## _cr1455

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**Canonical URL:** [_cr1455](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1455.pdf)

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---

### Risk environment and sources of ML/TF
- Panama is vulnerable to money laundering (ML) from drug trafficking and other predicate crimes committed abroad such as fraud, financial and tax crimes.
- Characteristics increasing ML risk:
  - Open, dollarized economy.
  - Regional and international financial and corporate services center offering a wide range of offshore financial and corporate services.
  - Transit point for drug trafficking from South American countries with some of the highest levels of production and trafficking of illegal drugs in the world.
- Authorities have not conducted a risk assessment; they attribute the largest sources of ML to drug trafficking and other predicate crimes committed abroad.
- No information or estimates were provided on the extent of domestic and foreign predicate crimes and the amount of related ML in Panama.
- No terrorist financing (TF) cases detected so far.

### Legal framework and criminalization (Legal Systems and Related Institutional Measures)
- Panama has criminalized ML and TF, but the AML/CFT framework is not fully in line with the FATF Recommendations.
- Key legal observations and deficiencies:
  - Some CFT requirements are included in subsidiary instruments that appear to go beyond the AML Law and may be inconsistent with constitutional legal principles.
  - Inadequate statistics on ML investigations, prosecutions, and convictions impede assessment of effective implementation.
  - ML is criminalized as an autonomous offense relating to many FATF-designated categories, but counterfeiting of currency, smuggling, forgery, and piracy are not covered; illicit association and trafficking in stolen goods are only partially covered.
  - Criminal liability of legal persons is limited and does not cover situations where a legal person is used to launder assets but does not benefit from it; no parallel civil proceedings when such person is convicted of ML.
  - The Penal Code criminalizes TF but does not cover all required designated offenses; TF offense does not explicitly cover financing of a terrorist organization or an individual terrorist, the collection of funds, and the indirect provision of funds for TF.
  - The AML Law does not include CFT provisions and some CFT provisions exist only inconsistently in subsidiary instruments.
  - Sanctions for ML and TF are broadly in line with international practice, but lack of adequate statistics prevents assessment of effective implementation.
  - Provisions for freezing, seizure, and confiscation exist but:
    - No provision for confiscation of property of corresponding value or application of other measures.
    - No provisions for freezing and seizure on an ex-parte basis or without prior notice; no provisions for voiding contracts and arrangements.
    - Secrecy and confidentiality provisions for beneficial owners and controllers of legal persons and arrangements hamper tracing and locating illicit assets.
    - Volume of confiscated assets associated with ML seems small relative to risks faced by Panama.
  - Panama does not have effective laws and procedures to freeze without delay terrorist funds or other assets in accordance with relevant UN Security Council resolutions; terrorist funds can only be frozen in the context of a criminal trial.
- Legislative developments noted:
  - Law passed in July 2013 to provide for custody of bearer shares; will not come into force for two years (2015); three-year transition period for bearer shares issued prior to law ending during 2018.
  - Post mission: drafted amendments to the AML Law (Law 42 of 2000) to include requirements consistent with the new FATF standard.
  - Post mission: in September 2013, new anti-terrorism provisions added to the Criminal Code.

### Coverage gaps: financial activities and DNFBPs
- AML Law coverage limitations:
  - Covers most core financial sectors but does not fully apply to the insurance sector and does not extend to a number of other financial activities required under the FATF standard.
  - Applies to bureau de change but this high-risk sector is not subject to licensing or registration; in practice it is not regulated and supervised.
- DNFBPs coverage:
  - Only trustees are fully covered under the AML Law.
  - Casinos and real estate brokers (legal persons only) are only subject to currency transaction reporting (CTR) obligations.
  - Lawyers, accountants, notaries, corporate services providers (including resident agents who must be lawyers), and dealers in precious metals and stones are not covered.
  - Resident agents providing corporate services are covered under a specific law with limited customer identification requirements and are subject to strict secrecy provisions that limit or prohibit access to information by supervisors and the FIU.
- Authorities had no concrete plans at mission time to address these shortcomings.

### Financial intelligence unit (FIU) and information access
- FIU established to receive, analyze, and disseminate information related to suspicious transactions, but constrained by inadequate resources and access to information, including on legal persons and arrangements.
- Operational and effectiveness issues:
  - Most STRs filed by the banking sector; number of reports declining, partly due to onerous documentation requirements.
  - Operational independence could be enhanced through amended administrative reporting arrangements.
  - Analytical and case dissemination capacity could be improved; detection of potential ML cases through STR analysis is uncommon; support for law enforcement mainly reactive in drug-related financial investigations.
  - Dissemination reports to law enforcement lack sufficient supporting documentation.
  - FIU provides mainly public data in its database to foreign counterparts; does not provide a full range of cooperation and information exchange despite high demand.
  - FIU requests to foreign counterparts are relatively low compared with requests received.
- Access to information:
  - Competent authorities do not have timely access to information on legal persons and arrangements as required under the FATF standard, limiting cooperation.

### Law enforcement, investigations, and prosecutions
- LEAs responsible for ML and TF investigations and prosecutions, but:
  - Activities mainly concentrated on drug-related offenses.
  - Lack of adequate statistics prevents determination of effective implementation or whether ML has been investigated or prosecuted as a stand-alone offense.
  - Limited resources and training hamper effectiveness.
- Investigative legal framework shortcomings:
  - 60-day limitation for preliminary investigations.
  - 10-day window before having to disclose to a suspect the existence of undercover operations.
  - These limitations restrict capacity to conduct complex and lengthy financial investigations.
- Limitations on timely access to information held by financial institutions and on legal persons and arrangements impact effectiveness.

### Cross-border currency controls and declarations
- System established for declaration and monitoring of cross-border transportation of currency and bearer instruments, but measures are not comprehensive or effective:
  - Measures apply only to inbound cash movements, mostly at Tocumen International Airport.
  - No specific legal provisions for restraining and seizing currency that may be related to ML/TF.
  - Parallel administrative and criminal sanctions can be applied for noncompliance; absence of statistics prevents assessment of practical operation.
  - Some sanctions for breaches of the declaration requirement are relatively low.
  - No apparent arrangements for cooperation with foreign counterparts.

### Preventive measures for financial institutions
- AML Law gaps for financial activities (listed as not fully covered):
  - (i) insurance companies and intermediaries (insurance companies, reinsurance companies, and reinsurance brokers are only subject to CTR requirements);
  - (ii) savings and loan associations;
  - (iii) the national mortgage bank;
  - (iv) multi-service cooperatives;
  - (v) issuance and managing means of payment;
  - (vi) financial leasing;
  - (vii) factoring; and
  - (viii) safekeeping/custody of cash and other liquid assets (e.g., gold).
- Bureau de change covered under the AML Law and subject to supervision by the Ministry of Commerce and Industry (MICI) for AML purposes only, but are not licensed or registered and supervision is negligible.
- Legal instruments and enforceability:
  - Many requirements that should be in law or regulations are included in other enforceable means (OEMs); some OEM/regulatory provisions appear to go beyond the primary AML Law and could be challenged.
- Specific preventive measure deficiencies:
  - Identification and verification of beneficial owners and controllers, ongoing due diligence, enhanced due diligence for high-risk customers, cross-border banking relationships, reliance on third parties, and non face-to-face business relationships are not fully in line with FATF Recommendations.
  - Limited CDD requirements and guidance for trustees and foundation clients; identification and verification of beneficial owners or controllers of bearer share companies and the settlors and ultimate beneficiaries of trusts is weak.
  - Internal AML/CFT controls are stronger in banking but weaker in other sectors; shortcomings in CDD procedures, internal audit, and employee due diligence.
  - Recordkeeping: records must be retained for 10 years or more but limited requirements to maintain records of both domestic and international transactions, business correspondence, and to make such information available timely to competent authorities.
  - Wire transfers: ordering banks must obtain and maintain information on the originator, but no explicit requirement that ordering and intermediary banks transmit this information in the payment message; beneficiary banks are prohibited from processing wire transfers when the name of the originator and the originator bank are not included, but prohibition does not extend to transfers lacking other originator information as required by the standard; beneficiary banks are not required to apply a risk-based approach for transfers lacking complete originator information or to consider filing a STR, restrict or terminate business relationships.
  - Suspicious transaction reporting:
    - Reporting obligation applies only to a narrow range of financial institutions designated in the AML Law.
    - Reporting obligation does not extend to suspicion that a transaction may be related to TF.
    - 60-day reporting timeframe for institutions to report suspicious transactions after identification; this period may be too long for prompt reporting.
    - Effectiveness weakened by overemphasis on CTRs.
  - Financial institution secrecy laws do not overly inhibit FATF implementation, but confidentiality provisions and supervisory practices limit access to information on trusts held by FIs and others acting as trustees.

### Supervision and resources
- Supervisory framework:
  - Five supervisory authorities responsible for AML/CFT supervision and enforcement, but absence of CFT requirements in the AML Law limits scope and effectiveness.
  - Supervisors generally have powers to supervise and ensure compliance, but effectiveness varies significantly across sectors.
  - Banking sector supervision is more advanced; nonbank sectors have weak systems and capacity, especially for on-site inspections.
  - Scope and depth of supervisory methodologies and procedures, including for applying a risk-based approach, are absent or inadequate for the nonbank sector.
  - Most inspections focus on regulatory compliance and do not sufficiently account for off-site supervision and ML/TF risks.
  - Human, financial, and technical resources allocated to supervisory authorities for AML/CFT functions are generally inadequate.
  - Regular AML/CFT training for inspection staff should be strengthened.
  - Licensing procedures for nonbank financial institutions can be improved; lack ongoing and periodic review of fit and proper tests for owners and key officials.
  - Bureau de change should be licensed or registered and subject to effective supervision.

### Summary of primary shortcomings and implications
- Major shortcomings:
  - Gaps in legal coverage for ML and TF designated offenses and for legal person liability.
  - Incomplete coverage of financial activities and DNFBPs under the AML Law.
  - Weak access to information on legal persons and arrangements; secrecy provisions limit tracing of assets.
  - FIU and LEA resource and operational constraints; limited cooperation and information sharing.
  - Weak preventive measures across many financial sectors; limited supervision outside banking; inadequate training and resources for supervisors.
  - Regulatory and OEM provisions potentially exceeding the AML Law and creating constitutional uncertainty, which may deter compliance and enforcement.
- Implication: Shortcomings pose significant ML/TF risks to Panama and other jurisdictions and limit Panama’s capacity to cooperate nationally and internationally.

### Banking presence and shell banks; sanctions and supervisory implementation
- Banking presence and shell banks:
  - No explicit provisions in the Banking Law or elsewhere requiring banks to have meaningful mind and management located in Panama as a key requirement for physical presence.
  - Some measures to prevent establishment of shell banks exist but could be strengthened by specific mind and management requirements.
  - Recommendation: Require meaningful mind and management requirements as part of physical presence requirements for banks; explicitly require that FIs ensure respondent FIs do not permit their accounts to be used by shell banks.
- Sanctions and supervisory implementation:
  - A broad range of sanctions can be applied by supervisors for noncompliance with AML/CFT requirements (except MICI) but implementation not effective overall.
  - AML Law allows sanctions on financial institutions and their executives and employees.
  - Most sanctions applied are moderate monetary fines for CTR failures rather than broader AML obligations.
  - Fines imposed are relatively low and may not be sufficiently dissuasive or proportionate.
  - Recommendations:
    - Increase range of available sanctions under the AML Law to ensure they are effective, dissuasive, and proportionate.
    - Ensure sanctions also apply to directors and senior management of legal entities.
    - Supervisors should more rigorously implement available sanctioning powers.

### Preventive measures — DNFBPs, legal persons, and trusts
- DNFBPs:
  - Full AML obligations apply only to trustees; casinos (including internet casinos) and real estate brokers (legal persons) limited to CTR obligations.
  - Lawyers, notaries, accountants, company services providers/resident agents, real estate brokers (natural persons), and dealers in precious metals and stones are not covered.
  - Trustees file very low number of STRs and few sanctions applied; supervisors for casinos and real estate agents have limited resources.
  - Recommendations:
    - Extend AML/CFT framework to all DNFBPs as required by the FATF standard.
    - Include CTF obligations for DNFBPs and enhance existing AML requirements.
    - For trustee companies, explicitly extend CDD, recordkeeping, and other AML/CFT provisions to associated nontrust activities such as corporate services.
    - Ensure no restrictions on timely access to information held by trustees including by the FIU (UAF).
    - Internet casinos subject to full AML/CFT requirements of land-based casinos.
    - DNFBPs required to have appropriate internal control, compliance, and training programs.
    - Increase supervisory resources; expand scope of supervision of trustees; review and strengthen licensing or registration requirements for DNFBPs; issue guidelines to all DNFBPs.
- Legal persons, bearer shares, resident agents:
  - Public Registry exists but information on ownership and control not generally available, including for bearer share companies.
  - At mission time, Panamanian companies could issue bearer shares with no immobilization or custody requirements; post-mission law in July 2013 provides for custody with phased enforcement (see above).
  - Corporate information generally held by resident agents (must be an attorney); access restricted to narrow range of designated competent authorities.
  - FIU and AML/CFT supervisors do not have access to information held by resident agents.
  - Financial institutions providing services to bearer share companies do not sufficiently verify beneficial owners.
  - Recommendations:
    - Require recording of and efficient access to beneficial ownership and control information for legal persons, trusts, and other arrangements, including by the FIU (UAF).
    - Provide access to information on legal entities held by Resident Agents to all competent authorities.
    - Enhance prosecutions and confiscation for non-drug-related ML and powers to efficiently access information on legal persons and arrangements.
- Trusts and trustees:
  - Trusts are the main legal arrangement; trustees supervised by the Superintendency of Banks of Panama (SBP) but availability and access to information limited.
  - No provisions for efficient access to beneficial ownership and control of trusts (including protectors).
  - SBP supervision does not fully extend to reviewing CDD regarding ultimate beneficial ownership and control when beneficiaries or settlors are other legal persons or arrangements.
  - Recommendations:
    - Enhance CDD requirements for all parties to a trust including settlors and beneficiaries and for legal persons involved in a trust arrangement.
    - Ensure FIU and competent authorities have timely access to information held by trustees.

### Nonprofit organizations (NPOs)
- NPOs are registered in the Public Registry and subject to authorization and supervision by a specialized unit of the Ministry of Government; the specialized unit is not operational.
- No domestic reviews on activities, size, or features of the nonprofit sector for TF purposes; no assessment of vulnerabilities and TF risks.
- Recommendations:
  - Fully establish and operationalize the Supervision, Monitoring, and Evaluation Unit of the Ministry of Government.
  - Review and document vulnerabilities and TF risks related to the nonprofit sector.
  - Raise awareness about TF risks in the NPO sector.

### National and international cooperation
- National coordination bodies exist but effective implementation mechanisms are lacking.
- Need to establish operational-level contacts for cooperation between the Panama FIU and LEAs and a system of regular reviews of national AML/CFT effectiveness.
- Access and sharing of information limited by lack of comprehensive statistics on corporate entities and other legal arrangements.
- Legal framework for international cooperation exists, including MLATs, but shortcomings in predicate offenses limit effectiveness.
- Panama applies dual criminality strictly and does not provide legal assistance when the offense is considered to involve fiscal matters.
- FIU unduly limits types of information shared with foreign counterparts and cannot share information without MOUs; FIU makes fewer requests for cooperation than it receives.
- Recommendations:
  - Establish clearer channels for operational cooperation between national agencies.
  - Strengthen FIU (UAF) access to information held by legal persons and arrangements, lawyers, resident agents, accountants, and other DNFBPs.
  - Strengthen international cooperation and maintenance of statistics.
  - Where possible, provide legal assistance in the absence of dual criminality.
  - Do not refuse requests for legal assistance on the ground that the offense may involve fiscal matters.
  - Extend scope of supervisory MOUs to cover AML/CFT specifically; UAF should improve international cooperation.

### Observance ratings (selected) and prioritized assessor recommendations
- R.1: PC
  - Include as predicate offenses to ML counterfeiting of currency, smuggling, forgery, and piracy; expand scope of illicit association to cover non-drug-related crimes; widen criminal liability of legal persons when used for ML; establish clear parallel legal proceedings for legal persons convicted for ML.
  - Strengthen statistics for ML offenses from investigation stage to court decisions.
- SR.II: PC
  - Extend the terrorist financing offense to cover persons who willfully collect funds for terrorism, financing of a terrorist organization or individual terrorist, and indirect provision of funds; cover in the terrorism offense all offenses established in the TF Conventions and Protocols.
- SR.III: NC
  - Strengthen laws and procedures to freeze terrorist funds or other assets of persons designated by relevant UN Resolutions without delay and prior notice; implement effective system for communicating actions taken under freezing mechanisms to financial institutions and issue clear instructions.
- R.18: PC
  - Require meaningful mind and management requirements as part of physical presence requirements for banks.
- R.33: NC; R.34: NC; SR.VIII: NC
  - See recommendations above on recording and efficient access to beneficial ownership and control information, and NPO supervision.

### Panama’s response and subsequent developments (disagreement with assessment)
- Panama is not in agreement with the results and ratings concerning compliance with the FATF Forty Recommendations (2003) and Nine Special Recommendations on Terrorist Financing (2001).
- Institutions raising concerns: National Customs Authority; Ministry of Government; Attorney General of the Nation; Ministry of Foreign Relations; Superintendency of Banks; Financial Intelligence Unit.
- Panama states the Detailed Assessment Report (DAR) summarized measures in place at the time of the mission, which took place from October 15–29, 2012, and does not reflect subsequent improvements.
- Noted post-mission improvements:
  - Draft Amendment to Law No. 42 of 2000 implementing the new FATF standards.
  - Law No. 47 of August 6, 2013, adopting custody requirements for bearer shares.
  - New provisions in the Terrorism Law in the Criminal Code - Law No. 62 of September 18, 2013.
  - Amendments to the Law of the Superintendency of the Securities Market.
  - Amendments to the Law of the Superintendency of Insurance and Re-insurance.
  - Law No. 67, which created the Council of Financial Coordination.
- Panama requests that published summaries prominently reflect that the DAR does not reflect advances since October 2012.
- Notes that the IMF evaluation used the pre-February 2012 “40+9” FATF standards (40 Recommendations plus 9 Special Recommendations), while Panama is moving toward the revised standards.
- Panama’s forward policy focus:
  - Formulation of a National Risk Assessment.
  - Formulation of a Corresponding Strategy Against Money Laundering and Terrorism Financing.
  - Request that follow-up processes respect Panama’s priorities aligned with the revised FATF recommendations.
- Panama acknowledges challenges and reiterates commitment to ongoing reforms.

*Source: _cr1455*

### 1.      Panama is vulnerable to money laundering (ML) from a number of sources including

### _cr1455 - 1.      Panama is vulnerable to money laundering (ML) from a number of sources including

### Risk environment and sources of ML/TF
- Panama is vulnerable to money laundering (ML) from a number of sources including drug trafficking and other predicate crimes committed abroad such as fraud, financial and tax crimes.
- Characteristics increasing ML risk:
  - Open, dollarized economy.
  - Regional and international financial and corporate services center offering a wide range of offshore financial and corporate services.
  - Transit point for drug trafficking from South American countries with some of the highest levels of production and trafficking of illegal drugs in the world.
- Authorities have not conducted a risk assessment; they attribute the largest sources of ML to drug trafficking and other predicate crimes committed abroad.
- No information or estimates were provided on the extent of domestic and foreign predicate crimes and the amount of related ML in Panama.
- No terrorism financing (TF) cases have been detected so far.

### Legal framework and criminalization (Legal Systems and Related Institutional Measures)
- Panama has criminalized ML and TF, but the AML/CFT framework is not fully in line with the FATF Recommendations.
- Key legal observations and deficiencies:
  - Some CFT requirements are included in subsidiary instruments that appear to go beyond the AML Law and may be inconsistent with constitutional legal principles, creating uncertainty as to their validity if challenged.
  - Inadequate statistics on ML investigations, prosecutions, and convictions impede assessment of effective implementation.
  - ML is criminalized as an autonomous offense relating to many FATF-designated categories, but counterfeiting of currency, smuggling, forgery, and piracy are not covered; illicit association and trafficking in stolen goods are only partially covered.
  - Criminal liability of legal persons is limited and does not cover situations where a legal person is used to launder assets but does not benefit from it; no parallel civil proceedings when such person is convicted of ML.
  - The Penal Code criminalizes TF but does not cover all required designated offenses; TF offense does not explicitly cover financing of a terrorist organization or an individual terrorist, the collection of funds, and the indirect provision of funds for TF.
  - The AML Law does not include CFT provisions and some CFT provisions exist only inconsistently in subsidiary instruments, raising constitutional uncertainty.
  - Sanctions for ML and TF are broadly in line with international practice, but lack of adequate statistics prevents assessment of effective implementation.
  - Panama has provisions for freezing, seizure, and confiscation of instruments and proceeds of crime including ML and TF, but:
    - No provision for confiscation of property of corresponding value or application of other measures.
    - No provisions for freezing and seizure on an ex-parte basis or without prior notice, and no provisions for voiding contracts and arrangements.
    - Secrecy and confidentiality provisions for beneficial owners and controllers of legal persons and arrangements hamper tracing and locating illicit assets.
    - Volume of confiscated assets associated with ML seems small relative to risks faced by Panama.
  - Panama does not have effective laws and procedures to freeze without delay terrorist funds or other assets in accordance with the relevant UN Security Council resolutions; terrorist funds can only be frozen in the context of a criminal trial.

- Legislative developments noted in the source:
  - A law was passed in July 2013 to provide for the custody of bearer shares and facilitate access to information on the owners of such shares; the law will not come into force for two years (2015), and for bearer shares issued prior to the law coming into effect, a three-year transition period for compliance is provided ending during 2018.
  - Post mission, authorities informed that they have drafted amendments to the AML Law (Law 42 of 2000) that would include requirements consistent with the new FATF standard.
  - Post mission, authorities informed that in September 2013, new anti-terrorism provisions were added to the Criminal Code.

### Coverage gaps: financial activities and DNFBPs
- AML Law coverage limitations:
  - Covers most core financial sectors but does not fully apply to the insurance sector and does not extend to a number of other financial activities as required under the FATF standard.
  - Applies to bureau de change but this high-risk sector is not subject to licensing or registration nor, in practice, is it regulated and supervised.
- Designated non-financial businesses and professions (DNFBPs):
  - Only trustees are fully covered under the AML Law.
  - Casinos and real estate brokers (legal persons only) are only subject to currency transaction reporting (CTR) obligations.
  - Lawyers, accountants, notaries, corporate services providers (including resident agents who must be lawyers), and dealers in precious metals and stones are not covered.
  - Resident agents providing corporate services are covered under a specific law that provides a limited range of customer identification requirements and are subject to strict secrecy provisions that severely limit or prohibit access to information by supervisors and the financial intelligence unit (FIU).
- The substantial gaps in coverage of financial activities and DNFBPs pose significant ML/TF risks to Panama and other jurisdictions. At the time of the mission, authorities had no concrete plans to address these shortcomings.

### Financial intelligence unit (FIU) and information access
- FIU establishment and constraints:
  - FIU established as the center for receiving, analyzing, and disseminating information related to suspicious transactions, but its effectiveness is constrained by inadequate resources and access to information, including on legal persons and arrangements.
  - Most suspicious transaction reports (STRs) are filed by the banking sector and the number of reports has been declining, partly attributed to onerous documentation requirements.
  - FIU’s operational independence could be enhanced through amended administrative reporting arrangements.
  - FIU’s analytical and case dissemination capacity could be improved; detection of potential ML cases through STR analysis is uncommon and support for law enforcement mainly involves reactive assistance in drug-related financial investigations.
  - FIU dissemination reports to law enforcement lack sufficient supporting documentation; FIU provides mainly public data and information contained in its database to foreign counterparts and does not provide a full range of cooperation and information exchange despite high demand.
  - FIU’s requests to foreign counterparts are relatively low compared with requests received from abroad.
- Access to information:
  - Competent authorities, including law enforcement and the FIU, do not have timely access to information on legal persons and arrangements as required under the FATF standard, limiting national and international cooperation.

### Law enforcement, investigations, and prosecutions
- Law enforcement authorities (LEAs) are established and responsible for ML and TF investigations and prosecutions, but:
  - Activities are mainly concentrated on drug-related offenses.
  - Lack of adequate statistics prevents determination of whether law enforcement measures are effectively implemented or whether ML has been investigated or prosecuted as a stand-alone offense.
  - Limited resources and training hamper LEA effectiveness.
  - Shortcomings in investigative legal framework:
    - 60-day limitation for preliminary investigations.
    - 10-day window before having to disclose to a suspect the existence of undercover operations.
    - These limitations restrict the capacity to conduct complex and lengthy financial investigations.
  - Limitations on timely and efficient access to information held by financial institutions and information on legal persons and arrangements impact effectiveness.

### Cross-border currency controls and declarations
- System for declaration and monitoring of cross-border transportation of currency and bearer instruments established, but measures are not comprehensive or effective:
  - Measures apply only to inbound cash movements, and mostly at the Tocumen International Airport.
  - No specific legal provisions for restraining and seizing currency that may be related to ML/TF.
  - Parallel administrative and criminal sanctions can be applied for noncompliance but absence of statistics prevents assessment of practical operation.
  - Some sanctions for breaches of the declaration requirement are relatively low.
  - No apparent arrangements to allow for cooperation with foreign counterparts.

### Preventive measures for financial institutions
- AML Law coverage and gaps (Preventive Measures – Financial Institutions):
  - AML Law does not cover CFT and many financial activities subject to the FATF standard are not included or only partially covered, including:
    - (i) insurance companies and intermediaries (insurance companies, reinsurance companies, and reinsurance brokers are only subject to CTR requirements);
    - (ii) savings and loan associations;
    - (iii) the national mortgage bank;
    - (iv) multi-service cooperatives;
    - (v) issuance and managing means of payment;
    - (vi) financial leasing;
    - (vii) factoring; and
    - (viii) safekeeping/custody of cash and other liquid assets (e.g., gold).
  - Bureau de change are covered under the AML Law and subject to supervision by the Ministry of Commerce and Industry (MICI) for AML purposes only, but are not licensed or registered and supervision is negligible.
- Legal instruments and enforceability:
  - AML Law has broad provisions supported by regulations, but many requirements that should be in law or regulations are included in other enforceable means (OEMs); some OEM/regulatory provisions appear to go beyond the primary AML Law, contrary to constitutional provisions, and could be challenged.
  - Potential challenges to validity may have a dissuasive effect on compliance by financial institutions and enforcement by supervisors.
- Specific preventive measure deficiencies:
  - Identification and verification of beneficial owners and controllers, ongoing due diligence, enhanced due diligence for high-risk customers, cross-border banking relationships, reliance on third parties, and non face-to-face business relationships are not fully in line with FATF Recommendations.
  - Limited CDD requirements and guidance for trustees and foundation clients; identification and verification of beneficial owners or controllers of bearer share companies and the settlors and ultimate beneficiaries of trusts is weak.
  - Internal AML/CFT controls stronger in banking sector but weaker in others; shortcomings in CDD procedures, internal audit, and employee due diligence requirements.
  - Recordkeeping: records must be retained for 10 years or more but there are limited requirements to maintain records of both domestic and international transactions, business correspondence, and to make such information available in a timely manner to competent authorities.
  - Wire transfers: ordering banks must obtain and maintain information on the originator of wire transfers, but no explicit requirement that ordering and intermediary banks transmit this information in the payment message; beneficiary banks are prohibited from processing wire transfers when the name of the originator and the originator bank are not included in the payment message, but prohibition does not extend to transfers lacking other originator information as required by the standard; beneficiary banks are not required to apply a risk-based approach for transfers lacking complete originator information or to consider filing a STR, restrict or terminate business relationships.
  - Suspicious transaction reporting:
    - Financial institutions are required to report transactions they suspect involve ML but requirements apply only to a narrow range of financial institutions designated in the AML Law.
    - Reporting obligation does not extend to suspicion that a transaction may be related to terrorist financing as required under the standard.
    - There is a 60-day reporting timeframe for institutions to report suspicious transactions after identification; this period may be too long for the requirement to report promptly.
    - Effectiveness of STR regime weakened by overemphasis on currency transaction reporting (CTRs).
  - Financial institution secrecy laws do not overly inhibit FATF implementation, but confidentiality provisions and supervisory practices limit access to information on trusts held by FIs and others acting as trustees, restricting interagency and international cooperation and information exchange.

### Supervision and resources
- Supervisory framework and capacity:
  - Five supervisory authorities responsible for AML/CFT supervision and enforcement, but absence of CFT requirements in the AML Law limits scope and effectiveness of supervision.
  - Supervisors generally have powers to supervise and ensure compliance, but effectiveness varies significantly across sectors.
  - Banking sector supervision is more advanced; nonbank sectors have weak systems and capacity, especially regarding on-site inspections.
  - Scope and depth of supervisory methodologies and procedures, including for applying a risk-based approach, are absent or inadequate for the nonbank sector.
  - Most inspections mainly focus on regulatory compliance and do not sufficiently account for off-site supervision activities and ML/TF risks.
  - Human, financial, and technical resources allocated to supervisory authorities for AML/CFT functions are generally inadequate.
  - Regular AML/CFT training for inspection staff should be strengthened particularly for identifying high-risk activities and applying related supervisory tools.
  - Licensing procedures for nonbank financial institutions can be improved and lack ongoing and periodic review of fit and proper tests for owners and key officials.
  - Bureau de change should be licensed or registered and subject to effective supervision.

### Summary of primary shortcomings and implications
- Major shortcomings identified include:
  - Gaps in legal coverage for ML and TF designated offenses and for legal person liability.
  - Incomplete coverage of financial activities and DNFBPs under the AML Law.
  - Weak access to information on legal persons and arrangements, secrecy provisions limiting tracing of assets.
  - FIU and LEA resource and operational constraints, limited cooperation and information sharing.
  - Weak preventive measures across many financial sectors, limited supervision outside banking, and inadequate training and resources for supervisors.
  - Regulatory and OEM provisions potentially exceeding the AML Law and creating constitutional uncertainty, which may deter compliance and enforcement.
- These shortcomings pose significant ML/TF risks to Panama and other jurisdictions and limit Panama’s capacity to cooperate nationally and internationally.

*Source: _cr1455 - 1.      Panama is vulnerable to money laundering (ML) from a number of sources including*

### 29.      There are no explicit provisions in the Banking Law or elsewhere for banks to have

### _cr1455 - 29.      There are no explicit provisions in the Banking Law or elsewhere for banks to have

### Banking presence and shell banks
- Finding: "There are no explicit provisions in the Banking Law or elsewhere for banks to have meaningful mind and management located in Panama as a key requirement for physical presence."
- Finding: "There are some requirements and measures in place to prevent the establishment of shell banks in Panama, but these could be strengthened by specific mind and management requirements for physical presence."
- Key recommendation:
  - "Require meaningful mind and management requirements as part of the physical presence requirements for banks."
  - "Explicitly require that FIs ensure that respondent financial institutions do not permit their accounts to be used by shell banks."

### Sanctions and supervisory implementation
- Finding: "A broad range of sanctions can be applied by supervisors for noncompliance with AML/CFT requirements (with the exception of MICI) but implementation cannot be regarded as effective overall."
- Finding: "The AML Law allows for sanctions to be imposed on financial institutions as well as their executives and other employees."
- Finding: "Most of the sanctions applied are moderate monetary fines for failure to comply with the CTR obligations and not with the broader range of AML obligations."
- Finding: "The fines that have been imposed are relatively low and may not be sufficiently dissuasive or proportionate to be deemed effective."
- Key recommendations:
  - "Increase the range of available sanctions under the AML Law to ensure that they are effective, dissuasive, and proportionate."
  - "Ensure that sanctions under the AML Law also apply to directors and senior management of legal entities."
  - "Supervisors should more rigorously implement the available sanctioning powers."

### Preventive measures — Designated Non-Financial Businesses and Professions (DNFBPs)
- Finding: "The AML Law imposes the full range of obligations that are applicable to financial institutions only on trustees, whereas casinos (including internet casinos) and real estate brokers (legal persons only) are only subject to CTR obligations."
- Finding: "The remaining DNFBPs (i.e., lawyers, notaries, accountants, company services providers/resident agents, real estate brokers (natural persons), and dealers in precious metals and stones) are not covered by the AML Law."
- Finding: "This is a significant systemic gap given the important role they play in Panama’s financial and economic system, and the risks they pose."
- Finding: "Trustees place far more effort in complying with their CTR obligations than on compliance with the rest of the AML requirements. Notably, trustees have filed a very low number of STRs and few sanctions have been applied."
- Finding: "Other than the Superintendency of Banks of Panama (SBP) which supervises trustees, the supervisors for casinos and real estate agents have relatively limited supervisory resources."
- Key recommendations:
  - "Extend the scope of the AML/CFT framework to all designated non-financial businesses and professions (DNFBPs) required by the FATF standard."
  - "Include CTF obligations for DNFBPs and enhance the existing AML requirements."
  - "For trustee companies, explicitly extend CDD, recordkeeping, and other AML/CFT provisions to associated nontrust activities such as corporate services."
  - "Ensure that there are no restrictions on timely access to information held by trustees including by the FIU (UAF)."
  - "Internet casinos should be subject to the full range of AML/CFT requirements of land based casinos."
  - "DNFBPs should be required to have appropriate internal control, compliance, and training programs."
  - "Increase supervisory resources; expand scope of supervision of trustees; review and strengthen licensing or registration requirements for DNFBPs, including for internet casinos; issue guidelines to all DNFBPs to facilitate compliance."

### Legal persons, arrangements, bearer shares, and resident agents
- Finding: "Panama registers legal persons and arrangements in its Public Registry but information on the ownership and control of such entities is not generally available, including with respect to bearer share companies."
- Finding: "Panamanian companies can issue bearer shares and at the time of the mission, there were no requirements for their immobilization or custody."
- Footnote: "Post mission, a law was passed in July 2013 providing for their custody. The law comes into force in two years (2015) and for shares issued prior to the law coming into effect, there is a three-year transition period ending in 2018 for compliance."
- Finding: "Corporate information is generally held by resident agents (each corporate entity and arrangement requires the appointment of a resident agent in Panama who must be an attorney), but access to such information is restricted and available only to a narrow range of designated competent authorities."
- Finding: "The FIU and AML/CFT supervisors do not have access to information held by resident agents."
- Finding: "These limitations adversely affect the ability of the FIU and LEAs to effectively and efficiently obtain information, and trace and locate assets held by legal entities. The weaknesses are compounded when documentation is held overseas."
- Finding: "Because resident agents, accountants and attorneys (as corporate services providers) are not subject to the AML Law, there are no established efficient procedures for the FIU and other competent authorities to access information on the ownership and control of legal entities."
- Finding: "Financial institutions providing services to these entities, especially bearer share companies, do not sufficiently verify the identity of beneficial owners which further limits availability and access to such information to competent authorities."
- Key recommendations:
  - "Require the recording of and the efficient access to information on beneficial ownership and control of legal person, including by the FIU (UAF)."
  - "Require the recording of and the efficient access to information on beneficial ownership and control of trusts and other legal arrangements, including by the FIU (UAF)."
  - "Provide access to information on legal entities held by Resident Agents to all competent authorities including the FIU (UAF)."
  - "Enhance prosecutions and confiscation for non-drug-related ML and the powers of competent authorities to efficiently access information on legal persons and arrangements."

### Trusts and trustees
- Finding: "Trusts are the main form of legal arrangement present in Panama (trustees are supervised by the Superintendency of Banks of Panama (SBP)), but the availability and access to information by competent authorities is limited."
- Finding: "There are no provisions in place to provide efficient access to information on the beneficial ownership and control of trusts (including protectors)."
- Finding: "The SBP conducts AML/CFT supervision of trustees on a regular basis, the scope of supervision does not fully extend to reviewing compliance with customer due diligence requirements regarding ultimate beneficial ownership and control, especially when beneficiaries and/or settlors of trusts are other legal persons or arrangements."
- Key recommendations:
  - "Enhance CDD requirements for all parties to a trust including settlors and beneficiaries and for legal persons involved in a trust arrangement."
  - "Ensure that FIU and competent authorities have timely access to information held by trustees."

### Nonprofit organizations (NPOs)
- Finding: "Nonprofit organizations (NPOs) are registered in the Pubic Registry and are subject to authorization and supervision by a specialized unit of the Ministry of Government. However, this specialized unit is not operational."
- Finding: "There have been no domestic reviews on the activities, size, and other features of the nonprofit sector for TF purposes, and no assessment of their vulnerabilities and TF risks has been conducted."
- Key recommendations:
  - "Fully establish and operationalize the Supervision, Monitoring, and Evaluation Unit of the Ministry of Government."
  - "Review and document the vulnerabilities and TF risks related to the nonprofit sector."
  - "Raise awareness about the risks of TF in the NPO sector."

### National and international cooperation
- Finding: "Panama has national coordination bodies for AML/CFT but effective mechanisms for implementation are lacking."
- Finding: "There is a need to establish operational level contacts for cooperation between the Panama FIU and LEAs, and a system of regular reviews of the effectiveness of national AML/CFT measures."
- Finding: "Access and sharing of information would be required but would be limited by the lack of availability of and access to comprehensive statistics on e.g., corporate entities and other legal arrangements."
- Finding: "There is a legal framework for international cooperation, including mutual legal assistance treaties (MLATs) on criminal matters. However, shortcomings in the range of predicate offenses to ML and TF offense limit the effectiveness of the system."
- Finding: "Panama applies the principle of dual criminality in a very strict manner and it does not provide legal assistance when the offense is also considered to involve fiscal matters."
- Finding: "The limited range of entities that are subject to the AML Law, and the absence of CFT obligations for financial institutions and DNFBPs limit the ability of competent authorities to effectively cooperate with foreign counterparts."
- Finding: "In practice, the FIU unduly limits the types of information it shares with foreign counterparts and it cannot share information in the absence of memoranda of understanding (MOUs). The FIU makes comparatively fewer requests for cooperation than it receives."
- Key recommendations:
  - "Establish clearer channels of communication and operational cooperation between national agencies responsible for AML/CFT."
  - "Strengthen FIU (UAF) access to the information held by legal persons and arrangements, lawyers, company resident agents, accountants, and other DNFBPs."
  - "Strengthen international cooperation and the maintenance of statistics."
  - "Where possible, provide legal assistance in the absence of dual criminality."
  - "Do not refuse requests for legal assistance on the ground that the offense may involve fiscal matters."
  - "Extend the scope of supervisory MOUs to cover AML/CFT specifically; the UAF should improve the extent to which it cooperates internationally."

### Observance ratings (selected) and prioritized assessor recommendations
- R.1: PC
  - "Include as predicate offenses to ML counterfeiting of currency, smuggling, forgery, and piracy; expand the scope of the crime of illicit association to cover non-drug-related crimes; widen criminal liability of legal persons when they are used for ML; and establish clear parallel legal proceedings for legal persons convicted for money laundering."
  - "Strengthen statistics for ML offenses from investigation stage to court decisions."
- SR.II: PC
  - "Extend the terrorist financing offense to cover persons who willfully collect funds for terrorism, the financing of a terrorist organization or individual terrorist, and the indirect provision of funds for terrorism purposes."
  - "Cover in the terrorism offense all the offenses established in the TF Conventions and Protocols."
- SR.III: NC
  - "Strengthen laws and procedures to freeze terrorist funds or other assets of persons designated by the relevant UN Resolutions without delay and prior notice."
  - "Implement an effective system for communicating actions taken under the freezing mechanisms to financial institutions and issue clear instructions to such institutions."
- R.18: PC
  - "Require meaningful mind and management requirements as part of the physical presence requirements for banks."
- R.33: NC; R.34: NC; SR.VIII: NC
  - See recommendations above on recording and efficient access to beneficial ownership and control information, and NPO supervision.

*Source: _cr1455 - 29.*

### 1.      Panama is not in agreement with the results and ratings concerning compliance with

### _cr1455 - 1.      Panama is not in agreement with the results and ratings concerning compliance with

### Disagreement with FATF/Detailed Assessment results
- Panama is not in agreement with the results and ratings concerning compliance with the Forty Recommendations (2003) and the Nine Special Recommendations on Terrorist Financing (2001) of the Financial Action Task Force (“FATF”).
- Following a review of these reports, institutions reporting concerns included:
  - the National Customs Authority,
  - the Ministry of Government,
  - the Attorney General of the Nation,
  - the Ministry of Foreign Relations,
  - the Superintendency of Banks, and
  - the Financial Intelligence Unit.
- These institutions reported that many of their responses and submissions were not taken into account, resulting in unfavorable conclusions in the evaluation.

### Temporal context and subsequent legal and institutional improvements (post-mission)
- Panama emphasizes that the reports do not reflect the current state of the Panamanian AML/CFT system due to several improvements made since the assessment mission (October 15–29, 2012).
- The preface to the DAR states the report provides a summary of AML/CFT measures in place in Panama at the time of the mission, which took place from October 15–29, 2012.
- Noted improvements since that mission include:
  - The draft Amendment to Law No. 42 of 2000, implementing the new FATF standards;
  - Law No. 47 of August 6, 2013, which adopts custody requirements for bearer shares;
  - New provisions in the Terrorism Law in the Criminal Code - Law No. 62 of September 18, 2013;
  - Amendments to the Law of the Superintendency of the Securities Market;
  - Amendments to the Law of the Superintendency of Insurance and Re-insurance;
  - Law No. 67, which created the Council of Financial Coordination.
- Panama requests that the published version and any published summary of the Detailed Assessment prominently reflect that the Detailed Assessment does not reflect the considerable advances in Panama's AML/CFT regime since October 2012.

### Use of older FATF standards and policy focus going forward
- The IMF evaluation was undertaken at the initiative and request of the Government of the Republic of Panama but was based on the 40 plus 9 recommendations no longer in effect from February 2012, when 40 new recommendations were approved by FATF.
- Panama acknowledges the foundation provided by technical compliance with the old 40+9 recommendations but highlights challenges created by use of the older standards while Panama is moving toward the revised standards.
- Panama is focused on further improving its AML/CFT system in accordance with the newly revised FATF recommendations.
- Initial steps taken include formulation of:
  - a National Risk Assessment and
  - a Corresponding Strategy Against Money Laundering and Terrorism Financing.
- Panama requests that follow-up processes associated with finalization of the DAR and the ROSC (including the recommended actions contained therein) respect Panama’s focus on actions that will most effectively strengthen its AML/CFT system moving forward and not subordinate those priorities to parallel concerns associated with fully meeting the technical requirements of the old FATF 40+9 recommendations.

### Commitment and acknowledgment of challenges
- Panama acknowledges that, like many other nations, it confronts significant challenges in meeting standards to address money laundering and terrorist financing.
- Panama reiterates and highlights its strong commitment to meet these challenges through ongoing actions, including those noted above.

*Source: _cr1455 - 1.      Panama is not in agreement with the results and ratings concerning compliance with*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1455.pdf_