enact legislation addressing VAs and VASPs in compliance with FATF Recommendation 15 and international best practices. - Regulate and subject VASPs to supervision or monitoring for AML/CFT purposes in line with FATF Standards. - Coordinate VA/VASP framework with broader reforms to payment services regulation. ### Key recommendations (selected and with designated adopters and timeframes) - Reach policy agreement and develop procedures to dissolve and unwind suspended companies that have passed the deadline for reactivation. - To be adopted by: Government; Timeframe: ST; Reference: Box 2. - Issue guidance clarifying expectations of how banks should deal with existing clients that have been suspended to facilitate identification and avoid asset dissipation. - To be adopted by: SBP; Timeframe: ST; Reference: Box 2. - Collect information and assess the risk posed by foreign legal persons and arrangements incorporated and/or managed abroad by Panamanian law firms and adopt appropriate and proportionate controls. - To be adopted by: SSNF; Timeframe: MT; Reference: ¶19. - Further calibrate SSNF risk assessment tool and/or supervisory cycles and continue coordination and information exchange with DGI regarding supervision of resident agents. - To be adopted by: SSNF, DGI; Timeframe: MT; Reference: ¶¶50 and 62. - Ensure corporations can no longer issue bearer shares, and require custodial arrangements to include collection and verification of beneficial ownership information. - To be adopted by: Government; Timeframe: I; Reference: ¶¶66 and 68. - Clarify terms used in the AML law to determine which providers using financial technology fall under the definition of financial reporting institution for AML/CFT purposes. - To be adopted by: SBP; Timeframe: ST; Reference: ¶73. - Assess ML/TF/PF risks emerging from virtual asset service providers (VASPs) and identify measures to prevent or mitigate these risks. - To be adopted by: SBP/SMV; Timeframe: ST; Reference: ¶76. - Regulate and subject VASPs to supervision or monitoring for AML/CFT purposes in line with FATF Standards. - To be adopted by: SBP, SMV, MEF; Timeframe: MT; Reference: ¶76. - Timeframe keys: I — Immediate (within 1 year), ST—Short term (within 1-2 years), MT—Medium term (within 3-5 years). *Source: EXECUTIVE SUMMARY* ### EXECUTIVE SUMMARY __________________________________________________________________________ 5 ### EXECUTIVE SUMMARY ### Transparency of Beneficial Ownership - Panama’s AML/CFT regime was last assessed against the FATF standards in 2017 and identified strategic deficiencies, notably in preventing the misuse of legal persons and arrangements. - Panama was grey listed by the FATF in June 2019 and remained on the grey list until October 2023, beyond the expiration of its action plan deadlines in January 2021. An onsite visit took place in September 2023. - Panama’s vulnerabilities: dollarized economy, open financial sector, wide-ranging corporate services, regional politically stable financial hub status—making it susceptible to foreign money laundering threats. - Corporate sector risk profile: - Corporations and private interest foundations: exposed to a high level of money laundering risk. - Trusts: exposed to a medium-high level of risk. ### Beneficial Ownership Registry (RUBF) - Key reform: establishment of Registro Único de Beneficiarios Finales (RUBF) administered by the SSNF; central repository of beneficial ownership information collected by resident agents. - RUBF characteristics: - Launched in April 2022. - Free, private, and accessible only by a limited number of agencies. - Access restricted to “competent authorities” since November 2022. - Registry is searchable only by the name of the legal person or registration number (folio). - Implementation and enrollment statistics: - Resident agents increased five-fold to 3,866 during a two-month enrollment campaign in March and April 2023. - Total universe of resident agents is estimated at over 4,700. - Registered legal persons increased by 45 percent to 129,321, representing 65 percent of legal persons with active registration (vigente) in the Registro Público de Panamá (RPP). - Suggested enhancements: - Enable searches by additional data points (e.g., name of ultimate beneficiary). - Consider opening RUBF access to obliged entities and civil society to promote discrepancy reporting (tiered access could be considered). - Periodically re-assess risks and consider including other types of legal persons and arrangements to avoid “gaps” as the corporate sector evolves. ### Suspended Companies and Public Registry Clean-Up - Recent trends: - Active legal persons with registration in RPP fell from 500,479 in May 2017 to 218,806 in March 2023. - There is a large number of suspended legal persons—close to half a million—that require a path to dissolution. - Current challenges: - Legal presumption exists that suspended companies will be dissolved after a year unless reactivated, but in practice dissolution is not occurring. - Need for policy-level agreement and procedures to dissolve and unwind suspended companies that have passed the deadline for reactivation. - Banks and obliged entities require guidance on dealing with existing clients whose legal status is suspended to facilitate identification and avoid asset dissipation. ### Supervision of Resident Agents (SSNF and DGI) - SSNF actions and status: - Adopted a risk-based supervisory model and tools; invested in technical and human resources to verify and enforce compliance by resident agents. - Started conducting risk-based offsite and onsite supervision, but is still onboarding and risk rating resident agents. - Risk-based model requires fine tuning to ensure an adequate and realistic onsite supervisory plan for higher risk resident agents. - DGI role: - DGI supervises resident agents on accounting records obligations and has conducted offsite supervision since 2018. - Coordination: - Greater coordination and information exchange between SSNF and DGI would enhance supervision; consider joint inspections. - Nominee services and bearer shares: - Controls adopted have contained risks related to bearer shares through custodial requirements, but corporations can still issue new bearer shares. - To comply with FATF Recommendation 24 (revised March 2022), Panama should ensure corporations can no longer issue bearer shares and require custodians to hold beneficial ownership information. - Consider making nominee status public through the RPP. ### Financial Technologies (Fintech) - Fintech sector status: - Developing slowly; over 20 companies using fintech, categorized as financial companies and money remitters providing payments, investments, and credit services authorized by MICI. - Under MICI’s authorization process, only specific regulated financial activities are subject to additional SBP scrutiny before starting operations. - Regulatory and definitional gaps: - Need to clarify terms in the AML law—particularly “issuing payment means and electronic money”—so it is clear which providers of services using digital channels qualify as financial reporting institutions. - Clarifications should be harmonized with language to be used in the new payments law. - Risk assessment: - Authorities should identify and assess ML/TF risks arising from new and developing financial technologies. ### Virtual Assets and VASPs - Current situation: - Anecdotal evidence suggests very limited volume of peer-to-peer digital transactions involving virtual assets (VAs). - Some financial institutions have systems and controls to allow a very small number of customers to settle VA transactions conducted on exchanges abroad and receive proceeds into personal accounts. - Recommended actions: - Enact legislation addressing VAs and VASPs that complies with FATF Recommendation 15 and international best practices. - Legislation and implementing regulation(s) should provide a framework for licensing and regulating VASPs and mechanisms to identify, measure, control, and monitor ML/TF risks from VA-related activities. - Assess ML/TF/PF risks emerging from VASPs and identify measures to prevent or mitigate these risks. - Regulate and subject VASPs to supervision or monitoring for AML/CFT purposes in line with the FATF Standards. ### Key Recommendations (selected from Table 1) - Reach agreement at the policy level and develop procedures to dissolve and unwind suspended companies that have passed the deadline for reactivation. - To be adopted by: Government; Timeframe: ST; Reference: Box 2. - Issue guidance clarifying expectations of how banks should deal with existing clients that have been suspended to facilitate identification and avoid asset dissipation. - To be adopted by: SBP; Timeframe: ST; Reference: Box 2. - Collect information and assess the risk posed by foreign legal persons and arrangements incorporated and/or managed abroad by Panamanian law firms and adopt appropriate and proportionate controls. - To be adopted by: SSNF; Timeframe: MT; Reference: ¶19. - The SSNF should further calibrate its risk assessment tool and/or adjustments to the supervisory cycles to allow for a more risk-based approach and should continue coordination and information exchange with the DGI regarding supervision of resident agents. - To be adopted by: SSNF, DGI; Timeframe: MT; Reference: ¶¶50 and 62. - Ensure corporations can no longer issue bearer shares, and require custodial arrangements to include collection and verification of beneficial ownership information. - To be adopted by: Government; Timeframe: I; Reference: ¶¶66 and 68. - Clarify terms used in the AML law to determine which providers of services using financial technology fall under the definition of financial reporting institution for the purposes of that law. - To be adopted by: SBP; Timeframe: ST; Reference: ¶73. - Assess the ML/TF/PF risks emerging from virtual asset service providers (VASPs) and identify measures to prevent or mitigate these risks. - To be adopted by: SBP/SMV; Timeframe: ST; Reference: ¶76. - Regulate and subject VASPs to supervision or monitoring for AML/CFT purposes in line with the FATF Standards. - To be adopted by: SBP, SMV, MEF; Timeframe: MT; Reference: ¶76. - Timeframe keys: I — Immediate (within 1 year), ST—Short term (within 1-2 years), MT—Medium term (within 3-5 years). *Source: EXECUTIVE SUMMARY* ### 2. The authorities have adopted a number of significant reforms in recent years to ### 1panea2024004 - 2. The authorities have adopted a number of significant reforms in recent years to ### Recent reforms, scope of the Technical Note, and methodology - The authorities have established a beneficial ownership registry and adopted enhanced controls over nominee services and additional obligations on resident agents (lawyers or law firms that provide a central role in the incorporation and registration of most legal persons and arrangements). - A risk-based supervision regime over the corporate services sector has been implemented. - The Technical Note: - Provides analysis of recent reforms, their current implementation status, and areas for fine-tuning and strengthening the AML/CFT regime. - Reviews developments in financial technology (Fintech) and gives recommendations to ensure the sector is subject to effective, proportionate, and risk-based AML/CFT obligations and supervision, in line with international standards. - This Technical Note is a joint World Bank (WB) and International Monetary Fund (IMF) report drawing on: - Written responses to questionnaires and supporting materials provided by relevant authorities. - Meetings during the onsite mission of May 24 to June 6, 2023, with a range of agencies, supervisors, competent authorities, and private sector representatives. - Other sources, including reports produced in the context of the FATF ongoing monitoring process. - Terminology: unless otherwise specified, terms are used per their FATF definition; legal persons and legal arrangements definitions are applied as per FATF Recommendations, Glossary. ### Road to compliance with international standards (Context A) - Panama has been committed to implementing FATF standards since 2010 and has been a member of GAFILAT since 2010. - 2017 mutual evaluation (by GAFILAT) assessed Panama against 40 FATF Recommendations and 11 Immediate Outcomes (IOs). - Effectiveness ratings from the 2017 mutual evaluation: - Low level of effectiveness for IO.1 (risk, policy, and coordination), IO.5 (legal persons and arrangements), and IO.6 (financial intelligence). - Moderate level of effectiveness for IO.2 (international cooperation), IO.3 (monitoring), IO.4 (preventive measures), IO.7 (ML investigation and prosecution), IO.8 (confiscation), and IO.9 (TF investigation and prosecution). - Substantial level of effectiveness for IO.10 (TF preventive measures and financial sanctions) and IO.11 (PF financial sanctions). - Technical compliance performance: rated largely compliant or compliant on 33 out of 40 FATF Recommendations. - FATF actions and timelines: - Panama was “grey-listed” by the FATF in June 2019 due to strategic deficiencies and referral to the ICRG. - Panama agreed an Action Plan with the FATF to address deficiencies, including: - Enhance understanding of national and sectoral risks. - Strengthen supervision and enforcement of AML/CFT measures in DNFBPs. - Ensure availability of adequate, accurate, and up-to-date beneficial ownership information and prevent misuse of nominee shareholders and directors. - Enhance the use of financial intelligence products. - Panama exited the FATF grey list in October 2023 after substantially completing its Action Plan. - FATF made an initial determination in June 2023 that Panama substantially addressed outstanding action items, notably ensuring adequate verification of up-to-date beneficial ownership information by obliged entities and timely access by competent authorities. - An onsite assessment in September 2023 confirmed completion of the Action Plan; exit occurred at the FATF October 2023 Plenary. ### Transparency of legal persons and arrangements; reforms in progress - At the time of the 2017 mutual evaluation, Panama lacked adequate, accurate, and up-to-date beneficial ownership information for legal persons and arrangements. - Identified causes in 2017: - Lack of mechanisms to secure beneficial ownership information. - Low and ineffective monitoring of resident agents who play a mandatory role in record keeping for certain legal persons. - Absence of controls over the use of nominee shareholders and directors. - Reforms implemented or initiated: - Establishment of a beneficial ownership register—Registro Único de Beneficiarios Finales (RUBF). - Strengthening supervision of resident agents. - Implementation remains ongoing despite significant reforms and partial completion of the Action Plan. ### Panama’s corporate sector: structure, registration, and recent trends (Context B) - Dominant legal forms: - Corporations (sociedades anónimas) overwhelmingly most common—consistently account for over 90 percent of legal persons registered in the Public Register—Registro Público de Panamá (RPP). - When considering legal persons with active registration (vigente), corporations are closer to 80 percent. - Corporations account for 74 percent when considering legal persons registered annually. - Other legal forms: private interest foundations (fundaciones de interés privado), trusts (fideicomisos), limited liability companies (sociedades de responsabilidad limitada), general partnerships (sociedades colectivas), simple limited partnerships (sociedades en comandita simple), limited partnerships by shares (sociedades en comandita por acciones), foreign corporations (sociedades estranjeras), and non-profit organizations (organizaciones sin fines lucrativos). - Registration and resident agent requirements: - Companies must be registered with the RPP to obtain legal personality; certification of a notary is required for registration. - Corporations, private interest foundations, and limited liability companies require appointment of a resident agent. - Legal persons are not required to: - Provide the location of their business operations or activities. - File income tax returns unless they earn income from national sources. - Open a bank account in Panama. - Suspension and dissolution mechanics: - RPP will suspend corporate rights if any of the following arise (Tax Code references): - Failure to pay the annual registration fee (tasa única) for three consecutive years results in suspension for delinquency (morosidad) upon notification from DGI to RPP. - Failure to designate a resident agent for more than 90 calendar days following resignation, removal, or termination of previous resident agent (for types requiring resident agents). - Failure to comply with obligations for which suspension is a sanction—competent authorities can order suspension three months after the deadline for compliance. - Suspended companies cannot initiate legal proceedings, conduct business, dispose of assets, make claims, exercise rights, or perform corporate actions binding on the legal person. - Once suspended, legal persons have one year to be reactivated by paying a fine and addressing the cause of suspension; after one year the RPP notifies the competent authority to order dissolution. - Trends in registrations and suspensions: - Active registrations declined from 500,479 in May 2017 to 218,806 in March 2023. - Decline accelerated toward end-2022, dropping by 67,754 legal persons from November 2022 to March 2023, with a concurrent increase in suspended legal persons. - As of end-January 2023: - 519,247 legal persons were subject to suspension orders. - Resulted in a total of 477,544 suspended legal persons. - Suspension drivers: - Delinquency has been the main driver. - Failure to appoint a resident agent accounted for 32 percent of suspensions (noted as a factor). - Some suspension orders were issued against legal persons already registered as dissolved, in bankruptcy, or redomiciled. ### Resident agents, nominee services, and sectoral risk assessment - Resident agents frequently offer nominee services: - 2021 Sectoral Risk Assessment (inter-agency, led by CNBC, using World Bank methodology, analyzing 2016–2020 data) found: - Over three quarters of resident agents also offered services akin to those of a nominee director (i.e., to act as a director or proxy of a legal person holding a directorship). - Close to 9 percent of resident agents offered services akin to those of a nominee shareholder (i.e., to act as a shareholder for a legal person). - Trust sector: - Trusts can only be constituted by a licensed trust service provider; license from SBP (Law 21 of May 10, 2017, Art.3). - License holders include banks, trust companies, and trust companies linked to law firms. - There are currently 63 trust companies registered and licensed with the SBP. - As of March 31, 2023, there were 174,896 trust agreements registered with the SBP. - Only trusts involving real estate must be registered with the RPP. ### Trusts: composition, assets, and market role - Trust types and prevalence: - Over 96 percent of trust agreements registered with the SBP between 2016 and 2020 were characterized as “guarantee” trusts. - In terms of the number of trust agreements, guarantee trusts represent over 98 percent (as of referenced reporting). - Asset distribution: - By value of assets, guarantee trusts account for on average only half of total assets. - Investment trusts, administration trusts, and other trusts account for roughly 12 to 16 percent of total assets each. - Aggregate figures: - As of March 2023, total assets held by registered trusts amounted to over US$35 billion. - This is equivalent to 46 percent of 2023 projected GDP. - The majority of assets are concentrated in the local market. ### Money laundering (ML) risks in the corporate sector (Context C) - Structural vulnerabilities: - Dollarized economy, open financial sector, and availability of wide-ranging corporate services increase exposure to foreign ML threats. - These characteristics attract legitimate investment and also make the country vulnerable to the entry and subsequent transit or placement of proceeds of crime committed abroad, notably tax crimes and organized crime. - Domestic ML threats identified in the 2017 National Risk Assessment (NRA): - Drug trafficking, corruption, financial crimes, and crimes against intellectual property. - Sectors identified as most vulnerable (per NRA): - Banking sector (significant exposure to cross-border flows). - Real estate and construction sector. - Legal services sector. - Free trade zones—Zona Libre y Francas (ZLF). - The NRA highlighted legal persons and arrangements established in Panama as particularly at risk of being misused to conceal the origin, beneficial ownership, or purpose of illicit financial flows. *Source: IMF/WB Technical Note, joint report drawing on mission of May 24–June 6, 2023, and related assessments.* ### 18. In line with their predominance in the corporate sector, the NRA found corporations ### 18. In line with their predominance in the corporate sector, the NRA found corporations ### ML Risk Findings and Typologies - Corporations and private interest foundations: exposed to a high level of ML risk. - Trusts: exposed to a medium-high level of ML risk. - Most common ML typologies identified (2021 Sectoral Risk Assessment): - Issuance of corporate shares through foreign legal persons. - Use of complex legal structures. - Nominee shareholders and directors, and front persons. - Use of domestic and foreign legal persons with similar names. - Use of falsified documents for company formation and registration or to legitimize banking transactions. - In some cases, the use of shell companies. - Result: threat analysis + vulnerability analysis produced risk ratings by type of legal person and arrangement (see Figure 2 in source). ### Emerging corporate landscape and supervisory scope - Medium-term monitoring recommended to capture evolving business models and exposures to new threats and vulnerabilities. - Anecdotal private sector evidence: - Some law firms have reduced portfolios of legal persons incorporated in Panama. - Existing and prospective clients are choosing incorporation in other jurisdictions, notably the British Virgin Islands (BVI), with Panamanian-regulated law firms still playing a significant role. - Some law firms may now hold larger portfolios of legal persons incorporated abroad than in Panama. - Supervisory gap noted: - Unclear whether foreign incorporated legal persons with significant ties to law firms regulated in Panama (as resident agents) pose ML risks, as these are currently not within the scope of supervisory activities. - Recommendation in line with FATF standards (as revised in February 2023): the SSNF, as the supervisor, should collect information, assess this risk, and adopt appropriate and proportionate controls accordingly. ### Beneficial Ownership Registry — Legal Framework: A System Centered Around the Resident Agent - Historical context: - At 2017 mutual evaluation, Panama’s legal framework governing transparency of legal persons and arrangements had moderate to major shortcomings. - Key deficiencies included: - Absence of mechanisms to ensure shareholder and beneficial owner information accuracy and currency due to gaps in AML/CFT obligations on resident agents and limited supervision/enforcement. - Absence of controls over the use of nominee shareholders and directors. - Resulting assessment: Panama was found non-compliant with Recommendation 24 and partially compliant with Recommendation 25. - Law and regulation: - Law 23 of April 27, 2015 establishes AML/CFT framework; Decree 363 of August 13, 2015 provides regulation (both since amended). - Law 129 of March 17, 2020 created a beneficial ownership registry for legal persons (RUBF) to provide a central repository of beneficial ownership information collected by resident agents for competent authorities (Art.1). - Resident agents must register with the SSNF and are issued a non-transferrable Código Único de Registro (CUR) to access the RUBF (Art.3, Art.5). - Failure to properly register as a resident agent results in suspension of the legal person(s) by the RPP until registration is completed or another properly registered resident agent is appointed (Art.6). - RUBF administered by the SSNF (Art.7), intended to be free, private, only accessible by a limited number of agencies, and subject to highest standards in data protection and privacy (Art.8). - RUBF is not legally responsible for accuracy of information provided (Art.9, as revised by Law 254 of 2021, Art.32). - Beneficial owner definition and data requirements: - Definition harmonized by Law 254 of November 11, 2021; defined as a natural person(s) who (i) ultimately, directly or indirectly, possesses, controls and/or exercises significant influence over a client/account/relationship; or (ii) on whose behalf or for whose benefit a transaction is made; (iii) including natural person(s) who exercise final control over a legal person. - Criteria to determine ownership, control, or significant influence defined in Executive Decree No.13 of March 25, 2022 and guidance issued by SSNF in October 2022. - Resident agents must provide beneficial ownership information: full name, ID/passport number, date of birth, nationality, address, and date when he/she became a beneficial owner, plus basic information on the legal person. - Timeframes: - Resident agents have 15 business days to provide information following incorporation, registration with the RPP, or appointment of new resident agent. - Upon receipt, system generates a registration certificate (Law 129 of 2020, Art.13). - Information remains available while legal person is active, and for at least 5 years following dissolution (Law 129 of 2020, Art.21). - Additional procedural detail: legal representative obliged to provide resident agent required information and notify resident agent of changes within 15 business days; resident agent then has 5 business days from receipt to update RUBF (Art.12; Art.11 as revised). ### Boxed criteria: Identifying beneficial ownership (Article 10(iii), Executive Decree No.13 of 2022) - Corporations: - Natural person(s) who ultimately owns or controls, directly or indirectly, at least 25 percent of shares, participation, or voting rights (exception: publicly listed companies and state-owned companies). - Natural person(s) who exercises control through other means. - If no natural person identified under these criteria, resident agent must identify the natural person who occupies the highest administrative position or exercises effective control. - Private interest foundations: - Natural person(s) who receives economic benefits, directly or indirectly, and any natural person(s) who exercises ultimate effective control. - Trusts: - Beneficial owners include the settlor, the trustee, the protector (when there is one), the beneficiaries, and any other natural person(s) who exercises ultimate effective control. - For other legal arrangements, beneficial owners are natural persons occupying equivalent positions. - Other specified situations: - Legal person in liquidation or bankruptcy: natural person appointed as liquidator or conservator. - Deceased beneficial owner: natural person acting as executor or personal representative of the deceased’s estate. - Any other situation: natural person(s) who exercises ultimate effective and definitive control through any other means over management, including capacity to make relevant decisions. - Note: Trusts do not require a resident agent per law, although most have one and resident agents can register trusts with RUBF; definition applies to resident agents of trusts that register. ### Access, confidentiality, and designated officials - Direct access to RUBF limited to resident agents and designated officials authorized by SSNF (Law 129 of 2020). - Resident agents’ access limited to information pertaining to the legal person(s) for which they provide services; access revoked upon resignation (Art.14 and 19). A newly appointed resident agent does not have access to information entered by previous resident agent, though information remains in system and accessible by competent authorities (Art.20). - Officials designated by SSNF on a risk basis granted access to make available necessary information to competent authorities upon request and to comply with international cooperation obligations (Art.14, as amended; Art.36). - Information provision requirement: designated officials must provide information to competent authorities within seven business days of request (Art.17). - Designated official eligibility criteria: - Must be Panamanian citizen, at least 35 years old, hold relevant university degree and/or related professional background with at least five years’ experience in risk management and/or AML, no criminal convictions, not related by blood or marriage to president or State ministers, and not own directly or indirectly a majority of shares of a DNFBP (Art.15). - Confidentiality and penalty: - No legal action by third parties (other than competent authorities authorized by law) to access RUBF information (Art.9). - All information submitted to SSNF must be kept confidential under penalty of US$200,000 (Art.17). ### Scope gaps: Legal persons and trusts excluded from RUBF - RUBF excludes legal persons that do not require a resident agent and excludes trusts, creating potential gaps. - Law 129 of 2020 defines legal persons for RUBF purposes as legal persons with active registration, excluding suspended or dissolved legal persons, that require the services of a resident agent (Art.2(5))—namely, corporations, private interest foundations, and limited liability companies. - Other legal persons (general partnerships, simple limited partnerships, limited partnerships by shares, foreign corporations, and non-profit organizations) are not required to appoint a resident agent, though they may choose to do so; unclear extent of legal requirement for resident agents to register these other forms. - Risk alignment: - Legal persons not requiring a resident agent account for a very small proportion of legal persons incorporated in Panama and were rated low risk for ML in the 2021 Sectoral Risk Assessment, except foreign corporations rated medium risk. - Trusts: more prevalent in Panama (numbers and assets) and were found to pose a medium to high ML risk; their exclusion from RUBF is a potentially more significant gap. ### RUBF Implementation: From slow start to rapid expansion - Launch and institutional setup: - RUBF formally launched on April 18, 2022. - Development began November 2021 by SSNF and Autoridad Nacional para la Innovación Gubernamental (AIG). - Beneficial ownership directorate—Dirección de Beneficiario Final (DBF)—established within SSNF to conduct intake, verification, management, and dissemination of beneficial ownership information per Law 129 of 2020. - DBF composition: (i) administrative unit; (ii) operational/functional unit (customer relations, process, legal); (iii) data intelligence unit with data analysts; (iv) technology unit (technical support, development, cybersecurity). - Staffing: as of March 2023, 10 staff recruited to DBF, with resources allocated for hiring 10 additional staff. - Footnote: Five expected to be hired during first half of 2023, remaining five in second half of 2023, including two programmers, one data processor, one process analyst, one data analyst, three technical support staff, and two lawyers. - Initial challenges and remedial actions: - Initial implementation slow due to technical challenges and recruitment delays. - SSNF adopted a risk-based registration strategy at launch, focusing first on high or medium risk law firms. - Enrollment of smaller law firms and independent lawyers lagged by end-December 2022. - Technical enrollment process initially lengthy and cumbersome, creating barriers for smaller firms and independent lawyers. - SSNF actions: simplified enrollment (e.g., replacing fixed IP address requirement with two-step verification per Resolution No. S-016-2022 on November 22, 2022), improved staffing at DBF, and launched awareness, enrollment, and registration campaigns; created outreach and support unit with online resources and compliance courses. - Enrollment and registration campaigns (first quarter 2023) and results: - Three main campaigns: - Partnerships with lawyers’ associations (Colegio Nacional de Abogados (CNA), Asociación de Abogados Internacionales) and compliance associations (ASOCUPA, World Compliance) for awareness and registration sessions. - 60-day Mass Registration Campaign from March to April 2023: in-person technical support on RUBF registration, SSNF platform, UAF platform, and data upload from 40 trained staff of different agencies. - National registration sessions from April to May 2023 in main provinces to support local small firms and independent lawyers. - Impact: - Over a five-fold increase in resident agents enrolled: from 721 to 3,866. - A 45 percent increase in legal persons registered in RUBF: from 88,972 to 129,321 in the same time period. ### Registration procedures and timelines (Resolution No. S-016-2022, November 22, 2022) - SSNF sends link and registration instruction to resident agent’s registered email address. - Resident agents given five business days, with one possible five-day extension, to create a profile and provide necessary information; thereafter resident agents receive their CUR. - Uploading phase: once registered, resident agents have a deadline to upload information on legal persons they service: - Deadline ranges from 30 to 90 calendar days depending on the number of legal persons. - For newly established or registered legal persons, or newly appointed resident agents: - Deadline for RUBF registration is 15 business days. - System generates certificates of registration upon completion of uploading phase; certificates must be kept as proof of compliance. - Validation phase: - SSNF validates uploaded information to ensure data not incomplete, imprecise, and/or out-of-date. - SSNF can request resident agent to rectify, clarify, and/or expand information within five business days of the request. - Competent authorities obligated to inform SSNF when they find information or documentation that is imprecise, out-of-date, or false, so SSNF can take appropriate actions. - Ongoing obligation: resident agents must continuously keep information and documentation in the RUBF up to date. *Source: 1panea2024004 - 18. In line with their predominance in the corporate sector, the NRA found corporations (PANAMA INTERNATIONAL MONETARY FUND).* ### 29. While registration of legal persons in the RUBF has been steadily accelerating, the ### 1panea2024004 - 29. While registration of legal persons in the RUBF has been steadily accelerating, the ### Registration Trends and Key Statistics - As of April 2023, 129,321 legal persons were registered in the RUBF, against a total of 200,182 active companies. - The proportion of active legal persons registered in the RUBF reached 65 percent in April 2023, up from 45 and 28 percent in March and January 2023, respectively. - Between January and April 2023, registration of legal persons in the RUBF increased by 96.5 percent while active companies declined by 15 percent. - Latest numbers for May 2023 indicate that over 140,000 legal persons are now registered in the RUBF. ### Trends and Implications of Suspended Companies for Beneficial Ownership Registration (Box 2) - Historical trend: - Active registrations fell from 500,479 in May 2017 to 218,806 in March 2023. - As of January 31, 2023, there were 477,544 suspended legal persons registered in the RPP. - Causes of suspension: - Majority of suspension orders issued have been for delinquency, concentrated in 2016 and 2017. - More recently, failure to appoint a resident agent accounted for 21 percent of orders of suspensions as of January 2023. - Suspension for delinquency presumes at least three years of annual fees of at least US$300 and a US$1,000 fine for reactivation. - Reactivation and dissolution issues: - Once suspended, legal persons have one year to be reactivated by paying a fine and addressing the cause of the suspension. - Of the hundreds of thousands of legal persons suspended for delinquency, only 18,120 have been reactivated. - If the one-year period expires, amendments by Law 254 of 2021 provide that the RPP will notify the competent authority that ordered the suspension so that the latter can order the dissolution of the legal person. - Currently, suspended companies have not been subject to involuntary dissolution orders because relevant stakeholders have yet to agree on a procedure and policy for dissolving and unwinding suspended legal persons. - Suspended legal persons cannot record acts with the RPP; only reactivated legal persons can opt to voluntarily dissolve after meeting reactivation requirements. - Fiscal implication example: - If close to 79 percent of suspended legal persons are subject to suspension orders for delinquency, and as of January 31, 2023, there were 477,544 suspended legal persons registered in the RPP, the DGI is owed at a minimum US$716,793,544.00. - Operational and compliance implications: - Suspended status is reflected in the RPP (public and searchable with signup) and in any certificate of good standing issued by the RPP. - Suspension of registration with the RPP often results in suspension of license and prevents onboarding with obliged entities, though timely identification of suspended legal persons among existing customers remains unclear. - It is unclear whether foreign financial institutions consistently check the RPP to determine registration status, leaving possibility of suspended companies accessing and transferring assets. - Resident agents have reviewed client portfolios and resigned from legal persons not paying fees or not cooperating with new requirements (beneficial ownership, accounting records). ### Verification and Enforcement Mechanisms: Ongoing Implementation - Multi-layer verification design: - First layer: resident agents must identify beneficial owner(s) and take reasonable risk-based measures to verify information and supporting documents (Law 23 of 2015, Art.26-A, as amended by Law 254 of 2021, Art.8, and Art.27). - Sanctions for resident agents failing to upload or update beneficial ownership information range from US$1,000 to US$50,000 depending on severity, magnitude, size, and recidivism (Law 129 of 2020, Art.23, as amended by Law 254 of 2021, Art.41). - Evidence of false declaration by the resident agent results in aggravated sanctions (Law 129 of 2020, Art.25). - Four sanctions were imposed in 2022 and 2023 under Law 129 of 2020, all for failure to register with the RUBF and levying a fine of US$5,000; only one has been executed so far. - RUBF also relies on verification of identity and good standing of resident agents (certificates of good standing to practice law; registration with SSNF; CUR rollout expected). - Second layer: interoperability with official databases: - Interagency agreement of interoperability signed on November 21, 2022 by SSNF, RPP, AIG, UAF, DGI, and MICI; AIG to develop modules for interoperability and specify data for validation with RUBF. - SSNF required under SSNF Decree 13 of March 25, 2022 (amended by Decree 15 of May 30, 2022) to run RUBF information against international and domestic sanctions lists and searches of open sources and other databases (Art.12, amended by Decree 15 of May 30, 2022, Art.1), although it has yet to do so. - 2023 interoperability priorities: - Automating checks with Civil Registry attached to the Electoral Tribunal to validate identity of resident agents or their representatives. - Automating validation with the RPP to validate registration number (folio) of legal persons. - Once CUR is fully rolled out, validation against the RPP expected. - Plans for 2024 to expand interoperability with databases managed by: (i) the UAF to validate identity and registration of resident agents; (ii) the DGI to validate information on legal persons operating outside of Panama; and (iii) the MICI to validate the type of activity of the legal person. - SSNF expects to start running RUBF information against sanctions lists later in 2023. - Third layer: SSNF risk-based onsite inspections: - Resolution No. S-014-B of November 7, 2022 establishes SSNF risk-based verification procedures. - SSNF supervision directorate—Dirección de Supervisión (DS)—responsible for verifying and validating RUBF information through onsite supervision of resident agents, in coordination with the DBF. - A DS working unit composed of at least four supervisors (unit has four supervisors with two additional supervisors being recruited) is charged with conducting thematic beneficial ownership onsite inspections of resident agents. - DBF produces statistical reports with parameters currently including: (i) nature of economic activities; (ii) whether legal person conducts operations locally or offshore; and (iii) country or jurisdiction where it operates (e.g., FATF grey or black lists; U.S. Department of State list of major money laundering countries or state sponsors of terrorism; Transparency International’s Corruption Perception Index score and ranking). - SSNF intends to add a parameter on the use of nominee services in the second half of 2023. - DS selects a sample of 500 high-risk legal persons to develop its monthly supervisory plan of resident agents—most inspections involve multiple legal persons per resident agent. - From November 2022 to March 2023, 71 thematic onsite inspections of resident agents were conducted, representing 1,353 high-risk legal persons. - Onsite inspections verify RUBF information against supporting documents held by resident agents; a small number of mismatches have been referred for sanctioning. - It is unclear to what extent independent verification is conducted systematically beyond consistency checks between RUBF and resident agent records, which may not detect complex concealment structures. ### Access: A Private Registry with Timely Albeit Restricted Access - Legal and operational access framework: - Access to the RUBF is limited to competent authorities in AML/CFT matters as defined in Law 129 of 2020 (Art.2(2)) and revised by Law 254 of 2021 (Art.30). These expressly include the SSNF, the UAF, the MP, and the DGI, as well as any other agency with an AML/CFT mandate. - Only the SSNF has direct access to the RUBF through designated officials meeting Article 15 of Law 129 of 2020 requirements; the SSNF designated official is specifically authorized to make information available to other competent authorities upon request (Art.14 of Law 129 of 2020, as revised by Art.36 of Law 254 of 2021). - Other competent authorities must submit requests to the SSNF designated official, who must process them expeditiously in line with SSNF Decree No.13 of 2022 (Art.16). - Competent authorities are required to notify SSNF of any imprecise, out of date, or false information contained in the RUBF (SSNF Decree No.13 of 2022, Art.17). - Practical access and use: - Competent authorities received training on accessing the RUBF on November 9, 2022, and have had access since November 21, 2022. - Each competent authority establishes internal procedures and designates authorized officials; most have one or two authorized officials enrolled. - As of November 2022, UAF, DGI, MP and SBP have requested and been granted access for domestic investigations, international cooperation requests, and supervision (SBP). - Requests typically include legal basis, purpose, legal person name and RPP folio; access is expected to be granted within 24 hours and has often been granted within an hour. - Access is granted for a specified period (e.g., 45 minutes), during which information can be printed; once time expires, a new request is needed for additional time. - Usage statistics and user satisfaction: - As of May 2023, competent authorities have been granted access to the RUBF in response to over 134 requests—all requests have been granted. - SSNF reported a 91 percent success rate of requests for information, reflecting the number of requests for which beneficial ownership information had been uploaded to the RUBF. - When information was not yet uploaded to the RUBF (onboarding ongoing), competent authorities obtained it from the resident agent or other obliged entity. - Competent authorities reported satisfaction with the quality, usefulness, and completeness of RUBF information so far; international request responses have not required follow up. - Box 3: Access by specific competent authorities (summary): - MP: 23 requests (16 domestic, 7 international), positive results to 20 requests; three negative cases from Dec 2022–Jan 2023 resolved via resident agents. - UAF: 11 requests from Nov 2022–Apr 2023 for 35 legal persons; positive results for 26 legal persons; obtained remaining nine from resident agents; three officials assigned (two for international cooperation, one for internal analysis) with director signature required for requests. - DGI: 2 requests in Mar and Apr 2023 for seven legal persons (international cooperation), information available via RUBF for six of seven; DGI can use RUBF for tax crimes investigations but has other tools. - SBP: Conducted 15 checks in March 2023 and 92 checks in April 2023 against RUBF; found bank-collected information matched RUBF in most cases—exceptions mainly where beneficial ownership information had not yet been uploaded (as of April 2023, only 65 percent of active status legal persons had been uploaded). *Source: Panama chapter of IMF staff report (content unit 1panea2024004).* ### 39. The RUBF currently only enables searches by competent authorities through the name ### 1panea2024004 - 39. The RUBF currently only enables searches by competent authorities through the name ### RUBF searchability: current limitations and potential enhancements - Current capability: - The RUBF currently only enables searches by competent authorities through the name of the legal person and folio number. - Without the name of the legal person and its folio number—the latter can be obtained through the RPP using the former—competent authorities cannot access information from the RUBF. - Data fields available in the RUBF that could support broader searches: - Legal person: date of registration, management, etc. - Beneficial owner(s): name, ID number, date of birth, nationality, address, etc. - Technical possibility and trade-off: - It would be technically possible to enable searches using other fields. - The extent to which to enable searches by fields other than name of legal person and folio number can be balanced against the concern of avoiding “fishing expeditions.” - At the very least, enabling searches through the name of the beneficial(s) owner(s), or other identifiers alone or in conjunction (e.g., ID number, date of birth, nationality, address, etc.) would undoubtably improve the usefulness of the RUBF to competent authorities, without necessarily opening the door to unsubstantiated or frivolous searches. ### International guidance and comparator practices on search functionality - FATF Guidance (March 2023) recommendations reflected: - Invites countries to consider allowing competent authorities to search beneficial ownership registries “in a way that serves their needs adequately,” for instance by the name of the beneficial owner (¶88(g)), and adopting search functions that support searches by multiple fields (¶89(ix)). - World Bank (The Puppet Masters, 2011) recommendations: - Recommended expanding searchability of company/beneficial ownership registries to enhance added-value, notably by enabling Boolean searches and allowing queries by natural persons (by first or last name), company secretary, registered office, or agent, shareholders, addresses, business activity, country of registration, date of registration, and date of incorporation. - Implication: - Enabling a broader scope of searches should be considered both by the RUBF and the RPP, in line with international best practices. ### Broader access to beneficial ownership information: benefits and approaches - Jurisdictional approaches and benefits highlighted by FATF Guidance: - Granting access to beneficial ownership information can benefit: - (i) public authorities in the context of public procurement for timely access to basic and beneficial ownership information on legal persons bidding on public contracts and awarded public contracts; - (ii) obliged entities to complement and facilitate compliance with CDD obligations and identification of beneficial ownership information, and enable discrepancy reporting, which in turn would enhance the quality of the information available through the RUBF; and - (iii) civil society, or other interested parties, who could cross check the information and in turn enhance the quality of the information available through the RUBF. - A tiered approach could be considered, where not all information is available to all, to take into account data privacy and confidentiality considerations. - Example tiering suggestion (from source text): - Expanding access to licensed obliged entities, where the latter would only be able to request access to information for existing or prospective clients, with written consent from the client. ### Supervision of resident agents — A. New Obligations on Resident Agents - Legal and supervisory framework: - Lawyers providing resident agent services have been subject to AML/CFT obligations, including reporting obligations, and supervision since 2015. - Law 23 of 2015, as amended by Law 254 of 2021, provides the legal basis for Panama’s AML/CFT framework, including by identifying the DNBFPs subject to the AML/CFT regime (sujetos obligados no financieros) and establishing AML/CFT obligations (CDD, record keeping, internal controls and ongoing monitoring, and suspicious transaction reporting). - Included among DNFBPs are lawyers when they provide specified services in the exercise of their professional activities on behalf of or for a client. Specified services include: (i) resident agent services; (ii) nominee services; (iii) services involving the creation, operation, or administration of legal persons or arrangements, including organizing financial contributions, and buying and selling legal persons or arrangements; (iv) providing a registered address, commercial or physical address, or postal or administrative address to a legal person or arrangement; and (v) acting as a participant in an express trust (Law 124 of 2020, Art.40(11), as amended by Law 254 of 2021, Art.26). - SSNF: mandate and powers: - The SSNF was established by Law 124 of January 7, 2020, taking over the mandate of the Intendencia de Supervisión y Regulación de Sujetos no Financieros (ISNF) for supervision of DNFBPs, including resident agents. - The SSNF is an autonomous government agency, with its own budget and administrative independence (Art.1). - Mandate (Art.3): (i) ensure compliance with AML/CFT legal requirements and impose sanctions for failure to comply; (ii) issue directives, norms, guidelines and feedback, including procedures for the adequate identification of beneficial owners of legal persons and arrangements; (iii) maintain up-to-date statistics regarding implementation and effectiveness of the law; and (iv) conduct outreach and promote ongoing capacity building of DNFBPs. - The SSNF can order the suspension of a legal person for a resident agent’s failure to comply with AML/CFT obligations (Art.2(11), as revised by Law 254 of 2021, Art.24). - Composition: three directorates, including a beneficial ownership directorate (DBF) established to implement Law 129 of 2020. - Supervisory information requests and sanctions: - For risk-based supervision, the SSNF can request from resident agents any information it deems necessary (Law 124 of 2020, Art.3), including operations, activities, products, services, compliance manuals, and other supporting documents (Art.43). - SSNF can impose sanctions as provided under Law 23 of 2015 for failure to comply with obligations under Law 124 of 2020 (Art.48). - Legal persons must provide accounting records and supporting documents whenever requested by a competent authority—defined as the DGI, MP or UAF—within the time period established in the request (Law 52 of 2016, Art.1, as amended by Law 254 of 2021, Art.17). - Competent authorities may also request the accounting records and supporting documents, or copies thereof, from the resident agent (Law 52 of 2016, Art.4, as amended by Law 254 of 2021, Art.20). - CDD and record-keeping obligations for resident agents: - Under Law 23 of 2015, resident agents are required to undertake risk-based CDD, taking into account types of clients, services and products offered, channels of distribution, and geographic location of its offices, and that of its clients and beneficial owners (Art.26 and 26A). - Documents, data, and information collected through the CDD process must be kept up to date and updated at a higher frequency for higher risk clients (Art.26); records are kept for at least five years (Law 23 of 2015, Art.29). - When a client does not cooperate with CDD measures, resident agents are required not to open the account, enter into the business relationship, or process the transaction, and should report a suspicious transaction to the UAF (Art.36). - Resident agents must identify and verify the beneficial owners of their clients and the nature of their business activities (Art.27(4); Art.28(2)-(3); Art.28(1);(4); Art.38; Art.26B; Art.39). - Accounting records obligations and enforcement: - As of 2021, legal persons operating exclusively outside of Panama or whose sole activity is holding assets must provide accounting records to their resident agents annually. - Such legal persons are required to keep accounting records (registros contables) and supporting documents in the offices of its resident agent within Panama, or in any other location within or outside of Panama, for a period of at least five years (Law 52 of October 27, 2016 (Art.1), as amended by Law 254 of 2021 (Art.17)). - These legal persons are required to provide to their resident agents, annually on April 30, their accounting records, or a copy thereof, from the fiscal period ending December 31 of the previous year (with stated exceptions for publicly listed companies, publicly owned companies, and shipowners or charterers of ships registered exclusively under international service in Panama). - Compliance enforced by the DGI and required to maintain active registration status with the RPP (Law 52 of 2016, Art.3, as amended by Law 254 of 2021, Art.19). - DGI sanctions for failing to comply with Law 52 of 2016—fines range from US$5,000 to US$5 million depending on the severity of the failure, magnitude of the impact, and recidivism. - Where a legal person fails to comply with its obligations under the law, the DGI will order the RPP to suspend it (Art.7, as amended by Law 254 of 2021, Art.23). - Changes in resident agent, dissolution, and record retention: - In change of resident agent, the legal person must provide the incoming resident agent, before registration of the designation in the RPP, its accounting records and supporting documents or copies thereof, to be kept at the resident agent’s offices in Panama (Art.2, as amended by Law 254 of 2021, Art.18). - In case of dissolution, the accounting records and supporting documents, or copies thereof, pertaining to the previous five years, must be kept by the resident agent; the RPP will require express declarations of compliance to register a new agent or dissolution (Art.1, as amended by Law 254 of 2021, Art.17). - A legal person that is suspended will need to provide its resident agent with its accounting records, or copy thereof, to be kept in the resident agent’s offices in Panama, to be able to pursue reactivation (Art.1, as amended by Law 254 of 2021, Art.17). - Current practice and supervisory gaps: - In practice, supervision of resident agents by the DGI has been exclusively offsite and not risk based. - The DGI started conducting supervision of resident agents in 2018, and currently conducts four offsite inspections cycles per year. - For each offsite inspection, the DGI selects a random sample of 25 to 30 resident agents from those registered with its eTax system—the sample selections include resident agents that have received information requests in the past as well as those that have not. - The DGI issues a letter to the selected resident agents requesting information on five legal persons, including on the beneficial ownership, share registry, and accounting requests, and usually provides a 15 working days timeframe for response. - The DGI reviews responses and follows up if information is missing; findings of non-compliance are communicated to the SSNF, and supervision plans are aligned and coordinated. - Notwithstanding, further cooperation is needed, notably on assessing the risk of resident agents and adopting a risk-based approach to the DGI inspections. ### Supervision of resident agents — B. Enhanced Controls over Nominee Services - Risk characterization: - Nominee arrangements pose higher ML risks as they add a layer in the ownership or control structure of a legal person, and therefore require additional controls. - FATF standards require countries to take measures to “prevent and mitigate the risk of misuse of nominee shareholders and nominee directors.” Measures include prohibiting nominee arrangements, or adopting licensing and disclosure requirements whereby information on the status of the nominee and identity of the nominator are recorded by a public authority or alternative mechanism. - SSNF measures and reporting requirements: - Since 2018, SSNF has been requesting from resident agents information on nominee services, including the names of the legal persons for which they act as nominee directors or shareholders. - Agreement JD-01-2020 of June 25, 2020: lawyers and authorized public accountants, among which resident agents are included, must disclose in the course of onsite inspections by the SSNF the names of legal persons for which they provide services as nominee director (Art.9), and provide access to information and documents supporting the services provided and/or business relationship, as well as contracts, agreements, minutes, or others, or a signed declaration in their absence (Art.4). The SSNF started supervising and enforcing compliance with this agreement in 2021. - Regulation (Acuerdo) JD-02-2022 of July 28, 2022 replaces Agreement JD-01-2020 (Art.19). - Article 11 of JD-02-2022 requires lawyers and authorized public accountants to submit annual sworn statements to the SSNF on July 15 containing information on: - (i) the name, ID number, occupation or profession, nationality, and address of those who have been designated as nominee directors or shareholders, as well as the natural person for whom or on whose behalf the services are being provided, directly or indirectly; - (ii) the name and registration of the legal persons for which nominee services are provided; and - (iii) any other additional information requested in connection with the provision of these services. - Resident agents of legal persons incorporated or registered in Panama are also required to provide this information to the RUBF in connection with legal persons for which they provide nominee services. - Supervisory outcomes and scope: - Based on the sworn statements received, the SSNF identified over 800 resident agents that also provide nominee services. - These sworn statements are being used to inform the SSNF onsite supervisory plan for 2023, which includes thematic inspections on nominee services. *Source: Excerpt from the referenced IMF chapter/section.* ### 54. Regulation JD-02-2022 establishes additional controls over nominee directors and ### Regulation JD-02-2022 establishes additional controls over nominee directors and ### Controls over nominee directors and shareholders - Clients requiring nominee services are considered higher risk and must be subject to enhanced due diligence (Art.6(b)). - Lawyers and authorized public accountants must adopt effective measures to understand the purpose behind nominee services and verify that the latter is legitimate (Art.10), including: - (i) conduct risk-based due diligence on nominees; - (ii) have signed contracts, agreements or similar with their client, identifying the natural person for whom the service is being provided and on whose behalf the nominee is acting, directly or indirectly; - (iii) document the express acceptance of the nominee for each legal person for which he/she acts, and his/her understanding of the purpose of the arrangement and the nature of the business and activities; - (iv) provide at least eight hours of AML/CFT training to those who will perform the function of nominees, followed by annual refreshers. - Lawyers and authorized public accountants must maintain adequate, precise, and up to date supporting documents for each of these measures (Art.12). - Consideration: make nominee status public through the RPP; the FATF standards call for transparency requirements, licensing requirements, or both. Current Law 23 of 2015 does not expressly require nominees to be licensed; authorities should consider adopting licensing requirements for nominee services, and/or requiring nominee status to be disclosed publicly (for instance through the RPP, which already includes public information on the board of directors). ### Requirement to know client business and beneficial ownership - Under Article 13 of Regulation JD-02-2022, lawyers and authorized public accountants are required to know the nature of the business of their clients, including: - the shareholding and control structure; - the source of funds or wealth of the client and beneficial owner—i.e., the origin and domestic or foreign source. - Resident agents also need to know this information for the legal person(s) for which they provide services, including the purpose of the legal structure. - Verification requirement: lawyers and authorized public accountants must verify through independent and trusted sources the activities declared when: - the client and/or beneficial owner is deemed high risk; - transactions are not in line with the activities declared; - unusual transactions are identified per Law 23 of 2015. ### Supervision: registration, offsite and onsite supervision, and enforcement - Registration: - Resident agents must register with the SSNF in accordance with Article 44 of Law 124 of 2020. - The SSNF can and intends to publish a list of all registered obliged entities, including registered resident agents, on its website by the end of 2023. - Resolution No.S-010-2021 of December 2, 2021, established the SSNF Online for direct online registration. - New resident agents or resident agents not previously registered had 15 business days to register through SSNF Online; enrollment of new resident agents is ongoing. - Registration universe and CUR: - There are 4,798 resident agents in total registered with the SSNF, not all actively providing resident agent services. - As of April 2023, 3,670 resident agents are registered through the SSNF Online platform and with the RUBF; these resident agents have been assigned CUR, which as of June 2023 notaries will be required to verify when registering legal persons in the RPP. - Expectation: make the CUR mandatory for RPP registration later in the year, through automated validation, once outreach and enrollment campaigns have been completed. - Offsite supervision: - Since 2018 the SSNF has used offsite supervision tools and has assigned risk ratings to 1,585 resident agents. - The SSNF scaled up offsite supervision across DNFBPs, reaching a total of 3,064 obliged entities across all sectors in 2022, up from 379 in 2021; 90 percent of these were in professional sectors including resident agents. - Offsite supervision forms collect client portfolio, list of legal persons under a resident agent, services provided, and number and geographic location of beneficial owners. - Based on 2018–2022 offsite supervision, the SSNF classified 1,585 resident agents between high, medium, and low risk, with a total of 410 resident agents rated high risk—118 law firms and 292 independent lawyers. - Self-evaluation tool and supervisory cycle: - SSNF introduced a self-evaluation tool (Formulario de Datos Extra Situ — FODE) with 114 questions covering size and type of legal person, years in operation, client base, geographic location, products and services, and delivery mechanisms. - The tool generates an automated risk rating to design a risk-based supervision plan (offsite then onsite). - Supervisory cycle: Registration with SSNF Online and RUBF → Self-evaluation questionnaire (FODE) → Risk-based annual supervision plan → Risk-based offsite supervision → Risk-based onsite supervision. - Onsite supervision focus and methods: - Onsite inspections review effectiveness of beneficial ownership identification and verification, focusing on high-risk clients, activities, jurisdictions, and legal persons using nominee services. - Methods: interviews, review of digital and physical client files, templates providing beneficial ownership information for client samples, verification of supporting documents (ID, share certificates, certifications, sworn statements), validation against other sources (invoices, emails, contracts), and review of controls (United Nations listing, World Check, U.S. OFAC). - Onsite supervision statistics and calibration need: - Onsite inspections of resident agents: 17 in 2019, 18 in 2020, 46 in 2021, and 90 in 2022. - In 2022 the 90 resident agents inspected represented a total of 111,116 legal persons; 1,790 sample files were reviewed. - Plan for 2023: conduct 100 onsite inspections. - Shortfall: 100 inspections fall significantly short of the 410 resident agents currently rated high risk, which per the May 2023 draft supervision manual should be subject to annual onsite inspections. - Recommendation: fine tune risk-based supervisory tools—consider further calibrating risk parameters to identify a narrower set of higher risk resident agents, and/or extend the supervisory cycle for high-risk resident agents from one year to 18 months. SSNF reported it is considering adjustments to the supervisory cycle criteria. - Sanctions and compliance trends: - Most resident agents inspected in 2022 were found to have adequate controls for identifying beneficial ownership: 84 percent. - Sanctions: 1 in 2019; 5 in 2020; 4 in 2021; 23 in 2022. - As of 2023, nine sanctions have been imposed for failure to comply with AML/CFT obligations in 2023. - SSNF is in the process of approving the updated supervision manual. ### Bearer shares: custodial regime, gaps, and recommendations - Legal framework and custodial requirements: - Panamanian corporations can still issue bearer shares despite custodial reforms. - Law 47 of August 6, 2013, establishes a custodial regime for bearer shares (acciones emitidas al portador) intended to immobilize them; owners must designate an authorized custodian to maintain custody of the share certificates (Art.3). - Issuing corporation must authorize the custodial regime and reflect it with the RPP; the owner must provide the issuing corporation the name, address and contact point for the authorized custodian (Art.5, as amended by Art.2 of Law 18 of April 23, 2015). - Failure to deliver the bearer shares certificate to an authorized custodian within the timelines established in the law results in the owner’s inability to exercise political and economic rights before the issuing corporation (Art.21). - Under Law 18 of 2015, any bearer shares issued prior to the entry into force of Law 47 of 2013 had to be placed in custody or converted into nominal shares by December 31, 2015 (Art.4). - Authorized custodians: - Local authorized custodians: general license bank or trust companies licensed by the SBP, brokerage houses licensed by the Superintendencia del Mercado de Valores, or a lawyer in good standing with the Supreme Court of Justice (Art.6). - Foreign authorized custodians: banks, trust companies, and financial intermediaries duly licensed in jurisdictions that are members of the FATF or FSRBs and registered with the SBP (Art.7). - Authorized custodians must maintain records of all documents related to the custodial arrangement for at least five years and make information available to competent authorities or the resident agent of the issuing corporation upon request (Art.10-11). - Sworn statement requirements and beneficial ownership gap: - Owners of bearer shares must provide custodians a sworn statement including full name, nationality or country of incorporation, ID number or registration number, address, telephone number, email, and fax, and the resident agent of the issuing corporation (Art.8-9). - Beneficial ownership information is not required in the sworn statement; a declared owner of bearer shares could be a legal person and thus no requirement to identify the beneficial owner in the sworn statement. - SSNF reported it ensures resident agents identify and verify beneficial owners of legal persons using bearer shares as part of onsite supervision. - Scope and data collection: - As of March 31, 2017, 2,282 companies filed for custody of bearer shares (Panama’s mutual evaluation). - Panama does not currently have information on the total number of bearer shares in circulation. - As of 2023, SSNF is collecting via offsite supervision, and verifying via risk-based onsite supervision, information on: number and names of resident agents registered as authorized custodians before the Supreme Court of Justice; a list of Panamanian corporations with bearer shares; the share certificate numbers; number of shares; and value of shares. - Recommendation: ensure corporations can no longer issue bearer shares and require custodians to hold beneficial ownership information in line with international standards: - FATF (March 2022) calls for not permitting new bearer shares and adopting measures to prevent misuse of existing ones (Recommendation 24). - For existing bearer shares, FATF Interpretative Note 12 calls for conversion to registered shares or immobilization by requiring custody with a regulated financial institution or professional intermediary and ensuring timely access to information by competent authorities. - FATF Guidance on Beneficial Ownership of Legal Persons (March 2023) clarifies regulated custodians should undertake “full identification of the bearer to be able to record the relevant information for competent authorities” (¶119). ### Fintech and virtual assets — Financial Technologies - Operational permits and regulator: - Fintech institutions operating in Panama are granted an operational notice by the Ministry of Industry and Commerce (Ministerio de Industria y Comercio — MICI) before starting operations. - MICI issues operational notices (“Aviso de operación”) to any company conducting commercial or industrial activities within Panamanian territory, including fintech institutions delivering financial services/products. - Applicability of financial institution laws: - The operational permit process is limited to complying with technical requirements per Law No. 42 of 23 July 2001 (applicable to finance companies) and Law No. 48 of 23 June 2003 (applicable to money remitters), both considered financial institutions under Panama’s AML/CFT Law (Law No. 23 of 2015), as defined by the FATF standard. - All fintech institutions at the time of the mission were granted operational permits as subsidiaries of finance companies and/or money remitters. - Registration automation and lack of beneficial ownership capture: - The process for registering a new company and obtaining the operational notice has been fully automated under Law No. 5 of November 2007. - Using the web-based platform “Panama Emprende,” applicants upload legal and technical information including name of company, personal information on owners, directors, and shareholders, anticipated activities, physical location, tax identification number, etc. - No beneficial ownership information is submitted as part of the web-based application process. - AML/CFT measures in operational permits: - Granting an operational permit includes a limited number of measures addressing AML/CFT; authorities indicated applications include a general/high-level assessment of AML/CFT issues, mostly compliance based. - For regulated activities as defined in Law No. 5 of 2007, additional requirements, review, and approval by the sector-specific authority apply (e.g., SBP or SMV approval required before issuing operational notice if activity relates to banking or securities). *Source: 1panea2024004 - 54. Regulation JD-02-2022 establishes additional controls over nominee directors and shareholders* ### 72. There are inconsistencies in determining which fintech institutions providing credit, ### 72. There are inconsistencies in determining which fintech institutions providing credit, ### Fintech supervision and coverage: findings - At the time of the mission, there were twenty fintech institutions operating within Panama’s financial sector and subject to AML/CFT obligations (Law No. 23, of 2015). - Thirteen of these fintech institutions had been granted operational permits by the MICI and Resolutions had been by the SBP as they were conducting regulated activities, as per Law No. 5 of 2007. - There were seven additional fintech institutions that at their own initiative approached the SBP to undertake a review of their activities to determine whether they should be subject to AML/CFT obligations and SBP supervision thereof. - After reviewing the activities disclosed by these seven fintech institutions, the authorities determined that the activities were considered regulated and subject to the requirements of Law No. 5 of 2007, Law No. 23, of 2015 and supervision of AML/CFT obligations by SBP. - The authorities indicated there are other institutions conducting similar activities in Panama that have not been reviewed or granted a Resolution. - It is possible that other fintech institutions may be conducting regulated activities using digital channels and new technologies without being subject to AML/CFT obligations and supervision by the SBP. ### AML/CFT Law: terminology and scope issues - Article 22 of the AML/CFT Law provides the list of reporting entities in Panama. - Under 22(g), reporting entities subject to AML/CFT obligations include those institutions “issuing payment means and electronic money” (“entidades emisoras de medios de pago y dinero electrónico”). - Article (22)(1)(f) limits the coverage of "processors" to those processing credit or debit cards. - In Panama, these institutions are under the supervision of the SBP, including “fintech institutions” delivering these financial products/services. - Given the narrow interpretation of the concept of “issuing payment means and electronic money” as applied in Panama, and the lack of further clarification or guidance, it is probable that other fintech institutions fall outside the concepts stated under Articles 22(1)(f) and 22(g) and are not subject to a uniform and consistent authorization process, AML/CFT obligations, and supervision by a designated competent authority like the SBP or SMV. ### Virtual assets / Virtual Asset Service Providers (VA/VASPs): observations - Anecdotal evidence suggests that a very limited number of customers are conducting digital transactions (so called “virtual assets”) in Panama. - These transactions involved the sales of digital assets processed through exchanges abroad, with the proceeds being deposited into the customer’s personal account at a local financial institution. - Financial institutions providing these services apply additional enhanced customer due diligence measures to the few customers allowed to conduct these transactions, including requiring the nature of the transaction(s) and the country of origin of the service provider(s) (so called exchanges) before a deposit transaction was accepted. - Transactions involving the purchase of digital assets were not permitted by the financial institution described. ### Legal and regulatory status of VA/VASPs - Panama does not currently have a legal framework in place covering virtual assets/virtual asset service providers (VA/VASPs) activities. - Two previous bills of law were debated and approved by Congress in 2022 and 2023, respectively, but both bills were vetoed by the President of the Republic of Panama due to concerns including operational, regulatory and supervisory aspects, risk management issues, and AML/CFT concerns. - The Government of Panama did not consider the proposed VA/VASP bills as approved by Congress to be adequate nor timely, considering Panama’s protracted grey listing by the FATF/ICRG as a jurisdiction with strategic deficiencies in its AML/CFT regime. - Following the last veto, the bill of law was sent to the Supreme Court for consideration. ### Policy recommendations and next steps - AML/CFT policies and measures should be reviewed and updated to ensure they are effective and responsive to emerging risks. - The authorities should assess potential ML/TF/PF risks emerging from VAs/VASPs and identify measures to prevent or mitigate these risks. - The results of such assessment should provide the basis for regulating and supervising VAs and VASPs in line with FATF Recommendation 15. - The content and timing of the regulatory framework should be coordinated with broader reforms to the legal framework for payment services providers and in line with the clarifications needed in the AML Law (Law 23). *Source: Excerpt from the provided IMF content unit.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1panea2024004.pdf_