## cr0766 ## Source details **Canonical URL:** [cr0766](https://www.imf.org/-/media/files/publications/ofca/english/cr0766.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr0766.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr0766.pdf.json) --- ### Executive Summary — Economic context and financial sector importance - The IMF assessment reports Real GDP expanded by 6.4 percent in 2005 following growth of 7.6 percent in 2004. - Unemployment fell to 9.8 percent of the labor force in 2005. - Inflation rose to 3.4 percent in 2005. - The fiscal deficit is estimated to have fallen somewhat below the target of 2.6 percent of GDP in 2005. - Financial intermediation contributed about $1 billion or 7.2 percent of GDP in 2005; staff estimates financial intermediation will increase to 7.5 percent of GDP in 2006. ### Financial system structure and key statistics - Banking system: - The Panamanian banking system is the largest in the Central America region. - Banking system assets (nonconsolidated): $39.6 billion at end-March 2006. - Banking system assets (consolidated, including local and foreign subsidiaries): $45.8 billion at end-March 2006. - At end–March 2006 there were 73 banks: 2 state-owned banks, 37 general license private banks, and 34 international license banks. - General license banks represent about 83 percent of banking system assets and liabilities. - About one half of banking system assets are invested outside Panama; about one half of banking system liabilities are from abroad. - Other deposit-takers: - 276 deposit-taking cooperatives at end-2004 with assets of $860 million (about 2 percent of banking system assets). - 4 savings and credit institutions at end-2004 with assets of $70 million (less than 0.2 percent of banking system assets). - Wealth management services: - About 9,000 lawyers and company service providers and about 12,000 accountants reported for the assessment. ### Regulatory and supervisory framework — overall findings - The 1998 revision of the banking law and creation of the Superintendency of Banks (SdB) modernized banking regulation and supervision; the IMF assessment (and a 2001 IMF assessment) show a high level of observance with the Basel Core Principles for banking supervision. - Regulatory frameworks for capital markets and insurance remain underdeveloped. - Securities law and regulations are generally effective, but resources for securities markets oversight are insufficient and a key CNV commissioner position has been vacant since 2004, affecting operational independence. - The Superintendency of Insurance and Reinsurance (SSRP) lacks independence from the industry and the executive branch and lacks resources for prudential supervision; revision of the legislative framework is required. - Cross-border cooperation: - SdB and CNV have good records of cross-border cooperation and MOUs, but CNV faces legislative impediments limiting information sharing and implementation of the IOSCO multilateral MOU (MMOU). - Insurance legislation does not define the level of cooperation with home-country supervisors of foreign-owned insurance companies. - Supervisory asymmetries: - Supervisory and regulatory arrangements for cooperatives and savings and credit institutions are less developed than for banks, producing an uneven playing field given some cooperatives have asset sizes comparable to smaller banks. ### AML/CFT system — assessment highlights - Essential components for an effective AML/CFT system are in place; Panama is described as "largely compliant with a majority of the FATF recommendations." - Money laundering and financing of terrorism are crimes; there have been "10 prosecutions to date." - The Financial Analysis Unit (UAF) is functionally independent, an Egmont Group member, and requires additional personnel and budgetary resources. - Resources (financial, human, information technology) are a concern for law enforcement authorities (investigators and judges) and for DNFBPs. - Supervision of AML/CFT is generally sound for banks, securities firms, and cooperative institutions, but weak for the insurance industry—largely reflecting SSRP resource constraints. - Gaps in preventive coverage: - Lawyers and accountants are not covered by Law 42-2000 or its regulations. - Leasing and factoring companies, insurance brokers/agents, and savings and credit institutions are not covered by Law 42-2000. - Casinos, trust service providers, and real estate intermediaries (legal persons) are subject to AML/CFT obligations; pawnshops and businesses in Free Trade Zones are subject to CTR obligations. ### Securities markets — structure, activity, and oversight - Market structure and activity: - Securities markets are small and illiquid; activity concentrated mostly in the primary market for government debt and corporate bonds. - Total market capitalization in 2004: $3.9 billion (increase of 28 percent over 2003). - Proportion of market capitalization represented by the three largest companies averaged 58 percent (2004). - Number of listed issuers: end-2004: 81 issuers (decline of 15 during the year); 2005: 83 issuers. - Market activity by volume: Primary issues about 68 percent; Secondary market about 25 percent; Repurchases about 6 percent. - Total amount of securities issued in 2004: $518 million; additional securities issued through end-May 2005: $460 million. - Mutual funds: Domestic mutual funds: 17 with total assets of $422 million; International collective investment schemes: 3 with total assets of $20 million. - Market participants and licensing: - CNV licenses securities houses and investment advisors. Securities houses registered: 33 (transaction volume about $7.3 billion in 2004); about 55 percent of transaction volume concentrated in five securities houses. - End-May 2005: 265 licensed stockbrokers. - Regulatory capacity and weaknesses: - CNV produced 66 regulations (Accords) and issued 70 opinion letters since becoming operational in early 2000 through mid-2005, but resources for oversight are insufficient. - CNV operational issues affecting IOSCO compliance: insufficient funding, MEF approval required for personnel selection, vacant commissioner post since end-2004, lack of legal protection for staff, judicial actions undermining CNV decisions, and legislative impediments to information sharing and MMOU implementation. - Bolsa de Valores de Panama: authorized capital $1 million, divided into 180,000 shares; no individual shareholder owns more than 2.5 percent. ### Banking system — performance and financial soundness indicators - Growth and balance-sheet composition: - Bank balance sheet growth: 2004: 7 percent; 2005: about 12 percent; First quarter 2006: 10 percent (annualized). - Lending growth primarily in mortgages and consumer credit, funded by deposits, retained earnings, and new capital. - Earnings and asset quality: - Return on assets: first quarter 2006 (annualized) 2.4 percent; all of 2005: 2.1 percent. - Return on equity: first quarter 2006: 20.2 percent; all of 2005: 15.7 percent. - Past due loans at end March 2006: $373 million or 1.6 percent of system loans (unchanged from end 2005). - Provisions for loan losses: 2 percent of loans, covering 126 percent of past due loans. - Liquidity and capital (end-March 2006): - Liquid assets to total deposits: 24 percent (24.3 percent in table). - Loans represent 59 percent of assets and 84 percent of deposits. - System regulatory capital (Basel I rule): 17.2 percent. - Private Panamanian owned banks regulatory capital: 14.7 percent. - Equity to assets for system: 12.9 percent. - Selected Financial Soundness Indicators (percent): - Return on assets: 2003: 2.0; 2004: 2.3; 2005: 2.1; Mar-06: 2.4. - Return on equity: 2003: 17.1; 2004: 17.9; 2005: 15.7; Mar-06: 20.2. - Liquid assets to deposits: 2003: 33.2; 2004: 30.1; 2005: 25.0; Mar-06: 24.3. - Loans to deposits: 2003: 74.4; 2004: 81.1; 2005: 84.5; Mar-06: 83.8. - Loans to assets: 2003: 54.4; 2004: 57.5; 2005: 59.3; Mar-06: 59.1. - Regulatory capital to risk-weighted assets: 2003: 18.4; 2004: 17.8; 2005: 17.2; Mar-06: 17.2. - Equity to assets: 2003: 12.4; 2004: 13.4; 2005: 13.0; Mar-06: 12.9. - Nonperforming loans to total loans: 2003: 2.3; 2004: 1.7; 2005: 1.6; Mar-06: 1.6. - Loan-loss provisions to nonperforming loans: 2003: 150.6; 2004: 147.0; 2005: 131.0; Mar-06: 126.3. ### Enforcement, consolidated supervision, and SdB capacity - Enforcement and powers: - SdB possesses adequate enforcement powers and a history of their use (Article 17, Articles 38 and 76, Article 95, Article 137). - Guidance for working with distressed entities and processes for resolution of an insolvent bank are not sufficient. - Recommendation: SdB should develop guidelines for remedial and contingency plans and consider legislative revisions to strengthen remedial and resolution processes. - Consolidated and cross-border supervision: - SdB empowered to supervise economic groups and their bank and nonbank affiliates on a consolidated basis; Resolution 1-2005 (March 2005) established practical and legal criteria for home and host supervisors under Panamanian holding companies. - SdB has signed MOUs with foreign supervisors; several agreements pending with European jurisdictions. - Recommendation: Amend legislation to clarify SdB’s consolidated supervisory powers for Panamanian financial holding companies. - Capacity building and organizational actions: - SdB staff: 236 employees; about 200 employees with university studies in law or finance. - SdB actions since the IMF mission: July 2005 disclaimer restricting distribution of inspection reports, August 2005 classification system for banks (CAMELS), December 2005 Accord 12-2005 and related measures to upgrade KYC and AML/CFT rules. - Recommendations include strengthening the Regulatory Department, developing market risk policies (VaR and/or building-block approaches), implementing legal protection for staff, and developing career plans to retain senior officials. ### Insurance sector — market structure, supervision, and gaps - Market statistics: - Insurance penetration (premiums to GDP) around 3 percent. - Total premiums subscribed in 2005: $430 million (up 1.9 percent from 2004). - Total assets for 2004: $765 million (around 5–6 percent of GDP); investments 69 percent of total assets. - Life insurance share: 35 percent; nonlife major categories: automobile 16 percent, health 17 percent. - Market concentration: five largest companies account for around 74 percent. - Authorized insurance companies: 18 (four specialize in life, one in surety, 13 operate both life and nonlife); five authorized to operate exclusively in reinsurance. - Supervisory framework weaknesses: - SSRP lacks operational independence from industry and the executive branch; board includes government ministry and industry representatives. - SSRP budget and staffing constrained; fee on net premiums is not substantially available to SSRP for regulation purposes. - SSRP does not require IAS for regulatory purposes; no SSRP-issued rules on corporate governance, internal controls, or board responsibilities. - SSRP has four auditors and no actuaries on staff (one actuary contracted to train two staff members). - Reinsurance companies are not fully subject to the solvency regime; reinsurance supervision constrained by staffing. - Prudential and market-conduct gaps and recommendations: - Recommendations include increasing SSRP independence, providing more staff and resources, hiring an actuary, issuing actuarial standards for technical reserves, enforcing timely audited financial statements, introducing asset-liability matching requirements, subjecting reinsurance to solvency requirements, widening on-site supervision beyond financial aspects, permitting insurers to employ their own agents, and requiring disclosure of fees and commissions. ### Free Trade Zone (ZLC) and DNFBP risks - ZLC risks and operational gaps: - ZLC merchants must report transactions above $10,000 in cash and suspicious transactions, but most companies lack awareness of suspicious transaction indicators. - Administration ZLC needs stronger audit procedures, more inspections, closer cooperation with the UAF and Customs, and improved technology; basic issuance of importation/re-exportation documents remains noncomputerized. - A specialized AML/CFT department was established within the Administration of the Colón Free Trade Zone and is conducting AML/CFT on-site inspections and imposing sanctions. - Lawyers, company service providers, and fiduciary entities: - Lawyers are not subject to STR, customer due diligence, or record-keeping obligations under Law 42-2000. - All companies must have a resident agent who is a lawyer; agent obliged to disclose identity of customers only upon judicial request in narcotics-related investigations. - Trust service providers are supervised by SdB, but 7 of 57 licensed fiduciary companies are subsidiaries of law firms, creating reporting and confidentiality difficulties. - Legal persons and registries: - About 29,000 companies and private interest foundations registered in 2004; the Public Registry records directors and registered agent but does not maintain sufficient ownership information to determine beneficial ownership or percentage of bearer share companies. - Recommendations (selected for DNFBPs and ZLC): - Extend customer due diligence and record-keeping obligations to lawyers, accountants, and dealers in precious metals and stones. - Strengthen enforcement of preventive requirements for Free-Trade Zone merchants, improve auditing capabilities and training for the ZLC administrator, and enhance cooperation with the UAF and Customs. - Subject company incorporation and related services to AML/CFT reporting obligations and create a registry/inventory for NPOs with risk assessment. ### FATF 40+9 and key AML/CFT recommended actions - Criminalization and asset recovery: - Amend Article 389 to criminalize all money laundering predicate offenses in accordance with the Vienna and Palermo Conventions; expand predicate list to include financing of terrorism. - Amend legislation to permit freezing and seizure in all criminal cases and permit forfeiture without necessarily showing nexus to a particular crime. - Institutional strengthening: - Urgently review staffing and training requirements for law enforcement, prosecution, and other competent authorities (including the UAF) to increase capacity for investigations and prosecutions; consider special courts for financial crimes. - Review funding arrangements for the UAF; strengthen protection of information reported to UAF and enhance UAF outreach. - Preventive measures and DNFBPs: - Amend the AML law to impose monitoring obligations on insurance and savings and credit institutions; SSRP and BHN should implement customer identification and record-keeping requirements in the insurance and savings and credit sectors. - Amend the AML law and regulation to subject lawyers and accountants to AML/CFT requirements, including obtaining and maintaining accurate information on beneficial owners of legal vehicles. - Strengthen enforcement of preventive requirements for Free-Trade Zone merchants and target regulation of pawn shops. - Access to beneficial ownership: - Improve access to beneficial ownership information and oversight of company incorporation and trust services; Ministry of Government and Justice to create a registry for NPOs and undertake a sector risk assessment. ### Authorities’ responses and recent developments (selected) - SdB responses (dated January 23, 2006): - Introduced confidentiality disclaimer for inspection reports (July 2005). - Analyzed and planned to strengthen Regulation Department structure; implemented CAMELS-based classification (August 2005); Accord 12-2005 and related measures (December 2005) to upgrade KYC and AML/CFT rules. - Commitments to develop career plans, evaluate legal protection for staff, hire technical advisors, and prepare guidelines for distressed entities. - CNV developments through December 2005: - Increase in regulated entities (34 securities houses including 3 in voluntary liquidation, 294 brokers, 13 investment administrators, among others). - Staff attrition: four resignations in National Directorate of Markets and Enforcement in late 2005; auditor resigned. - Judicial clarifications: November 11, 2005 judgment clarified CNV power to prescribe form and content of financial statements. - Regulatory consultancies and manuals developed for pension and retirement funds (Accord 11-2005 and related consultancy work). - AML/CFT and broader government actions: - Tripartite Coordination Commission (UAF, Public Ministry, Judicial Branch) created. - Financial Analysis Unit and Superintendency of Banks committed to training and developing supervisory programs for savings and credit institutions. - Risk analysis unit within Customs Department expected to become operational on or around December 2006. - Legislation governing pawnshops approved in May 2005; 83 pawnshop license applications received; CTR templates developed in partnership with UAF and training anticipated. - Specialized AML/CFT department established in the Administration of the Colón Free Trade Zone and conducting inspections. - Draft modifications to regulation governing the accounting profession under first debate at the National Assembly; revisions to reporting templates and UAF forms completed. *Source: IMF assessment of the Panamanian financial sector (Executive Summary and sectoral findings).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Economic Context and Financial Sector Importance - The assessment reports Real GDP expanded by 6.4 percent in 2005 following growth of 7.6 percent in 2004. - Unemployment fell to 9.8 percent of the labor force in 2005. - Inflation rose to 3.4 percent in 2005. - The fiscal deficit is estimated to have fallen somewhat below the target of 2.6 percent of GDP in 2005. - Financial intermediation contributed about $1 billion or 7.2 percent of GDP in 2005. - Staff estimates financial intermediation will increase to 7.5 percent of GDP in 2006. ### Financial System Structure and Key Statistics - The Panamanian banking system is the largest in the Central America region. - Banking system assets (nonconsolidated) were $39.6 billion at end-March 2006. - Banking system assets (consolidated, including local and foreign subsidiaries) were $45.8 billion at end-March 2006. - At end–March 2006, there were 73 banks: 2 state-owned banks, 37 general license private banks, and 34 international license banks. - General license banks represent about 83 percent of banking system assets and liabilities. - About one half of banking system assets are invested outside Panama; about one half of banking system liabilities are from abroad. - There were 276 deposit-taking cooperatives at end-2004 with assets of $860 million (about 2 percent of banking system assets). - There were 4 savings and credit institutions at end-2004 with assets of $70 million (less than 0.2 percent of banking system assets). ### Regulatory and Supervisory Framework Findings - The 1998 revision of the banking law and creation of the Superintendency of Banks (SdB) modernized banking regulation and supervision; both the 2001 IMF assessment and this assessment show a high level of observance with the Basel Core Principles for banking supervision. - Regulatory frameworks for the capital markets and insurance sectors remain underdeveloped. - Securities law and regulations are generally effective, but resources for securities markets oversight are insufficient and a key commissioner position has been vacant since 2004, affecting the National Securities Commission's (CNV) overall independence. - The Superintendency of Insurance and Reinsurance (SSRP) lacks independence from the industry and the executive branch and lacks resources for prudential supervision; revision of the legislative framework is required to address these weaknesses. - Cross-border arrangements exist to facilitate information sharing for SdB and CNV, and both agencies have good records of cross-border cooperation. - For the CNV, legislative impediments limit information sharing, including the ability to implement the IOSCO multilateral MOU (MMOU). - For insurance, the legislative framework does not define the level of cooperation with home-country supervisors of foreign-owned insurance companies. - Supervisory and regulatory arrangements for cooperatives and savings and credit institutions are less developed than for banks, creating an uneven playing field given some cooperatives have asset sizes comparable to smaller banks. - Wealth management services (including trusts and company formation) use lawyers, accountants, banks, and trust companies; about 9,000 lawyers and company service providers and about 12,000 accountants were reported for the assessment. - AML/CFT obligations are imposed under Law 42-2000 on financial and nonfinancial businesses and professions, but lawyers and accountants are not covered by Law 42-2000 or its regulations. ### AML/CFT Assessment Findings - Essential components for an effective AML/CFT system are in place. - Resources (financial, human, information technology) are a concern for law enforcement authorities (investigators and judges) and for nonfinancial businesses and professions. - Supervision of AML/CFT is generally sound for banks, securities firms, and cooperative institutions, but weak for the insurance industry—largely reflecting SSRP resource constraints. ### Main Findings — Sectoral Highlights - Banking: High level of observance with Basel Core Principles; SdB modernization effective since 1998 banking law changes. - Securities: Effective legal framework but constrained by insufficient oversight resources and a vacant CNV commissioner post. - Insurance: SSRP lacks operational independence and resources; actuarial capacity and prudential regulation need strengthening. - Cooperatives and Savings & Credit: Regulatory asymmetries versus banks; need for rationalization of supervisory and regulatory arrangements. ### Key Recommendations (Box 1 summary) - For all regulatory agencies: - Provide legal protection to staff members when performing official functions and acting in good faith. - Basel Core Principles recommendations: - Rationalize supervisory and regulatory arrangements for nonbank deposit-taking institutions (cooperatives and savings and credit institutions). - SdB should develop market risk policies for larger institutions, including use of value-at-risk and/or building-block approaches for risk measurement in conjunction with Basel II preparations. - Amend the banking law to provide SdB with clarity for consolidated supervision of financial activities by holding companies equivalent to its direct oversight of banks and subsidiaries. - SdB should develop clear processes for working with distressed entities, including remedial measures, and for insolvent banks, guidelines for winding up, and transferring assets and liabilities. - IOSCO Principles recommendations: - Strengthen CNV's operational independence, address lack of resources and the unfilled CNV commissioner post (vacant since 2004). - Grant CNV control over administrative decisions, including hiring of staff. - Amend legislation to address recent adverse judicial decisions that undermine CNV authority. - Amend securities legislation to allow sharing of information with foreign securities counterparts for market abuse investigations. - Formulate a new governance framework for the accounting profession; empower the Accounting Technical Board to enforce its rules. - IAIS (Insurance) Principles recommendations: - SSRP should have greater operational independence from industry and the executive branch; remedy insufficient staffing and resources (including technology); hire an actuary. - Strengthen prudential capacity and regulations: (i) apply actuarial standards to calculation methods for technical reserves; (ii) enforce timely presentation of audited financial statements; (iii) introduce asset-liability matching requirements; (iv) subject reinsurance companies to solvency requirements; (v) widen on-site supervision beyond financial aspects; and (vi) develop processes for cooperation with foreign supervisors. - Remove legislative impediments to a more competitive insurance market: permit insurance firms to employ their own brokers and agents directly and require disclosure of fees and commissions. - FATF 40+9 Recommendations: - Amend Article 389 to criminalize all money laundering predicate offenses in accordance with the Vienna and Palermo Conventions; expand the predicate list for the AML law to include financing of terrorism. - Urgently review staffing and training requirements for law enforcement, prosecution, and other competent authorities (including the Financial Analysis Unit) to increase capacity for investigations and prosecutions. - Amend the AML law to impose monitoring obligations on insurance and savings and credit institutions; SSRP and BHN should implement customer identification and record-keeping requirements in the insurance and savings and credit sectors. - Amend the AML law and regulation to subject lawyers and accountants to AML/CFT requirements, including obtaining and maintaining accurate information on beneficial owners of legal vehicles. - Strengthen enforcement of preventive requirements for Free-Trade Zone (ZLC) merchants, especially in higher risk areas; improve auditing capabilities and training for the ZLC administrator and enhance cooperation with the UAF and Customs. *Source: IMF assessment of the Panamanian financial sector (Executive Summary).* ### 21. Securities markets are small and illiquid. Activity is concentrated mostly in the ### Securities markets are small and illiquid. Activity is concentrated mostly in the primary market for government debt and corporate bonds ### Securities markets: structure and constraints - Activity is concentrated mostly in the primary market for government debt and corporate bonds. - Investment culture is underdeveloped; users of financial services generally prefer banks for the safekeeping of savings. - Investors have historically preferred investment options provided by foreign capital markets, usually the United States. - Limited promotion of the securities markets and significant family ownership in corporate structures weigh on the size and volume of the Panamanian stock market. ### Market statistics and trends (selected) - Total market capitalization in 2004: $3.9 billion (increase of 28 percent over 2003). - Proportion of market capitalization represented by the three largest companies averaged 58 percent (2004). - Number of listed issuers: - End-2004: 81 issuers (decline of 15 during the year). - 2005: 83 issuers. - Market activity by volume: - Primary issues: about 68 percent. - Secondary market: about 25 percent. - Repurchases: about 6 percent. - Total amount of securities issued in 2004: $518 million. - Additional securities issued through end-May 2005: $460 million. - Pace of issuance for first five months of 2005: substantially ahead of 2004. - Mutual funds: - Domestic mutual funds: 17 with total assets of $422 million. - International collective investment schemes: 3 with total assets of $20 million. ### Market participants and licensing - The CNV licenses securities houses and investment advisors. - Securities houses registered: 33 (with total transaction volume about $7.3 billion in 2004). - Transaction concentration: about 55 percent of transaction volume concentrated in five securities houses. - CNV licensing activity: - CNV licensed three securities houses in 2004. - In 2005, five firms applied for securities house licenses and one firm applied for an investment advisor license. - Licensed stockbrokers: - End-May 2005: 265 licensed stockbrokers. - CNV licensed 50 stockbrokers in 2003, 38 in 2004, and 42 up to end-May 2005. ### Insurance sector: size, concentration, and composition - Insurance penetration (premiums to GDP): around three percent. - Total premiums subscribed in 2005: $430 million (up 1.9 percent from 2004). - Total assets for 2004: $765 million (around five percent of GDP). - Investments as share of total assets (2004): 69 percent. - Life insurance share of total market: 35 percent. - Nonlife insurance major categories (share of total premium subscriptions): - Automobile insurance: 16 percent. - Health insurance: 17 percent. - Market concentration: five largest companies account for around 74 percent of the market. - Number and types of authorized insurance companies: - Total authorized insurance companies: 18. - Four specialize in life business. - One specializes in surety business. - 13 operate both life and nonlife insurance. - Nine of the life/nonlife companies also licensed for reinsurance. - Five companies authorized to operate exclusively in reinsurance. - Reinsurers’ share (2003): premiums issued by reinsurers represented 11 percent of premiums issued by insurers. - Ownership: of the 18 insurance companies, five are subsidiaries of foreign firms and four are affiliates of local banks. - Captive insurance sector: immaterial; no data available. ### Banking system: financial soundness indicators and recent performance - Banking system strengths: stable, benefited from favorable economic and business climate; fully dollarized economy and completely open capital account. - Bank balance sheet growth: - 2004: 7 percent. - 2005: about 12 percent. - First quarter 2006: 10 percent (annualized). - Lending growth primarily in local market (mortgages and consumer credit), funded by deposits, retained earnings, and new capital. - Earnings and asset quality: - Return on assets through first quarter 2006 (annualized): 2.4 percent. - Return on assets for all of 2005: 2.1 percent. - Return on equity for first quarter 2006: 20.2 percent. - Return on equity for all of 2005: 15.7 percent. - Past due loans at end March 2006: $373 million or 1.6 percent of system loans (unchanged from end 2005). - Provisions for loan losses: 2 percent of loans, providing a cover of 126 percent of past due loans. - Liquidity and capitalization (end-March 2006): - Liquid assets to total deposits: 24 percent (24.3 percent in table). - Loans represent 59 percent of assets and 84 percent of deposits. - System regulatory capital (Basel I rule): 17.2 percent. - Private Panamanian owned banks regulatory capital: 14.7 percent. - Equity to assets for system: 12.9 percent. - Selected Financial Soundness Indicators (In percent, table figures): - Return on assets: 2003: 2.0; 2004: 2.3; 2005: 2.1; Mar-06: 2.4. - Return on equity: 2003: 17.1; 2004: 17.9; 2005: 15.7; Mar-06: 20.2. - Liquid assets to deposits: 2003: 33.2; 2004: 30.1; 2005: 25.0; Mar-06: 24.3. - Loans to deposits: 2003: 74.4; 2004: 81.1; 2005: 84.5; Mar-06: 83.8. - Loans to assets: 2003: 54.4; 2004: 57.5; 2005: 59.3; Mar-06: 59.1. - Regulatory capital to risk-weighted assets: 2003: 18.4; 2004: 17.8; 2005: 17.2; Mar-06: 17.2. - Equity to assets: 2003: 12.4; 2004: 13.4; 2005: 13.0; Mar-06: 12.9. - Nonperforming loans to total loans: 2003: 2.3; 2004: 1.7; 2005: 1.6; Mar-06: 1.6. - Loan-loss provisions to nonperforming loans: 2003: 150.6; 2004: 147.0; 2005: 131.0; Mar-06: 126.3. ### Regulatory findings, weaknesses, and recommended institutional actions - Overall compliance: - High level of observance with regulatory standards for systemically relevant banking sector. - Securities markets and insurance have lower levels of compliance with respective regulatory standards. - Supervisory and regulatory arrangements for cooperative credit institutions and savings and credit institutions are underdeveloped. - Legal protection: - Legal protection for staff when performing official functions and acting in good faith is not sufficient across banking, insurance, and securities regulators. - Operational independence: - CNV: operational independence weak due to lack of full control over operating budget and staffing; a key commission board position remained unfilled. - SSRP: operational independence weak; does not control its budget and board includes government ministry and industry representatives. - Recommendation: achieve operational independence in regulatory and supervisory functions to protect reputation as a well regulated financial center. - Accounting and financial reporting: - SdB and CNV require IAS or US GAAP for banks and publicly traded firms; SSRP does not require international accounting standards for regulatory purposes (recommended modification). - Oversight mechanism for accountants/auditors is underdeveloped; draft legislation pending to reinforce powers of the Accounting Technical Board. - Cooperatives and savings institutions: - Supervision of larger cooperatives by IPACOOP is not comparable to that for banks; off-site monitoring is underdeveloped. - Recommendation: modify regulatory framework to establish size threshold (or other objective criteria) for SdB oversight; strengthen off-site monitoring. - Banco Hipotecario Nacional (BHN) oversees four small savings and credit institutions; consideration needed on harmonization or bringing activities under SdB supervision. - CNV operational issues affecting IOSCO compliance: - Insufficient funding for development and retention of qualified staff. - Selection/appointment of technical and administrative personnel requires MEF approval. - One commissioner position vacant since end-2004. - CNV staff and commissioners lack sufficient legal protection. - Judicial actions have called into question certainty of CNV decisions. - Legislative impediments limit information sharing and implementation of IOSCO MMOU, though CNV has provided assistance within legislative limits. - SSRP weaknesses (insurance): - Outmoded legal regime and underdeveloped supervisory framework; legislation dates from 1996 (Laws 59, 63, 60). - SSRP lacks independence from industry and executive branch; industry representatives and MICI participation on SSRP Board should be discontinued. - More staff and resources needed; industry fee not substantially available to SSRP for regulation purposes. - SSRP has not issued rules on corporate governance, internal controls, or board/senior manager responsibilities. - Disclosure to policyholders is weak; commissions to brokers not disclosed; companies prevented from employing their own agents. ### AML/CFT assessment findings - Panama is largely compliant with a majority of the FATF Recommendations. - Money laundering and financing of terrorism are crimes; there have been 10 prosecutions to date. - Most types of financial institutions are subject to preventive and reporting obligations and supervision. - Preventive regimes for several DNFBPs are less developed. - Active cooperation with international counterparts occurs at supervisory, prosecutorial, and FIU levels. - Findings from earlier CFATF mutual evaluation (July 2001) and follow-up: - Asset forfeiture amplification initially not effective; Public Prosecutor advised the process is now in place since the AML law refers to freezing, seizing, and forfeiture powers in the Unified Text of Drug Laws. - UN Palermo Convention ratified by Panama through law No. 23 of July 7, 2004; full implementation requires inclusion of additional predicate offenses. - Regulations on money remitters were adopted but implementation and supervision are not yet effectively implemented. - Money laundering criminal law has not been changed to expand list of predicate crimes required by article 6(2)(b) of the Palermo Convention. - Panama has negotiated and signed Mutual Legal Assistance Treaties (MLATs) and other conventions supporting the fight against money laundering and financing of terrorism. *Source: IMF assessment and sectoral findings.* ### 51. The legislative and institutional frameworks are generally effective. Law 41, 2000 ### The legislative and institutional frameworks are generally effective. Law 41, 2000 ### Legislative and institutional AML/CFT framework - Law 41, 2000 criminalizes the laundering of proceeds. - Law 42-2000 imposes AML/CFT obligations on financial and nonfinancial businesses and professions. - Under Law 42: - cash transactions and suspicious transaction reports must be made to the Financial Analysis Unit (UAF); - the UAF receives and analyzes these reports to provide appropriate referrals to the prosecutors for criminal investigation. - The UAF requires additional personnel and budgetary resources to carry out its functions more effectively. - The SdB’s AML/CFT responsibilities: - charged with reviewing the compliance of reporting institutions; - SdB regulations obligate reporting institutions to appoint a compliance officer; - a formal inspections program to ensure compliance with legal and regulatory requirements is in place. - The SdB issued a new regulation (Accord 12-2005) following the assessment mission to take account of the 2003 revision to the FATF recommendations. ### Gaps and areas needing strengthening - Resources and expertise: - law enforcement and the judiciary need additional resources and expertise. - Preventive measures and reporting: - implementation of preventive measures is weak in sectors outside banking and securities; - more active reporting of suspicious transactions is needed. - Regulatory bodies: - training and coordination of the regulatory bodies need strengthening. - Designated non-financial businesses and professions (DNFBP): - preventive regimes for the DNFBP sectors remain underdeveloped; - corporate service providers: regulation is needed to clarify the obligation that owner information should be retained by the resident agent for Panamanian corporations; - lawyers in general are not subject to customer identification, record keeping, or reporting obligations as required by the FATF standard. ### Cross-border cooperation and information exchange - Financial sector regulation cooperation: - cross-border arrangements are in place to facilitate information sharing for financial sector regulation, except in the area of insurance. - the SdB has entered into numerous memoranda of understanding (MOUs) with countries where Panamanian financial institutions have affiliates or where Panama hosts foreign-controlled financial institutions. - the securities regulator has MOUs with counterparts in Latin America and Spain. - agreements permit expedited registration in Panama of securities also registered in El Salvador and Costa Rica. - SdB and CNV have a good record of cross-border cooperation. - Limits to securities regulator cooperation: - the CNV is party to the IOSCO Multilateral MOU (Annex B only), but legislative impediments limit full compliance with the multilateral MOU: - the CNV is unable to share nonpublic information held in its files with overseas counterparts; - the bank secrecy law prevents the CNV from sharing with foreign authorities information and records that it obtains pertaining to bank accounts; - the CNV cannot initiate an investigation or inspection solely on behalf of a foreign authority but only for the purposes of its own investigations. - AML/CFT international cooperation: - Panama has a very good level of international cooperation through adoption of international conventions and numerous mutual legal assistance treaties; - formal and informal cooperation exists for extraditions involving the UAF, the police, and counterparts in other countries; - Panama should ensure it can enforce other countries’ forfeiture orders. - Panama is a member of the Caribbean Financial Action Task Force (CFATF) and the Egmont Group. - the UAF can share information with other Egmont member countries through the Egmont Secure Web. - a team from CFATF members conducted a mutual evaluation of Panama's compliance with the FATF and CFATF anti-money laundering recommendations in July 2001. ### Financial sector supervisory structure and assessment findings - Assessment context: - the overall evaluation of the financial sector was led by Michael Moore of the IMF’s Monetary and Financial Systems Department; - individual assessments covered the Basel Core Principles (1998 methodology), IOSCO (2003 methodology), IAIS Insurance Core Principles (October 2003 methodology), and the FATF Recommendations (2004 methodology). - the assessments were carried out during a main mission from May 16 to June 1, 2005 and a second mission from November 15 to 22, 2005. - Basel Core Principles (BCP) summary: - Panama is largely compliant with the BCP standard. - weaknesses preventing higher compliance include: - insufficient legal protection for SdB supervisors acting in their official capacity; - underdeveloped processes for measurement and monitoring of market risk, including incorporating market risk where significant into the current capital adequacy requirement. ### Banking sector structure, resources, and prudential framework - Banking licenses and market structure: - 39 general license banks (including two government-owned banks) able to conduct the full range of domestic and international banking activities; - 29 international license banks able to carry out banking activities only with nonresidents; - 5 representative offices of foreign banks limited to liaison, research, and marketing. - Other deposit-taking institutions: - about 276 credit cooperatives (assets $860 million); - four small savings and credit institutions (assets $70 million). - SdB resources and staff: - the SdB has 236 employees; - about 200 employees have completed university studies in law or finance. - Reporting and accounting: - financial reporting by banks and banking groups must conform to international accounting standard (IAS) or U.S. Generally Accepted Accounting Principles (US GAAP); - the 2005 fiscal reform law established IAS as the only accounting standard for commercial firms. - Safety net and crisis tools: - no depositor protection scheme or central bank lender of last resort exists; - limited deposit protection: depositors have priority in liquidation on the bank’s assets for up to $5,000 per depositor; - intervention processes: appointment of an advisor; substitution of managers and intervention; liquidation. - since creation of the SdB, five instances of advisor appointment, with only one subsequent bank failure; currently three banks are in the process of being liquidated. - Prudential and supervisory requirements: - capital adequacy consistent with Basel capital rules is required for general and international license banks, considering Tier 1 and Tier 2 items; - certain capital calculation elements are not consistent with the Basel capital accord, including no additional consideration of market risk and nonconforming risk weighting for some asset types (e.g., risk weight for commercial mortgages is 50 percent instead of 100 percent). - provisioning rules: level of provisioning must equal the higher of a minimum level as prescribed by the provisioning guideline or 1 percent of the portfolio. - exposure limits: SdB imposes a limit on bank exposures to related parties and to single borrowers of 25 percent of capital. - the SdB requires supervised entities to establish policies for country risk and market risk but has not developed its own risk parameters. - Supervision practices: - on-site examinations: all banks examined about every 18 months; large banks examined annually; - financial and credit portfolio details collected monthly; liquidity information gathered weekly; consolidated financial group information collected quarterly; - off-site analyses carried out monthly; SdB meets with relevant banks’ management yearly to discuss trends and strategies. - Formal powers and sanctions: - Article 17 of the banking law provides SdB with regulatory power for intervention, reorganization, or liquidation, including removal of directors or executive personnel; - Articles 38 and 76 provide power to cancel a banking license and appoint an advisor; - Article 95 establishes reasons for SdB to take control, including lack of compliance with capital requirements; endangering interests of depositors; lack of compliance with liquidity requirements; - Article 137 establishes sanctioning authority, allowing penalties ranging from oral reprimands to civil penalties up to $50,000; additional sanctions may apply for specific violations. *Assessment of Panama’s financial sector and observance of standards, missions May 16–June 1, 2005 and November 15–22, 2005.* ### 79. The SdB possesses adequate enforcement powers and there is a history of their use. ### cr0766 - 79. The SdB possesses adequate enforcement powers and there is a history of their use. ### Enforcement powers and remedial guidance - The Superintendency of Banks of Panama (SdB) possesses adequate enforcement powers and there is a history of their use. - Guidance for working with distressed entities and the processes for resolution of an insolvent bank are not sufficient. - Recommendation: The SdB should develop guidelines for use of remedial and contingency plans when there are violations of legal and regulatory requirements. - Recommendation: There may be a need for some legislative revision to strengthen clarity and effectiveness of remedial and resolution processes. ### Cross-Border banking and consolidated supervision (CPs 23–25) - The SdB is empowered to supervise economic groups and their bank and nonbank affiliates on a consolidated basis. - Powers include the right to require audited financial statements and other reporting information as appropriate from bank and nonbank affiliates of economic groups. - The SdB requires that offices of foreign banks be subject to consolidated supervision by their home country supervisor. - The SdB has signed agreements with foreign supervisors to facilitate cross-border information flows with most countries in the Western Hemisphere; several agreements are pending with European jurisdictions. - Several regional banking groups have established holding companies in Panama, making the SdB the home supervisor for consolidated supervision purposes. - In March 2005, Resolution 1-2005 established practical and legal criteria for the definition of home and host supervisor under Panamanian holding companies. - Recommendation: Modifications to legislation should be considered to limit reliance on interpretive regulation and clarify the SdB’s consolidated supervisory powers for Panamanian financial holding companies that have a Panama bank subsidiary. ### Recommendations and capacity-building priorities - Strengthen regulatory reporting information for cooperatives and savings and credit institutions: - The SdB has an effective reporting and monitoring system for banks, but cooperatives and savings and credit institutions lack a process for off-site monitoring. - Consideration could be given to outsourcing off-site monitoring on a full cost recovery basis to the SdB, which would develop systems and process regulatory reporting information. - Require confidential treatment of SdB inspection reports: - Inspection reports are issued to banks without stipulation of confidentiality; banks have been sharing SdB reports with rating agencies and correspondent banks. - This practice may create expectations of access when a bank’s condition is unfavorable. - Strengthen the Regulatory Department: - The department is currently underdeveloped for its functions; high-level and expert contributions are needed in regulatory capital, market and country risk, and banks’ investment activities. - Given the looming implementation of Basel II capital rules, strengthening the Regulatory Department and its position within SdB’s organizational structure is warranted. - Build capacity and retain experienced staff: - Further development toward specific career streams for professional staff and strengthening retention is recommended. - Consider employment contract provisions for reimbursement of some educational costs if an employee is hired by the private sector. ### Table 1 — Recommended Action Plan in Relation to the Basel Core Principles (selected) - Objectives and powers (CP 1.1): Harmonize the supervisory and regulatory arrangements for nonbank deposit taking institutions (cooperatives and savings and credit institutions). - Independence (CP 1.2): Develop a career plan to reduce the risk of losing senior SdB officials. - Legal protection (CP 1.5): Implement an insurance policy to provide legal protection for SdB staff acting in their official capacity. - Licensing and supervision over foreign banks (CPs 3 and 25): Closer coordination with other country supervisors in establishment of parallel banks as recommended by Basel Committee. - Capital adequacy (CP 6): Adapt capital charges according to Basel Accord. - Country risk (CP 11): Develop and revise supervisory policy for country risk. - Market risk (CP 12): Develop policies for market risk that consider increasing complexity, including adoption of VaR and/or building-block approaches. - Remedial measures (CP 22): Develop clear guidelines for working with distressed entities, including winding up and transferring assets and liabilities for insolvent banks. - Global consolidated supervision (CP 23): Amend the banking law to provide clarity for consolidated supervision of financial activities by holding companies. ### Authorities’ response (SdB actions and commitments) - Response dated January 23, 2006, by the Superintendency of Banks of the Republic of Panama (SdB). - SdB appreciation for the IMF Mission assessment and recognition that the banking supervisory regime is largely compliant with the Basel Core Principles for Effective Banking Supervision. - Regulations and procedures updated after the Mission Visit in May 2005: - July 2005: SdB introduced a disclaimer rule that reports of inspections are for the exclusive use of the bank and the SdB. - Structure of the Regulation Department (Departamento de Normas) will be analyzed and measures taken to strengthen capacity. - August 2005: General Resolution No.2-2005 implemented a classification system for banks and economic groups based on CAMELS. - December 2005: Accord 12-2005, Accord 12-2005 E and Resolution No. 32-2005 approved to upgrade Know-Your-Customer rules, AML/CFT compliance, regulate correspondent banks, and establish Know your Employee Policy. - Response to recommended actions (selected): - CP 1.1: SdB is not responsible for supervision of cooperatives and savings and credit institutions. - CP 1.2: SdB will develop a program for financial stability of professionals to reduce the risk of losing senior officials. - CP 1.5: SdB will evaluate administrative and legal instruments to provide legal protection for staff. - CPs 3 and 25: SdB has established a procedure of consultation with home country supervisors to prevent parallel banks. - CP 6: SdB will complete technical studies to update capital adequacy regulations; some recommendations will require impact evaluations. - CP 11: SdB will conduct an integral review concerning asset quality regulation to include country risk measures. - CP 12: SdB is hiring a technical advisor to support implementation of new regulations and practices including VaR and/or building-block approaches. - CP 22: Regulation Department is developing a guideline for working with distressed entities. - CP 23: Legal Department will analyze regulations to clarify SdB’s power to execute globally consolidated supervision. ### Summary assessment of IOSCO Principles and securities market oversight - The IOSCO assessment formed part of the evaluation of observance of regulatory standards for the financial sector and considered the securities regulatory framework, powers, capabilities, responsibilities of authorities, and market issues. - The National Securities Commission (CNV) is responsible for supervision and regulation of securities markets; the DLMV provides for independence of commissioners with procedures for appointment by the president, a five-year term, and removal criteria requiring a decision of the Supreme Court. - Key operational issues affecting observance of IOSCO Principles: - Insufficient resources for development and retention of qualified staff. - Selection and appointment of technical and administrative personnel requires approval of the Ministry of Economy and Finance (MEF). - One of three commissioner positions remained vacant since end-2004. - CNV staff and commissioners lack sufficient legal protection when acting in bona fide performance of functions and powers. - Judicial actions have called into question the certainty of CNV decisions. - Assessment methodology: 2003 version of IOSCO objectives and principles, IOSCO assessment methodology, and CPSS Recommendations on Securities Settlement Systems. ### Institutional setting, market structure, and regulatory practices (selected facts) - CNV licenses securities houses (casas de valores) and investment advisors. - There are 33 securities houses registered with a total transaction volume of about $7.3 billion in 2004; about 55 percent of transaction volume was concentrated in five securities houses. - Licensing activity: CNV licensed three securities houses in 2004; in 2005, five firms applied for securities house licenses and one for an investment advisor license. - At end-May 2005, there were 265 licensed stockbrokers. CNV licensed 50 stockbrokers in 2003, 38 in 2004, and 42 until end-May 2005. - Securities markets are small and illiquid; activity concentrated mostly in the primary market for government debt and corporate bonds. - Bolsa de Valores de Panama: - Authorized capital of $1 million, divided into 180,000 shares. - No individual shareholder owns more than 2.5 percent of the capital. - LatinClear: - Began operations in 1997 as the central securities depository; at end-2004 held 43 percent of total capitalization of securities in Panama. - Pension funds: - Law number 10 of April 1993 regulates pension funds; by end-2004 there were two fund and pension administrators with 17,000 members and combined assets under management of $55 million. - CNV regulatory activity: - Since becoming operational in early 2000 through mid-2005 produced 66 regulations (Accords) and issued 70 opinion letters. - CNV reached agreement with counterparts in El Salvador and Costa Rica for expedited registration in Panama of securities also registered in those countries. - Accord 2-2000 requires financial information in accordance with IAS or US GAAP. - Accord 7-2002 mandates declaration by president, treasurer, and/or CFO regarding reasonableness of financial statements filed with CNV. - AML/CTF: - CNV issued several Accords based on Law 42-2000 requiring reporting entities to establish internal control systems for identifying customers, reporting currency and suspicious transactions, training personnel, and retaining records. ### Main findings on enforcement and capacity (Principles 1–5 and 8–10) - The securities market legislative framework is basically sound; DLMV authorizes CNV to regulate market via procedures, regulations, accords, and opinions. - CNV employs investigatory and administrative powers; authorized 16 formal investigations from 2001 to mid-2005. - Example enforcement: In 2001, CNV fined an issuer and its CEO and CFO $300,000 each for providing false or misleading information. - Administrative penalties imposed for periodic disclosure violations: 153 in 2000; 119 in 2001; 67 in 2002; 25 in 2003; 21 in 2004; and 18 in 2005. - Weaknesses identified: - Gaps in legal provisions limiting regulator’s powers. - CNV decisions subject to administrative and judicial review; Sala de lo Contencioso Administrativo of the Supreme Court of Justice is final arbiter. - Sala de lo Contencioso Administrativo decided on only 5 of the 19 complaints since 2001. - Capacity building needs: - Medium-term training program for supervision procedures for intermediaries, investment firms, collective investment schemes, and SROs. - Improved techniques on risk management, internal control, and capital-adequacy methods. *Source: IMF Mission on the Assessment of compliance with the Basel Core Principles for an Effective Banking Supervision.* ### 101. The CNV oversees the SROs to ensure that they implement the CNV’s ### The CNV oversees the SROs to ensure that they implement the CNV’s ### Oversight of SROs and CNV capacity - The CNV oversees the SROs to ensure that they implement the CNV’s regulations and rules, but clarification of responsibilities and coordination between the respective roles of the CNV and the Bolsa in enforcement operations is needed to reduce duplication or inconsistency in the exercise of supervisory powers by the various authorities. - Scarcity of resources at the CNV impacts the ongoing oversight program of the SROs, including the ability of the CNV to exercise prudential supervision over the operations of LatinClear which provides the clearance and settlements system. - The CNV has full range of supervision and enforcement manuals and technical resources; however, reporting and inspection programs are not in place to ensure that prudential and risk-management requirements are observed. - Monitoring of compliance with prudential requirements and internal control and risk-management standards are weak; an increase in enforcement staff should improve supervision efforts. - The CNV is able to compel financial intermediaries to reconstruct any securities transaction and during the course of an ordinary inspection is authorized to request and obtain records from intermediaries in accordance with Article 264 of the DLMV. ### Cooperation (Principles 11–13) - The CNV may share information that is publicly available in its files or other public records with local and foreign authorities. - Information obtained during inspections or investigations is deemed confidential and may only be shared with the judicial powers in class action cases or with the attorney general’s office where there are reasonable grounds to believe a criminal violation has occurred. - Article 22 of the DLMV allows the CNV to enter into arrangements with local or foreign, public or private entities to fulfill oversight functions; domestic agreements exist and memoranda of understanding have been signed with regulators in Latin America (El Salvador, Dominican Republic, Honduras, Chile, Mexico, Argentina, Costa Rica) and in Europe (Spain). - The CNV is a party to the IOSCO Multilateral MOU (Annex B only) that promotes cross-border cooperation and information exchange to prevent securities market crime, but the CNV cannot comply with all provisions of the IOSCO multilateral MOU due to Panamanian law restrictions: - The CNV is not permitted to share nonpublic information held on its files with overseas counterparts (noted regarding bank account information). - The CNV cannot initiate an investigation or inspection solely on behalf of a foreign authority but only for the purposes of its own investigations. - Despite restrictions, the CNV has assisted foreign regulators within legal limits; discussions with other regulators confirm this assistance. ### Issuers (Principles 14–16) - CNV regulations require registrants to use either IAS or US GAAP accounting standards and require the president, treasurer, and/or CFO to declare that the financial statements filed are correct. - Capacity and skill of the accountancy profession and its representative body are underdeveloped. - The Accounting Technical Board needs to reinforce its rules and powers to enforce its code of professional ethics and establish an effective oversight system. - A draft law was introduced to the National Assembly in April 2005 to modify existing statutes regulating the accounting profession and the Accounting Technical Board. ### Collective investment schemes (Principles 17–20) - The DLMV requires the CNV to regulate investment companies, both Panamanian and foreign, and establishes categories of investment funds according to open- or close-ended status and redemption offer. - The law grants the CNV authority to establish procedures and issue detailed regulations. - The new regulatory framework gives clear power to establish and enforce entry criteria for open-ended funds. - Because the law is recent, the CNV has not yet introduced a program for ongoing monitoring of the conduct of collective investment schemes or their administrators, including enforcement of compliance with eligibility, licensing, registration, or authorization requirements. ### Market intermediaries (Principles 21–24) - CNV supervises market intermediaries through Article 263 and 264 of the DLMV. - Securities houses are licensed intermediaries in primary and secondary markets, with most owned by banking groups; banking entities may deal in securities under Article 23 of DLMV once they obtain a securities house license from the CNV. - Reporting and inspection programs are not in place to ensure prudential and risk-management requirements are observed. - Suggested regulatory improvements include passing regulations raising standards for internal control systems, capital adequacy requirements, and asset valuation. - The CNV should develop reporting and inspection programs, and with additional enforcement staff and technology improvements (including better use of information in the National Securities Registry) enhance inspections and investigations. ### Key recommendations (selected from Table 2) - Principles Relating to the Regulator (P 1–5) - Appoint a new commissioner as provided under current law; the commissioner’s position has remained vacant since the term of the prior commissioner ended in December 2004. - Allow the CNV to direct administrative matters, including the right to hire and fire staff. - Grant additional resources urgently, particularly for recruitment of skilled staff. - Strengthen CNV authority regarding corporate governance, liability of auditors, and code of conduct. - Implement training programs in risk management and prudential supervision, supervision of collective investment schemes, intermediaries, and SROs. - Enact legislation to address recent adverse judicial decisions and extend legislative protection to staff against liability for good faith acts. - Principles of Self-Regulation (P 6–7) - Strengthen CNV monitoring of the Bolsa and develop a comprehensive oversight program for market intermediaries with SRO staff examination, inspection, and enforcement programs. - Provide CNV staff technical training on trading systems, monitoring risks, detection of deceptive conduct and market abuses, and clearing and settlements systems. - Principles for the Enforcement of Securities Regulation (P 8–10) - Implement inspections on a routine periodic basis or based on risk assessment, not only on complaints. - Improve technology tools for efficient use of information in the National Securities Registry. - Principles for Cooperation in Regulation (P 11–13) - Undertake legislative changes and modify procedures to improve information exchange domestically and internationally. - Implement practical rules and procedures to operationalize memoranda with the Superintendency of Banks and Superintendency of Insurance, and emphasize feedback collaboration with the UAF. - Pursue legislative changes so that Panama meets commitments to the IOSCO multilateral MOU before 2010. - Principles for Issuers (P 14–16) - Formulate a new framework for governance of the accounting profession and enable the Accounting Technical Board to enforce rules and the code of professional ethics. - Implement recommendations of the World Bank ROSC on Corporate Governance published in 2004. - Principles for Collective Investment Schemes (P 17–20) - Strengthen ongoing monitoring of administrators of Collective Investment Schemes without delay. - Apply existing rules regarding valuation of assets of collective investment schemes and mutual funds (Accord 5-2004, arts. 36–39) and provide corresponding technical skills training to CNV staff. - Introduce minimum conduct standards for administrators and better reporting mechanisms. - Principles for Market Intermediaries (P 21–24) - Review staffing resources to improve supervisory quality; prepare draft regulations to raise standards in (i) internal control systems; (ii) capital adequacy requirements; and (iii) asset valuation. - Pass agreement on ongoing capital based on a capital adequacy test addressing risks to intermediaries; develop an early warning system or other mechanism to detect potential defaults. - Develop risk-based inspection programs and criteria related to internal control systems of supervised organizations. - Principles for the Secondary Market (P 25–30) - Require and empower the Bolsa to assume direct regulatory oversight and surveillance responsibility for all participants using its trading platforms and develop robust self-regulatory organizational capabilities, including broker-dealer examination and risk management. - Reinforce CNV resources to determine operational competence of exchange or trading system operators and to identify and address disorderly trading conditions. - Put in place continuous collection and analysis of trading activity information and mechanisms to provide analysis results to inspection officials for remedial action. - Consider an industry-wide guarantee fund to facilitate orderly settlement of transactions and limit ripple effects of a failure. - Ensure intermediary exposure to systemic risk is consistent with risk analysis and any CPSS/IOSCO Recommendations for Securities Settlement Systems assessment. - Note that resource constraints at the CNV limit capacity in specialized technical areas (Principle 30); corrective action is recommended. ### Authorities’ response and recent developments - The CNV considers the assessment to accurately reflect the current situation of securities market regulation and oversight in Panama. - Key developments since the on-site work through December 2005: - Number of regulated entities increased: 34 securities houses (including 3 that are undergoing voluntary liquidation), 294 brokers, 5 investment advisors/corporations, 2 natural persons, 13 investment administrators, 2 self-regulated organizations, and 4 risk rating agencies. - Growth in regulated entities increases challenges for CNV enforcement given limitations in autonomy, human resources, and training. - In the last quarter of 2005, four staff members in the National Directorate of Markets and Enforcement resigned, most taking positions in the private sector. - The only auditor in place at the time of assessment has resigned to take a private sector position (in relation to Principle 9). - Lack of adequate independent authority and budgetary resources reduces commissioners’ self-determination; oversight has been consigned to appointees of the Presidency of the Republic. - The commissioner’s position remained vacant since the prior commissioner’s term ended in December 2004, requiring direction by two named commissioners with the third seat temporarily filled through rotation of directors serving in an acting capacity. - Judicial outcomes and enforcement: - At the end of 2005, seven judicial cases were solved, compared to four in 2004. - A key judgment on November 11, 2005 clarified that the CNV has the expressed power to prescribe the form and content of the financial statements of entities regulated by the CNV. - In a set of cases pending since June 2001: a $300,000 fine imposed against the chairman and manager of an economic group for false presentation of financial and account information remained pending; on April 26, 2006 courts confirmed the CNV’s $100,000 fine against an internal accountant involving the same group. - Regulatory and consultancy actions: - On July 31, 2005 the international consultancy with Novaster Grupo Empresarial, S.L. ended following approval of Accord 11-2005 (August 5, 2005) (published in Official Gazette No. 25,370, on August 24, 2005) that developed regulation for Law 10 of April 16, 1993 on pension funds, retirement funds, and activities of investment administrators; the consultancy helped elaborate manuals for authorization, control, and supervision of pension and retirement fund administrators. - On December 15, 2005, GC de Panama, S.A. (Infosgroup) concluded consultancy work for development and implementation of supervision and control systems for retirement and pensions funds regulated by Law 10 of 1993. ### Summary assessment of insurance supervision - The assessment of insurance supervision analyzed compliance with the Insurance Core Principles (IAIS) using existing laws on insurance, reinsurance, and captive insurance plus a draft insurance law and interviews with supervisory authority officials and market participants. - The Superintendency of Insurance and Reinsurance (SSRP) supervises insurance and reinsurance sectors; compliance with IAIS core principles is weak due to an outmoded legal regime and underdeveloped supervisory and regulatory framework. - The SSRP lacks independence from the industry and the executive branch; strengthening SSRP capacity for on-site and off-site supervision requires more staff, resources, and sufficient compensation to attract and retain skilled staff, including filling the actuary’s position. - The industry pays a fee for regulation; however, the fee is not substantially available to the SSRP for regulation purposes. - Insurance is regulated by Law No. 59, reinsurance by Law No. 63, and captive insurance by Law No. 60, all issued in 1996; a draft law is under preparation but shortcomings remain: - SSRP would remain dependent on MICI; - Market conduct requirements would continue to favor the industry and brokers; - Accounting and disclosure practices for insurance firms do not meet international standards. - The draft law seeks to incorporate reinsurance and captive insurance operations. - Institutional setting and market structure: - The insurance sector in Panama is small compared with the banking sector. - There are 18 authorized insurance companies: four specialize in life business, one in surety business, and 13 operate both life and nonlife insurance. - Of the 13 that operate both lines, nine also have a license to operate reinsurance. - Of the 18 insurance companies, five are subsidiaries of foreign firms and four are subsidiaries of local banks. *Source: IMF assessment of the Panamanian securities and insurance sectors (text as provided).* ### 115. There are five companies authorized to operate exclusively in reinsurance. In ### Insurance Sector Assessment (cr0766) ### Market Structure and Key Statistics - Five companies are authorized to operate exclusively in reinsurance. - In 2003, premiums issued by reinsurers represented 11 percent of the premiums issued by insurers. - No information available for 2004 on reinsurance; subsequent analysis considers only the insurance sector. - The captive insurance sector is insignificant; two captive insurers exist and no data are available. - Insurance penetration measured as premiums subscribed to GDP is around 3 percent. - Total premiums subscribed in 2005 were $430 million, up 1.9 percent from 2004. - Total assets for 2004 were $765 million, about 6 percent of GDP, with investments representing 69 percent of total assets. - Life insurance business represented 35 percent of the total market. - Within nonlife insurance, automobile insurance represented 16 percent and health insurance represented 17 percent of total premium subscriptions. - The five largest companies account for around 74 percent of total business. ### Legal and Supervisory Framework - Legislative framework for insurance supervision is weak; SSRP lacks autonomy and is part of MICI with no separate budget. - The tax on net premiums: 2 percent of net premiums issued for risks located in the country, and 5 percent for fire insurance; the tax revenue is not substantially available for the SSRP. - SSRP’s stated objective: enhance and strengthen the insurance industry and ensure compliance with technical reserves and solvency requirements. - SSRP budget and staffing are strained and dependent on MICI, limiting capacity to hire and retain skilled staff and to develop supervisory infrastructure. - Accounting: SSRP does not require International Accounting Standards (IAS) for regulatory purposes; IAS is required by securities law for publicly traded companies and for fiscal purposes. - SSRP has not issued rules on corporate governance, internal controls, or responsibilities of board members and senior managers; disclosure to policyholders is weak (commissions to brokers not disclosed; companies are prevented from employing their own agents). - Technical Council: nine board members responsible for SSRP policy, licensing, and dispute resolution; includes superintendent, Minister of MICI, legal director of MICI, actuary of SSRP, a director of the National Securities Commission, and four representatives from the insurance sector. - Four auditors work for the SSRP; there are currently no actuaries working for the SSRP (one was contracted to train two staff members). - SSRP recently signed a memorandum of understanding with the Superintendency of Banks and the National Securities Commission to share information and coordinate supervision of financial groups. - Cross-border insurance operations are prohibited; authorizations can be granted to obtain products abroad if not offered locally and must be registered at the SSRP. - Confidentiality: law specifies a sanction for public officials who improperly provide information on companies or brokers under SSRP supervision. ### Licensing, Fit-and-Proper, and Changes in Control - A license is required to carry out any insurance business in Panama; foreign investment allowed through local subsidiary only. - Licenses to sell life, nonlife, and surety products are issued separately; composite licenses to operate every line of business are available. - Licensing process: applicants must provide information on shareholders, board members, product descriptions, reinsurance programs, and feasibility/business plan; Technical Council or National Reinsurance Commission has 90 days to grant the license. - Law bars licenses if shareholder, director, or senior manager has been convicted for drug dealing, fraud, or related crimes during the previous 10 years. - SSRP undertakes a limited fit-and-proper review; law requires CVs and “recommendation letters” for board members and checks shareholders and board members with the Financial Analysis Unit (UAF) prior to granting a license. - “Control” over an insurer is not defined in legislation; changes in shareholders or board members must be reported to SSRP within 30 days after they take place (no prior authorization required). - Draft law: defines “control” and requires advance reporting of transfers implying more than 10 percent of total outstanding shares. ### Corporate Governance and Internal Controls - Insurance law imposes no measurable corporate governance requirements; SSRP does not verify compliance. - External financial audit required once a year; an actuary must certify mathematical reserves for life business; SSRP cannot oversee or verify internal controls. - Some large firms have internal controls and corporate governance rules. - Draft law could require frameworks for corporate governance and internal controls and provide SSRP with sanctioning authority for noncompliance. ### Prudential Framework and Risk Management - SSRP verifies technical basis of product design but does not require comprehensive risk-management systems. - No provisions on minimum ratings for reinsurers or exposure limits to single reinsurers. - Actuarial standards are not issued by SSRP; general international standards are applied. - Technical reserves: for nonlife, calculated as a proportion of net retained premiums; for life, according to actuarial value of expected losses; mathematical reserves must be calculated and presented by an independent and certified actuary and certified by another independent actuary once a year. - Investment rules for technical reserves: 75 percent must be within the country; the other 25 percent may be invested abroad in listed instruments with rating at least “investment grade.” - No diversification or liquidity requirements and no asset valuation rules; no regulated market for derivatives—restrictions should be discussed. - Solvency regime exists in law and detailed regulation; capital requirement calculated per SSRP procedures, verified by supervisor and published every trimester; solvency control levels established and publicly disclosed actions taken if companies fail to comply. - Reinsurance companies: not subject to the solvency regime; reinsurance companies have one year to submit audited financial statements; SSRP authority to inspect reinsurance companies exists but staffing limits consistent inspections. ### Market Conduct, Disclosure, and Consumer Protection - Insurance brokers required to be licensed, have adequate knowledge, and pass licensing examination; SSRP can cancel broker licenses. - Law sets minimum requirements for policy models to be clear for consumers; policy models need SSRP authorization prior to use. - SSRP legal department receives claim-related complaints from consumers. - Draft law could require regulation for disclosure of fees/commissions paid to brokers or agents. - Insurers required to publish audited statements annually in accordance with regulatory accounting principles; SSRP publishes solvency margins quarterly; statistical information gathered and available for consultation. ### Monitoring, Inspections, and Enforcement - SSRP monitors premiums, number of policies issued, and claims monthly; no qualitative off-site monitoring of prudential trends. - Insurers must submit audited financial statements during the first four months of every year; statistical information monthly; solvency margin information quarterly. - No requirement to report outsourced functions. - On-site inspections possible but staffing (four auditors) constrains coverage; inspections focus on financial aspects rather than managerial factors. - Preventive and corrective measures exist triggered mainly when minimum solvency margin is not met: reorganization plans, capital increases, intervention, or revoking license; law establishes fines and reasons/amounts. - Legal framework provides options for insurer/reinsurer exit prioritizing policyholder protection. - Draft law introduces a regularization process allowing SSRP to impose conditions when specific weaknesses pose risks to policyholders: (i) problems in constitution/coverage of technical reserves; (ii) solvency margin or minimum required capital not maintained; (iii) financial auditors or independent actuary refrain from giving an opinion; (iv) liquidity conditions not met. Regularization plans must be submitted by the board of directors. ### Main Findings (Summary) - Insurance sector small compared with banking sector. - SSRP lacks autonomy, resources, and adequate staffing and compensation; no legal protection for staff actions. - Dual accounting requirements (SSRP vs. IAS for securities/fiscal) may create confusion. - No SSRP-issued corporate governance, internal controls, or responsibilities guidance. - Reinsurance supervision and solvency coverage are limited and under-resourced. - Consumer disclosure on commissions and broker compensation is weak. - Cross-border operations are prohibited; home-supervisor recognition absent in law. ### Recommendations (Selected Actions) - Strengthen independence of SSRP from industry and from the executive; discontinue industry participation on the SSRP Board; make Board independent from MICI. - Provide more staff and resources to SSRP; ensure compensation sufficient to attract and retain skilled staff. - Hire an actuary and provide legal protection for staff against actions while discharging duties. - Publish SSRP’s audited financial statements and revise internal procedures manual to incorporate relevant supervisory processes. - Ensure equivalence where applicable between reinsurance and insurance laws. - Require internal control, information technology, and risk management systems prior to licensing. - Require fit-and-proper tests for shareholders, senior managers, board members, actuaries, and auditors. - Disclose and clearly state process for changes in control over insurers/reinsurers in law or regulation. - Develop regulatory framework for corporate governance and internal controls; specify board responsibilities and consider requiring independent members, compliance officer, and committees. - Implement actuarial standards for technical reserve calculation methods; require timely submission of audited financial statements. - Introduce asset-liability matching requirements. - Include reinsurance companies in the solvency regime. - Allow employment of agents by specific companies; require disclosure of brokers’ fees and commissions. - Broaden objectives of on-site supervision beyond financial aspects; improve SSRP information technology systems to receive and analyze information. - Define legislative terms and conditions for supervisory coordination and information sharing with home supervisors of foreign firms operating in Panama. ### Authorities’ Response - The Superintendence of Insurance and Reinsurance of Panama (SSRP) expressed gratitude for the IMF’s interest and guidance. - Recommendations are under review; many have been amended and progress is ongoing, mainly based on the Observance of the IAIS Insurance Core Principles. - SSRP is working on appropriate regulation and a new insurance law intended to strengthen independence from the Ministry; progress requires financial and political support. - SSRP requested IMF cooperation for assessor opinion to review the financial framework of the new law if needed. *Source: International Monetary Fund assessment.* ### 151. Panama is largely compliant with a majority of the Financial Action Task Force ### Panama is largely compliant with a majority of the Financial Action Task Force ### Summary assessment and scope - Panama is described as "largely compliant with a majority of the FATF recommendations." - Money laundering (ML) and the financing of terrorism (FT) are crimes under Panamanian law; there have been "10 prosecutions to date." - The assessment was conducted as part of an evaluation of the financial system within the framework of the Offshore Financial Center (OFC) Program of the IMF, using the 2004 FATF Methodology, and is based on information available at the time of two on-site visits by the assessor team and IMF staff in May and in November 2005. ### Institutional setting and market structure - Financial system composition: - Domestic and internationally active banks, insurance companies, trust companies, and securities brokerage companies. - To a much lesser degree: finance companies, leasing companies, cooperatives, and savings and credit institutions. - Banking activities account for "more than 90 percent of the financial services sector." - Law 42-2000 obligations for covered entities: - Customer identification—obligation to identify the true beneficial owner or beneficiary. - Monitoring for unusual transactions. - Reporting to the Financial Analysis Unit (UAF) of suspicious transactions regardless of amount, and reporting currency and cash-like transactions in excess of "$10,000." - Avoiding “tipping off” customers when an STR has been forwarded to the UAF. - Establishing internal control systems and communication mechanisms. - Training personnel. - Maintaining customer records for "at least five years." - UAF characteristics: - Established in 1995; member of the Egmont Group; administrative FIU without enforcement or investigative police powers; functionally independent. - The Director of the UAF reports directly to the President; UAF budget depends on distributions from the Public Security and National Defense Council. ### Main findings and capacity constraints - Strengths: - Most financial institutions are subject to comprehensive preventive and reporting obligations and supervision. - Active cooperation with international counterparts at supervisory and prosecutorial levels and with other FIUs. - SdB and CNV have developed and implemented sound and effective supervisory mechanisms. - Weaknesses and areas needing strengthening: - Resources and expertise shortages for law enforcement and the judiciary; operating budget and staffing constraints noted. - Implementation gaps in preventative measures for several DNFBP sectors; preventive regimes for DNFBPs remain underdeveloped. - Low number and generally weaker quality of STR reporting despite many formalistic CTR filings. - Need for better training and coordination among regulatory bodies and enhanced policy oversight mechanisms. - Need for clarification of obligations for resident agents to retain owner information for Panamanian corporations (corporate service providers). - UAF needs additional financial, human, and technological resources; consideration of an independent budgetary process is suggested. - Law enforcement and prosecution require more financial resources, specialized training, and personnel; prosecution budget should be reviewed. - Courts require an appropriate case database and access to forensic accounting experts. ### Legal framework and enforcement - Criminalization and predicate offenses: - ML is criminalized by the Unified Text on Drug Crimes and by Law 41-2000 (AML law). - The AML law lists specific predicate crimes for money laundering but does not include all offenses required by the Palermo Convention. - Terrorism and its financing are autonomous offenses in the Criminal Code, but financing of terrorism is not on the list of predicate offences for ML; there have been "no prosecutions of financing of terrorism cases" to date. - Asset recovery and sanctions: - Legal process to freeze, seize, and confiscate assets related to ML is "largely compliant with international standards." - Penal Code sanctions for money laundering: prison from "5 to 12 years" and "100 to 200 days of imprisonment or the assigned value of a fine." - Forfeited assets: general ML forfeitures go into the Special Fund for the Retired and Pensioned; drug-case forfeitures go into a fund held by CONAPRED. - Use of STRs and prosecutions: - Nearly all STRs received by UAF are passed to prosecutors, yet a "very low number" of prosecutions and convictions arise from those STRs. - Most prosecuted ML cases to date were based on narcotics-related predicate crimes. ### DNFBP and supervisory coverage - DNFBPs and nonfinancial sectors subject to Law 42-2000 or regulation: - Casinos, trust service providers, and real estate intermediaries (legal persons) are subject to AML/CFT obligations. - Pawnshops and businesses in Free Trade Zones are subject to CTR filing obligations. - Dealers in precious metals and stones are partly covered if they operate in the Colon Free Trade Zone (ZLC). - Not covered by AML/CFT regulations: - Lawyers, accountants, and corporate service providers are not covered by Law 42-2000 or by AML/CFT regulations. - Leasing and factoring companies, insurance brokers/agents, and savings and credit institutions are not covered by Law 42-2000. - Registration and corporate information: - "About 29,000 companies and private interest foundations were registered in the public registry in 2004." - The public registry does not maintain sufficient information to determine ownership structures or to determine the percentage of bearer share companies. - Supervisory capacity for DNFBPs: - Government oversight of DNFBPs is not conducive to effective compliance; detection and reporting of suspicious transactions by DNFBPs have been "minimal or nonexistent." - Supervisory authorities (e.g., MICI) face scarce inspection personnel and require better training and risk-based prioritization. - The Gaming Control Board has legal powers to regulate casinos but faces independence and expertise challenges due to personnel drain and high turnover; background checks for casino license applicants are weak in practice. ### Preventive measures—financial institutions - Legal requirements: - Financial institutions must report suspicious transactions to the UAF regardless of amount and must file CTRs for currency and cash-like instruments transactions in excess of "$10,000." - Executive Decree No. 1, 2001 grants supervision and control authorities ample powers to enforce Law 42-2000 requirements. - Supervisory implementation: - SdB and CNV: sound and effective compliance mechanisms implemented. - IPACOOP: developing AML/CFT supervisory programs with SdB assistance. - Deficiencies identified at SSRP, MICI, and Banco Hipotecario Nacional (BHN): lack of AML/CFT supervision, weak internal controls, and minimal AML/CFT training. ### Preventive measures—DNFBPs (detailed) - Trust service providers: - Supervised by SdB and subject to the same AML/CFT requirements as financial institutions; some trust service providers are subsidiaries of law firms, creating practical reporting issues. - Casinos and gaming: - Gaming Control Board regulations include customer identification and STR reporting, but enforceability beyond CTR filings is unclear; supervision and sanctioning for noncompliance appear weak. - Risks from money services in casinos (currency exchange, wire transfers, payment of winnings by check) remain to be addressed. - Real estate and other sectors: - Real estate intermediaries and developers are subject to Law 42-2000 only with respect to filing reports for operations above "$10,000" in cash; enforceability beyond CTRs is weak. - Large jewel transactions often occur via wholesale jewelers in the Free Trade Zone, making them subject to the ZLC’s CTR requirements by default. *Assessment conducted as part of the Offshore Financial Center (OFC) Program of the IMF; the assessment used the 2004 FATF Methodology and reflects the views of the assessment team based on on-site visits in May and in November 2005.* ### 179. The authorities have initiated attempts to deal with the special risks present at ### The authorities have initiated attempts to deal with the special risks present at the Free Trade Zone ### Free Trade Zone risks and operational gaps - Law requires all merchants of the ZLC to report transactions above $10,000 in cash; other regulations require reporting of suspicious transactions. - Most companies are not aware of what makes a transaction in their particular business suspicious; many ZLC exporters do not appear to pay attention to potential illicit sources of payments. - Administration ZLC needs to: - strengthen audit procedures; - increase the number of inspections; - cooperate closely with the UAF and Customs to determine risk indicators to target oversight activities; - acquire adequate technology, since basic issuance of importation and re-exportation documents is still done without computerized tools. - Additional regulatory obligations have not been enforced and seem not enforceable for the same reasons explained with respect to DNFBPs (lack of legal basis). ### Lawyers, company service providers, and fiduciary entities - Lawyers are not covered by STR, customer due diligence, or record-keeping obligations. - Lawyers provide offshore corporate structuring services using bearer-share corporations and personal interest foundations, with common features including pre-established dormant shelf corporations, nominee directors, mail forwarding services, and resident agent services. - All companies must have a resident agent who is a lawyer; this agent is obliged to disclose the identity of his customers only upon requests from judicial authorities in the course of narcotics-related investigations. - Some banks report difficulties adequately identifying the beneficial owner of accounts where law firms represent or introduce foreign clients; some lawyers consider they are not responsible for identifying ultimate customers when dealing with counterparts such as foreign law firms. - Trust service providers (fiduciary companies) are subject to the same AML/CFT requirements as financial institutions and supervised by the SdB; however, 7 of the 57 licensed fiduciary companies are subsidiaries of law firms not subject to the same obligations. - Difficulties arise when fiduciary companies must report suspicious transactions involving a customer whose affiliated law firm owes a duty of confidentiality. - It is unclear to what extent the SdB can access all necessary records of a fiduciary customer when relevant information is derived from legal services provided by an affiliated law firm. ### Legal persons, public registries, and nonprofit organizations - All companies, including bearer share corporations, are subject to incorporation requirements: obligation to have a resident agent and registration in the Public Registry. - The Public Registry keeps public records of articles of incorporation, identity and address of directors and officers as of the time of incorporation (update is not mandatory), and current details of the registered agent. - The registry does not include ownership information of all companies, especially of bearer share corporations. - Nonprofit organizations (NPOs), including private interest foundations, are subject to incorporation requirements similar to corporations and must obtain additional authorization from the Ministry of Government and Justice, which does not supervise the sector. - The Ministry has begun to create a database of NPOs to know their number, purpose and activities; assess potential for misuse; update the regulatory framework; and create the currently lacking oversight mechanism. ### National and international cooperation - Cooperation exists both formal and informal among government agencies involved in the fight against money laundering and terrorist financing, though communication could be strengthened and made more uniform and regular. - Only CONAPRED has regular meetings on illegal drug issues with public and private sector representatives. - A recently established High Level Presidential Commission is intended to provide national policy guidance on AML/CFT matters. - Panama has a very good level of international cooperation through adoption of international conventions, numerous mutual legal assistance treaties, and a good record regarding extraditions; the UAF, the police, and counterparts in other countries cooperate through formal and informal means. - Areas for enhancement: - establish asset-sharing agreements with international counterparts so Panama could both receive and retain funds/assets for law enforcement and judicial use; - ensure Panama can enforce other countries’ forfeiture orders. ### Key recommended actions (summarized selections from the FATF 40+9 Recommended Action plan) - Strengthen criminalization and investigative tools: - Amend Article 389 to criminalize all money laundering predicate offenses as required by the Vienna and Palermo Conventions. - Address differing treatment for the conspiracy offense depending on whether the offense is drug-related. - Implement the UN Convention against Corruption following the National Assembly’s approval May 10, 2005. - Expand predicate list to include financing of terrorism for the AML Law. - Amend legislation to permit freezing and seizure in all criminal cases to conform to the Palermo Convention and permit forfeiture of assets without necessarily showing nexus to a particular crime. - Strengthen the UAF and law enforcement capacity: - Review funding arrangements for UAF. - Strengthen protection of information reported to UAF (secured electronic receipt and dissemination). - UAF to undertake more outreach and awareness-raising to government agencies, reporting entities, and the public. - Review staffing levels and training requirements to increase capacity for investigations and prosecutions; consider special courts for financial crimes. - Develop training for judicial authorities, prosecutors, financial police, and UAF staff on investigation of financial crime and use of typologies. - Improve preventive measures for financial institutions and other sectors: - SSRP and BHN to implement customer identification and due diligence requirements in the insurance and savings and credit sectors. - Extend full record-keeping requirements and monitoring obligations to the insurance sector and savings and credit institutions. - Amend law to extend reporting to transactions related or linked to terrorism and require reporting by the insurance sector and savings and credit institutions. - Require declaration in all circumstances for currency that is mailed, transported or shipped by any means of transportation; consider spot-checking containers for smuggled currency. - Strengthen DNFBP regulation and supervision: - Extend customer due diligence and record-keeping obligations to lawyers, accountants, and dealers in precious metals and stones. - Provide DNFBPs with sector-specific guidance, training on typologies, and legal protection for good-faith reports. - Strengthen enforcement of preventive requirements for Free-Trade Zone merchants, including better auditing capabilities, training for the ZLC administrator, and close cooperation with the UAF and Customs. - Target regulation and oversight of pawn shops according to identified risks. - Improve access to beneficial ownership and oversight of company incorporation and trust services: - Subject company incorporation and related services to AML/CFT reporting obligations to avoid negative incentives for trust companies owned by law firms. - Ministry of Government and Justice to create a registry (inventory) for NPOs and undertake a risk assessment of the NPO sector. ### Authorities’ response and recent actions taken - The Government of Panama, under the leadership of His Excellency, President Martin Torrijos Espino, prioritized the evaluation of Panama’s AML/CFT regime as a State matter involving inter-institutional effort by: CNV; DGA; IPACOOP; JCJ; LNB; MICI; Ministry of Government and Justice; Ministry of Foreign Affairs; Judicial Branch; PNP; Attorney General; SdB; SSRP; UAF; and the Administration of the Colón Free Trade Zone. - Corrective actions taken since the assessment visit (selected items and exact details preserved): - The Financial Analysis Unit and the Superintendency of Banks will provide training and will collaborate in the development of supervisory programs for the savings and credit institutions. - The National Securities Commission, the Superintendency of Banks, and the Superintendency of Insurance and Re-insurance signed an inter-institutional cooperation agreement. - A Tripartite Coordination Commission (the Financial Analysis Unit, the Public Ministry, and the Judicial Branch) was created. - Training seminars by and feedback from the Financial Analysis Unit have been delivered to supervision and control agencies such as the Administration of the Colón Free Trade Zone and the National Securities Commission; many others are scheduled in the near to medium-term. - The risk analysis unit within the Customs Department will become operational on or around December 2006. - A specialized AML/CFT department was established within the Administration of the Colón Free Trade Zone; this department has been adequately staffed and is currently conducting AML/CFT on-site inspections, including imposing sanctions and collecting fines for noncompliance. - Legislation governing pawnshops was approved in May 2005; the Directorate of the Ministry of Industries and Commerce has received a total of 83 applications for pawnshop licenses. In partnership with the Financial Analysis Unit, a currency transaction report was developed; AML/CFT training for these new reporting entities is anticipated during the month of November 2006. - Modifications to the regulation that governs the accounting profession are currently undergoing their first debate at the National Assembly. - Reports and templates used by reporting entities and the Financial Analysis Unit have been revised and updated. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr0766.pdf_